Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2019 | Apr. 26, 2019 | |
Document and Entity Information [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Mar. 31, 2019 | |
Document Fiscal Year Focus | 2019 | |
Document Fiscal Period Focus | Q1 | |
Trading Symbol | ZTS | |
Entity Registrant Name | Zoetis Inc. | |
Entity Central Index Key | 0001555280 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Large Accelerated Filer | |
Entity Emerging Growth Company | false | |
Entity Small Business | false | |
Entity common Stock, Shares Outstanding | 478,656,189 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($) shares in Millions, $ in Millions | 3 Months Ended | ||
Mar. 31, 2019 | Mar. 31, 2018 | ||
Income Statement [Abstract] | |||
Revenue | $ 1,455 | $ 1,366 | |
Costs and expenses: | |||
Cost of sales | 518 | 447 | |
Selling, general and administrative expenses | 369 | 338 | |
Research and development expenses | 102 | 97 | |
Amortization of intangible assets | 38 | 23 | |
Restructuring charges and certain acquisition-related costs | 5 | 2 | |
Interest expense, net of capitalized interest | 56 | 47 | |
Other (income)/deductions—net | (14) | (5) | |
Income before provision for taxes on income | [1] | 381 | 417 |
Provision for taxes on income | 69 | 67 | |
Net income before allocation to noncontrolling interests | 312 | 350 | |
Less: Net loss attributable to noncontrolling interests | 0 | (2) | |
Net income attributable to Zoetis Inc. | $ 312 | $ 352 | |
Earnings per share attributable to Zoetis Inc. stockholders: | |||
Basic (in dollars per share) | $ 0.65 | $ 0.72 | |
Diluted (in dollars per share) | $ 0.65 | $ 0.72 | |
Weighted-average common shares outstanding: | |||
Basic (in shares) | 479.6 | 485.9 | |
Diluted (in shares) | 483.1 | 489.8 | |
Dividends paid per common share (in dollars per share) | $ 0.164 | $ 0.126 | |
[1] | Defined as income before provision for taxes on income. |
CONDENSED CONSOLIDATED STATEM_2
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Statement of Comprehensive Income [Abstract] | ||
Net income before allocation to noncontrolling interests | $ 312 | $ 350 |
Other comprehensive income, net of taxes and reclassification adjustments: | ||
Foreign currency translation adjustments, net | 31 | 77 |
Total other comprehensive income, net of tax | 31 | 77 |
Comprehensive income before allocation to noncontrolling interests | 343 | 427 |
Less: Comprehensive loss attributable to noncontrolling interests | 0 | (1) |
Comprehensive income attributable to Zoetis Inc. | $ 343 | $ 428 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - USD ($) $ in Millions | Mar. 31, 2019 | Dec. 31, 2018 | |
Assets | |||
Cash and cash equivalents | [1] | $ 1,728 | $ 1,602 |
Restricted cash | 3 | 5 | |
Short term investments | 65 | 99 | |
Accounts receivable, less allowance for doubtful accounts of $24 in 2019 and $24 in 2018 | 970 | 1,036 | |
Inventories | 1,361 | 1,391 | |
Other current assets | 255 | 271 | |
Total current assets | 4,379 | 4,399 | |
Property, plant and equipment, less accumulated depreciation of $1,642 in 2019 and $1,599 in 2018 | 1,683 | 1,658 | |
Operating lease right of use assets | 158 | ||
Goodwill | 2,522 | 2,519 | |
Identifiable intangible assets, less accumulated amortization | 1,989 | 2,046 | |
Noncurrent deferred tax assets | 65 | 61 | |
Other noncurrent assets | 87 | 94 | |
Total assets | 10,883 | 10,777 | |
Liabilities and Equity | |||
Short-term borrowings | 0 | 9 | |
Accounts payable | 235 | 313 | |
Dividends payable | 79 | 79 | |
Accrued expenses | 448 | 487 | |
Accrued compensation and related items | 200 | 266 | |
Income taxes payable | 65 | 35 | |
Other current liabilities | 55 | 34 | |
Total current liabilities | 1,082 | 1,223 | |
Long-term debt, net of discount and issuance costs | 6,444 | 6,443 | |
Noncurrent deferred tax liabilities | 464 | 474 | |
Operating lease liabilities | 134 | ||
Other taxes payable | 261 | 265 | |
Other noncurrent liabilities | 181 | 187 | |
Total liabilities | 8,566 | 8,592 | |
Commitments and Contingencies | |||
Stockholders' equity: | |||
Preferred stock, $0.01 par value: 1,000,000,000 authorized, none issued | 0 | 0 | |
Common stock, $0.01 par value: 6,000,000,000 authorized; 501,891,243 and 501,891,243 shares issued; 479,026,001 and 479,562,326 shares outstanding at March 31, 2019, and December 31, 2018, respectively | 5 | 5 | |
Treasury stock, at cost, 22,865,242 and 22,328,917 shares of common stock at March 31, 2019, and December 31, 2018, respectively | (1,593) | (1,487) | |
Additional paid-in capital | 1,008 | 1,026 | |
Retained earnings | 3,495 | 3,270 | |
Accumulated other comprehensive loss | (598) | (629) | |
Total equity | 2,317 | 2,185 | |
Total liabilities and equity | $ 10,883 | $ 10,777 | |
[1] | As of March 31, 2019 , and December 31, 2018 , includes $3 million and $5 million |
CONDENSED CONSOLIDATED BALANC_2
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (PARENTHETICAL) - USD ($) $ in Millions | Mar. 31, 2019 | Dec. 31, 2018 | |
Statement of Financial Position [Abstract] | |||
Allowance for doubtful accounts | $ 24 | $ 24 | |
Accumulated depreciation | $ 1,642 | $ 1,599 | |
Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 | |
Preferred stock, shares authorized | 1,000,000,000 | 1,000,000,000 | |
Preferred stock, shares issued | 0 | 0 | |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 | |
Common stock, shares authorized | 6,000,000,000 | 6,000,000,000 | |
Common stock issued, shares | 501,891,243 | 501,891,243 | |
Common stock, shares outstanding | 479,026,001 | 479,562,326 | |
Treasury stock, shares | [1] | 22,865,242 | 22,328,917 |
