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,
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Parsippany,
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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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(Registrant’s telephone number, including area code)
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Title of each class
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Trading Symbol(s)
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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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ZTS
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New York Stock Exchange
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Large accelerated filer
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☒
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Accelerated filer
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☐
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Non-accelerated filer
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☐
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Smaller reporting company
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☐
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Emerging growth company
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☐
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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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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 (U.S.) with revenue of $3,203 million, or 51% of total revenue for the year ended December 31, 2019; and
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International with revenue of $2,972 million, or 48% of total revenue for the year ended December 31, 2019.
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vaccines: biological preparations that help prevent diseases of the respiratory, gastrointestinal and reproductive tracts or induce a specific immune response;
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anti-infectives: products that prevent, kill or slow the growth of bacteria, fungi or protozoa;
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parasiticides: products that prevent or eliminate external and internal parasites such as fleas, ticks and worms;
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other pharmaceutical products: pain and sedation, antiemetic, reproductive, and oncology products;
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dermatology products: products that relieve itch associated with allergic conditions and atopic dermatitis;
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medicated feed additives: products added to animal feed that provide medicines to livestock; and
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animal health diagnostics: portable blood and urine analysis systems and point-of-care diagnostic products, including instruments and reagents, rapid immunoassay tests, reference laboratory kits and blood glucose monitors.
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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 key markets including the U.S., Europe, Japan, Brazil, Australia and China;
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Core EQ Innovator™, the first and only vaccine for horses to contain all five core equine disease antigens - West Nile, Eastern and Western Equine encephalomyelitis, tetanus and rabies - in one combination, was approved in the U.S. in 2018 and in Canada in 2019;
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Cytopoint®, the first canine monoclonal antibody to help reduce the clinical signs of atopic dermatitis (such as itching) in dogs of any age, was licensed in the U.S. in 2016 (and was later granted an expanded indication to treat allergic dermatitis in 2018). Since 2016, the product has been approved in major markets including Canada, the European Union, New Zealand, Australia, Brazil and Mexico. An injection given once every four to eight weeks, Cytopoint neutralizes interleukin - 31, a protein that has been demonstrated to trigger itching in dogs;
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Fostera® PCV MH was introduced in November 2013 in the U.S. 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 U.S. 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. Fostera Gold PCV MH was approved in the U.S. and
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Poulvac® Procerta™ HVT-ND, the company’s first vector vaccine that helps protect against Marek’s disease and Newcastle disease, highly contagious viral infections affecting poultry, was approved in the U.S. in 2019;
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ProHeart® 12 (moxidectin), a once-yearly injection to prevent heartworm disease in dogs 12 months of age and older, was approved in the U.S. in 2019;
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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 U.S., 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. In 2018, this product was approved in the U.S., Japan and Canada (Revolution® Plus);
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Simparica® Trio, a triple combination parasiticide for dogs, was approved in the European Union and Canada in 2019. This product is a key internal lifecycle innovation that combines flea and tick treatment (sarolaner) with the prevention of heartworm disease and treatment of gastrointestinal parasites; and
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Vanguard®/Versican® is a market leading vaccine line for dogs intended to help prevent a range of diseases. Since 2016, Zoetis has added new and innovative enhancements to its Vanguard line in the U.S. with Vanguard crLyme, Vanguard Rapid Resp Intranasal, Vanguard B Oral, and Vanguard CIV H3N2/H3N8. In 2019, the company received approval for Versican® Plus Bb Oral, the first oral vaccine for dogs in Europe. It provides long-lasting protection against Bordetella bronchiseptica, a primary component of the canine infectious respiratory disease complex (CIRDC).
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Product line / product
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Description
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Primary species
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Vaccines
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Improvac / Improvest / Vivax
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Reduces boar taint, as an alternative to surgical castration and suppression of estrus in gilts
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Swine
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Rispoval® / Bovishield®
line
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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
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Cattle
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Suvaxyn® / Fostera®
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Aids in preventing or controlling diseases associated with major pig pathogens such as porcine circovirus type 2 (PCV2), porcine reproductive and respiratory syndrome virus (PRRSv) and Mycoplasma hyopneumoniae (M. hyo), depending on formulations
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Swine
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Anti-infectives
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Ceftiofur injectable line
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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
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Cattle, sheep, swine
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Draxxin®
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Single-dose low-volume antibiotic for the treatment and prevention of bovine and swine respiratory disease, infectious bovine keratoconjunctivitis and bovine foot rot
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Cattle, sheep, swine
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Spectramast®
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Treatment of subclinical or clinical mastitis in dry or lactating dairy cattle, delivered via intramammary infusion; same active ingredient as the ceftiofur line
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Cattle
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Terramycin® line
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Antibiotic for the treatment of susceptible infections
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Cattle, poultry, sheep, swine
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Parasiticides
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Dectomax®
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Injectable or pour-on endectocide, characterized by extended duration of activity, for the treatment and control of internal and external parasite infections
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Cattle, swine
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Medicated Feed Additives
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Aureomycin®
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Provides livestock producers control, treatment and convenience against a wide range of respiratory, enteric and reproductive diseases
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Cattle, poultry, sheep, swine
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BMD®
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Aids in preventing and controlling enteritis; and increases rate of weight gain and improves feed efficiency in poultry and swine
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Poultry, swine
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Lasalocid line
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Controls coccidiosis in poultry (Avatec®) and cattle (Bovatec®) and for increased rate of weight gain and improved feed efficiency in cattle
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Poultry, cattle
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Lincomycin line
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Controls necrotic enteritis; treatment of dysentery (bloody scours), control of ileitis and treatment/reduction in severity of mycoplasmal pneumonia
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Swine, poultry
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Zoamix®
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A non-ionophore anticoccidial for the prevention and control of coccidiosis in poultry
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Poultry
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Other Non-Pharmaceutical Products
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Embrex® devices
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Devices for enhancing hatchery operations' efficiency through in ovo detection and vaccination
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Poultry
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Product line / product
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Description
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Primary species
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Vaccines
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Vanguard® L4 (4-way Lepto)
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Compatible with the Vanguard line and helps protect against leptospirosis caused by Leptospira canicola, L. grippotyphosa, L. icterohaemorrhagiae and L. pomona
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Dogs
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Vanguard® line
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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
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Dogs
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Anti-infectives
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Clavamox® / Synulox®
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A broad-spectrum antibiotic and the first and only potentiated penicillin approved for use in dogs and cats
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Cats, dogs
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Convenia®
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Anti-infective for the treatment of common bacterial skin infections that provides a course of treatment in a single injection
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Cats, dogs
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Parasiticides
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ProHeart®
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Prevents heartworm infestation; also for treatment of existing larval and adult hookworm infections
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Dogs
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Revolution® / Stronghold® line
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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
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Cats, dogs
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Simparica®
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A monthly chewable tablet for dogs to control fleas and ticks
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Dogs
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Other Pharmaceutical Products
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Cerenia®
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A medication that prevents and treats acute vomiting in dogs, treats acute vomiting in cats and prevents vomiting due to motion sickness in dogs
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Cats, dogs
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Rimadyl®
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For the relief of pain and inflammation associated with osteoarthritis and for the control of postoperative pain associated with soft tissue and orthopedic surgeries
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Dogs
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Dermatology
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Apoquel®
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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
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Dogs
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Cytopoint®
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An injectable to help reduce the clinical signs such as itching of atopic dermatitis in dogs of any age
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Dogs
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Animal Health Diagnostics
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VetScan®
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A portfolio of benchtop and handheld diagnostic instruments, rapid tests and associated consumables
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Cats, dogs
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Site
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Location
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Site
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Location
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Buellton(a)
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California, U.S.
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Medolla
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Italy
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Campinas
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Brazil
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Melbourne
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Australia
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Catania
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Italy
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Olot
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Spain
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Charles City
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Iowa, U.S.
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Overhalla
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Norway
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Chicago Heights
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Illinois, U.S.
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Salisbury
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Maryland, U.S.
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Durham
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North Carolina, U.S.
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San Diego
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California, U.S.
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Eagle Grove
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Iowa, U.S.
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Suzhou
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China
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Farum
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Denmark
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Tallaght
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Ireland
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Jilin
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China
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Union City
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California, U.S.
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Kalamazoo
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Michigan, U.S.
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Weibern
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Austria
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Klofta
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Norway
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Wellington
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New Zealand
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Lincoln
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Nebraska, U.S.
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White Hall
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Illinois, U.S.
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London
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Ontario, Canada
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Willow Island
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West Virginia, U.S.
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Louvain-la-Neuve
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Belgium
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(a)
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In August 2019, Zoetis completed the acquisition of Platinum Performance, a leading nutrition-focused animal health business.
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Draxxin, containing the active ingredient tulathromycin, is covered by formulation patents in the U.S., Europe, Canada, Australia and other key markets, with terms that expire between November 2020 and February 2021 in the U.S., Europe, Canada and Australia. The active ingredient tulathromycin is protected in Japan until 2023. Generic tulathromycin products are marketed in certain countries including Colombia, Vietnam, Belarus, Russia, Poland and Croatia. Marketing authorizations for generic tulathromycin products have been granted in Europe and Australia. There are pending marketing authorizations for generic tulathromycin products in Australia and additional authorizations may be granted in various markets in the future. At this time, market entry of generic tulathromycin products in the U.S. is not anticipated before February 2021.
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Several patents covering the ceftiofur antibiotic product line (Excede) began expiring in the U.S. in 2015. However, various formulation and use patents relevant to the product line extend through to 2024. A generic version of Excede has entered the market in Mexico. At this time, the market entry of a generic version of Excede in the U.S. is not anticipated before 2024.
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The compound patent for selamectin, the active ingredient in our parasiticides Revolution and Stronghold, expired in 2014. Formulation patents covering these products expired in important markets in 2019. Generic versions of selamectin are now marketed in markets including Europe Australia and Canada. A generic version of selamectin received marketing approval in the U.S. in November 2019.
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The patent for the active ingredient of Convenia has expired; however, there are formulation patents relevant to the product line which expire between November 2022 and October 2023.
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The patent for the active ingredient of Cerenia has expired; however, there are formulation patents relevant to the product line which expire between May 2020 and January 2027. A generic version of Cerenia has been registered in Europe and is marketed in the European Union, and there is a pending registration in Canada. At this time, there is no indication of market entry of a generic version of Cerenia in the U.S.
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There are pending registrations for generic versions of ProHeart 12 in Australia. The formulation patent covering ProHeart 12 expired in the U.S. in 2019, but expires in Australia, Canada and Japan in October 2021.
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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.
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Provide a basis for wider international harmonization of registration requirements through the VICH Outreach Forum.
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Monitor and maintain existing VICH guidelines, taking particular note of the ICH work program and, where necessary, update these VICH guidelines.
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Ensure efficient processes for maintaining and monitoring consistent interpretation of data requirements following the implementation of VICH guidelines.
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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.
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environmental-related capital expenditures - approximately $3.1 million; and
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other environmental-related expenditures - approximately $18.8 million.
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the failure of us or any of our vendors or suppliers, including logistical service providers, to comply with applicable regulations and quality assurance guidelines, including any changes to Good Manufacturing Practices (GMP);
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mislabeling;
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construction delays;
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equipment malfunctions;
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shortages of materials;
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labor problems;
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delays in receiving any required governmental authorizations, including as a result of any prolonged shutdown of the U.S. government;
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natural disasters;
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power outages;
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criminal and terrorist activities;
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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
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the outbreak of any highly contagious diseases near our production sites.
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volatility in the international financial markets;
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compliance with governmental controls;
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difficulties enforcing contractual and intellectual property rights;
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theft or compromise of technology, data and intellectual property;
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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);
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compliance with a wide variety of laws and regulations, such as the FCPA and similar non-U.S. laws and regulations;
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compliance with foreign labor laws;
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burdens to comply with multiple and potentially conflicting foreign laws and regulations, including those relating to environmental, health and safety requirements;
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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;
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political and social instability, including crime, civil disturbance, terrorist activities and armed conflicts;
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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);
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government limitations on foreign ownership;
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government takeover or nationalization of business;
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changes in tax laws and tariffs;
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imposition of anti-dumping and countervailing duties or other trade-related sanctions;
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costs and difficulties and compliance risks in staffing, managing and monitoring international operations, including the use of overseas third-party goods and service providers;
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corruption risk inherent in business arrangements and regulatory contacts with foreign government entities;
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longer payment cycles and increased exposure to counterparty risk; and
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additional limitations on transferring personal information between countries or other restrictions on the processing of personal information.
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pay monetary damages;
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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
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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.
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making it more difficult for us to satisfy our obligations with respect to our debt;
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limiting our ability to obtain additional financing to fund future working capital, capital expenditures, business development or other general corporate requirements, including dividends;
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increasing our vulnerability to general adverse economic and industry conditions;
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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;
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limiting our flexibility in planning for and reacting to changes in the animal health industry;
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placing us at a competitive disadvantage to other, less leveraged competitors;
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impacting our effective tax rate; and
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increasing our cost of borrowing.
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our operating performance and the performance of our competitors;
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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;
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changes in earnings estimates or recommendations by securities analysts, if any, who cover our common stock;
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changes in our investor base;
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failures to meet external expectations or management guidance;
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fluctuations in our financial results or the financial results of companies perceived to be similar to us;
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changes in our capital structure or dividend policy, future issuances or repurchases of securities, sales of large blocks of common stock by our stockholders or the incurrence of additional debt;
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reputational issues;
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changes in general economic and market conditions in any of the regions in which we conduct our business;
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the arrival or departure of key personnel;
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the actions of speculators and financial arbitrageurs (such as hedge funds);
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changes in applicable laws, rules or regulations and other dynamics; and
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other developments or changes affecting us, our industry or our competitors.
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a Board of Directors that is divided into three classes with staggered terms;
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rules regarding how our stockholders may present proposals or nominate directors for election at stockholder meetings;
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the right of our Board of Directors to issue preferred stock without stockholder approval;
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limitations on the right of stockholders to remove directors;
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limitations on the right of stockholders to act by written consent; and
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limitations on the right of stockholders to call for special meetings.
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Item 5.
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Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
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Issuer Purchases of Equity Securities
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Total Number of Shares Purchased(a)
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Average Price Paid Per Share
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Total Number of Shares Purchased as Part of Publicly Announced Programs
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Approximate Dollar Value of Shares that May Yet Be Purchased Under Plans or Programs
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October 1 - October 31, 2019
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474,206
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$125.95
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459,300
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$1,792,813,692
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November 1 - November 30, 2019
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717,035
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$119.89
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716,499
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$1,706,913,621
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December 1 - December 31, 2019
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266,345
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$123.14
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262,344
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$1,674,474,799
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Total
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1,457,586
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$122.46
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1,438,143
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$1,674,474,799
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(a)
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The company repurchased 19,443 shares during the three-month period ended December 31, 2019, that were not part of the publicly announced share repurchase authorization. These shares were purchased from employees to satisfy tax withholding requirements on the vesting of restricted shares from equity-based awards.
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December 31, 2014
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December 31, 2015
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December 31, 2016
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December 31, 2017
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December 31, 2018
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December 31, 2019
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Zoetis Inc.
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$100
|
$112.18
|
$126.36
|
$171.28
|
$204.59
|
$318.56
|
S&P 500 Index
|
$100
|
$101.38
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$113.51
|
$138.29
|
$132.23
|
$173.86
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S&P 500 Pharmaceuticals Index
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$100
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$105.79
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$104.13
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$117.22
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$126.71
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$145.83
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(a)
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This section is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference in any filing of Zoetis under the Securities Act of 1933, as amended, or the Exchange Act whether made before or after the date hereof and irrespective of any general incorporation language contained in any such filing.
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Year Ended December 31,(a)
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(MILLIONS, EXCEPT PER SHARE AMOUNTS)
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2019
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2018
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2017
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2016
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2015
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Statement of income data:
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Revenue
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$
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6,260
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|
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$
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5,825
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|
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$
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5,307
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$
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4,888
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$
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4,765
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Net income attributable to Zoetis
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1,500
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|
|
1,428
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|
|
864
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|
|
821
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|
339
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Balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Total assets
|
|
$
|
11,545
|
|
|
$
|
10,777
|
|
|
$
|
8,586
|
|
|
$
|
7,649
|
|
|
$
|
7,913
|
|
Long-term obligations
|
|
5,947
|
|
|
6,443
|
|
|
4,953
|
|
|
4,468
|
|
|
4,463
|
|
|||||
Other data (unaudited):
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Adjusted net income(b)
|
|
$
|
1,755
|
|
|
$
|
1,525
|
|
|
$
|
1,185
|
|
|
$
|
975
|
|
|
$
|
889
|
|
Earnings per share attributable to Zoetis Inc. stockholders:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Basic
|
|
$
|
3.14
|
|
|
$
|
2.96
|
|
|
$
|
1.76
|
|
|
$
|
1.66
|
|
|
$
|
0.68
|
|
Diluted
|
|
$
|
3.11
|
|
|
$
|
2.93
|
|
|
$
|
1.75
|
|
|
$
|
1.65
|
|
|
$
|
0.68
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Dividends declared per common share
|
|
$
|
0.692
|
|
|
$
|
0.542
|
|
|
$
|
0.441
|
|
|
$
|
0.390
|
|
|
$
|
0.344
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Weighted average shares outstanding (in thousands):
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Basic
|
|
478,128
|
|
|
483,063
|
|
|
489,918
|
|
|
495,715
|
|
|
499,707
|
|
|||||
Diluted
|
|
481,787
|
|
|
486,898
|
|
|
493,161
|
|
|
498,225
|
|
|
502,019
|
|
(a)
|
Starting in August 2018, includes the acquisition of Abaxis. Starting in February 2015, includes the acquisition of certain assets from Abbott Animal Health and starting in November 2015, includes the acquisition of Pharmaq.
|
(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—Non-GAAP financial measures and 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, 2019, 2018 and 2017 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)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
19/18
|
|
|
18/17
|
|||
Revenue
|
|
$
|
6,260
|
|
|
$
|
5,825
|
|
|
$
|
5,307
|
|
|
7
|
|
|
10
|
Net income attributable to Zoetis
|
|
1,500
|
|
|
1,428
|
|
|
864
|
|
|
5
|
|
|
65
|
|||
Adjusted net income(a)
|
|
1,755
|
|
|
1,525
|
|
|
1,185
|
|
|
15
|
|
|
29
|
(a)
|
Adjusted net income is a non-GAAP financial measure. See the Non-GAAP financial measures and Adjusted net income sections 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 an increasing 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;
|
•
|
companion animals living longer;
|
•
|
increasing medical treatment of companion animals; and
|
•
|
advances in companion animal medicines, vaccines and diagnostics.
|
•
|
drive innovative growth - We seek to deliver new products and solutions as well as lifecycle innovations across the continuum of care that spans from disease prediction and prevention to detection and treatment. We are focused on innovating across vaccines, pharmaceuticals, diagnostics, genetics, biodevices, and other product segments, and across all major species. Where appropriate, we complement internal R&D programs with external innovations;
|
•
|
enhance customer experience - We believe that delighting our customers with compelling and personalized experiences that enable them to provide the best care for animals is critical for our success. We are focused on providing greater value to our customers through the integration and connectedness of our portfolio and by reducing frictions in the way they engage with us and our products and solutions;
|
•
|
lead in digital and data analytics - We believe that healthcare insights enabled by data and digital technology and complemented with our comprehensive portfolio of products and solutions will be critical in enhancing care for animals and improving livestock productivity;
|
•
|
cultivate a high-performing organization - We view the strength of our team and our talented colleagues around the world as a critical component of our past and future success. We are committed to continuing to be a company our colleagues can be proud of and to attracting, retaining and developing the best talent in the industry;
|
•
|
champion a healthier, more sustainable future - As the world’s leading animal health company, we strive to make a meaningful difference in society by keeping animals healthy, fighting emerging infectious diseases that threaten our food supply, and supporting livestock producers and the veterinary profession. We believe that we have an important role to play in promoting a safe and sustainable global food supply, taking actions to protect the environment, and in increasing access to animal care around the world.