[1] | Shares may not add due to rounding. |
CONDENSED CONSOLIDATED STATEM_3
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED) - USD ($) $ in Millions | Total | Common Stock | [1] | Treasury Stock | [1] | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Equity Attributable to Noncontrolling Interests | |
Beginning balance at Dec. 31, 2017 | $ 1,786 | $ 5 | $ (852) | $ 1,013 | $ 2,109 | $ (505) | $ 16 | |||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||||||||
Net income | 350 | 352 | (2) | |||||||
Other comprehensive income | 77 | 76 | 1 | |||||||
Share-based compensation awards | [2] | 12 | 37 | (24) | (1) | |||||
Treasury stock acquired | [3] | (190) | (190) | |||||||
Employee benefit plan contribution from Pfizer Inc. | 1 | 1 | ||||||||
Dividends declared | (61) | (61) | ||||||||
Ending balance at Mar. 31, 2018 | 1,975 | 5 | (1,005) | 990 | 2,399 | (429) | 15 | |||
Beginning balance at Dec. 31, 2018 | 2,185 | 5 | (1,487) | 1,026 | 3,270 | (629) | 0 | |||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||||||||
Net income | 312 | 312 | 0 | |||||||
Other comprehensive income | 31 | 31 | 0 | |||||||
Share-based compensation awards | [2] | 17 | 44 | (19) | (8) | |||||
Treasury stock acquired | [3] | (150) | (150) | |||||||
Employee benefit plan contribution from Pfizer Inc. | 1 | 1 | ||||||||
Dividends declared | (79) | (79) | ||||||||
Ending balance at Mar. 31, 2019 | $ 2,317 | $ 5 | $ (1,593) | $ 1,008 | $ 3,495 | $ (598) | $ 0 | |||
[1] | As of March 31, 2019 , and March 31, 2018 , there were 479,026,001 and 484,724,245 outstanding shares of common stock, respectively, and 22,865,242 and 17,166,998 shares of treasury stock, respectively. Treasury stock is recognized at the cost to reacquire the shares. For additional information, see Note 14. Stockholders' Equity | |||||||||
[2] | Reflects the acquisition of treasury shares in connection with the share repurchase program. For additional information, see Note 14. Stockholders' Equity | |||||||||
[3] | 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. |
CONDENSED CONSOLIDATED STATEM_4
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED) (PARENTHETICAL) - shares | Mar. 31, 2019 | Dec. 31, 2018 | Mar. 31, 2018 | Dec. 31, 2017 | |
Statement of Stockholders' Equity [Abstract] | |||||
Common stock, shares outstanding | 479,026,001 | 479,562,326 | 484,724,245 | ||
Treasury stock, shares | [1] | 22,865,242 | 22,328,917 | 17,166,998 | 15,760,000 |
[1] | Shares may not add due to rounding. |
CONDENSED CONSOLIDATED STATEM_5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($) $ in Millions | 3 Months Ended | |||
Mar. 31, 2019 | Mar. 31, 2018 | |||
Operating Activities | ||||
Net income before allocation to noncontrolling interests | $ 312 | $ 350 | ||
Adjustments to reconcile net income before noncontrolling interests to net cash provided by operating activities: | ||||
Depreciation and amortization expense | [1],[2] | 98 | 60 | |
Share-based compensation expense | 18 | 11 | ||
Asset write-offs and asset impairments | 1 | 2 | ||
Provision for losses on inventory | 14 | 16 | ||
Deferred taxes | [3] | (16) | (141) | |
Employee benefit plan contribution from Pfizer Inc. | 1 | 1 | ||
Other non-cash adjustments | 0 | 3 | ||
Other changes in assets and liabilities, net of acquisitions and divestitures | ||||
Accounts receivable | 75 | 60 | ||
Inventories | 17 | (33) | ||
Other assets | 24 | (2) | ||
Accounts payable | (79) | (46) | ||
Other liabilities | (103) | (55) | ||
Other tax accounts, net | [3] | 27 | 163 | |
Net cash provided by operating activities | 389 | 389 | ||
Investing Activities | ||||
Purchases of property, plant and equipment | (63) | (53) | ||
Proceeds from maturities and redemptions of investments | 36 | 0 | ||
Net proceeds from sales of assets | 0 | 8 | ||
Other investing activities | 4 | 0 | ||
Net cash used in investing activities | (23) | (45) | ||
Financing Activities | ||||
Decrease in short-term borrowings, net | (9) | 0 | ||
Payment of contingent consideration related to previously acquired assets | (8) | (12) | ||
Share-based compensation-related proceeds, net of taxes paid on withholding shares | 3 | 2 | ||
Purchases of treasury stock | (150) | (190) | ||
Cash dividends paid | (79) | (62) | ||
Net cash used in financing activities | (243) | (262) | ||
Effect of exchange-rate changes on cash and cash equivalents | 3 | 8 | ||
Net increase in cash and cash equivalents | 126 | 90 | ||
Cash and cash equivalents at beginning of period | 1,602 | [4] | 1,564 | |
Cash and cash equivalents at end of period | 1,728 | [4] | 1,654 | |
Cash paid during the period for: | ||||
Income taxes | 29 | 42 | ||
Interest, net of capitalized interest | 96 | 70 | ||
Non-cash transactions: | ||||
Capital expenditures | 5 | 1 | ||
Dividends declared, not paid | $ 79 | $ 61 | ||
[1] | 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. | |||
[2] | Defined as income before provision for taxes on income. | |||
[3] | eflects the reclassification of the one-time mandatory deemed repatriation tax from Noncurrent deferred tax liabilities to Income taxes payable and Other taxes payable | |||
[4] | As of March 31, 2019 , and December 31, 2018 , includes $3 million and $5 million |
Basis of Presentation
Basis of Presentation | 3 Months Ended |