|
•
|
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.
|
|
|
Year Ended December 31,
|
|
% Change
|
||||||||||||||
(MILLIONS OF DOLLARS)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
19/18
|
|
|
18/17
|
|
|||
Revenue
|
|
$
|
6,260
|
|
|
$
|
5,825
|
|
|
$
|
5,307
|
|
|
7
|
|
|
10
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
||||||||
Cost of sales(a)
|
|
1,992
|
|
|
1,911
|
|
|
1,775
|
|
|
4
|
|
|
8
|
|
|||
% of revenue
|
|
32
|
%
|
|
33
|
%
|
|
33
|
%
|
|
|
|
|
|||||
Selling, general and administrative expenses(a)
|
|
1,638
|
|
|
1,484
|
|
|
1,334
|
|
|
10
|
|
|
11
|
|
|||
% of revenue
|
|
26
|
%
|
|
25
|
%
|
|
25
|
%
|
|
|
|
|
|||||
Research and development expenses(a)
|
|
457
|
|
|
432
|
|
|
382
|
|
|
6
|
|
|
13
|
|
|||
% of revenue
|
|
7
|
%
|
|
7
|
%
|
|
7
|
%
|
|
|
|
|
|||||
Amortization of intangible assets(a)
|
|
155
|
|
|
117
|
|
|
91
|
|
|
32
|
|
|
29
|
|
|||
Restructuring charges and certain acquisition-related costs
|
|
51
|
|
|
68
|
|
|
19
|
|
|
(25
|
)
|
|
*
|
|
|||
Interest expense, net of capitalized interest
|
|
223
|
|
|
206
|
|
|
175
|
|
|
8
|
|
|
18
|
|
|||
Other (income)/deductions—net
|
|
(57
|
)
|
|
(83
|
)
|
|
6
|
|
|
(31
|
)
|
|
*
|
|
|||
Income before provision for taxes on income
|
|
1,801
|
|
|
1,690
|
|
|
1,525
|
|
|
7
|
|
|
11
|
|
|||
% of revenue
|
|
29
|
%
|
|
29
|
%
|
|
29
|
%
|
|
|
|
|
|||||
Provision for taxes on income
|
|
301
|
|
|
266
|
|
|
663
|
|
|
13
|
|
|
(60
|
)
|
|||
Effective tax rate
|
|
16.7
|
%
|
|
15.7
|
%
|
|
43.5
|
%
|
|
|
|
|
|
||||
Net income before allocation to noncontrolling interests
|
|
1,500
|
|
|
1,424
|
|
|
862
|
|
|
5
|
|
|
65
|
|
|||
Less: Net income attributable to noncontrolling interests
|
|
—
|
|
|
(4
|
)
|
|
(2
|
)
|
|
*
|
|
|
*
|
|
|||
Net income attributable to Zoetis
|
|
$
|
1,500
|
|
|
$
|
1,428
|
|
|
$
|
864
|
|
|
5
|
|
|
65
|
|
% of revenue
|
|
24
|
%
|
|
25
|
%
|
|
16
|
%
|
|
|
|
|
(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)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
19/18
|
|
18/17
|
|||
U.S.
|
|
$
|
3,203
|
|
|
$
|
2,877
|
|
|
$
|
2,620
|
|
|
11
|
|
10
|
International
|
|
2,972
|
|
|
2,890
|
|
|
2,643
|
|
|
3
|
|
9
|
|||
Total operating segments
|
|
6,175
|
|
|
5,767
|
|
|
5,263
|
|
|
7
|
|
10
|
|||
|
|
|
|
|
|
|
|
|
|
|
||||||
Contract manufacturing & human health
|
|
85
|
|
|
58
|
|
|
44
|
|
|
47
|
|
32
|
|||
Total Revenue
|
|
$
|
6,260
|
|
|
$
|
5,825
|
|
|
$
|
5,307
|
|
|
7
|
|
10
|
|
|
Year Ended December 31,
|
|
% Change
|
|||||||||||||
(MILLIONS OF DOLLARS)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
19/18
|
|
|
18/17
|
|||
Livestock
|
|
$
|
3,030
|
|
|
$
|
3,154
|
|
|
$
|
3,037
|
|
|
(4
|
)
|
|
4
|
Companion animal
|
|
3,145
|
|
|
2,613
|
|
|
2,226
|
|
|
20
|
|
|
17
|
|||
Contract manufacturing & human health
|
|
85
|
|
|
58
|
|
|
44
|
|
|
47
|
|
|
32
|
|||
Total Revenue
|
|
$
|
6,260
|
|
|
$
|
5,825
|
|
|
$
|
5,307
|
|
|
7
|
|
|
10
|
•
|
increased volume from in-line products of approximately 4%, including 2% from our key dermatology products;
|
•
|
the acquisition of Abaxis in July 2018 which contributed approximately 2%;
|
•
|
price growth of approximately 2%; and
|
•
|
volume growth from new products sold of approximately 2%.
|
|
|
Year Ended December 31,
|
|
% Change
|
||||||||||||
(MILLIONS OF DOLLARS)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
19/18
|
|
18/17
|
|||
Cost of sales
|
|
$
|
1,992
|
|
|
$
|
1,911
|
|
|
$
|
1,775
|
|
|
4
|
|
8
|
% of revenue
|
|
32
|
%
|
|
33
|
%
|
|
33
|
%
|
|
|
|
|
•
|
favorable foreign exchange;
|
•
|
price increases;
|
•
|
favorable product mix; and
|
•
|
cost improvements and efficiencies in our manufacturing network,
|
•
|
a change in estimate related to inventory costing;
|
•
|
the inclusion of Abaxis; and
|
•
|
tariffs on certain products.
|
|
|
Year Ended December 31,
|
|
% Change
|
||||||||||||
(MILLIONS OF DOLLARS)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
19/18
|
|
18/17
|
|||
Selling, general and administrative expenses
|
|
$
|
1,638
|
|
|
$
|
1,484
|
|
|
$
|
1,334
|
|
|
10
|
|
11
|
% of revenue
|
|
26
|
%
|
|
25
|
%
|
|
25
|
%
|
|
|
|
|
•
|
an increase in certain compensation-related expenses;
|
•
|
the inclusion of Abaxis; and
|
•
|
the inclusion of Platinum Performance,
|
•
|
favorable foreign exchange.
|
|
|
Year Ended December 31,
|
|
% Change
|
||||||||||||
(MILLIONS OF DOLLARS)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
19/18
|
|
18/17
|
|||
Research and development expenses
|
|
$
|
457
|
|
|
$
|
432
|
|
|
$
|
382
|
|
|
6
|
|
13
|
% of revenue
|
|
7
|
%
|
|
7
|
%
|
|
7
|
%
|
|
|
|
|
•
|
increased spending driven by project investments;
|
•
|
the inclusion of Abaxis; and
|
•
|
an increase in certain compensation-related expenses,
|
•
|
favorable foreign exchange.
|
|
|
Year Ended December 31,
|
|
% Change
|
||||||||||||
(MILLIONS OF DOLLARS)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
19/18
|
|
18/17
|
|||
Amortization of intangible assets
|
|
$
|
155
|
|
|
$
|
117
|
|
|
$
|
91
|
|
|
32
|
|
29
|
|
|
Year Ended December 31,
|
|
% Change
|
|||||||||||||
(MILLIONS OF DOLLARS)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
19/18
|
|
|
18/17
|
|||
Restructuring charges and certain acquisition-related costs
|
|
$
|
51
|
|
|
$
|
68
|
|
|
$
|
19
|
|
|
(25
|
)
|
|
*
|
•
|
transaction costs incurred as a result of the acquisition of Abaxis in July 2018,
|
|
|
Year Ended December 31,
|
|
% Change
|
||||||||||||
(MILLIONS OF DOLLARS)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
19/18
|
|
18/17
|
|||
Interest expense, net of capitalized interest
|
|
$
|
223
|
|
|
$
|
206
|
|
|
$
|
175
|
|
|
8
|
|
18
|
|
|
Year Ended December 31,
|
|
% Change
|
|||||||||||||
(MILLIONS OF DOLLARS)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
19/18
|
|
|
18/17
|
|||
Other (income)/deductions—net
|
|
$
|
(57
|
)
|
|
$
|
(83
|
)
|
|
$
|
6
|
|
|
(31
|
)
|
|
*
|
•
|
a gain of $42 million in 2018 on the divestiture of certain agribusiness products within our International segment;
|
•
|
a net gain of $18 million in 2018 related to the relocation of a manufacturing site in China; and
|
•
|
lower royalty income,
|
•
|
income of $20 million in 2019 resulting from a payment received pursuant to an agreement related to the 2016 sale of certain U.S. manufacturing sites;
|
•
|
lower foreign currency losses; and
|
•
|
higher interest income in 2019 due to higher cash balances and higher short-term interest rates.
|
|
|
Year Ended December 31,
|
|
% Change
|
|||||||||||||
(MILLIONS OF DOLLARS)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
19/18
|
|
18/17
|
|
|||
Provision for taxes on income
|
|
$
|
301
|
|
|
$
|
266
|
|
|
$
|
663
|
|
|
13
|
|
(60
|
)
|
Effective tax rate
|
|
16.7
|
%
|
|
15.7
|
%
|
|
43.5
|
%
|
|
|
|
|
•
|
the impact of the global intangible low taxed income (GILTI) tax, a new provision of the Tax Cuts and Jobs Act (the Tax Act), which became effective for the company in the first quarter of 2019;
|
•
|
a $45 million net tax benefit recorded in 2018, associated with a measurement-period adjustment to the one-time mandatory deemed repatriation tax on the company’s undistributed non-U.S. earnings pursuant to the Tax Act; and
|
•
|
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, 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 gains and losses on asset divestitures,
|
•
|
an $18 million discrete tax benefit recorded in 2019, related to the changes in valuation allowances;
|
•
|
a $14 million net discrete tax benefit recorded in the third quarter of 2019, due to a change in tax basis related to purchase accounting;
|
•
|
a $12 million net discrete tax benefit recorded in 2019, related to changes in various other tax items;
|
•
|
a $10 million discrete tax benefit recorded in 2019, related to the effective settlement of certain issues with non-U.S. tax authorities;
|
•
|
an $8 million discrete tax benefit recorded in 2019, related to a remeasurement of deferred tax assets and liabilities as a result of a change in U.S. and non-U.S. statutory tax rates; and
|
•
|
an additional $5 million discrete tax benefit recorded in 2019, related to the excess tax benefits for share-based compensation payments.
|
|
|
|
|
|
% Change
|
||||||||||||||||||||
|
|
|
|
|
19/18
|
|
18/17
|
||||||||||||||||||
|
|
|
|
|
Related to
|
|
|
|
Related to
|
||||||||||||||||
|
Year Ended December 31,
|
|
|
|
Foreign
|
|
|
|
|
|
Foreign
|
|
|
||||||||||||
(MILLIONS OF DOLLARS)
|
2019
|
|
2018
|
|
2017
|
|
|
Total
|
|
Exchange
|
|
Operational
|
|
Total
|
|
Exchange
|
|
Operational
|
|||||||
U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Livestock
|
$
|
1,219
|
|
$
|
1,269
|
|
$
|
1,244
|
|
|
(4
|
)
|
|
—
|
|
|
(4
|
)
|
|
2
|
|
—
|
|
|
2
|
Companion animal
|
1,984
|
|
1,608
|
|
1,376
|
|
|
23
|
|
|
—
|
|
|
23
|
|
|
17
|
|
—
|
|
|
17
|
|||
|
3,203
|
|
2,877
|
|
2,620
|
|
|
11
|
|
|
—
|
|
|
11
|
|
|
10
|
|
—
|
|
|
10
|
|||
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Livestock
|
1,811
|
|
1,885
|
|
1,793
|
|
|
(4
|
)
|
|
(6
|
)
|
|
2
|
|
|
5
|
|
(1
|
)
|
|
6
|
|||
Companion animal
|
1,161
|
|
1,005
|
|
850
|
|
|
16
|
|
|
(5
|
)
|
|
21
|
|
|
18
|
|
1
|
|
|
17
|
|||
|
2,972
|
|
2,890
|
|
2,643
|
|
|
3
|
|
|
(6
|
)
|
|
9
|
|
|
9
|
|
—
|
|
|
9
|
|||
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Livestock
|
3,030
|
|
3,154
|
|
3,037
|
|
|
(4
|
)
|
|
(3
|
)
|
|
(1
|
)
|
|
4
|
|
—
|
|
|
4
|
|||
Companion animal
|
3,145
|
|
2,613
|
|
2,226
|
|
|
20
|
|
|
(3
|
)
|
|
23
|
|
|
17
|
|
—
|
|
|
17
|
|||
Contract manufacturing & human health
|
85
|
|
58
|
|
44
|
|
|
47
|
|
|
(1
|
)
|
|
48
|
|
|
32
|
|
1
|
|
|
31
|
|||
|
$
|
6,260
|
|
$
|
5,825
|
|
$
|
5,307
|
|
|
7
|
|
|
(3
|
)
|
|
10
|
|
|
10
|
|
—
|
|
|
10
|
|
|
|
|
% Change
|
|||||||||||||||
|
|
|
|
19/18
|
|
18/17
|
|||||||||||||
|
|
|
|
Related to
|
|
|
Related to
|
||||||||||||
|
Year Ended December 31,
|
|
|
Foreign
|
|
|
|
Foreign
|
|
||||||||||
(MILLIONS OF DOLLARS)
|
2019
|
|
2018
|
|
2017
|
|
|
Total
|
Exchange
|
Operational
|
|
Total
|
Exchange
|
Operational
|
|||||
U.S.
|
$
|
2,005
|
|
$
|
1,815
|
|
$
|
1,637
|
|
|
10
|
|
—
|
|
10
|
|
11
|
—
|
11
|
International
|
1,487
|
|
1,399
|
|
1,240
|
|
|
6
|
|
(4
|
)
|
10
|
|
13
|
—
|
13
|
|||
Total reportable segments
|
3,492
|
|
3,214
|
|
2,877
|
|
|
9
|
|
(1
|
)
|
10
|
|
12
|
—
|
12
|
|||
Other business activities
|
(348
|
)
|
(337
|
)
|
(313
|
)
|
|
3
|
|
|
|
|
8
|
|
|
||||
Reconciling Items:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Corporate
|
(707
|
)
|
(666
|
)
|
(625
|
)
|
|
6
|
|
|
|
|
7
|
|
|
||||
Purchase accounting adjustments
|
(234
|
)
|
(162
|
)
|
(88
|
)
|
|
44
|
|
|
|
|
84
|
|
|
||||
Acquisition-related costs
|
(43
|
)
|
(63
|
)
|
(10
|
)
|
|
(32
|
)
|
|
|
|
*
|
|
|
||||
Certain significant items
|
(67
|
)
|
43
|
|
(25
|
)
|
|
*
|
|
|
|
|
*
|
|
|
||||
Other unallocated
|
(292
|
)
|
(339
|
)
|
(291
|
)
|
|
(14
|
)
|
|
|
|
16
|
|
|
||||
Income before income taxes
|
$
|
1,801
|
|
$
|
1,690
|
|
$
|
1,525
|
|
|
7
|
|
|
|
|
11
|
|
|
•
|
Companion animal revenue growth was driven primarily by increased sales of our key dermatology portfolio, the acquisition of Abaxis, which was acquired in July 2018, increased sales from our parasiticides portfolio across the ProHeart®, Revolution® and Simparica® franchises, including new product introductions Revolution Plus for cats and ProHeart 12 for dogs.
|
•
|
Livestock revenue decreased primarily due to continued weakness across both the beef and dairy cattle sectors as well as the timing of distributor purchasing patterns for medicated feed additive products impacting cattle. For poultry, growth was driven by increased sales of alternatives to antibiotic medicated feed additive products.
|
•
|
Companion animal operational revenue growth resulted primarily from increased sales of our key dermatology portfolio across multiple international markets, growth of sales in parasiticide products, including Simparica® and Stronghold® Plus, and the acquisition of Abaxis, which was acquired in July 2018.
|
•
|
Livestock operational revenue growth was driven primarily by increased sales in our cattle and poultry portfolios. Cattle products increased due to sales of anti-infectives and vaccines. Poultry products also contributed to growth with increased sales of vaccines and medicated feed additive products. Swine products sales declined due to the negative impact of African Swine Fever in China.
|
•
|
Corporate, which includes certain costs associated with business technology, facilities, legal, finance, human resources, business development and communications, among others. These costs also include certain compensation costs, certain procurement 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 business technology and finance that specifically support our global manufacturing operations; (iii) certain supply chain and global logistics costs; and (iv) certain 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)
|
|
2019
|
|
2018
|
|
2017
|
|
19/18
|
|
|
18/17
|
||||||
GAAP reported net income attributable to Zoetis
|
|
$
|
1,500
|
|
|
$
|
1,428
|
|
|
$
|
864
|
|
|
5
|
|
|
65
|
Purchase accounting adjustments—net of tax
|
|
156
|
|
|
119
|
|
|
51
|
|
|
31
|
|
|
*
|
|||
Acquisition-related costs—net of tax
|
|
36
|
|
|
50
|
|
|
7
|
|
|
(28
|
)
|
|
*
|
|||
Certain significant items—net of tax
|
|
63
|
|
|
(72
|
)
|
|
263
|
|
|
*
|
|
|
*
|
|||
Non-GAAP adjusted net income(a)
|
|
$
|
1,755
|
|
|
$
|
1,525
|
|
|
$
|
1,185
|
|
|
15
|
|
|
29
|
(a)
|
The effective tax rate on adjusted pretax income is 18.2%, 18.8% and 28.2% for full year 2019, 2018 and 2017, respectively. The lower effective rate in 2019 compared to 2018 is primarily due to (i) changes in the jurisdictional mix of earnings, which reflects the impact of the location of earnings as well as repatriation costs, (ii) an $18 million discrete tax benefit recorded in 2019, related to the changes in valuation allowances, (iii) a $10 million discrete tax benefit recorded in 2019, related to the effective settlement of certain issues with non-U.S. tax authorities, (iv) a $4 million net discrete tax benefit recorded in 2019, related to changes in various other tax items, and (v) an additional $5 million discrete tax benefit recorded in 2019, related to the excess tax benefits for share-based compensation payments, partially offset by the impact of the GILTI tax, a new provision to the Tax Act, which became effective for the company in the first quarter of 2019. The lower effective tax rate in 2018 compared to 2017 is primarily due to (i) the reduction of the U.S. federal corporate income tax rate from 35% to 21%, effective January 1, 2018, pursuant to the Tax Act, (ii) changes in the jurisdictional mix of earnings, which reflects the impact of the location of earnings as well as repatriation costs, (iii) a $23 million discrete tax benefit recorded in 2018 related to the favorable impact of certain tax accounting method changes, and (iv) an additional $6 million discrete tax benefit recorded in 2018, related to the excess tax benefits for share-based compensation payments.
|
|
|
Year Ended December 31,
|
|
% Change
|
|||||||||||||
|
|
2019
|
|
2018
|
|
2017
|
|
19/18
|
|
|
18/17
|
||||||
Earnings per share—diluted(a)(b):
|
|
|
|
|
|
|
|
|
|
|
|||||||
GAAP reported EPS attributable to Zoetis—diluted
|
|
$
|
3.11
|
|
|
$
|
2.93
|
|
|
$
|
1.75
|
|
|
6
|
|
|
67
|
Purchase accounting adjustments—net of tax
|
|
0.32
|
|
|
0.24
|
|
|
0.10
|
|
|
33
|
|
|
*
|
|||
Acquisition-related costs—net of tax
|
|
0.08
|
|
|
0.10
|
|
|
0.01
|
|
|
(20
|
)
|
|
*
|
|||
Certain significant items—net of tax
|
|
0.13
|
|
|
(0.14
|
)
|
|
0.54
|
|
|
*
|
|
|
*
|
|||
Non-GAAP adjusted EPS—diluted
|
|
$
|
3.64
|
|
|
$
|
3.13
|
|
|
$
|
2.40
|
|
|
16
|
|
|
30
|
(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)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|||
Interest expense, net of capitalized interest
|
|
$
|
223
|
|
|
$
|
206
|
|
|
$
|
175
|
|
Interest income
|
|
(37
|
)
|
|
(31
|
)
|
|
(13
|
)
|
|||
Income taxes
|
|
390
|
|
|
351
|
|
|
465
|
|
|||
Depreciation
|
|
166
|
|
|
146
|
|
|
136
|
|
|||
Amortization
|
|
27
|
|
|
19
|
|
|
18
|
|
|
|
Year Ended December 31,
|
||||||||||
(MILLIONS OF DOLLARS)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|||
Purchase accounting adjustments:
|
|
|
|
|
|
|
||||||
Amortization and depreciation(a)
|
|
$
|
210
|
|
|
$
|
135
|
|
|
$
|
81
|
|
Cost of sales(b)
|
|
24
|
|
|
27
|
|
|
7
|
|
|||
Total purchase accounting adjustments—pre-tax
|
|
234
|
|
|
162
|
|
|
88
|
|
|||
Income taxes(c)
|
|
78
|
|
|
43
|
|
|
37
|
|
|||
Total purchase accounting adjustments—net of tax
|
|
156
|
|
|
119
|
|
|
51
|
|
|||
Acquisition-related costs:
|
|
|
|
|
|
|
||||||
Integration costs
|
|
18
|
|
|
21
|
|
|
6
|
|
|||
Transaction costs
|
|
—
|
|
|
21
|
|
|
—
|
|
|||
Restructuring charges(d)
|
|
25
|
|
|
21
|
|
|
4
|
|
|||
Total acquisition-related costs—pre-tax
|
|
43
|
|
|
63
|
|
|
10
|
|
|||
Income taxes(c)
|
|
7
|
|
|
13
|
|
|
3
|
|
|||
Total acquisition-related costs—net of tax
|
|
36
|
|
|
50
|
|
|
7
|
|
|||
Certain significant items:
|
|
|
|
|
|
|
||||||
Operational efficiency initiative(e)
|
|
(20
|
)
|
|
(1
|
)
|
|
5
|
|
|||
Supply network strategy(f)
|
|
7
|
|
|
10
|
|
|
15
|
|
|||
Other restructuring charges and cost-reduction/productivity initiatives(g)
|
|
8
|
|
|
7
|
|
|
4
|
|
|||
Gain on sale of assets(h)
|
|
—
|
|
|
(42
|
)
|
|
—
|
|
|||
Stand-up costs(i)
|
|
—
|
|
|
—
|
|
|
3
|
|
|||
Other(j)
|
|
72
|
|
|
(17
|
)
|
|
(2
|
)
|
|||
Total certain significant items—pre-tax
|
|
67
|
|
|
(43
|
)
|
|
25
|
|
|||
Income taxes(c)
|
|
4
|
|
|
29
|
|
|
(238
|
)
|
|||
Total certain significant items—net of tax
|
|
63
|
|
|
(72
|
)
|
|
263
|
|
|||
Total purchase accounting adjustments, acquisition-related costs, and certain significant items—net of tax
|
|
$
|
255
|
|
|
$
|
97
|
|
|
$
|
321
|
|
(a)
|
Amortization and depreciation expenses related to Purchase accounting adjustments with respect to identifiable intangible assets and property, plant and equipment.
|
(b)
|
Fair value adjustments to acquired inventory, as well as amortization and depreciation expense.
|
(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 Acquisition-related costs also includes:
|
|
Income taxes in Certain significant items also includes:
|
(d)
|
Represents employee termination costs related to the 2018 acquisition of Abaxis and the 2017 acquisition of an Irish biologic therapeutics company.
|
(e)
|
For 2019, represents income resulting from a payment received pursuant to an agreement related to the 2016 sale of certain U.S. manufacturing sites.
|
(f)
|
Represents consulting fees and product transfer costs, included in Cost of sales, and employee termination costs and exit costs, included in Restructuring charges and certain acquisition-related costs, related to cost-reduction and productivity initiatives.
|
(g)
|
For 2019, represents employee termination costs incurred as a result of the CEO transition.
|
(h)
|
For 2018, represents a net gain related to the divestiture of certain agribusiness products within our International segment.
|
(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 2019, primarily represents a change in estimate related to inventory costing and CEO transition-related costs. For 2018, primarily represents a net gain related to the relocation of a manufacturing site in China. For 2017, primarily represents costs associated with changes to our operating model.
|
|
|
Year Ended December 31,
|
||||||||||
(MILLIONS OF DOLLARS)
|
|
2019
|
|
2018
|
|
2017
|
||||||
Cost of sales:
|
|
|
|
|
|
|
||||||
Purchase accounting adjustments
|
|
$
|
24
|
|
|
$
|
27
|
|
|
$
|
7
|
|
Accelerated depreciation
|
|
—
|
|
|
—
|
|
|
2
|
|
|||
Inventory write-offs
|
|
—
|
|
|
1
|
|
|
(2
|
)
|
|||
Consulting fees
|
|
7
|
|
|
8
|
|
|
6
|
|
|||
Stand-up costs
|
|
—
|
|
|
—
|
|
|
3
|
|
|||
Other
|
|
70
|
|
|
(1
|
)
|
|
(2
|
)
|
|||
Total Cost of sales
|
|
101
|
|
|
35
|
|
|
14
|
|
|||
|
|
|
|
|
|
|
||||||
Selling, general & administrative expenses:
|
|
|
|
|
|
|
||||||
Purchase accounting adjustments
|
|
72
|
|
|
32
|
|
|
5
|
|
|||
Consulting fees
|
|
—
|
|
|
—
|
|
|
2
|
|
|||
Other
|
|
2
|
|
|
2
|
|
|
2
|
|
|||
Total Selling, general & administrative expenses
|
|
74
|
|
|
34
|
|
|
9
|
|
|||
|
|
|
|
|
|
|
||||||
Research & development expenses:
|
|
|
|
|
|
|
||||||
Purchase accounting adjustments
|
|
2
|
|
|
2
|
|
|
2
|
|
|||
Total Research & development expenses
|
|
2
|
|
|
2
|
|
|
2
|
|
|||
|
|
|
|
|
|
|
||||||
Amortization of intangible assets:
|
|
|
|
|
|
|
||||||
Purchase accounting adjustments
|
|
136
|
|
|
101
|
|
|
74
|
|
|||
Total Amortization of intangible assets
|
|
136
|
|
|
101
|
|
|
74
|
|
|||
|
|
|
|
|
|
|
||||||
Restructuring charges and certain acquisition-related costs:
|
|
|
|
|
|
|
||||||
Integration costs
|
|
18
|
|
|
21
|
|
|
6
|
|
|||
Transaction costs
|
|
—
|
|
|
21
|
|
|
—
|
|
|||
Employee termination costs
|
|
33
|
|
|
25
|
|
|
10
|
|
|||
Exit costs
|
|
—
|
|
|
1
|
|
|
3
|
|
|||
Total Restructuring charges and certain acquisition-related costs
|
|
51
|
|
|
68
|
|
|
19
|
|
|||
|
|
|
|
|
|
|
||||||
Other (income)/deductions—net:
|
|
|
|
|
|
|
||||||
Net (gain)/loss on sale of assets
|
|
(20
|
)
|
|
(40
|
)
|
|
10
|
|
|||
Other
|
|
—
|
|
|
(18
|
)
|
|
(5
|
)
|
|||
Total Other (income)/deductions—net
|
|
(20
|
)
|
|
(58
|
)
|
|
5
|
|
|||
|
|
|
|
|
|
|
||||||
Provision for / (benefit from) taxes on income
|
|
89
|
|
|
85
|
|
|
(198
|
)
|
|||
|
|
|
|
|
|
|
||||||
Total purchase accounting adjustments, acquisition-related costs, and certain significant items—net of tax
|
|
$
|
255
|
|
|
$
|
97
|
|
|
$
|
321
|
|
|
|
Year Ended December 31,
|
|
% Change
|
||||||||||||||
(MILLIONS OF DOLLARS)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
19/18
|
|
|
18/17
|
|
|||
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
||||||||
Operating activities
|
|
$
|
1,795
|
|
|
$
|
1,790
|
|
|
$
|
1,346
|
|
|
0
|
|
|
33
|
|
Investing activities
|
|
(504
|
)
|
|
(2,259
|
)
|
|
(270
|
)
|
|
(78
|
)
|
|
*
|
|
|||
Financing activities
|
|
(951
|
)
|
|
533
|
|
|
(251
|
)
|
|
(278
|
)
|
|
*
|
|
|||
Effect of exchange-rate changes on cash and cash equivalents
|
|
(8
|
)
|
|
(26
|
)
|
|
12
|
|
|
(69
|
)
|
|
*
|
|
|||
Net increase/(decrease) in cash and cash equivalents
|
|
$
|
332
|
|
|
$
|
38
|
|
|
$
|
837
|
|
|
774
|
|
|
(95
|
)
|
|
December 31,
|
|
|
December 31,
|
|
||
(MILLIONS OF DOLLARS)
|
2019
|
|
|
2018
|
|
||
Cash and cash equivalents
|
$
|
1,934
|
|
|
$
|
1,602
|
|
Accounts receivable, net(a)
|
1,086
|
|
|
1,036
|
|
||
Short-term borrowings
|
—
|
|
|
9
|
|
||
Current portion of long-term debt
|
500
|
|
|
—
|
|
||
Long-term debt
|
5,947
|
|
|
6,443
|
|
||
Working capital
|
2,942
|
|
|
3,176
|
|
||
Ratio of current assets to current liabilities
|
2.63:1
|
|
|
3.60:1
|
|
(a)
|
Accounts receivable are usually collected over a period of 45 to 75 days. For the year ended December 31, 2019, compared to the year ended December 31, 2018, 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.
|
|
|
|
|
|
|
2021-
|
|
|
2023-
|
|
|
There-
|
|
|||||||
(MILLIONS OF DOLLARS)
|
|
Total
|
|
|
2020
|
|
|
2022
|
|
|
2024
|
|
|
after
|
|
|||||
Long-term debt, including interest obligations(a)
|
|
$
|
9,601
|
|
|
$
|
745
|
|
|
$
|
1,039
|
|
|
$
|
1,707
|
|
|
$
|
6,110
|
|
Other liabilities reflected on our Consolidated Balance Sheets under U.S. GAAP(b)
|
|
112
|
|
|
31
|
|
|
26
|
|
|
16
|
|
|
39
|
|
|||||
Operating lease commitments
|
|
225
|
|
|
42
|
|
|
68
|
|
|
48
|
|
|
67
|
|
|||||
Purchase obligations(c)
|
|
440
|
|
|
153
|
|
|
221
|
|
|
39
|
|
|
27
|
|
|||||
Benefit plans - continuing service credit obligations(d)
|
|
12
|
|
|
4
|
|
|
8
|
|
|
—
|
|
|
—
|
|
|||||
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 5. Acquisitions and Divestitures, Note 6. Restructuring Charges and Other Costs Associated with Acquisitions, Cost-Reduction and Productivity Initiatives and Note 14. Benefit Plans. Excludes approximately $140 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 6. Restructuring Charges and Other Costs Associated with Acquisitions, Cost-Reduction and Productivity Initiatives and Note 18. 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, and information technology services.
|
(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 14. 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.
|
Description
|
Principal Amount
|
Interest Rate
|
Terms
|
|
|
|
|
2015 Senior Notes due 2020
|
$500 million
|
3.450%
|
Interest due semi annually, not subject to amortization, aggregate principal due on November 13, 2020
|
2018 Floating Rate Senior Notes due 2021
|
$300 million
|
Three-month USD LIBOR plus 0.44%
|
Interest due quarterly, not subject to amortization, aggregate principal due on August 20, 2021
|
2018 Senior Notes due 2021
|
$300 million
|
3.250%
|
Interest due semi annually, not subject to amortization, aggregate principal due on August 20, 2021
|
2013 Senior Notes due 2023
|
$1,350 million
|
3.250%
|
Interest due semi annually, not subject to amortization, aggregate principal due on February 1, 2023
|
2015 Senior Notes due 2025
|
$750 million
|
4.500%
|
Interest due semi annually, not subject to amortization, aggregate principal due on November 13, 2025
|
2017 Senior Notes due 2027
|
$750 million
|
3.000%
|
Interest due semi annually, not subject to amortization, aggregate principal due on September 12, 2027
|
2018 Senior Notes due 2028
|
$500 million
|
3.900%
|
Interest due semi annually, not subject to amortization, aggregate principal due on August 20, 2028
|
2013 Senior Notes due 2043
|
$1,150 million
|
4.700%
|
Interest due semi annually, not subject to amortization, aggregate principal due on February 1, 2043
|
2017 Senior Notes due 2047
|
$500 million
|
3.950%
|
Interest due semi annually, not subject to amortization, aggregate principal due on September 12, 2047
|
2018 Senior Notes due 2048
|
$400 million
|
4.450%
|
Interest due semi annually, not subject to amortization, aggregate principal due on August 20, 2048
|
|
|
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
|
•
|
unanticipated safety, quality or efficacy concerns about our products;
|
•
|
issues with any of our top products;
|
•
|
failure of our R&D, acquisition and licensing efforts to generate new products and product lifecycle innovations;
|
•
|
the possible impact and timing of competing products, including generic alternatives, on our products and our ability to compete against such products;
|
•
|
disruptive innovations and advances in medical practices and technologies;
|
•
|
difficulties and delays in the development, manufacturing and commercialization of new products;
|
•
|
consolidation of our customers and distributors;
|
•
|
changes in the distribution channel for companion animal products;
|
•
|
failure to successfully acquire businesses, license rights or products, integrate businesses, form and manage alliances or divest businesses;
|
•
|
acquiring or implementing new business lines or offering new products and services;
|
•
|
restrictions and bans on the use of and consumer preferences regarding antibacterials in food-producing animals;
|
•
|
perceived adverse effects linked to the consumption of food derived from animals that utilize our products or animals generally;
|
•
|
adverse global economic conditions;
|
•
|
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;
|
•
|
product launch delays, inventory shortages, recalls or unanticipated costs caused by manufacturing problems and capacity imbalances;
|
•
|
an outbreak of infectious disease carried by animals;
|
•
|
adverse weather conditions and the availability of natural resources;
|
•
|
the economic, political, legal and business environment of the foreign jurisdictions in which we do business;
|
•
|
a cyber-attack, information security breach or other misappropriation of our data;
|
•
|
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 U.S. of income earned outside the U.S. that may result from pending and possible future proposals;
|
•
|
governmental laws and regulations affecting our interactions with veterinary healthcare providers; and
|
•
|
the other factors set forth under "Risk Factors" in Item 1A of Part I of this 2019 Annual Report.