Mar. 31, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Presentation | 2. Basis of Presentation The accompanying unaudited condensed consolidated financial statements were prepared following the requirements of the Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by accounting principles generally accepted in the United States of America (U.S. GAAP) can be condensed or omitted. Balance sheet amounts and operating results for subsidiaries operating outside the United States are as of and for the three -month periods ended February 28, 2019 , and February 28, 2018 . Revenue, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be representative of those for the full year. We are responsible for the unaudited condensed consolidated financial statements included in this Form 10-Q. The condensed consolidated financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of our financial position and operating results. The information included in this interim report should be read in conjunction with the financial statements and accompanying notes included in our 2018 |
Organization
Organization | 3 Months Ended |
Mar. 31, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization | etis Inc. (including its subsidiaries, collectively, Zoetis, the company, we, us or our) is a global leader in the discovery, development, manufacture and commercialization of animal health medicines, vaccines and diagnostic products with a focus on both livestock and companion animals. We organize and operate our business in two geographic regions: the United States (U.S.) and International. We directly market our products in approximately 45 countries across North America, Europe, Africa, Asia, Australia and South America. Our products are sold in more than 100 countries, including developed markets and emerging markets. We have a diversified business, marketing products across eight core species: cattle, swine, poultry, sheep and fish (collectively, livestock) and dogs, cats and horses (collectively, companion animals); and within six |
Accounting Standards
Accounting Standards | 3 Months Ended |
Mar. 31, 2019 | |
Accounting Policies [Abstract] | |
Accounting Standards | n February 2018, the FASB issued an accounting standards update which permits companies to reclassify from accumulated other comprehensive income to retained earnings stranded tax effects resulting from the new federal corporate income tax rate. In the period of adoption, a company may choose to either apply the amendments retrospectively to each period in which the effect of the change in federal income tax rate is recognized or to apply the amendments in that reporting period. We adopted this guidance as of January 1, 2019, the required effective date. The company has elected to not reclassify the stranded income tax effects from accumulated other comprehensive income to retained earnings as the amount is insignificant. In February 2016, the FASB issued an accounting standards update which requires lessees to recognize most leases on the balance sheet with a corresponding right of use asset. Leases will be classified as financing or operating which will drive the expense recognition pattern. For lessees, the income statement presentation and expense recognition pattern for financing and operating leases is similar to the current model for capital and operating leases, respectively. Companies may elect to exclude short-term leases. The update also requires additional disclosures that will better enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. We adopted this guidance as of January 1, 2019, the required effective date, using the effective date transition method. As permitted under the effective date transition method, financial information and disclosure for periods prior to the date of initial application will not be updated. An adjustment to opening retained earnings was not required in conjunction with our adoption. For additional information, see Note 10. Leases . We have elected not to reassess whether expired or existing contracts contain leases, nor did we reassess the classification of existing leases as of the adoption date. We did not use hindsight in our assessment of lease terms as of the effective date. Recently Issued Accounting Standards |
Acquisitions and Divestitures
Acquisitions and Divestitures | 3 Months Ended |
Mar. 31, 2019 | |
Business Combinations [Abstract] | |
Acquisitions and Divestitures | we completed the acquisition of Abaxis, Inc. (Abaxis), a California corporation and a leader in the development, manufacture and marketing of diagnostic instruments for veterinary point-of-care services. We acquired all of the outstanding common shares of Abaxis for $83.00 per share in cash resulting in Abaxis becoming our wholly owned subsidiary. The acquisition enhances our presence in animal health diagnostics. The acquisition date fair value of the consideration transferred was approximately $1,962 million , which consisted of the following: (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 were settled in cash during the first quarter of 2019. (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. The acquisition has been accounted for as a business combination with the assets acquired and liabilities assumed measured at estimated fair values as of the acquisition date, primarily using Level 3 inputs, except for investments in debt securities which were valued using Level 2 inputs. During the three months ended March 31, 2019 , the company recorded additional measurement period adjustments which were made to reflect the facts and circumstances in existence as of the acquisition date. These adjustments include a reduction to Identifiable intangible assets of $1 million , offset by the corresponding increase to goodwill. These measurement period adjustments primarily related to changes in preliminary valuation assumptions, including market participant estimates of cash flows, as well as other initial estimates. The fair values in the table below, which presents the preliminary fair values allocated to Abaxis' assets and liabilities as of the acquisition date, have been updated to reflect these measurement period adjustments. (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) (215) Total net assets acquired 984 Goodwill (g) 978 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 preliminary estimate of 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 preliminary estimate of 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 preliminary estimated 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 preliminary estimate of fair value of identifiable intangible assets is determined using the income approach, which includes a forecast of expected future cash flows. For additional information regarding identifiable intangible assets, see Note 12. 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 preliminary estimate of deferred tax effects resulting from the acquisition include the expected federal, state, and foreign tax consequences associated with temporary differences between the preliminary 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. Income Taxes . (g) Goodwill represents the excess of consideration transferred over the preliminary estimate of 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. The allocation of goodwill to the reporting units is preliminary and will be completed as the company obtains the information necessary to complete the analysis, but no later than one year from the date of the acquisition. The preliminary fair values are substantially complete subject to finalization of legal entity fair values (which may impact the fair values of identifiable intangible assets, deferred taxes and goodwill) and tax returns for the pre-acquisition period (which may impact the fair values of deferred taxes, income taxes payable and goodwill). Adjustments to the preliminary purchase price allocation identified during the measurement period, which will not exceed one year from the acquisition date, will be accounted for prospectively. The company incurred acquisition related costs of approximately $5 million for the three months ended March 31, 2019, which are included within Restructuring charges and certain acquisition-related costs on our condensed consolidated statements of income. Supplemental Pro Forma Information (Unaudited): The following table provides unaudited supplemental pro forma financial information as if the acquisition of Abaxis had occurred on January 1, 2017. Three Months Ended March 31, (MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA) 2018 Revenue $ 1,433 Net income attributable to Zoetis Inc. 322 The supplemental pro forma financial information has been prepared using the acquisition method of accounting and is based on the historical financial information of Zoetis and Abaxis. The supplemental pro forma financial information does not necessarily represent what the combined company’s revenue or results of operations would have been had the acquisition been completed on January 1, 2017 , nor do they intend to be a projection of future operating results of the combined company. It also does not reflect any operating efficiencies or potential cost savings that might be achieved from synergies of combining Zoetis and Abaxis. The unaudited supplemental pro forma financial information reflects primarily the following pro forma adjustments: • Additional amortization expense of $33 million for three months ended March 31, 2018 , related to the preliminary fair value estimate of identified intangible assets acquired. • Additional depreciation expense of $1 million for the three months ended March 31, 2018 , related to the preliminary estimate of fair value adjustments to property, plant and equipment acquired. • Additional interest expense and amortization of debt issuance costs for the debt issuance to finance the acquisition, resulting in $15 million added for the three months ended March 31, 2018 . • Adjustment related to the post merger share-based compensation expense of the replacement awards is $3 million for the three months ended March 31, 2018 . • |
Revenue
Revenue | 3 Months Ended |
Mar. 31, 2019 | |
Revenue Recognition and Deferred Revenue [Abstract] | |
Revenue | e offer a diversified portfolio of products which allows us to capitalize on local and regional customer needs. Generally, our products are promoted to veterinarians and livestock producers by our sales organization which includes sales representatives and technical and veterinary operations specialists, and then sold directly by us or through distributors. The depth of our product portfolio enables us to address the varying needs of customers in different species and geographies. Many of our top selling product lines are distributed across both of our operating segments, leveraging our R&D operations and manufacturing and supply chain network. Over the course of our history, we have focused on developing a diverse portfolio of animal health products, including medicines, vaccines and diagnostics, complemented by biodevices, genetic tests and a range of services. We refer to a single product in all brands, or its dosage forms for all species, as a product line. We have approximately 300 comprehensive product lines, including products for both livestock and companion animals across each of our major product categories. In the third quarter of 2018, the company modified the list of major product categories to include a category for animal health