|
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, 2019, 2018 and 2017
|
|
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2019, 2018 and 2017
|
|
Consolidated Balance Sheets as of December 31, 2019 and 2018
|
|
Consolidated Statements of Equity for the Years Ended December 31, 2019, 2018 and 2017
|
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017
|
|
Schedule II—Valuation and Qualifying Accounts
|
|
|
Year Ended December 31,
|
||||||||||
(MILLIONS OF DOLLARS AND SHARES, EXCEPT PER SHARE DATA)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|||
Revenue
|
|
$
|
6,260
|
|
|
$
|
5,825
|
|
|
$
|
5,307
|
|
Costs and expenses:
|
|
|
|
|
|
|
||||||
Cost of sales(a)
|
|
1,992
|
|
|
1,911
|
|
|
1,775
|
|
|||
Selling, general and administrative expenses(a)
|
|
1,638
|
|
|
1,484
|
|
|
1,334
|
|
|||
Research and development expenses(a)
|
|
457
|
|
|
432
|
|
|
382
|
|
|||
Amortization of intangible assets
|
|
155
|
|
|
117
|
|
|
91
|
|
|||
Restructuring charges and certain acquisition-related costs
|
|
51
|
|
|
68
|
|
|
19
|
|
|||
Interest expense, net of capitalized interest
|
|
223
|
|
|
206
|
|
|
175
|
|
|||
Other (income)/deductions––net
|
|
(57
|
)
|
|
(83
|
)
|
|
6
|
|
|||
Income before provision for taxes on income
|
|
1,801
|
|
|
1,690
|
|
|
1,525
|
|
|||
Provision for taxes on income
|
|
301
|
|
|
266
|
|
|
663
|
|
|||
Net income before allocation to noncontrolling interests
|
|
1,500
|
|
|
1,424
|
|
|
862
|
|
|||
Less: Net loss attributable to noncontrolling interests
|
|
—
|
|
|
(4
|
)
|
|
(2
|
)
|
|||
Net income attributable to Zoetis
|
|
$
|
1,500
|
|
|
$
|
1,428
|
|
|
$
|
864
|
|
Earnings per share attributable to Zoetis Inc. stockholders:
|
|
|
|
|
|
|
||||||
Basic
|
|
$
|
3.14
|
|
|
$
|
2.96
|
|
|
$
|
1.76
|
|
Diluted
|
|
$
|
3.11
|
|
|
$
|
2.93
|
|
|
$
|
1.75
|
|
Weighted-average common shares outstanding:
|
|
|
|
|
|
|
||||||
Basic
|
|
478.128
|
|
|
483.063
|
|
|
489.918
|
|
|||
Diluted
|
|
481.787
|
|
|
486.898
|
|
|
493.161
|
|
|||
Dividends declared per common share
|
|
$
|
0.692
|
|
|
$
|
0.542
|
|
|
$
|
0.441
|
|
(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)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|||
Net income before allocation to noncontrolling interests
|
|
$
|
1,500
|
|
|
$
|
1,424
|
|
|
$
|
862
|
|
Other comprehensive (loss)/income, net of tax and reclassification adjustments:
|
|
|
|
|
|
|
||||||
Unrealized gain/(loss) on derivatives for cash flow hedges, net(a)
|
|
4
|
|
|
(1
|
)
|
|
(11
|
)
|
|||
Unrealized gain on derivatives for net investment hedges, net(a)
|
|
12
|
|
|
9
|
|
|
—
|
|
|||
Foreign currency translation adjustments, net
|
|
(104
|
)
|
|
(134
|
)
|
|
98
|
|
|||
Benefit plans: Actuarial (loss)/gain, net(a)
|
|
(9
|
)
|
|
2
|
|
|
8
|
|
|||
Total other comprehensive (loss)/income, net of tax
|
|
(97
|
)
|
|
(124
|
)
|
|
95
|
|
|||
Comprehensive income before allocation to noncontrolling interests
|
|
1,403
|
|
|
1,300
|
|
|
957
|
|
|||
Comprehensive loss attributable to noncontrolling interests
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|||
Comprehensive income attributable to Zoetis
|
|
$
|
1,403
|
|
|
$
|
1,304
|
|
|
$
|
957
|
|
(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)
|
|
2019
|
|
|
2018
|
|
||
Assets
|
|
|
|
|
||||
Cash and cash equivalents(a)
|
|
$
|
1,934
|
|
|
$
|
1,602
|
|
Short-term investments
|
|
—
|
|
|
99
|
|
||
Accounts receivable, less allowance for doubtful accounts of $21 in 2019 and $24 in 2018
|
|
1,086
|
|
|
1,036
|
|
||
Inventories
|
|
1,410
|
|
|
1,391
|
|
||
Other current assets
|
|
318
|
|
|
271
|
|
||
Total current assets
|
|
4,748
|
|
|
4,399
|
|
||
Property, plant and equipment, less accumulated depreciation of $1,737 in 2019 and $1,599 in 2018
|
|
1,940
|
|
|
1,658
|
|
||
Operating lease right of use assets
|
|
189
|
|
|
—
|
|
||
Goodwill
|
|
2,592
|
|
|
2,519
|
|
||
Identifiable intangible assets, less accumulated amortization
|
|
1,890
|
|
|
2,046
|
|
||
Noncurrent deferred tax assets
|
|
88
|
|
|
61
|
|
||
Other noncurrent assets
|
|
98
|
|
|
94
|
|
||
Total assets
|
|
$
|
11,545
|
|
|
$
|
10,777
|
|
|
|
|
|
|
||||
Liabilities and Equity
|
|
|
|
|
||||
Short-term borrowings
|
|
$
|
—
|
|
|
$
|
9
|
|
Current portion of long-term debt
|
|
500
|
|
|
—
|
|
||
Accounts payable
|
|
301
|
|
|
313
|
|
||
Dividends payable
|
|
95
|
|
|
79
|
|
||
Accrued expenses
|
|
543
|
|
|
487
|
|
||
Accrued compensation and related items
|
|
276
|
|
|
266
|
|
||
Income taxes payable
|
|
36
|
|
|
35
|
|
||
Other current liabilities
|
|
55
|
|
|
34
|
|
||
Total current liabilities
|
|
1,806
|
|
|
1,223
|
|
||
Long-term debt, net of discount and issuance costs
|
|
5,947
|
|
|
6,443
|
|
||
Noncurrent deferred tax liabilities
|
|
434
|
|
|
474
|
|
||
Operating lease liabilities
|
|
164
|
|
|
—
|
|
||
Other taxes payable
|
|
257
|
|
|
265
|
|
||
Other noncurrent liabilities
|
|
229
|
|
|
187
|
|
||
Total liabilities
|
|
8,837
|
|
|
8,592
|
|
||
Commitments and contingencies (Note 18)
|
|
|
|
|
||||
Stockholders' equity:
|
|
|
|
|
||||
Common stock, $0.01 par value: 6,000,000,000 authorized, 501,891,243 and 501,891,243 shares issued;
475,528,210 and 479,562,326 shares outstanding at December 31, 2019 and 2018, respectively
|
|
5
|
|
|
5
|
|
||
Treasury stock, at cost, 26,363,033 and 22,328,917 shares of common stock at December 31, 2019 and 2018, respectively
|
|
(2,042
|
)
|
|
(1,487
|
)
|
||
Additional paid-in capital
|
|
1,044
|
|
|
1,026
|
|
||
Retained earnings
|
|
4,427
|
|
|
3,270
|
|
||
Accumulated other comprehensive loss
|
|
(726
|
)
|
|
(629
|
)
|
||
Total equity
|
|
2,708
|
|
|
2,185
|
|
||
Total liabilities and equity
|
|
$
|
11,545
|
|
|
$
|
10,777
|
|
(a)
|
As of December 31, 2019 and December 31, 2018, includes $2 million and $5 million, respectively, of restricted cash.
|
|
|
|
|
Zoetis
|
|
|
|
|
||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Equity
|
|
|
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
Other
|
|
|
Attributable to
|
|
|
|
|||||||||||||
|
|
Common Stock
|
|
Treasury Stock
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Noncontrolling
|
|
|
Total
|
|
|||||||||||||||
(MILLIONS OF DOLLARS)
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Loss
|
|
|
Interests
|
|
|
Equity
|
|
|||||||
Balance, December 31, 2016
|
|
501.9
|
|
|
$
|
5
|
|
|
9.0
|
|
|
$
|
(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(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
18
|
|
||||||||||||||
Purchases of shares from a noncontrolling interest(b)
|
|
|
|
|
|
|
|
|
|
(29
|
)
|
|
|
|
|
|
(14
|
)
|
|
(43
|
)
|
|||||||||||||
Share-based compensation awards(c)
|
|
—
|
|
|
—
|
|
|
(1.6
|
)
|
|
69
|
|
|
15
|
|
|
(16
|
)
|
|
—
|
|
|
—
|
|
|
68
|
|
|||||||
Treasury stock acquired(d)
|
|
—
|
|
|
—
|
|
|
8.3
|
|
|
(500
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(500
|
)
|
|||||||
Employee benefit plan contribution from Pfizer Inc.(e)
|
|
|
|
—
|
|
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|||||||||
Dividends declared
|
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
(216
|
)
|
|
—
|
|
|
—
|
|
|
(216
|
)
|
|||||||||
Balance, December 31, 2017
|
|
501.9
|
|
|
$
|
5
|
|
|
15.8
|
|
|
$
|
(852
|
)
|
|
$
|
1,013
|
|
|
$
|
2,109
|
|
|
$
|
(505
|
)
|
|
$
|
16
|
|
|
$
|
1,786
|
|
Net income/(loss)
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
1,428
|
|
|
—
|
|
|
(4
|
)
|
|
1,424
|
|
|||||||||
Other comprehensive loss
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
(124
|
)
|
|
—
|
|
|
(124
|
)
|
|||||||||
Acquisition of a noncontrolling interest(a)
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
(12
|
)
|
|
(26
|
)
|
|||||||||||||
Share-based compensation awards(c)
|
|
—
|
|
|
—
|
|
|
(1.7
|
)
|
|
63
|
|
|
24
|
|
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
81
|
|
|||||||
Treasury stock acquired(d)
|
|
—
|
|
|
—
|
|
|
8.2
|
|
|
(698
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(698
|
)
|
|||||||
Employee benefit plan contribution from Pfizer Inc.(e)
|
|
|
|
—
|
|
|
|
|
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|||||||||
Dividends declared
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
(261
|
)
|
|
—
|
|
|
—
|
|
|
(261
|
)
|
|||||||||
Balance, December 31, 2018
|
|
501.9
|
|
|
$
|
5
|
|
|
22.3
|
|
|
$
|
(1,487
|
)
|
|
$
|
1,026
|
|
|
$
|
3,270
|
|
|
$
|
(629
|
)
|
|
$
|
—
|
|
|
$
|
2,185
|
|
Net income
|
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
1,500
|
|
|
—
|
|
|
—
|
|
|
1,500
|
|
|||||||||
Other comprehensive loss
|
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(97
|
)
|
|
—
|
|
|
(97
|
)
|
|||||||||
Share-based compensation awards(c)
|
|
—
|
|
|
—
|
|
|
(1.8
|
)
|
|
71
|
|
|
15
|
|
|
(13
|
)
|
|
—
|
|
|
—
|
|
|
73
|
|
|||||||
Treasury stock acquired(d)
|
|
—
|
|
|
—
|
|
|
5.8
|
|
|
(626
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(626
|
)
|
|||||||
Employee benefit plan contribution from Pfizer Inc.(e)
|
|
|
|
—
|
|
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|||||||||
Dividends declared
|
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
(330
|
)
|
|
—
|
|
|
—
|
|
|
(330
|
)
|
|||||||||
Balance, December 31, 2019
|
|
501.9
|
|
|
$
|
5
|
|
|
26.4
|
|
|
$
|
(2,042
|
)
|
|
$
|
1,044
|
|
|
$
|
4,427
|
|
|
$
|
(726
|
)
|
|
$
|
—
|
|
|
$
|
2,708
|
|
(a)
|
For the twelve months ended December 31, 2018 and 2017, represents the acquisition and consolidation of a European livestock monitoring company.
|
(b)
|
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.
|
(c)
|
Includes the issuance of shares of Zoetis Inc. common stock and the reacquisition of shares of treasury stock associated with exercises of employee share-based awards. Also includes the reacquisition of shares of treasury stock associated with the vesting of employee share-based awards to satisfy tax withholding requirements. For additional information, see Note 15. Share-based Payments and Note 16. Stockholders' Equity.
|
(d)
|
Reflects the acquisition of treasury shares in connection with the share repurchase program. For additional information, see Note 16. Stockholders' Equity.
|
(e)
|
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 14. Benefit Plans.
|
|
|
Year Ended December 31,
|
||||||||||
(MILLIONS OF DOLLARS)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|||
Operating Activities
|
|
|
|
|
|
|
||||||
Net income before allocation to noncontrolling interests
|
|
$
|
1,500
|
|
|
$
|
1,424
|
|
|
$
|
862
|
|
Adjustments to reconcile net income before noncontrolling interests to net cash provided by operating activities:
|
|
|
|
|
|
|
||||||
Depreciation and amortization expense
|
|
412
|
|
|
308
|
|
|
242
|
|
|||
Share-based compensation expense
|
|
67
|
|
|
53
|
|
|
44
|
|
|||
Asset write-offs and asset impairments
|
|
7
|
|
|
4
|
|
|
3
|
|
|||
Net (gain)/loss on sales of assets
|
|
(20
|
)
|
|
(42
|
)
|
|
11
|
|
|||
Provision for losses on inventory
|
|
68
|
|
|
54
|
|
|
54
|
|
|||
Deferred taxes(a)
|
|
(79
|
)
|
|
(112
|
)
|
|
127
|
|
|||
Employee benefit plan contribution from Pfizer Inc.
|
|
3
|
|
|
3
|
|
|
3
|
|
|||
Other non-cash adjustments
|
|
(12
|
)
|
|
(14
|
)
|
|
10
|
|
|||
Other changes in assets and liabilities, net of acquisitions and divestitures
|
|
|
|
|
|
|
||||||
Accounts receivable
|
|
(69
|
)
|
|
(67
|
)
|
|
(50
|
)
|
|||
Inventories
|
|
(104
|
)
|
|
61
|
|
|
19
|
|
|||
Other assets
|
|
(51
|
)
|
|
(42
|
)
|
|
(16
|
)
|
|||
Accounts payable
|
|
(10
|
)
|
|
37
|
|
|
(10
|
)
|
|||
Other liabilities
|
|
91
|
|
|
56
|
|
|
(38
|
)
|
|||
Other tax accounts, net
|
|
(8
|
)
|
|
67
|
|
|
85
|
|
|||
Net cash provided by operating activities
|
|
1,795
|
|
|
1,790
|
|
|
1,346
|
|
|||
Investing Activities
|
|
|
|
|
|
|
||||||
Capital expenditures
|
|
(460
|
)
|
|
(338
|
)
|
|
(224
|
)
|
|||
Acquisition of Abaxis, net of cash acquired
|
|
—
|
|
|
(1,884
|
)
|
|
—
|
|
|||
Other acquisitions
|
|
(195
|
)
|
|
(114
|
)
|
|
(82
|
)
|
|||
Proceeds from maturities and redemptions of investments
|
|
101
|
|
|
28
|
|
|
—
|
|
|||
Net proceeds on swaps designated as net investment hedges
|
|
37
|
|
|
—
|
|
|
—
|
|
|||
Net proceeds from sales of assets
|
|
21
|
|
|
56
|
|
|
37
|
|
|||
Other investing activities
|
|
(8
|
)
|
|
(7
|
)
|
|
(1
|
)
|
|||
Net cash used in investing activities
|
|
(504
|
)
|
|
(2,259
|
)
|
|
(270
|
)
|
|||
Financing Activities
|
|
|
|
|
|
|
||||||
(Decrease)/increase in short-term borrowings, net
|
|
(9
|
)
|
|
8
|
|
|
—
|
|
|||
Principal payments on long-term debt
|
|
—
|
|
|
—
|
|
|
(750
|
)
|
|||
Proceeds from issuance of long-term debt—senior notes, net of discount and fees
|
|
—
|
|
|
1,485
|
|
|
1,231
|
|
|||
Payment of contingent consideration related to previously acquired assets
|
|
(9
|
)
|
|
(12
|
)
|
|
(7
|
)
|
|||
Share-based compensation-related proceeds, net of taxes paid on withholding shares and excess tax benefits
|
|
7
|
|
|
19
|
|
|
24
|
|
|||
Purchases of treasury stock
|
|
(626
|
)
|
|
(698
|
)
|
|
(500
|
)
|
|||
Cash dividends paid
|
|
(314
|
)
|
|
(243
|
)
|
|
(206
|
)
|
|||
Acquisition of a noncontrolling interest
|
|
—
|
|
|
(26
|
)
|
|
(43
|
)
|
|||
Net cash (used in)/provided by financing activities
|
|
(951
|
)
|
|
533
|
|
|
(251
|
)
|
|||
Effect of exchange-rate changes on cash and cash equivalents
|
|
(8
|
)
|
|
(26
|
)
|
|
12
|
|
|||
Net increase in cash and cash equivalents
|
|
332
|
|
|
38
|
|
|
837
|
|
|||
Cash and cash equivalents at beginning of period
|
|
1,602
|
|
|
1,564
|
|
|
727
|
|
|||
Cash and cash equivalents at end of period
|
|
$
|
1,934
|
|
|
$
|
1,602
|
|
|
$
|
1,564
|
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
||||||
Cash paid during the period for:
|
|
|
|
|
|
|
||||||
Income taxes
|
|
$
|
418
|
|
|
$
|
336
|
|
|
$
|
455
|
|
Interest, net of capitalized interest
|
|
247
|
|
|
190
|
|
|
167
|
|
|||
Non-cash transactions:
|
|
|
|
|
|
|
||||||
Capital expenditures
|
|
$
|
7
|
|
|
$
|
7
|
|
|
$
|
5
|
|
Contingent purchase price consideration
|
|
23
|
|
|
—
|
|
|
29
|
|
|||
Dividends declared, not paid
|
|
95
|
|
|
79
|
|
|
61
|
|
•
|
for sales returns, we perform calculations in each market that incorporate the following, as appropriate: local returns policies and practices; historic returns as a percentage of revenue; 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 for the current period.
|
•
|
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 2019, we performed a qualitative impairment assessment as of September 30, 2019, which did not result in the impairment of goodwill associated with any of our reporting units. In 2018, we performed a quantitative impairment assessment as of September 30, 2018, which did not result in the impairment of goodwill associated with any of our reporting units.
|
•
|
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).
|
•
|
vaccines: biological preparations that help prevent diseases of the respiratory, gastrointestinal and reproductive tracts or induce a specific immune response;
|
•
|
anti-infectives: products that prevent, kill or slow the growth of bacteria, fungi or protozoa;
|
•
|
parasiticides: products that prevent or eliminate external and internal parasites such as fleas, ticks and worms;
|
•
|
other pharmaceutical products: pain and sedation, antiemetic, reproductive, and oncology products;
|
•
|
dermatology products: products that relieve itch associated with allergic conditions and atopic dermatitis;
|
•
|
medicated feed additives: products added to animal feed that provide medicines to livestock; and
|
•
|
animal health diagnostics: portable blood and urine analysis systems and point-of-care diagnostic products, including instruments and reagents, rapid immunoassay tests, reference laboratory kits and blood glucose monitors.
|
|
|
Year Ended December 31,
|
||||||||||
(MILLIONS OF DOLLARS)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|||
United States
|
|
$
|
3,203
|
|
|
$
|
2,877
|
|
|
$
|
2,620
|
|
Australia
|
|
196
|
|
|
189
|
|
|
176
|
|
|||
Brazil
|
|
293
|
|
|
295
|
|
|
300
|
|
|||
Canada
|
|
206
|
|
|
203
|
|
|
184
|
|
|||
China
|
|
200
|
|
|
211
|
|
|
174
|
|
|||
France
|
|
117
|
|
|
130
|
|
|
121
|
|
|||
Germany
|
|
153
|
|
|
147
|
|
|
137
|
|
|||
Italy
|
|
112
|
|
|
104
|
|
|
89
|
|
|||
Japan
|
|
158
|
|
|
149
|
|
|
138
|
|
|||
Mexico
|
|
117
|
|
|
100
|
|
|
86
|
|
|||
Spain
|
|
114
|
|
|
110
|
|
|
93
|
|
|||
United Kingdom
|
|
198
|
|
|
181
|
|
|
149
|
|
|||
Other developed markets
|
|
370
|
|
|
361
|
|
|
339
|
|
|||
Other emerging markets
|
|
738
|
|
|
710
|
|
|
657
|
|
|||
|
|
6,175
|
|
|
5,767
|
|
|
5,263
|
|
|||
Contract manufacturing & human health
|
|
85
|
|
|
58
|
|
|
44
|
|
|||
Total Revenue
|
|
$
|
6,260
|
|
|
$
|
5,825
|
|
|
$
|
5,307
|
|
|
Year Ended December 31,
|
||||||||
(MILLIONS OF DOLLARS)
|
2019
|
|
2018
|
|
2017
|
|
|||
U.S.
|
|
|
|
||||||
Livestock
|
$
|
1,219
|
|
$
|
1,269
|
|
$
|
1,244
|
|
Companion animal
|
1,984
|
|
1,608
|
|
1,376
|
|
|||
|
3,203
|
|
2,877
|
|
2,620
|
|
|||
International
|
|
|
|
||||||
Livestock
|
1,811
|
|
1,885
|
|
1,793
|
|
|||
Companion animal
|
1,161
|
|
1,005
|
|
850
|
|
|||
|
2,972
|
|
2,890
|
|
2,643
|
|
|||
Total
|
|
|
|
||||||
Livestock
|
3,030
|
|
3,154
|
|
3,037
|
|
|||
Companion animal
|
3,145
|
|
2,613
|
|
2,226
|
|
|||
Contract manufacturing & human health
|
85
|
|
58
|
|
44
|
|
|||
Total Revenue
|
$
|
6,260
|
|
$
|
5,825
|
|
$
|
5,307
|
|
|
|
Year Ended December 31,
|
||||||||||
(MILLIONS OF DOLLARS)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|||
Livestock:
|
|
|
|
|
|
|
||||||
Cattle
|
|
$
|
1,654
|
|
|
$
|
1,754
|
|
|
$
|
1,735
|
|
Swine
|
|
611
|
|
|
663
|
|
|
621
|
|
|||
Poultry
|
|
559
|
|
|
522
|
|
|
479
|
|
|||
Fish
|
|
134
|
|
|
132
|
|
|
118
|
|
|||
Other
|
|
72
|
|
|
83
|
|
|
84
|
|
|||
|
|
3,030
|
|
|
3,154
|
|
|
3,037
|
|
|||
Companion Animal:
|
|
|
|
|
|
|
||||||
Horses
|
|
195
|
|
|
168
|
|
|
151
|
|
|||
Dogs and Cats
|
|
2,950
|
|
|
2,445
|
|
|
2,075
|
|
|||
|
|
3,145
|
|
|
2,613
|
|
|
2,226
|
|
|||
Contract manufacturing & human health
|
|
85
|
|
|
58
|
|
|
44
|
|
|||
Total Revenue
|
|
$
|
6,260
|
|
|
$
|
5,825
|
|
|
$
|
5,307
|
|
|
|
Year Ended December 31,
|
||||||||||
(MILLIONS OF DOLLARS)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|||
Vaccines
|
|
$
|
1,483
|
|
|
$
|
1,488
|
|
|
$
|
1,373
|
|
Anti-infectives
|
|
1,254
|
|
|
1,280
|
|
|
1,253
|
|
|||
Parasiticides
|
|
966
|
|
|
836
|
|
|
763
|
|
|||
Other pharmaceuticals
|
|
780
|
|
|
765
|
|
|
753
|
|
|||
Dermatology
|
|
770
|
|
|
607
|
|
|
428
|
|
|||
Medicated feed additives
|
|
470
|
|
|
485
|
|
|
475
|
|
|||
Animal health diagnostics
|
|
268
|
|
|
136
|
|
|
44
|
|
|||
Other non-pharmaceuticals
|
|
184
|
|
|
170
|
|
|
174
|
|
|||
|
|
6,175
|
|
|
5,767
|
|
|
5,263
|
|
|||
Contract manufacturing & human health
|
|
85
|
|
|
58
|
|
|
44
|
|
|||
Total Revenue
|
|
$
|
6,260
|
|
|
$
|
5,825
|
|
|
$
|
5,307
|
|
(MILLIONS OF DOLLARS)
|
Amounts
|
|
|
Cash paid to Abaxis' shareholders(a)
|
$
|
1,898
|
|
Cash paid for equity awards attributable to pre-merger services(b)
|
54
|
|
|
Fair value of Zoetis equity awards issued in exchange for outstanding Abaxis equity awards pertaining to pre-merger service(c)
|
10
|
|
|
Total consideration
|
$
|
1,962
|
|
(a)
|
Represents cash paid for cancellation and conversion of each outstanding share of Abaxis' common stock at the acquisition date.
|
(b)
|
Represents cash paid for cancellation and settlement of restricted stock awards that fully vested in July 2018 as a result of service or pre-existing change-in-control provisions and termination provisions. Includes certain awards that will be settled in cash during 2019, reflected in Other current liabilities within the Consolidated Balance Sheets.
|
(c)
|
Represents the fair value of replacement awards issued for Abaxis equity awards outstanding immediately before the acquisition and attributable to the service period prior to the acquisition. The previous Abaxis equity awards were converted into the Zoetis equity awards at an exchange ratio based on the closing prices of shares of Zoetis Common Stock and Abaxis Common Stock for ten full trading days before the closing of the acquisition.
|
(MILLIONS OF DOLLARS)
|
Amounts
|
||
Cash and cash equivalents
|
$
|
64
|
|
Short term investments(a)
|
107
|
|
|
Accounts receivable(b)
|
30
|
|
|
Inventories(c)
|
79
|
|
|
Other current assets
|
6
|
|
|
Property, plant and equipment(d)
|
54
|
|
|
Identifiable intangible assets(e)
|
894
|
|
|
Other noncurrent assets
|
29
|
|
|
Accounts payable
|
(21
|
)
|
|
Accrued compensation and related items
|
(10
|
)
|
|
Other current liabilities
|
(22
|
)
|
|
Other noncurrent liabilities
|
(11
|
)
|
|
Noncurrent deferred tax liabilities(f)
|
(214
|
)
|
|
Total net assets acquired
|
985
|
|
|
Goodwill(g)
|
977
|
|
|
Total consideration
|
$
|
1,962
|
|
(a)
|
Short term investments include investments in debt securities that are classified as available-for-sale and measured at fair value.
|
(b)
|
The fair value approximates the gross contractual amount of accounts receivable. The contractual amount not expected to be collected is immaterial.
|
(c)
|
Acquired inventory is comprised of finished goods, work in process and raw materials. The fair value of finished goods was determined based on net realizable value adjusted for the costs of the selling effort, a reasonable profit allowance for the selling effort, and estimated holding costs. The fair value of work in process was determined based on net realizable value adjusted for costs to complete the manufacturing process, costs of the selling effort, a reasonable profit allowance for the remaining manufacturing and selling effort, and an estimate of holding costs. The fair value of raw materials was determined to approximate book value.
|
(d)
|
Property, plant and equipment is comprised of machinery and equipment, furniture and fixtures, computer equipment, leasehold improvements and construction in progress. The fair value was primarily determined using a reproduction/replacement cost approach which measures the value of an asset by estimating the cost to acquire or construct comparable assets adjusted for age and condition of the asset.
|
(e)
|
Identifiable intangible assets primarily consist of developed technology rights, customer relationships, and trademarks and tradenames. The fair value of identifiable intangible assets was determined using the income approach, which includes a forecast of expected future cash flows. For additional information regarding identifiable intangible assets, see Note 13. Goodwill and Other Intangible Assets.
|
(f)
|
The acquisition was structured as a stock purchase and therefore we assumed the historical tax basis of Abaxis' assets and liabilities. The estimate of deferred tax effects resulting from the acquisition include the expected federal, state, and foreign tax consequences associated with temporary differences between the fair values of the assets acquired and liabilities assumed and the respective tax basis. The components of the Abaxis net deferred tax liability are included within amounts reported in Note 8. Tax Matters.
|
(g)
|
Goodwill represents the excess of consideration transferred over the fair values of the assets acquired and liabilities assumed. It is allocated to our existing reportable segments and is primarily attributable to the future potential of the technology platforms, as well as cost and revenue synergies including market share capture, elimination of cost redundancies and gain of cost efficiencies, and intangible assets such as assembled workforce which are not separately recognizable. The primary strategic purpose of the acquisition was to enhance the company’s existing product portfolio by strengthening Zoetis’ presence in veterinary diagnostics. The goodwill recorded is not deductible for tax purposes.
|
|
|
Year Ended December 31,
|
||||||
(MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
|
|
2018
|
|
|
2017
|
|
||
Revenue
|
|
$
|
5,980
|
|
|
$
|
5,542
|
|
Net income attributable to Zoetis Inc.
|
|
1,402
|
|
|
706
|
|
•
|
Acquisition-related costs incurred by Zoetis and Abaxis of $82 million have been removed for the year ended December 31, 2018. Acquisition-related costs of $60 million are assumed to be have been incurred during the year ended December 31, 2017.
|
•
|
Additional amortization expense of $77 million for the year ended December 31, 2018, and $130 million for the year ended December 31, 2017, related to the fair value of identified intangible assets acquired.
|
•
|
Additional depreciation expense of $2 million for the year ended December 31, 2018, and $3 million for the year ended December 31, 2017, related to the fair value adjustments to property, plant and equipment acquired.
|
•
|
Adjustment related to the the non-recurring fair value adjustment to acquisition date inventory estimated to have been sold, resulting in $18 million removed for the year ended December 31, 2018, and $33 million added for the year ended December 31, 2017.
|
•
|
Additional interest expense and amortization of debt issuance costs for the debt issuance to finance the acquisition, resulting in $36 million added for the year ended December 31, 2018, and $57 million added for the year ended December 31, 2017.
|
•
|
Adjustments related to the post merger share-based compensation expense of the replacement awards are $4 million for the year ended December 31, 2018, and $13 million for the year ended December 31, 2017.
|
•
|
Applicable tax impact of the above adjustments based on the statutory tax rates in the various jurisdictions where the adjustments are expected to be incurred.
|
|
|
Year Ended December 31,
|
||||||||||
(MILLIONS OF DOLLARS)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|||
Restructuring charges and certain acquisition-related costs:
|
|
|
|
|
|
|
||||||
Integration costs(a)
|
|
$
|
18
|
|
|
$
|
21
|
|
|
$
|
6
|
|
Transaction costs(b)
|
|
—
|
|
|
21
|
|
|
—
|
|
|||
Restructuring charges(c)(d):
|
|
|
|
|
|
|
||||||
Employee termination costs/(reversals)
|
|
33
|
|
|
25
|
|
|
10
|
|
|||
Exit costs
|
|
—
|
|
|
1
|
|
|
3
|
|
|||
Total Restructuring charges and certain acquisition-related costs
|
|
$
|
51
|
|
|
$
|
68
|
|
|
$
|
19
|
|
(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, 2019, are primarily related to the acquisition of Abaxis and CEO transition-related costs.
|
•
|
employee termination costs of $7 million in Europe as a result of initiatives to better align our organizational structure;
|
•
|
employee termination costs of $21 million related to the acquisition of Abaxis; and
|
•
|
a net reversal of employee termination costs of $3 million, and exit costs of $1 million as a result of our operational efficiency initiative and supply network strategy initiative launched in 2015.
|
|
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 initiative launched in 2015;
|
•
|
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.
|
(d)
|
The restructuring charges are associated with the following:
|
•
|
For the year ended December 31, 2019, International of $2 million and Manufacturing/research/corporate of $31 million.
|
•
|
For the year ended December 31, 2018, International of $7 million, and Manufacturing/research/corporate of a $19 million.
|
•
|
For the year ended December 31, 2017 International of $2 million, and Manufacturing/research/corporate of a $11 million.
|
|
|
Employee
|
|
|
|
|
|
|
|||||
|
|
Termination
|
|
|
|
Exit
|
|
|
|
||||
(MILLIONS OF DOLLARS)
|
|
Costs
|
|
|
|
Costs
|
|
|
Accrual
|
|
|||
Balance, December 31, 2016
|
|
$
|
90
|
|
|
|
$
|
—
|
|
|
$
|
90
|
|
Provision
|
|
10
|
|
|
|
3
|
|
|
13
|
|
|||
Utilization and other(a)
|
|
(59
|
)
|
|
|
(3
|
)
|
|
(62
|
)
|
|||
Balance, December 31, 2017
|
|
$
|
41
|
|
|
|
$
|
—
|
|
|
$
|
41
|
|
Provision
|
|
25
|
|
|
|
1
|
|
|
26
|
|
|||
Utilization and other(a)
|
|
(21
|
)
|
|
|
(1
|
)
|
|
(22
|
)
|
|||
Balance, December 31, 2018(b)
|
|
$
|
45
|
|
|
|
$
|
—
|
|
|
$
|
45
|
|
Provision
|
|
33
|
|
|
|
—
|
|
|
33
|
|
|||
Utilization and other(a)
|
|
(33
|
)
|
|
|
—
|
|
|
(33
|
)
|
|||
Balance, December 31, 2019(b)
|
|
$
|
45
|
|
|
|
$
|
—
|
|
|
$
|
45
|
|
(a)
|
Includes adjustments for foreign currency translation.
|
(b)
|
At December 31, 2019 and 2018, included in Accrued Expenses ($23 million and $27 million, respectively) and Other noncurrent liabilities ($22 million and $18 million, respectively).
|
|
|
Year Ended December 31,
|
||||||||||
(MILLIONS OF DOLLARS)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|||
Royalty-related income(a)
|
|
$
|
(16
|
)
|
|
$
|
(28
|
)
|
|
$
|
(12
|
)
|
Interest income
|
|
(37
|
)
|
|
(31
|
)
|
|
(13
|
)
|
|||
Net (gain)/loss on sale of assets(b)
|
|
(20
|
)
|
|
(40
|
)
|
|
11
|
|
|||
Certain legal and other matters, net(c)
|
|
—
|
|
|
—
|
|
|
(8
|
)
|
|||
Foreign currency loss(d)
|
|
16
|
|
|
31
|
|
|
29
|
|
|||
Other, net(e)
|
|
—
|
|
|
(15
|
)
|
|
(1
|
)
|
|||
Other (income)/deductions—net
|
|
$
|
(57
|
)
|
|
$
|
(83
|
)
|
|
$
|
6
|
|
(a)
|
For 2017, includes an adjustment to our royalty income.
|
(b)
|
For 2019, represents income resulting from a payment received pursuant to an agreement related to the 2016 sale of certain U.S. manufacturing sites.
|
(c)
|
For 2017, includes income associated with an insurance recovery related to commercial settlements, as well as a favorable outcome on a patent infringement settlement.
|
(d)
|
Primarily driven by costs related to hedging and exposures to certain emerging market currencies.
|
(e)
|
For 2018, primarily includes a net gain related to the relocation of a manufacturing site in China.
|
|
|
Year Ended December 31,
|
||||||||||
(MILLIONS OF DOLLARS)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|||
United States
|
|
$
|
965
|
|
|
$
|
937
|
|
|
$
|
897
|
|
International
|
|
836
|
|
|
753
|
|
|
628
|
|
|||
Income before provision for taxes on income
|
|
$
|
1,801
|
|
|
$
|
1,690
|
|
|
$
|
1,525
|
|
|
|
Year Ended December 31,
|
||||||||||
(MILLIONS OF DOLLARS)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|||
United States:
|
|
|
|
|
|
|
||||||
Current income taxes:
|
|
|
|
|
|
|
||||||
Federal
|
|
$
|
192
|
|
|
$
|
199
|
|
|
$
|
384
|
|
State and local
|
|
28
|
|
|
32
|
|
|
25
|
|
|||
Deferred income taxes:
|
|
|
|
|
|
|
||||||
Federal
|
|
(5
|
)
|
|
(107
|
)
|
|
113
|
|
|||
State and local
|
|
(15
|
)
|
|
3
|
|
|
2
|
|
|||
Total U.S. tax provision
|
|
200
|
|
|
127
|
|
|
524
|
|
|||
International:
|
|
|
|
|
|
|
||||||
Current income taxes
|
|
161
|
|
|
148
|
|
|
126
|
|
|||
Deferred income taxes
|
|
(60
|
)
|
|
(9
|
)
|
|
13
|
|
|||
Total international tax provision
|
|
101
|
|
|
139
|
|
|
139
|
|
|||
Provision for taxes on income(a)(b)(c)
|
|
$
|
301
|
|
|
$
|
266
|
|
|
$
|
663
|
|
(a)
|
In 2019, 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 operations and repatriation costs. The jurisdictional mix of earnings can vary as a result of repatriation decisions, 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 gains and losses on asset divestitures;
|
•
|
the impact of the GILTI tax, a new provision of the Tax Act, which became effective for the company in the first quarter of 2019;
|
•
|
a $20 million discrete tax benefit recorded in 2019 related to the excess tax benefits for share-based compensation payments;
|
•
|
an $18 million discrete tax benefit related to the changes in valuation allowances;
|
•
|
a $14 million net discrete tax benefit recorded in the third quarter of 2019, due to a change in tax basis related to purchase accounting;
|
•
|
a $12 million net discrete tax benefit recorded in 2019, related to changes in various other tax items;
|
•
|
an $8 million discrete tax benefit recorded in 2019 related to a remeasurement of deferred tax assets and liabilities as a result of a change in U.S. and non-U.S. statutory tax rates;
|
•
|
U.S. tax benefit related to U.S. Research and Development Tax Credit; and
|
•
|
tax expense related to changes in uncertain tax positions (see D. Tax Contingencies).
|
(b)
|
In 2018, 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 operations and repatriation costs. The jurisdictional mix of earnings can vary as a result of repatriation decisions, 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 gains and losses on asset divestitures;
|
•
|
the reduction of the U.S. federal corporate income tax rate, from 35% to 21%, effective January 1, 2018, pursuant to the Tax Act;
|
•
|
a $45 million net tax benefit recorded in 2018, associated with a measurement-period adjustment to the one-time mandatory deemed repatriation tax on the company’s undistributed non-U.S. earnings pursuant to the Tax Act;
|
•
|
a $23 million discrete tax benefit recorded in 2018 related to the favorable impact of certain tax accounting method changes;
|
•
|
a $15 million discrete tax benefit recorded in 2018 related to the excess tax benefits for share-based compensation payments;
|
•
|
a $5 million discrete tax benefit recorded in 2018 related to a remeasurement of deferred tax assets and liabilities as a result of a change in non-U.S. statutory tax rates;
|
•
|
U.S. tax benefit related to U.S. Research and Development Tax Credit;
|
•
|
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 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 compensation 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).
|
|
|
Year Ended December 31,
|
|||||||
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
U.S. statutory income tax rate
|
|
21
|
%
|
|
21
|
%
|
|
35
|
%
|
State and local taxes, net of federal benefits
|
|
0.6
|
|
|
1.8
|
|
|
0.7
|
|
Unrecognized tax benefits and tax settlements and resolution of certain tax positions(a)
|
|
0.5
|
|
|
1.2
|
|
|
6.0
|
|
Impact of the Tax Act(b)
|
|
—
|
|
|
(3.9
|
)
|
|
7.7
|
|
Impact of Tax Accounting Method Changes
|
|
—
|
|
|
(1.3
|
)
|
|
—
|
|
U.S. Research and Development Tax Credit and U.S. Domestic Production Activities deduction(c)
|
|
(0.7
|
)
|
|
(0.5
|
)
|
|
(1.3
|
)
|
Share-based compensation
|
|
(1.0
|
)
|
|
(0.8
|
)
|
|
(0.5
|
)
|
Non-deductible / non-taxable items
|
|
(0.2
|
)
|
|
(1.6
|
)
|
|
0.5
|
|
Taxation of non-U.S. operations(d)(e)
|
|
(3.1
|
)
|
|
(0.3
|
)
|
|
(3.9
|
)
|
All other—net
|
|
(0.4
|
)
|
|
0.1
|
|
|
(0.7
|
)
|
Effective tax rate
|
|
16.7
|
%
|
|
15.7
|
%
|
|
43.5
|
%
|
(a)
|
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.
|
(b)
|
In 2018, the rate impact related to the Tax Act was a decrease to our effective tax rate. This tax benefit represents the measurement-period adjustment related to the one-time mandatory deemed repatriation tax on the company’s undistributed non-U.S. earnings. In 2017, the rate impact related to the Tax Act was an increase to our effective tax rate. The provisional net tax charge represented 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 due to the reduction in the U.S. federal corporate tax rate.
|
(c)
|
In all years, the benefit associated with the U.S. Research and Development Tax Credit was a decrease to our effective tax rate. Included in 2017, is also the benefit associated with the U.S. Domestic Production Activities deduction which was also a decrease to our effective tax rate.
|
(d)
|
The rate impact of taxation of non-U.S. operations was a decrease to our effective tax rate in 2017 through 2019 due to the jurisdictional mix of earnings.
|
(e)
|
In 2019, the rate impact of non-U.S. operations also includes (i) an $18 million discrete tax benefit related to the changes in valuation allowances, (ii) a $14 million net discrete tax benefit recorded in the third quarter of 2019, due to a change in tax basis related to purchase accounting, and (iii) a $10 million discrete tax benefit recorded in 2019 related to the effective settlement of certain issues with non-U.S. tax authorities.
|
•
|
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.