diagnostics, which was previously included within other non-pharmaceutical products. The prior period presentation has been revised to reflect the new product categories. Our major product categories are: • vaccines : biological preparations that help prevent diseases of the respiratory, gastrointestinal and reproductive tracts or induce a specific immune response; • other pharmaceutical products : allergy and dermatology, pain and sedation, antiemetic, reproductive, and oncology products; • 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; • 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. Our remaining revenue is derived from other non-pharmaceutical product categories, such as nutritionals and agribusiness, as well as products and services in complementary areas, including biodevices and genetic tests. Our livestock products primarily help prevent or treat diseases and conditions to enable the cost-effective production of safe, high-quality animal protein. Human population growth and increasing standards of living are important long-term growth drivers for our livestock products in three major ways. First, population growth and increasing standards of living drive increased demand for improved nutrition, particularly animal protein. Second, population growth leads to increased natural resource constraints driving a need for enhanced productivity. Finally, as standards of living improve, there is increased focus on food quality and safety. Our companion animal products help extend and improve the quality of life for pets; increase convenience and compliance for pet owners; and help veterinarians improve the quality of their care and the efficiency of their businesses. Growth in the companion animal medicines, vaccines and diagnostics sector is driven by economic development, related increases in disposable income and increases in pet ownership and spending on pet care. Companion animals are also living longer, receiving increased medical treatment and benefiting from advances in animal health medicines and vaccines. The following tables present our revenue disaggregated by geographic area, species, and major product category. Revenue by geographic area Three Months Ended March 31, (MILLIONS OF DOLLARS) 2019 2018 United States $ 718 $ 634 Australia 48 48 Brazil 60 70 Canada 41 40 China 60 64 France 32 33 Germany 37 38 Italy 28 27 Japan 37 41 Mexico 28 24 Spain 27 25 United Kingdom 57 52 Other developed markets 84 79 Other emerging markets 179 185 1,436 1,360 Contract manufacturing & human health diagnostics 19 6 Total Revenue $ 1,455 $ 1,366 Revenue by major species Three Months Ended March 31, (MILLIONS OF DOLLARS) 2019 2018 U.S. Livestock $ 273 $ 292 Companion animal 445 342 718 634 International Livestock 434 478 Companion animal 284 248 718 726 Contract manufacturing & human health diagnostics 19 6 Total Revenue $ 1,455 $ 1,366 Revenue by species Three Months Ended March 31, (MILLIONS OF DOLLARS) 2019 2018 Livestock: Cattle $ 380 $ 416 Swine 149 175 Poultry 139 136 Fish 23 22 Other 16 21 707 770 Companion Animal: Dogs and Cats 688 549 Horses 41 41 729 590 Contract manufacturing & human health diagnostics 19 6 Total Revenue $ 1,455 $ 1,366 Revenue by major product category Three Months Ended March 31, (MILLIONS OF DOLLARS) 2019 2018 Vaccines $ 358 $ 356 Anti-infectives 286 297 Other pharmaceuticals 349 319 Parasiticides 231 191 Medicated feed additives 112 137 Animal health diagnostics 60 11 Other non-pharmaceuticals 40 49 1,436 1,360 Contract manufacturing & human health diagnostics 19 6 Total Revenue $ 1,455 $ 1,366 B. Revenue from Contracts with Customers Contract liabilities reflected within Other current liabilities as of December 31, 2018 and December 31, 2017, and subsequently recognized as revenue during the first three months of 2019 and 2018 were approximately $1 million and $2 million , respectively. Contract liabilities as of March 31, 2019 and March 31, 2018 were approximately $10 million and $4 million , respectively. Estimated future revenue expected to be generated from long-term contracts with unsatisfied performance obligations as of March 31, 2019 |
Restructuring Charges and Other
Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives | 3 Months Ended |
Mar. 31, 2019 | |
Restructuring and Related Activities [Abstract] | |
Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives | connection with our cost-reduction/productivity initiatives, we typically incur costs and charges associated with site closings and other facility rationalization actions, workforce reductions and the expansion of shared services, including the development of global systems. In connection with our acquisition activity, we typically incur costs and charges associated with executing the transactions, integrating the acquired operations, which may include expenditures for consulting and the integration of systems and processes, product transfers and restructuring the consolidated company, which may include charges related to employees, assets and activities that will not continue in the consolidated company. All operating functions can be impacted by these actions, including sales and marketing, manufacturing and research and development (R&D), as well as functions such as business technology, shared services and corporate operations. During 2015, we launched a comprehensive operational efficiency program and a supply network strategy initiative. These initiatives focused on reducing complexity in our product portfolios, changing our selling approach in certain markets, reducing our presence in certain countries, and selling