|
|
|
As of December 31,
|
||||||
|
|
2019
|
|
|
2018
|
|
||
(MILLIONS OF DOLLARS)
|
|
Assets (Liabilities)
|
||||||
Prepaid/deferred items
|
|
$
|
42
|
|
|
$
|
34
|
|
Inventories
|
|
(1
|
)
|
|
(2
|
)
|
||
Intangibles
|
|
(296
|
)
|
|
(370
|
)
|
||
Property, plant and equipment
|
|
(149
|
)
|
|
(114
|
)
|
||
Employee benefits
|
|
61
|
|
|
54
|
|
||
Restructuring and other charges
|
|
4
|
|
|
5
|
|
||
Legal and product liability reserves
|
|
14
|
|
|
12
|
|
||
Net operating loss/credit carryforwards
|
|
118
|
|
|
128
|
|
||
Unremitted earnings
|
|
(2
|
)
|
|
(5
|
)
|
||
All other
|
|
(1
|
)
|
|
—
|
|
||
Subtotal
|
|
(210
|
)
|
|
(258
|
)
|
||
Valuation allowance
|
|
(136
|
)
|
|
(155
|
)
|
||
Net deferred tax liability(a)(b)
|
|
$
|
(346
|
)
|
|
$
|
(413
|
)
|
(a)
|
The decrease in the total net deferred tax liability from December 31, 2018 to December 31, 2019 is primarily attributable to a decrease in deferred tax liabilities related to intangibles and valuation allowances representing the amounts determined to be unrecoverable, partially offset by an increase in deferred tax liabilities related to property, plant and equipment. In addition, the decrease in the total net deferred tax liability was also attributable to an increase in deferred tax assets related to prepaid/deferred items, employee benefits, partially offset by a decrease in net operating loss/credit carryforwards.
|
(b)
|
In 2019, included in Noncurrent deferred tax assets ($88 million) and Noncurrent deferred tax liabilities ($434 million). In 2018, included in Noncurrent deferred tax assets ($61 million) and Noncurrent deferred tax liabilities ($474 million).
|
•
|
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, 2019, 2018 and 2017, we had approximately $3 million, $3 million and $3 million, respectively, in assets associated with uncertain tax positions recorded in Noncurrent deferred tax assets and 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)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|||
Balance, January 1
|
|
$
|
(185
|
)
|
|
$
|
(164
|
)
|
|
$
|
(68
|
)
|
Increases based on tax positions taken during a prior period(a)(b)
|
|
(3
|
)
|
|
(24
|
)
|
|
(4
|
)
|
|||
Decreases based on tax positions taken during a prior period(a)(c)
|
|
12
|
|
|
6
|
|
|
12
|
|
|||
Increases based on tax positions taken during the current period(a)(d)
|
|
(8
|
)
|
|
(11
|
)
|
|
(107
|
)
|
|||
Settlements(e)
|
|
—
|
|
|
6
|
|
|
—
|
|
|||
Lapse in statute of limitations
|
|
2
|
|
|
2
|
|
|
3
|
|
|||
Balance, December 31(f)
|
|
$
|
(182
|
)
|
|
$
|
(185
|
)
|
|
$
|
(164
|
)
|
(a)
|
Primarily included in Provision for taxes on income.
|
(b)
|
In 2019, the increases are primarily related to movements on prior year positions. In 2018, the increases are primarily related to the impact of the Tax Act and movements on prior year positions. In 2017, the increases are primarily related to movements on prior year positions, including movements in foreign translation adjustments on prior year positions. See A. Taxes on Income.
|
(c)
|
In 2019, the decreases are primarily related to movements on prior year positions and effective settlement of certain issues with non-U.S. tax authorities, including movements in foreign translation adjustments on prior year positions. In 2018, the decreases are primarily related to movements on prior year positions and closure of audits with U.S. and non-U.S. tax authorities, including movements in foreign translation adjustments on prior year positions. 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. See A. Taxes on Income.
|
(d)
|
In 2019 and 2018, the increases are primarily related to movements on current year positions. In 2017, the increases are primarily related to the impact of the Tax Act. See A. Taxes on Income.
|
(e)
|
In 2018, the decreases are due to settlements with U.S. and non-U.S. tax authorities. See A. Taxes on Income.
|
(f)
|
In 2019, included in Noncurrent deferred tax assets and Other noncurrent assets ($2 million) and Other taxes payable ($180 million). In 2018, included in Noncurrent deferred tax assets and Other noncurrent assets ($3 million) and Other taxes payable ($182 million). In 2017, included in Noncurrent deferred tax assets and Other noncurrent assets ($3 million) and Other taxes payable ($161 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 2019, we recorded a net interest expense of $2 million; in 2018, we recorded a net interest expense of $1 million; and in 2017, we recorded a net interest expense of $1 million. Gross accrued interest totaled $9 million, $8 million and $7 million as of December 31, 2019, 2018 and 2017, respectively, and were included in Other taxes payable. Gross accrued penalties totaled $3 million, $3 million and $4 million as of December 31, 2019, 2018 and 2017, respectively, and were included in Other taxes payable.
|
|
|
As of December 31,
|
||||||
(MILLIONS OF DOLLARS)
|
|
2019
|
|
|
2018
|
|
||
3.450% 2015 senior notes due 2020
|
|
$
|
500
|
|
|
$
|
500
|
|
2018 floating rate (three-month USD LIBOR plus 0.44%) senior notes due 2021
|
|
300
|
|
|
300
|
|
||
3.250% 2018 senior notes due 2021
|
|
300
|
|
|
300
|
|
||
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
|
|
|
750
|
|
||
3.900% 2018 senior notes due 2028
|
|
500
|
|
|
500
|
|
||
4.700% 2013 senior notes due 2043
|
|
1,150
|
|
|
1,150
|
|
||
3.950% 2017 senior notes due 2047
|
|
500
|
|
|
500
|
|
||
4.450% 2018 senior notes due 2048
|
|
400
|
|
|
400
|
|
||
|
|
6,500
|
|
|
6,500
|
|
||
Unamortized debt discount / debt issuance costs
|
|
(51
|
)
|
|
(57
|
)
|
||
Less current portion of long-term debt
|
|
500
|
|
|
—
|
|
||
Cumulative fair value adjustment for interest rate swap contracts
|
|
(2
|
)
|
|
—
|
|
||
Long-term debt, net of discount and issuance costs
|
|
$
|
5,947
|
|
|
$
|
6,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After
|
|
|
|
|||||||||||||
(MILLIONS OF DOLLARS)
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
2024
|
|
|
Total
|
|
|||||||
Maturities
|
|
$
|
500
|
|
|
$
|
600
|
|
|
$
|
—
|
|
|
$
|
1,350
|
|
|
$
|
—
|
|
|
$
|
4,050
|
|
|
$
|
6,500
|
|
|
|
Gross Unrealized
|
|
|
Maturities by Period(a)
|
||||||||||||||||||||||||||||
(MILLIONS OF DOLLARS)
|
|
Amortized Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
|
|
Within 1 year
|
|
Over 1 to 5 years
|
|
Over 5 years
|
|
Total
|
||||||||||||||||
Available-for-sale debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Municipal Bonds
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
Corporate Bonds
|
|
100
|
|
|
—
|
|
|
—
|
|
|
100
|
|
|
|
98
|
|
|
2
|
|
|
—
|
|
|
100
|
|
||||||||
Total debt securities
|
|
$
|
101
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
101
|
|
|
|
$
|
99
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
101
|
|
•
|
For foreign exchange contracts not designated as hedging instruments, we recognize the gains and losses on forward-exchange contracts that are used to offset the same foreign currency assets or liabilities immediately into earnings along with the earnings impact of the items they generally offset. These contracts essentially take the opposite currency position of that reflected in the month-end balance sheet to counterbalance the effect of any currency movement. The vast majority of the foreign exchange derivative financial instruments mature within 60 days and all mature within three years.
|
•
|
For cross-currency interest rate swaps, which are designated as a hedge against our net investment in foreign operations, changes in the fair value are deferred as a component of cumulative translation adjustment within Accumulated other comprehensive loss and reclassified into earnings when the foreign investment is sold or substantially liquidated. Gains and losses excluded from the assessment of hedge effectiveness are recognized in earnings (Interest expense—net of capitalized interest). The cash flows from these contracts are reflected within the investing section of our Consolidated Statements of Cash Flows. The cross-currency interest rate swap contracts have varying maturities of up to six years.
|
•
|
In anticipation of issuing fixed-rate debt, we may use forward-starting interest rate swaps that are designated as cash flow hedges to hedge against changes in interest rates that could impact expected future issuances of debt. Unrealized gains or losses on the forward-starting interest rate swaps are reported in Accumulated other comprehensive loss and are recognized in earnings over the life of the future fixed-rate notes. When the company discontinues hedge accounting because it is no longer probable that an anticipated transaction will occur within the originally expected period of execution, or within an additional two-month period thereafter, changes to fair value accumulated in other comprehensive income are recognized immediately in earnings. For the twelve months ended December 31, 2019, we entered into interest rate swaps having an effective date and mandatory termination date in March 2023. We designated these swaps as cash flow hedges against interest rate exposure related principally to the anticipated future issuance of fixed-rate debt to be used primarily to refinance our 3.250% 2013 senior notes due 2023.
|
•
|
We may use fixed-to-floating interest rate swaps that are designated as fair value hedges to hedge against changes in the fair value of certain fixed-rate debt attributable to changes in the benchmark LIBOR rate. These derivative instruments effectively convert a portion of the company’s long-term debt from fixed rate to floating rate debt based on three-month LIBOR plus a spread. Gains or losses on the fixed to floating interest rate swaps due to changes in LIBOR are recorded in Interest expense, net of capitalized interest. Changes in the fair value of the fixed-to-floating interest rate swaps are offset by changes in the fair value of the underlying fixed rate debt. As of December 31, 2019, we had an outstanding fixed-to-floating interest rate swap which corresponds to a portion of the 3.9% Senior Notes due 2028.
|
|
|
Notional
|
||||||
|
|
As of December 31,
|
||||||
(MILLIONS)
|
|
2019
|
|
2018
|
||||
Foreign currency forward-exchange contracts
|
|
$
|
1,364
|
|
|
$
|
1,330
|
|
|
|
|
|
|
||||
Cross-currency interest rate swap contracts (in foreign currency):
|
|
|
|
|
||||
Euro
|
|
650
|
|
|
400
|
|
||
Danish krone
|
|
600
|
|
|
—
|
|
||
Swiss franc
|
|
25
|
|
|
—
|
|
||
|
|
|
|
|
||||
Forward-starting interest rate swaps
|
|
$
|
250
|
|
|
$
|
—
|
|
|
|
|
|
|
||||
Fixed-to-floating interest rate swap contracts
|
|
$
|
150
|
|
|
$
|
—
|
|
|
|
|
|
Fair Value of Derivatives
|
||||||
|
|
|
|
As of December 31,
|
||||||
(MILLIONS OF DOLLARS)
|
|
Balance Sheet Location
|
|
2019
|
|
|
2018
|
|
||
Derivatives Not Designated as Hedging Instruments:
|
|
|
|
|
|
|
||||
Foreign currency forward-exchange contracts
|
|
Other current assets
|
|
$
|
7
|
|
|
$
|
6
|
|
Foreign currency forward-exchange contracts
|
|
Other current liabilities
|
|
(5
|
)
|
|
(7
|
)
|
||
Total derivatives not designated as hedging instruments
|
|
|
|
2
|
|
|
(1
|
)
|
||
|
|
|
|
|
|
|
||||
Derivatives Designated as Hedging Instruments:
|
|
|
|
|
|
|
||||
Forward starting interest rate swap contracts
|
|
Other non-current assets
|
|
$
|
5
|
|
|
$
|
—
|
|
Forward starting interest rate swap contracts
|
|
Other non-current liabilities
|
|
(1
|
)
|
|
—
|
|
||
Cross-currency interest rate swap contracts
|
|
Other current assets
|
|
4
|
|
|
3
|
|
||
Cross-currency interest rate swap contracts
|
|
Other non-current assets
|
|
20
|
|
|
8
|
|
||
Cross-currency interest rate swap contracts
|
|
Other current liabilities
|
|
(3
|
)
|
|
—
|
|
||
Fixed to floating interest rate swap contracts
|
|
Other non-current liabilities
|
|
(2
|
)
|
|
—
|
|
||
Total derivatives designated as hedging instruments
|
|
|
|
23
|
|
|
11
|
|
||
|
|
|
|
|
|
|
||||
Total derivatives
|
|
|
|
$
|
25
|
|
|
$
|
10
|
|
|
|
Year Ended December 31,
|
||||||
(MILLIONS OF DOLLARS)
|
|
2019
|
|
|
2018
|
|
||
Foreign currency forward-exchange contracts
|
|
$
|
—
|
|
|
$
|
6
|
|
|
|
Year Ended December 31,
|
||||||
(MILLIONS OF DOLLARS)
|
|
2019
|
|
|
2018
|
|
||
Forward starting interest rate swap contracts
|
|
$
|
3
|
|
|
$
|
—
|
|
Cross-currency interest rate swap contracts
|
|
$
|
12
|
|
|
$
|
9
|
|
|
|
Year Ended December 31,
|
||||||
(MILLIONS OF DOLLARS)
|
|
2019
|
|
|
2018
|
|
||
Cross-currency interest rate swap contracts
|
|
$
|
19
|
|
|
$
|
6
|
|
(MILLIONS OF DOLLARS, EXCEPT LEASE TERM AND DISCOUNT RATE AMOUNTS)
|
|
As of December 31, 2019
|
||
Supplemental Balance Sheet information for operating leases
|
|
|
||
Operating lease right of use assets
|
|
$
|
189
|
|
|
|
|
||
Operating lease liabilities
|
|
|
||
Operating lease liabilities - current (in Other current liabilities)
|
|
$
|
35
|
|
Operating lease liabilities - noncurrent
|
|
164
|
|
|
Total operating lease liabilities
|
|
$
|
199
|
|
|
|
|
||
Weighted-average remaining lease term—operating leases (years)
|
|
7.12
|
|
|
Weighted-average discount rate—operating leases
|
|
3.67
|
%
|
|
|
|
|
||
(MILLIONS OF DOLLARS)
|
|
Year Ended December 31, 2019
|
||
Supplemental Income Statement information for operating leases
|
|
|
||
Operating lease expense
|
|
$
|
40
|
|
Variable lease payments not included in the measurement of lease liabilities
|
|
21
|
|
|
Short-term lease payments not included in the measurement of lease liabilities
|
|
9
|
|
|
|
|
|
||
Supplemental Cash Flow information for operating leases
|
|
|
||
Cash paid for amounts included in the measurement of lease liabilities
|
|
$
|
42
|
|
Lease obligations obtained in exchange for right-of-use assets (non-cash)
|
|
241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Less:
|
|
|
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
After
|
|
Lease
|
|
Imputed
|
|
|
||||||||||||||||||
(MILLIONS OF DOLLARS)
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2024
|
|
Payments
|
|
Interest
|
|
Total
|
||||||||||||||||||
Maturities
|
|
$
|
42
|
|
|
$
|
36
|
|
|
$
|
32
|
|
|
$
|
26
|
|
|
$
|
22
|
|
|
$
|
67
|
|
|
$
|
225
|
|
|
$
|
(26
|
)
|
|
$
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After
|
|
|
||||||||||||||
(MILLIONS OF DOLLARS)
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2023
|
|
Total
|
||||||||||||||
Maturities
|
|
$
|
38
|
|
|
$
|
30
|
|
|
$
|
24
|
|
|
$
|
21
|
|
|
$
|
15
|
|
|
$
|
45
|
|
|
$
|
173
|
|
|
|
As of December 31,
|
||||||
(MILLIONS OF DOLLARS)
|
|
2019
|
|
|
2018
|
|
||
Finished goods
|
|
$
|
701
|
|
|
$
|
744
|
|
Work-in-process
|
|
511
|
|
|
481
|
|
||
Raw materials and supplies
|
|
198
|
|
|
166
|
|
||
Inventories
|
|
$
|
1,410
|
|
|
$
|
1,391
|
|
|
|
Useful Lives
|
|
As of December 31,
|
||||||
(MILLIONS OF DOLLARS)
|
|
(Years)
|
|
2019
|
|
|
2018
|
|
||
Land
|
|
—
|
|
$
|
22
|
|
|
$
|
22
|
|
Buildings
|
|
33 1/3 - 50
|
|
983
|
|
|
929
|
|
||
Machinery, equipment and fixtures
|
|
3 - 20
|
|
2,119
|
|
|
1,852
|
|
||
Construction-in-progress
|
|
—
|
|
553
|
|
|
454
|
|
||
|
|
|
3,677
|
|
|
3,257
|
|
|||
Less: Accumulated depreciation
|
|
|
1,737
|
|
|
1,599
|
|
|||
Property, plant and equipment
|
|
|
$
|
1,940
|
|
|
$
|
1,658
|
|
(MILLIONS OF DOLLARS)
|
|
U.S.
|
|
|
International
|
|
|
Total
|
|
|||
Balance, December 31, 2017
|
|
$
|
671
|
|
|
$
|
839
|
|
|
$
|
1,510
|
|
Additions / Adjustments(a)
|
|
594
|
|
|
431
|
|
|
1,025
|
|
|||
Other(b)
|
|
—
|
|
|
(16
|
)
|
|
(16
|
)
|
|||
Balance, December 31, 2018
|
|
$
|
1,265
|
|
|
$
|
1,254
|
|
|
$
|
2,519
|
|
Additions / Adjustments(a)
|
|
102
|
|
|
—
|
|
|
102
|
|
|||
Other(b)
|
|
—
|
|
|
(29
|
)
|
|
(29
|
)
|
|||
Balance, December 31, 2019
|
|
$
|
1,367
|
|
|
$
|
1,225
|
|
|
$
|
2,592
|
|
(a)
|
For 2019, primarily relates to the acquisitions of Platinum Performance, Phoenix Lab and ZNLabs. See Note 5. Acquisitions and Divestitures
|
(b)
|
Includes adjustments for foreign currency translation. For 2018, also includes $2 million related to the divestiture of certain agribusiness products within our International segment.
|
|
|
As of December 31, 2019
|
|
As of December 31, 2018
|
||||||||||||||||||||
|
|
|
|
|
|
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)
|
|
$
|
1,938
|
|
|
$
|
(657
|
)
|
|
$
|
1,281
|
|
|
$
|
1,854
|
|
|
$
|
(523
|
)
|
|
$
|
1,331
|
|
Brands and tradenames(a)(b)
|
|
424
|
|
|
(223
|
)
|
|
201
|
|
|
378
|
|
|
(205
|
)
|
|
173
|
|
||||||
Other(a)(b)
|
|
441
|
|
|
(249
|
)
|
|
192
|
|
|
412
|
|
|
(178
|
)
|
|
234
|
|
||||||
Total finite-lived intangible assets
|
|
2,803
|
|
|
(1,129
|
)
|
|
1,674
|
|
|
2,644
|
|
|
(906
|
)
|
|
1,738
|
|
||||||
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Brands and tradenames
|
|
104
|
|
|
—
|
|
|
104
|
|
|
104
|
|
|
—
|
|
|
104
|
|
||||||
In-process research and development
|
|
105
|
|
|
—
|
|
|
105
|
|
|
197
|
|
|
—
|
|
|
197
|
|
||||||
Product rights
|
|
7
|
|
|
—
|
|
|
7
|
|
|
7
|
|
|
—
|
|
|
7
|
|
||||||
Total indefinite-lived intangible assets
|
|
216
|
|
|
—
|
|
|
216
|
|
|
308
|
|
|
—
|
|
|
308
|
|
||||||
Identifiable intangible assets
|
|
$
|
3,019
|
|
|
$
|
(1,129
|
)
|
|
$
|
1,890
|
|
|
$
|
2,952
|
|
|
$
|
(906
|
)
|
|
$
|
2,046
|
|
(a)
|
Includes intangible assets associated with the acquisitions of Platinum Performance, Phoenix Lab and ZNLabs in 2019.