certain manufacturing sites over a long term period. As part of these initiatives, we reduced certain positions through divestitures, normal attrition and involuntary terminations. The components of costs incurred in connection with restructuring initiatives, acquisitions and cost-reduction/productivity initiatives are as follows: Three Months Ended March 31, (MILLIONS OF DOLLARS) 2019 2018 Restructuring charges and certain acquisition-related costs: Integration costs (a) $ 1 $ 1 Restructuring charges (b)(c) : Employee termination costs 4 1 Total Restructuring charges and certain acquisition-related costs $ 5 $ 2 (a) Integration costs represent external, incremental costs directly related to integrating acquired businesses and primarily include expenditures for consulting and the integration of systems and processes, as well as product transfer costs. (b) The restructuring charges for the three months ended March 31, 2019 primarily relate to the acquisition of Abaxis. The restructuring charges for the three months ended March 31, 2018 primarily relate to the supply network strategy initiative. (c) The restructuring charges are associated with the following: • For the three months ended March 31, 2019 and March 31, 2018 , Manufacturing/research/corporate of $4 million and $1 million , respectively. The components of, and changes in, our restructuring accruals are as follows: (MILLIONS OF DOLLARS) Accrual (a) Balance, December 31, 2018 (b) $ 45 Provision 4 Utilization and other (c) (19 ) Balance, March 31, 2019 (b) $ 30 (a) Changes in our restructuring accrual represents employee termination costs. (b) At March 31, 2019 , and December 31, 2018 , included in Accrued expenses ( $13 million and $27 million , respectively) and Other noncurrent liabilities ( $17 million and $18 million , respectively). (c) |
Other (Income)_Deductions - Net
Other (Income)/Deductions - Net | 3 Months Ended |
Mar. 31, 2019 | |
Other Income and Expenses [Abstract] | |
Other (Income)/Deductions - Net | 7. Other (Income)/Deductions—Net The components of Other (income)/deductions—net are as follows: Three Months Ended March 31, (MILLIONS OF DOLLARS) 2019 2018 Royalty-related income $ (5 ) $ (7 ) Interest income (10 ) (6 ) Foreign currency loss (a) — 8 Other, net 1 — Other (income)/deductions—net $ (14 ) $ (5 ) (a) |
Income Taxes
Income Taxes | 3 Months Ended |
Mar. 31, 2019 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | effective tax rate was 18.1% for the three months ended March 31, 2019 , compared with 16.1% for the three months ended March 31, 2018 . The higher effective tax rate for the three months ended March 31, 2019 , was primarily attributable to: • 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; • changes in the jurisdictional mix of earnings, which includes the impact of the location of earnings from operations and repatriation costs. The jurisdictional mix of earnings can vary as a result of repatriation decisions and operating fluctuations in the normal course of business and the impact of non-deductible items; and • a $4 million and $8 million discrete tax benefit recorded in the first quarter of 2019 and 2018, respectively, related to a remeasurement of deferred taxes as a result of a change in non-U.S. statutory tax rates, partially offset by: • a $13 million and $8 million discrete tax benefit recorded in the first quarter of 2019 and 2018, respectively, related to the excess tax benefits for share-based payments. B. Deferred Taxes As of March 31, 2019 , the total net deferred income tax liability of $399 million is included in Noncurrent deferred tax assets ( $65 million ) and Noncurrent deferred tax liabilities ( $464 million ). As of December 31, 2018 , the total net deferred income tax liability of $413 million is included in Noncurrent deferred tax assets ( $61 million ) and Noncurrent deferred tax liabilities ( $474 million ). C. Tax Contingencies As of March 31, 2019 , the tax liabilities associated with uncertain tax positions of $187 million (exclusive of interest and penalties related to uncertain tax positions of $12 million ) are included in Noncurrent deferred tax assets ( $3 million ) and Other taxes payable ( $184 million ). As of December 31, 2018 , the tax liabilities associated with uncertain tax positions of $185 million (exclusive of interest and penalties related to uncertain tax positions of $11 million ) are included in Noncurrent deferred tax assets ( $3 million ) and Other taxes payable ( $182 million ). |
Financial Instruments
Financial Instruments | 3 Months Ended |
Mar. 31, 2019 | |
Financial Instruments [Abstract] | |
Financial Instruments | redit Facilities In December 2016 , we entered into an amended and restated revolving credit agreement with a syndicate of banks providing for a multi-year $1.0 billion senior unsecured revolving credit facility (the credit facility). In December 2018, the maturity for the amended and restated revolving credit agreement was extended through December 2023. Subject to certain conditions, we have the right to increase the credit facility to up to $1.5 billion . The credit facility contains a financial covenant requiring us to not exceed a maximum total leverage ratio (the ratio of consolidated net debt as of the end of the period to consolidated Earnings Before Interest, Income Taxes, Depreciation and Amortization (EBITDA) for such period) of 3.50:1 . Upon entering into a material acquisition, the maximum total leverage ratio increases to 4.00:1 , and extends until the fourth full consecutive fiscal quarter ended immediately following the consummation of a material acquisition. The credit facility also contains a clause which adds back to Adjusted Consolidated EBITDA, any operational efficiency restructuring charge (defined as charges recorded by the company during the period commencing on October 1, 2016 and ending December 31, 2019, related to operational efficiency initiatives), provided that for any twelve-month period such charges added back to Adjusted Consolidated EBITDA shall not exceed $100 million in the aggregate. The credit facility also contains a financial covenant requiring that we maintain a minimum interest coverage ratio (the ratio of EBITDA at the end of the period to interest expense for such period) of 3.50:1 . In addition, the credit facility contains other customary covenants. We were in compliance with all financial covenants as of March 31, 2019 , and December 31, 2018 . There were no amounts drawn under the credit facility as of March 31, 2019 , or December 31, 2018 . We have additional lines of credit and other credit arrangements with a group of banks and other financial intermediaries for general corporate purposes. We maintain cash and cash equivalent balances in excess of our outstanding short-term borrowings. As of March 31, 2019 , we had access to $73 million of lines of credit which expire at various times through 2019 and are generally renewed annually. There were no borrowings outstanding related to these facilities as of March 31, 2019 and $9 million of borrowings outstanding related to these facilities as of December 31, 2018 . Commercial Paper Program and Other Short-Term Borrowings In February 2013 , we entered into a commercial paper program with a capacity of up to $1.0 billion . As of March 31, 2019 , and December 31, 2018 , there was no commercial paper outstanding under this program. As of March 31, 2019 , there were no short-term borrowings outstanding. As of December 31, 2018 , we had $9 million of short-term borrowings outstanding. Senior Notes and Other Long-Term Debt On August 20, 2018, we issued $1.5 billion aggregate principal amount of our senior notes (2018 senior notes), with an original issue discount of $4 million . These notes are comprised of $300 million aggregate principal amount of floating rate senior notes due 2021 (the "2018 floating rate senior notes"), and $300 million aggregate principal amount of 3.250% senior notes due 2021, $500 million aggregate principal amount of 3.900% senior notes due 2028 and $400 million aggregate principal amount of 4.450% senior notes due 2048 (collectively, the "2018 fixed rate senior notes"). Net proceeds from this offering were partially used to pay down and terminate a revolving credit agreement and repay outstanding commercial paper, which were borrowed to finance a portion of the cash consideration for the acquisition of Abaxis (see Note 5. Acquisitions and Divestitures ). The remainder of the net proceeds will be used for general corporate purposes. On September 12, 2017, we issued $1.25 billion aggregate principal amount of our senior notes (2017 senior notes), with an original issue discount of $7 million . These notes are comprised of $750 million aggregate principal amount of 3.000% senior notes due 2027 and $500 million aggregate principal amount of 3.950% senior notes due 2047. Net proceeds from this offering were partially used in October 2017 to repay, prior to maturity, the aggregate principal amount of $750 million , and a make-whole amount and accrued interest of $4 million , of our 1.875% senior notes due 2018. The remainder of the net proceeds were used for general corporate purposes. On November 13, 2015, we issued $1.25 billion aggregate principal amount of our senior notes (2015 senior notes), with an original issue discount of $2 million . On January 28, 2013, we issued $3.65 billion aggregate principal amount of our senior notes (the 2013 senior notes offering) in a private placement, with an original issue discount of $10 million . The 2013, 2015, 2017 and 2018 senior notes are governed by an indenture and supplemental indenture (collectively, the indenture) between us and Deutsche Bank Trust Company Americas, as trustee. The indenture contains certain covenants, including limitations on our and certain of our subsidiaries' ability to incur liens or engage in sale-leaseback transactions. The indenture also contains restrictions on our ability to consolidate, merge or sell substantially all of our assets. In addition, the indenture contains other customary terms, including certain events of default, upon the occurrence of which the 2013, 2015, 2017 and 2018 senior notes may be declared immediately due and payable. Pursuant to the indenture, we are able to redeem the 2013, 2015 and 2017 senior notes and the 2018 fixed rate senior notes or any series, in whole or in part, at any time by paying a “make whole” premium, plus accrued and unpaid interest to, but excluding, the date of redemption. The 2018 floating rate senior notes are not redeemable at our option prior to their maturity date. Pursuant to our tax matters agreement with Pfizer, we will not be permitted to redeem the 2013 senior notes due 2023 pursuant to this optional redemption provision, except under limited circumstances. Upon the occurrence of a change of control of us and a downgrade of the 2013, 2015, 2017 and 2018 senior notes below an investment grade rating by each of Moody's Investors Service, Inc. and Standard & Poor's Ratings Services, we are, in certain circumstances, required to make an offer to repurchase all of the outstanding 2013, 2015, 2017 and 2018 senior notes at a price equal to 101% of the