|
(b)
|
In connection with the acquisition of Abaxis, the company recorded $894 million of intangible assets, as shown in the table below, representing the fair value at the acquisition date. See Note 5. Acquisitions and Divestitures for additional information.
|
|
Gross Carrying
|
|
Weighted-average
|
||
(MILLIONS OF DOLLARS)
|
Amount
|
|
Life (years)
|
||
Finite-lived intangible assets:
|
|
|
|
||
Developed technology rights
|
$
|
610
|
|
|
10
|
Brands and tradenames
|
104
|
|
|
20
|
|
Other
|
180
|
|
|
4
|
|
Total
|
$
|
894
|
|
|
|
(MILLIONS OF DOLLARS)
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|||||
Amortization expense
|
|
$
|
224
|
|
|
$
|
199
|
|
|
$
|
188
|
|
|
$
|
177
|
|
|
$
|
158
|
|
A.
|
International Pension Plans
|
|
|
As of and for the
|
||||||
|
|
Year Ended December 31,
|
||||||
(MILLIONS OF DOLLARS)
|
|
2019
|
|
|
2018
|
|
||
Change in benefit obligation:
|
|
|
|
|
||||
Projected benefit obligation, beginning
|
|
$
|
123
|
|
|
$
|
129
|
|
Service cost
|
|
6
|
|
|
7
|
|
||
Interest cost
|
|
3
|
|
|
3
|
|
||
Changes in actuarial assumptions and other
|
|
19
|
|
|
(4
|
)
|
||
Settlements and curtailments
|
|
(1
|
)
|
|
(6
|
)
|
||
Benefits paid
|
|
(2
|
)
|
|
—
|
|
||
Adjustments for foreign currency translation
|
|
(3
|
)
|
|
(5
|
)
|
||
Other––net
|
|
(1
|
)
|
|
(1
|
)
|
||
Benefit obligation, ending
|
|
144
|
|
|
123
|
|
||
Change in plan assets:
|
|
|
|
|
||||
Fair value of plan assets, beginning
|
|
65
|
|
|
69
|
|
||
Actual return on plan assets
|
|
7
|
|
|
(1
|
)
|
||
Company contributions
|
|
5
|
|
|
5
|
|
||
Settlements and curtailments
|
|
(1
|
)
|
|
(5
|
)
|
||
Benefits paid
|
|
(2
|
)
|
|
—
|
|
||
Adjustments for foreign currency translation
|
|
(2
|
)
|
|
(2
|
)
|
||
Other––net
|
|
—
|
|
|
(1
|
)
|
||
Fair value of plan assets, ending
|
|
72
|
|
|
65
|
|
||
Funded status—Projected benefit obligation in excess of plan assets at end of year(a)
|
|
$
|
(72
|
)
|
|
$
|
(58
|
)
|
(a)
|
Included in Other noncurrent liabilities.
|
|
|
As of December 31,
|
||||||
(MILLIONS OF DOLLARS)
|
|
2019
|
|
|
2018
|
|
||
Pension plans with an accumulated benefit obligation in excess of plan assets:
|
|
|
|
|
||||
Fair value of plan assets
|
|
$
|
65
|
|
|
$
|
56
|
|
Accumulated benefit obligation
|
|
113
|
|
|
95
|
|
||
Pension plans with a projected benefit obligation in excess of plan assets:
|
|
|
|
|
||||
Fair value of plan assets
|
|
66
|
|
|
60
|
|
||
Projected benefit obligation
|
|
138
|
|
|
118
|
|
|
|
Year Ended December 31,
|
||||||||||
(MILLIONS OF DOLLARS)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|||
Service cost
|
|
$
|
6
|
|
|
$
|
7
|
|
|
$
|
7
|
|
Interest cost
|
|
3
|
|
|
3
|
|
|
3
|
|
|||
Expected return on plan assets
|
|
(3
|
)
|
|
(3
|
)
|
|
(3
|
)
|
|||
Amortization of net (gains) / losses
|
|
1
|
|
|
1
|
|
|
1
|
|
|||
Settlement and curtailments (gains) / losses
|
|
—
|
|
|
(1
|
)
|
|
1
|
|
|||
Net periodic benefit cost
|
|
$
|
7
|
|
|
$
|
7
|
|
|
$
|
9
|
|
|
|
As of December 31,
|
|||||||
(PERCENTAGES)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Weighted average assumptions used to determine benefit obligations:
|
|
|
|
|
|
|
|||
Discount rate
|
|
1.3
|
%
|
|
2.3
|
%
|
|
2.2
|
%
|
Rate of compensation increase
|
|
3.1
|
%
|
|
3.0
|
%
|
|
3.0
|
%
|
Weighted average assumptions used to determine net benefit cost for the year ended December 31:
|
|
|
|
|
|
|
|||
Discount rate
|
|
2.3
|
%
|
|
2.2
|
%
|
|
2.1
|
%
|
Expected return on plan assets
|
|
4.1
|
%
|
|
4.4
|
%
|
|
3.9
|
%
|
Rate of compensation increase
|
|
3.0
|
%
|
|
3.0
|
%
|
|
3.2
|
%
|
|
|
As of December 31,
|
||||||
(MILLIONS OF DOLLARS)
|
|
2019
|
|
|
2018
|
|
||
Cash and cash equivalents
|
|
$
|
1
|
|
|
$
|
1
|
|
Equity securities: Equity commingled funds
|
|
27
|
|
|
25
|
|
||
Debt securities: Government bonds
|
|
36
|
|
|
31
|
|
||
Other investments
|
|
8
|
|
|
8
|
|
||
Total(a)
|
|
$
|
72
|
|
|
$
|
65
|
|
(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)
|
|
2019
|
|
|
2019
|
|
|
2018
|
|
Cash and cash equivalents
|
|
0-10%
|
|
|
1.7
|
%
|
|
0.9
|
%
|
Equity securities
|
|
0-60%
|
|
|
36.9
|
%
|
|
43.0
|
%
|
Debt securities
|
|
15-100%
|
|
|
49.7
|
%
|
|
46.5
|
%
|
Other investments
|
|
0-100%
|
|
|
11.7
|
%
|
|
9.6
|
%
|
Total
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
B.
|
Postretirement Plans
|
C.
|
Defined Contribution Plans
|
|
|
Year Ended December 31,
|
||||||||||
(MILLIONS OF DOLLARS)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|||
Stock options / stock appreciation rights
|
|
$
|
10
|
|
|
$
|
10
|
|
|
$
|
10
|
|
RSUs / DSUs(a)
|
|
43
|
|
|
34
|
|
|
26
|
|
|||
PSUs
|
|
14
|
|
|
9
|
|
|
8
|
|
|||
Share-based compensation expense—total(b)
|
|
$
|
67
|
|
|
$
|
53
|
|
|
$
|
44
|
|
Tax benefit for share-based compensation expense
|
|
(10
|
)
|
|
(7
|
)
|
|
(13
|
)
|
|||
Share-based compensation expense, net of tax
|
|
$
|
57
|
|
|
$
|
46
|
|
|
$
|
31
|
|
(a)
|
For the year ended December 31, 2018, includes share-based compensation expense of $7 million related to the acquisition of Abaxis, for the post-merger service period. For additional details see Note 5. Acquisitions and Divestitures.
|
(b)
|
For each of the years ended December 31, 2019, 2018 and 2017, we capitalized approximately $1 million of share-based compensation expense to inventory.
|
|
|
Year Ended December 31,
|
|||||||
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Expected dividend yield(a)
|
|
0.75
|
%
|
|
0.69
|
%
|
|
0.76
|
%
|
Risk-free interest rate(b)
|
|
2.56
|
%
|
|
2.74
|
%
|
|
2.29
|
%
|
Expected stock price volatility(c)
|
|
23.08
|
%
|
|
23.61
|
%
|
|
23.26
|
%
|
Expected term(d) (years)
|
|
5.7
|
|
|
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
|
|
|
|||||
|
|
|
|
|
|
Remaining
|
|
Aggregate
|
|
||||
|
|
|
|
Weighted-Average
|
|
|
Contractual Term
|
|
Intrinsic Value(a)
|
|
|||
|
|
Shares
|
|
|
Exercise Price
|
|
|
(Years)
|
|
(MILLIONS)
|
|
||
Outstanding, December 31, 2018
|
|
4,157,129
|
|
|
$
|
43.41
|
|
|
|
|
|
||
Granted
|
|
446,158
|
|
|
87.87
|
|
|
|
|
|
|||
Exercised
|
|
(1,115,451
|
)
|
|
35.32
|
|
|
|
|
|
|||
Forfeited
|
|
(24,212
|
)
|
|
58.17
|
|
|
|
|
|
|||
Outstanding, December 31, 2019
|
|
3,463,624
|
|
|
$
|
51.64
|
|
|
6.2
|
|
$
|
280
|
|
Exercisable, December 31, 2019
|
|
1,846,236
|
|
|
$
|
35.54
|
|
|
4.6
|
|
$
|
179
|
|
(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)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|||
Weighted-average grant date fair value per stock option
|
|
$
|
21.84
|
|
|
$
|
20.30
|
|
|
$
|
14.31
|
|
Aggregate intrinsic value on exercise
|
|
76
|
|
|
66
|
|
|
32
|
|
|||
Cash received upon exercise
|
|
39
|
|
|
36
|
|
|
35
|
|
|||
Tax benefits realized related to exercise
|
|
31
|
|
|
23
|
|
|
16
|
|
|
|
|
|
Weighted-Average
|
|
||
|
|
RSUs
|
|
|
Grant Date Fair Value
|
|
|
Nonvested, December 31, 2018
|
|
1,975,659
|
|
|
$
|
62.28
|
|
Granted
|
|
363,447
|
|
|
88.09
|
|
|
Vested
|
|
(829,067
|
)
|
|
54.11
|
|
|
Reinvested dividend equivalents
|
|
9,091
|
|
|
63.98
|
|
|
Forfeited
|
|
(58,595
|
)
|
|
72.73
|
|
|
Nonvested, December 31, 2019
|
|
1,460,535
|
|
|
$
|
72.93
|
|
|
|
|
|
Weighted-Average
|
|
||
|
|
PSUs
|
|
|
Grant Date Fair Value
|
|
|
Nonvested, December 31, 2018
|
|
390,841
|
|
|
$
|
71.93
|
|
Granted
|
|
190,170
|
|
|
101.51
|
|
|
Vested
|
|
(159,216
|
)
|
|
50.78
|
|
|
Reinvested dividend equivalents
|
|
3,029
|
|
|
83.04
|
|
|
Forfeited
|
|
(5,428
|
)
|
|
92.32
|
|
|
Nonvested, December 31, 2019
|
|
419,396
|
|
|
$
|
93.19
|
|
Shares issued, December 31, 2019
|
|
360,546
|
|
|
$
|
50.27
|
|
|
|
|
|
Currency Translation Adjustments
|
|
|
Benefit Plans
|
|
|
Accumulated Other
|
|
|||||||||
|
|
Cash Flow
|
|
|
Net Investment
|
|
|
Other Currency
|
|
Actuarial
|
|
|
Comprehensive
|
|
||||||
(MILLIONS OF DOLLARS)
|
|
Hedges
|
|
|
Hedges
|
|
|
Translation Adj
|
|
(Losses)/Gains
|
|
|
(Loss)/Income
|
|
||||||
Balance, December 31, 2016
|
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
(583
|
)
|
|
$
|
(23
|
)
|
|
$
|
(598
|
)
|
Other comprehensive (loss)/gain, net of tax
|
|
(11
|
)
|
|
—
|
|
|
96
|
|
|
8
|
|
|
93
|
|
|||||
Balance, December 31, 2017
|
|
(3
|
)
|
|
—
|
|
|
(487
|
)
|
|
(15
|
)
|
|
(505
|
)
|
|||||
Other comprehensive (loss)/gain, net of tax
|
|
(1
|
)
|
|
9
|
|
|
(133
|
)
|
|
1
|
|
|
(124
|
)
|
|||||
Balance, December 31, 2018
|
|
(4
|
)
|
|
9
|
|
|
(620
|
)
|
|
(14
|
)
|
|
(629
|
)
|
|||||
Other comprehensive gain/(loss), net of tax
|
|
4
|
|
|
12
|
|
|
(104
|
)
|
|
(9
|
)
|
|
(97
|
)
|
|||||
Balance, December 31, 2019
|
|
$
|
—
|
|
|
$
|
21
|
|
|
$
|
(724
|
)
|
|
$
|
(23
|
)
|
|
$
|
(726
|
)
|
|
|
Year Ended December 31,
|
||||||||||
(MILLIONS OF DOLLARS AND SHARES, EXCEPT PER SHARE DATA)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|||
Numerator
|
|
|
|
|
|
|
||||||
Net income before allocation to noncontrolling interests
|
|
$
|
1,500
|
|
|
$
|
1,424
|
|
|
$
|
862
|
|
Less: net loss attributable to noncontrolling interests
|
|
—
|
|
|
(4
|
)
|
|
(2
|
)
|
|||
Net income attributable to Zoetis Inc.
|
|
$
|
1,500
|
|
|
$
|
1,428
|
|
|
$
|
864
|
|
Denominator
|
|
|
|
|
|
|
||||||
Weighted-average common shares outstanding
|
|
478.128
|
|
|
483.063
|
|
|
489.918
|
|
|||
Common stock equivalents: stock options, RSUs, DSUs and PSUs
|
|
3.659
|
|
|
3.835
|
|
|
3.243
|
|
|||
Weighted-average common and potential dilutive shares outstanding
|
|
481.787
|
|
|
486.898
|
|
|
493.161
|
|
|||
Earnings per share attributable to Zoetis Inc. stockholders—basic
|
|
$
|
3.14
|
|
|
$
|
2.96
|
|
|
$
|
1.76
|
|
Earnings per share attributable to Zoetis Inc. stockholders—diluted
|
|
$
|
3.11
|
|
|
$
|
2.93
|
|
|
$
|
1.75
|
|
•
|
Product liability and other product-related litigation, which can include injury, consumer, off-label promotion, antitrust and breach of contract claims.
|
•
|
Commercial and other matters, which can include product-pricing claims and environmental claims and proceedings.
|
•
|
Patent litigation, which typically involves challenges to the coverage and/or validity of our patents or those of third parties on various products or processes.
|
•
|
Government investigations, which can involve regulation by national, state and local government agencies in the U.S. and in other countries.
|
•
|
Other business activities, includes our CSS contract manufacturing results, our human health business, and expenses associated with our dedicated veterinary medicine research and development organization, research alliances, U.S. regulatory affairs and other operations focused on the development of our products. Other R&D-related costs associated with non-U.S. market and regulatory activities are generally included in the international commercial segment.
|
•
|
Corporate, includes 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 charges and implementation costs associated with our cost-reduction/productivity initiatives that are not associated with an acquisition, certain asset impairment charges, certain legal and commercial settlements and the impact of divestiture-related gains and losses.
|
•
|
Other unallocated includes (i) certain overhead expenses associated with our global manufacturing operations not charged to our operating segments; (ii) certain costs associated with 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)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
||||||
U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Revenue
|
|
$
|
3,203
|
|
|
$
|
2,877
|
|
|
$
|
2,620
|
|
|
|
|
|
|
|
||||||
Cost of Sales
|
|
655
|
|
|
606
|
|
|
565
|
|
|
|
|
|
|
|
|||||||||
Gross Profit
|
|
2,548
|
|
|
2,271
|
|
|
2,055
|
|
|
|
|
|
|
|
|||||||||
Gross Margin
|
|
79.6
|
%
|
|
78.9
|
%
|
|
78.4
|
%
|
|
|
|
|
|
|
|||||||||
Operating Expenses
|
|
543
|
|
|
456
|
|
|
421
|
|
|
|
|
|
|
|
|||||||||
Other (income)/deductions
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
|
|
|
|
|
|||||||||
U.S. Earnings
|
|
2,005
|
|
|
1,815
|
|
|
1,637
|
|
|
$
|
44
|
|
|
$
|
34
|
|
|
$
|
29
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
International
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Revenue(b)
|
|
2,972
|
|
|
2,890
|
|
|
2,643
|
|
|
|
|
|
|
|
|||||||||
Cost of Sales
|
|
925
|
|
|
929
|
|
|
889
|
|
|
|
|
|
|
|
|||||||||
Gross Profit
|
|
2,047
|
|
|
1,961
|
|
|
1,754
|
|
|
|
|
|
|
|
|||||||||
Gross Margin
|
|
68.9
|
%
|
|
67.9
|
%
|
|
66.4
|
%
|
|
|
|
|
|
|
|||||||||
Operating Expenses
|
|
560
|
|
|
559
|
|
|
515
|
|
|
|
|
|
|
|
|||||||||
Other (income)/deductions
|
|
—
|
|
|
3
|
|
|
(1
|
)
|
|
|
|
|
|
|
|||||||||
International Earnings
|
|
1,487
|
|
|
1,399
|
|
|
1,240
|
|
|
53
|
|
|
48
|
|
|
44
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total operating segments
|
|
3,492
|
|
|
3,214
|
|
|
2,877
|
|
|
97
|
|
|
82
|
|
|
73
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Other business activities
|
|
(348
|
)
|
|
(337
|
)
|
|
(313
|
)
|
|
24
|
|
|
23
|
|
|
23
|
|
||||||
Reconciling Items:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Corporate
|
|
(707
|
)
|
|
(666
|
)
|
|
(625
|
)
|
|
69
|
|
|
59
|
|
|
52
|
|
||||||
Purchase accounting adjustments
|
|
(234
|
)
|
|
(162
|
)
|
|
(88
|
)
|
|
219
|
|
|
143
|
|
|
88
|
|
||||||
Acquisition-related costs
|
|
(43
|
)
|
|
(63
|
)
|
|
(10
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Certain significant items(c)
|
|
(67
|
)
|
|
43
|
|
|
(25
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Other unallocated
|
|
(292
|
)
|
|
(339
|
)
|
|
(291
|
)
|
|
3
|
|
|
1
|
|
|
6
|
|
||||||
Total Earnings(d)
|
|
$
|
1,801
|
|
|
$
|
1,690
|
|
|
$
|
1,525
|
|
|
$
|
412
|
|
|
$
|
308
|
|
|
$
|
242
|
|
(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 $742 million in 2019, $745 million in 2018, and $660 million in 2017.
|
(c)
|
For 2019, certain significant items primarily includes: (i) a change in estimate related to inventory costing of $69 million, (ii) CEO transition-related costs of $10 million, (iii) consulting fees, product transfer costs, employee termination costs and exit costs related to cost-reduction and productivity initiatives of $7 million, and (iv) income of $20 million resulting from a payment received pursuant to an agreement related to the 2016 sale of certain U.S. manufacturing sites.
|
|
For 2017, certain significant items primarily includes: (i) charges related to our operational efficiency initiative and supply network strategy initiative of $20 million; (ii) Zoetis stand-up costs of $3 million; (iii) employee termination costs in Europe of $4 million, (iv) income related to a commercial settlement in Mexico recorded in 2014 and 2016 of $5 million; and (iv) charges of $3 million associated with changes to our operating model.
|
(d)
|
Defined as income before provision for taxes on income.
|
|
|
As of December 31,
|
||||||
(MILLIONS OF DOLLARS)
|
|
2019
|
|
|
2018
|
|
||
U.S.
|
|
$
|
1,342
|
|
|
$
|
1,188
|
|
International
|
|
598
|
|
|
470
|
|
||
Property, plant and equipment, less accumulated depreciation
|
|
$
|
1,940
|
|
|
$
|
1,658
|
|
|
|
|
|
|
|
|
|
|
||||||||
(MILLIONS OF DOLLARS, EXCEPT PER COMMON SHARE DATA)
|
|
FIRST
|
|
|
SECOND
|
|
|
THIRD
|
|
|
FOURTH
|
|
||||
2019
|
|
|
|
|
|
|
|
|
||||||||
Revenue
|
|
$
|
1,455
|
|
|
$
|
1,547
|
|
|
$
|
1,584
|
|
|
$
|
1,674
|
|
Costs and expenses
|
|
1,069
|
|
|
1,070
|
|
|
1,050
|
|
|
1,219
|
|
||||
Restructuring charges and certain acquisition-related costs
|
|
5
|
|
|
22
|
|
|
6
|
|
|
18
|
|
||||
Income before provision for taxes on income
|
|
381
|
|
|
455
|
|
|
528
|
|
|
437
|
|
||||
Provision for taxes on income
|
|
69
|
|
|
84
|
|
|
95
|
|
|
53
|
|
||||
Net income before allocation to noncontrolling interests
|
|
312
|
|
|
371
|
|
|
433
|
|
|
384
|
|
||||
Net loss attributable to noncontrolling interests
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Net income attributable to Zoetis
|
|
$
|
312
|
|
|
$
|
371
|
|
|
$
|
433
|
|
|
$
|
384
|
|
Earnings per common share--basic
|
|
$
|
0.65
|
|
|
$
|
0.77
|
|
|
$
|
0.91
|
|
|
$
|
0.81
|
|
Earnings per common share--diluted
|
|
$
|
0.65
|
|
|
$
|
0.77
|
|
|
$
|
0.90
|
|
|
$
|
0.80
|
|
2018
|
|
|
|
|
|
|
|
|
||||||||
Revenue
|
|
$
|
1,366
|
|
|
$
|
1,415
|
|
|
$
|
1,480
|
|
|
$
|
1,564
|
|
Costs and expenses
|
|
947
|
|
|
973
|
|
|
1,015
|
|
|
1,132
|
|
||||
Restructuring (reversals)/charges and certain acquisition-related costs
|
|
2
|
|
|
5
|
|
|
47
|
|
|
14
|
|
||||
Income before provision for taxes on income
|
|
417
|
|
|
437
|
|
|
418
|
|
|
418
|
|
||||
Provision for taxes on income
|
|
67
|
|
|
55
|
|
|
71
|
|
|
73
|
|
||||
Net income before allocation to noncontrolling interests
|
|
350
|
|
|
382
|
|
|
347
|
|
|
345
|
|
||||
Net loss attributable to noncontrolling interests
|
|
(2
|
)
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
||||
Net income attributable to Zoetis
|
|
$
|
352
|
|
|
$
|
384
|
|
|
$
|
347
|
|
|
$
|
345
|
|
Earnings per common share--basic
|
|
$
|
0.72
|
|
|
$
|
0.79
|
|
|
$
|
0.72
|
|
|
$
|
0.72
|
|
Earnings per common share--diluted
|
|
$
|
0.72
|
|
|
$
|
0.79
|
|
|
$
|
0.71
|
|
|
$
|
0.71
|
|
|
|
Balance,
|
|
|
|
|
|
|
Balance,
|
|
||||||
|
|
Beginning of
|
|
|
|
|
|
|
End of
|
|
||||||
(MILLIONS OF DOLLARS)
|
|
Period
|
|
|
Additions
|
|
|
Deductions
|
|
|
Period
|
|
||||
Year Ended December 31, 2019
|
|
|
|
|
|
|
|
|
||||||||
Allowance for doubtful accounts
|
|
$
|
24
|
|
|
$
|
3
|
|
|
$
|
(6
|
)
|
|
$
|
21
|
|
|
|
|
|
|
|
|
|
|
||||||||
Year Ended December 31, 2018
|
|
|
|
|
|
|
|
|
||||||||
Allowance for doubtful accounts
|
|
$
|
25
|
|
|
$
|
2
|
|
|
$
|
(3
|
)
|
|
$
|
24
|
|
|
|
|
|
|
|
|
|
|
||||||||
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|
||||||||
Allowance for doubtful accounts
|
|
$
|
30
|
|
|
$
|
3
|
|
|
$
|
(8
|
)
|
|
$
|
25
|
|
|
|
|
|
|
|
|
|
|
Item 9A.
|
Controls and Procedures
|
|
(1) The financial statements and notes to financial statements are filed as part of this report in Item 8. Financial Statements and Supplementary Data.
|
|
Agreement and Plan of Merger, dated as of May 15, 2018, by and among Zoetis Inc., Zeus Merger Sub, Inc. and Abaxis, Inc.
|
|
|
|
(incorporated by reference to Exhibit 2.1 to Zoetis Inc.'s Current Report on Form 8-K filed on
|
|
|
May 16, 2018 (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))
|
|
Fourth Supplemental Indenture, dated August 20, 2018, 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 August 20, 2018
|
|
|
(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))
|
|
Form of Floating Rate Senior Notes due 2021 (incorporated by reference to Exhibit 4.2 to Zoetis Inc.’s Current Report on Form
|
|
|
|
8-K filed on August 20, 2018 (File No. 001-35797))
|
|
Form of 3.250% Senior Notes due 2021 (incorporated by reference to Exhibit 4.2 to Zoetis Inc.’s Current Report on Form 8-K
|
|
|
|
filed on August 20, 2018 (File No. 001-35797))
|
|
Form of 3.900% Senior Notes due 2028 (incorporated by reference to Exhibit 4.2 to Zoetis Inc.’s Current Report on Form 8-K
|
|
|
|
filed on August 20, 2018 (File No. 001-35797))
|
|
Form of 4.450% Senior Notes due 2048 (incorporated by reference to Exhibit 4.2 to Zoetis Inc.’s Current Report on Form 8-K
|
|
|
|
filed on August 20, 2018 (File No. 001-35797))
|
|
Description of the Registrant’s Securities†
|
|
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))
|
|
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))
|
|
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))*
|
|
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))
|
|
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 (incorporated by reference to Exhibit 10.16.1 to Zoetis
|
|
|
Inc.’s 2017 Annual Report on Form 10-K filed on February 15, 2018 (File No. 001-35797))
|
|
Extension Agreement to Revolving Credit Agreement, dated as of December 21, 2018, 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))
|
|
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))*
|
|
Zoetis Amended and Restated Non-Employee Director Deferred Compensation Plan (incorporated by reference to
|
|
|
|
Exhibit 10.1 to Zoetis Inc.’s Quarterly Report on Form 10-Q filed on November 1, 2018 (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 October 2, 2019, by and between Juan Ramón Alaix and Zoetis Inc. (incorporated by
|
|
|
|
reference to Exhibit 10.1 to Zoetis Inc.'s Current Report on Form 8-K filed on October 3, 2019 (File No. 001-35797))
|
|
Letter Agreement dated as of December 9, 2019, by and between Clinton A. Lewis, Jr. and Zoetis Inc. (incorporated by
|
|
|
|
reference to Exhibit 10.1 to Zoetis Inc.'s Current Report on Form 8-K filed on December 12, 2019 (File No. 001-35797))
|
|
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
|
|
Inline XBRL INSTANCE DOCUMENT
|
EX-101.SCH
|
|
Inline XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT
|
EX-101.CAL
|
|
Inline XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT
|
EX-101.LAB
|
|
Inline XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT
|
EX-101.PRE
|
|
Inline XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT
|
EX-101.DEF
|
|
Inline XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT
|
EX-104
|
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
|
†
|
Filed herewith
|
††
|
Furnished herewith
|
*
|
Management contracts or compensatory plans or arrangements
|
Zoetis Inc.
|
|
|
|
By:
|
/S/ KRISTIN C. PECK
|
|
Kristin C. Peck
|
|
Chief Executive Officer and Director
|
Name
|
|
Title
|
|
Date
|
|
|
|
||
/S/ KRISTIN C. PECK
|
|
Chief Executive Officer and Director
|
|
February 13, 2020
|
Kristin C. Peck
|
(Principal Executive Officer)
|
|
||
|
|
|
|
|
/S/ GLENN DAVID
|
|
Executive Vice President and
|
|
February 13, 2020
|
Glenn David
|
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
|
|
||
|
|
|
|
|
/S/ MICHAEL B. MCCALLISTER
|
|
Chairman and Director
|
|
February 13, 2020
|
Michael B. McCallister
|
|
|
|
|
|
|
|
|
|
/S/ JUAN RAMÓN ALAIX
|
|
Director
|
|
February 13, 2020
|
Juan Ramón Alaix
|
|
|
|
|
|
|
|
|
|
/S/ PAUL M. BISARO
|
|
Director
|
|
February 13, 2020
|
Paul M. Bisaro
|
|
|
|
|
|
|
|
|
|
/S/ FRANK A. D'AMELIO
|
|
Director
|
|
February 13, 2020
|
Frank A. D’Amelio
|
|
|
|
|
|
|
|
|
|
/S/ SANJAY KHOSLA
|
|
Director
|
|
February 13, 2020
|
Sanjay Khosla
|
|
|
|
|
|
|
|
|
|
/s/ GREGORY NORDEN
|
|
Director
|
|
February 13, 2020
|
Gregory Norden
|
|
|
|
|
|
|
|
|
|
/S/ LOUISE M. PARENT
|
|
Director
|
|
February 13, 2020
|
Louise M. Parent
|
|
|
|
|
|
|
|
|
|
/S/ WILLIE M. REED
|
|
Director
|
|
February 13, 2020
|
Willie M. Reed
|
|
|
|
|
|
|
|
|
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/S/ LINDA RHODES
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Director
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February 13, 2020
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Linda Rhodes
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/s/ ROBERT W. SCULLY
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Director
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February 13, 2020
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Robert W. Scully
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/S/ WILLIAM C. STEERE, JR.
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Director
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February 13, 2020
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William C. Steere, Jr.
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•
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voting rights;
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•
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redemption rights;
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•
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dividend rights;
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•
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liquidation rights;
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•
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conversion rights; and
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•
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any other relative rights, preferences and restrictions.
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•
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a board of directors that is divided into three classes with staggered terms;
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•
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rules regarding how our stockholders may present proposals or nominate directors for election at stockholder meetings;
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the right of our board of directors to issue preferred stock without stockholder approval;
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limitations on the right of stockholders to remove directors;
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•
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limitations on the right of stockholders to act by written consent; and
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•
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limitations on the right of stockholders to call for special meetings.
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SUBSIDIARY NAME
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JURISDICTION OF INCORPORATION / FORMATION
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Abaxis Asia Holding Limited
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Hong Kong
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Abaxis Europe GmbH
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Germany
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Abaxis Holding GmbH
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Germany
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Abaxis South East Europe d. o.o.
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Serbia
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Abaxis UK Limited
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United Kingdom
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Abaxis, Inc.
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United States
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Alpharma (Bermuda), LLC
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United States
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Alpharma (Luxembourg) S.A.R.L. y Compania Limitada
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Chile
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Alpharma (Luxembourg) S.àr.l.
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Luxembourg
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Alpharma Animal Health (Hong Kong) Co. Limited
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Hong Kong
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Alpharma Animal Health Company
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United States
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Alpharma do Brasil Ltda.
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Brazil
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Alpharma Euro Holdings, LLC
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United States
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Alpharma Holdings (Barbados) SRL
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Barbados
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Alpharma, LLC
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United States
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Continental Farmaceutica SPRL
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Belgium
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Cross Vetpharm Group Limited
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Ireland
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Embrex LLC
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United States
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Jilin Zoetis Guoyuan Animal Health Co., Ltd.
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China
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Mikjan Corporation
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United States
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Nexvet Australia Pty Ltd
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Australia
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Nordic Fish Tech AB
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Sweden
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NVIP Pty Ltd
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Australia
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PAH 7V6 Holding Limited
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Hong Kong
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PAH CHHK Holding B.V.
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Netherlands
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PAH India Holdco LLC
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United States
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PAH India Holding 1 B.V.
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Netherlands
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PAH Netherlands 2 B.V.
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Netherlands
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PAH Oceania B.V.
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Netherlands
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PAH Spain, S.L.
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Spain
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Pharmaq Analytiq AS
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Norway
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Pharmaq AS
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Norway
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Pharmaq AS Chile Limitada
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Chile
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Pharmaq AS Service SpA
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Chile
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Pharmaq AS Technika SpA
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Chile
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Pharmaq CA Panama Inc.
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Panama
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Pharmaq Fishteq AS
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Norway
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Pharmaq Holding AS
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Norway
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Pharmaq Ltd
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United Kingdom
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Pharmaq Settvac AS
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Norway
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Pharmaq Spain Aqua SL
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Spain
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Pharmaq Veterinar Ecza Deposu ve su Urunleri Ticaret Ltd Ski
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Turkey
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SUBSIDIARY NAME
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JURISDICTION OF INCORPORATION / FORMATION
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Pharmaq Vietnam Company Limited
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Vietnam
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Platinum Performance, Inc.
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United States
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Platinum Performance Nutrition Inc.
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United States
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PT Zoetis Animalhealth Indonesia
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Indonesia
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Phoenix Central Laboratory for Veterinarians, Inc.
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United States
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Pumpkin Holdings Inc.
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United States
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Pumpkin Insurance Services Inc.
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United States
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Smartbow GmbH
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Austria
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Smartbow RUS OOO
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Russia
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Synbiotics LLC
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United States
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ZNLabs, LLC
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United States
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Zoetis (Thailand) Limited
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Thailand
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Zoetis Argentina S.R.L.
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Argentina
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Zoetis Australia Pty Ltd
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Australia
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Zoetis Australia Research & Manufacturing Pty Ltd
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Australia
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Zoetis B.V.
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Netherlands
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Zoetis Belgium S.A.
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Belgium
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Zoetis Biopharmaceutical Co., Ltd
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China
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Zoetis Broomhill IP Limited
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Ireland
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Zoetis Broomhill Property Limited
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Ireland
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Zoetis Canada Inc.
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Canada
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Zoetis Česká republika, s.r.o.
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Czech Republic
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Zoetis Colombia S.A.S.
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Colombia
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Zoetis Costa Rica, S.R.L.
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Costa Rica
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Zoetis de Chile S.A.
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Chile
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Zoetis de Uruguay S.R.L.
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Uruguay
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Zoetis Denmark Aps
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Denmark
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Zoetis Deutschland GmbH
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Germany
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Zoetis Egypt Import LLC
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Egypt
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Zoetis Egypt LLC
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Egypt
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Zoetis Egypt Pharmaceuticals LLC
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Egypt
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Zoetis Egypt Trading LLC
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Egypt
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Zoetis Enterprise Management (Shanghai) Co., Ltd.
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China
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Zoetis Finland Oy
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Finland
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Zoetis France
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France
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Zoetis Hayvan Sagligi Ltd. Sti.
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Turkey
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Zoetis Hellas S.A.
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Greece
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Zoetis Holdings LLC
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United States
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Zoetis Hungary Kft.
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Hungary
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Zoetis India Limited
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India
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Zoetis Indústria de Produtos Veterinários Ltda.
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Brazil
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Zoetis International Holdings B.V.
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Netherlands
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Zoetis International Services
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France
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Zoetis Israël Holding B.V.
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Netherlands
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Zoetis Italia S.r.l.
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Italy
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Zoetis Japan K.K.
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Japan
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Zoetis Korea Ltd.
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South Korea
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Zoetis LLC
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United States
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Zoetis Lab Holdings LLC
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United States
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Zoetis Luxembourg Holding S.à r.l.
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Luxembourg
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Zoetis Malaysia Sdn. Bhd.
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Malaysia
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Zoetis Manufacturing & Research Spain, S.L.
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Spain
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Zoetis Manufacturing Italia S.R.L.
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Italy
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Zoetis Medolla Manufacturing S.R.L.
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Italy
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Zoetis Mexico, S. de R.L. de C.V.
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Mexico
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Zoetis Netherlands 1 B.V.
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Netherlands
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Zoetis Netherlands 3 B.V.
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Netherlands
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Zoetis Netherlands 4 B.V.
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Netherlands
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Zoetis Netherlands 5 B.V.
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Netherlands
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Zoetis New Zealand Limited
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New Zealand
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SUBSIDIARY NAME
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JURISDICTION OF INCORPORATION / FORMATION
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Zoetis OOO
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Russian Federation
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Zoetis Österreich GmbH
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Austria
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Zoetis Overseas Holding B.V.
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Netherlands
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Zoetis Overseas Services Inc.
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United States
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Zoetis Panama S. de R.L.
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Panama
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Zoetis Pharmaceutical Research Private Limited
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India
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Zoetis Philippines Inc.
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Philippines
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Zoetis Polska sp. z o.o
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Poland
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Zoetis Portugal, Lda.
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Portugal
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Zoetis Products Inc.
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United States
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Zoetis Romania SRL
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Romania
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Zoetis S.R.L.
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Peru
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Zoetis Salud Animal de Bolivia S.A.
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Bolivia
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Zoetis Schweiz GmbH
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Switzerland
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Zoetis Services LLC
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United States
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Zoetis Singapore Pte. Ltd.
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Singapore
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Zoetis South Africa (Pty) Ltd.
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South Africa
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Zoetis Spain, S.L.
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Spain
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Zoetis Suzhou Manufacturing Co., Ltd.
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China
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Zoetis Taiwan Limited
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Taiwan
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Zoetis Treasury Center BVBA
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Belgium
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Zoetis UK Limited
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United Kingdom
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Zoetis Ukraine LLC
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Ukraine
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Zoetis US LLC
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United States
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Zoetis Vietnam Limited Liability Company
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Vietnam
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Zoetis Weesp B.V.
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Netherlands
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Zoetis WLC LLC
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United States
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Zoetis Yantai Manufacturing Co., Ltd.
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China
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Zoetis, C.A.
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Venezuela
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ZOETISECUADOR Cia. Ltda.
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Ecuador
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1.
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I have reviewed this Annual Report of Zoetis Inc. on Form 10-K for the period ending December 31, 2019 as filed with the Securities and Exchange Commission on the date hereof;
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2.
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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;
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3.
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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;
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4.
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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:
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a)
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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;
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b)
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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;
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c)
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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
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d)
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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
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5.
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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):
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a)
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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
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b)
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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.
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February 13, 2020
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By:
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/s/ KRISTIN C. PECK
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Kristin C. Peck
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Chief Executive Officer
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1.
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I have reviewed this Annual Report of Zoetis Inc. on Form 10-K for the period ending December 31, 2019 as filed with the Securities and Exchange Commission on the date hereof;
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2.
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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;
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3.
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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;
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4.
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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:
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a)
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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;
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b)
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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;
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c)
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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
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d)
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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
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5.
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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):
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a)
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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
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b)
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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.
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February 13, 2020
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By:
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/s/ GLENN DAVID
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Glenn David
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Executive Vice President and Chief Financial Officer
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February 13, 2020
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By:
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/s/ KRISTIN C. PECK
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Kristin C. Peck
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Chief Executive Officer
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February 13, 2020
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By:
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/s/ GLENN DAVID
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Glenn David
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Executive Vice President and Chief Financial Officer
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