aggregate principal amount of the 2013, 2015, 2017 and 2018 senior notes together with accrued and unpaid interest to, but excluding, the date of repurchase. The components of our long-term debt are as follows: March 31, December 31, (MILLIONS OF DOLLARS) 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 (56 ) (57 ) Long-term debt, net of discount and issuance costs $ 6,444 $ 6,443 The fair value of our long-term debt was $6,657 million and $6,474 million as of March 31, 2019 , and December 31, 2018 , respectively, and has been determined using a third-party matrix-pricing model that uses significant inputs derived from, or corroborated by, observable market data and Zoetis’ credit rating (Level 2 inputs). The principal amount of long-term debt outstanding, as of March 31, 2019 , matures in the following years: After (MILLIONS OF DOLLARS) 2020 2021 2022 2023 2023 Total Maturities $ 500 $ 600 $ — $ 1,350 $ 4,050 $ 6,500 Interest Expense Interest expense, net of capitalized interest, was $56 million and $47 million , for the three months ended March 31, 2019 , and March 31, 2018 , respectively. Capitalized interest expense was $3 million and $2 million for the three months ended March 31, 2019 , and March 31, 2018 , respectively. B. Investments As part of the acquisition of Abaxis, we acquired short and long-term investments in debt securities (see Note 5. Acquisitions and Divestitures ). These investments are classified as available-for-sale securities and, therefore, are measured at fair value at each reporting date. The changes in fair value are recognized in Accumulated other comprehensive income/(loss) . We utilized Level 2 inputs such as observable quoted prices for similar assets and liabilities in active markets and observable quoted prices for identical or similar assets in markets that are not very active. The investment securities portfolio consists of debt securities that are investment grade. Information on investments in the debt securities, including the contractual maturities, or as necessary, the estimated maturities, of the available-for-sale securities is as follows: Gross Unrealized As of March 31, 2019 As of December 31, 2018 (MILLIONS OF DOLLARS) Amortized Cost Gains Losses Fair Value Amortized Cost Gains Losses Fair Value Available-for-sale debt securities Municipal Bonds $ 1 $ — $ — $ 1 $ 1 $ — $ — $ 1 Corporate Bonds 64 — — 64 100 — — 100 Total debt securities $ 65 $ — $ — $ 65 $ 101 $ — $ — $ 101 Maturities by Period (a) As of March 31, 2019 As of December 31, 2018 (MILLIONS OF DOLLARS) Within 1 year Over 1 to 5 years Over 5 years Total 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 64 — — 64 98 2 — 100 Total debt securities $ 65 $ — $ — $ 65 $ 99 $ 2 $ — $ 101 (a) Long term investments are included in Other noncurrent assets . C. Derivative Financial Instruments Foreign Exchange Risk A significant portion of our revenue, earnings and net investment in foreign affiliates is exposed to changes in foreign exchange rates. We seek to manage our foreign exchange risk, in part, through operational means, including managing same-currency revenue in relation to same-currency costs and same-currency assets in relation to same-currency liabilities. Depending on market conditions, foreign exchange risk is also managed through the use of various derivative financial instruments. These derivative financial instruments serve to manage the exposure of our net investment in certain foreign operations to changes in foreign exchange rates and protect net income against the impact of translation into U.S. dollars of certain foreign exchange-denominated transactions. All derivative financial instruments used to manage foreign currency risk are measured at fair value and are reported as assets or liabilities on the condensed consolidated balance sheet. The derivative financial instruments primarily offset exposures in the Australian dollar, British pound, Canadian dollar, Chinese yuan, euro, and Japanese yen. Changes in fair value are reported in earnings or in Accumulated other comprehensive income/(loss), depending on the nature and purpose of the financial instrument, as follows: • 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 aggregate notional amount of foreign exchange derivative financial instruments offsetting foreign currency exposures was $1.1 billion and $1.3 billion , as of March 31, 2019 , and December 31, 2018 , respectively. The vast majority of the foreign exchange derivative financial instruments mature within 60 days and all mature within one year. • 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 recorded as a component of cumulative translation adjustment within Accumulated other comprehensive loss and reclassified into earnings when the foreign investment is sold or substantially liquidated. Gains and losses excluded from the assessment of hedge effectiveness are recognized in earnings ( Interest expense—net of capitalized interest) . The cash flows from these contracts are reflected within the investing section of our condensed consolidated statement of cash flows. The aggregate notional amount of cross-currency interest rate swap contracts was 507 million euro and 25 million swiss francs as of March 31, 2019 , and 400 million euro as of December 31, 2018 , with various terms of up to six years. Interest Rate Risk The company may use interest rate swap contracts on certain investing and borrowing transactions to manage its net exposure to interest rates and to reduce its overall cost of borrowing. In anticipation of issuing fixed-rate debt, we may use forward-starting interest rate swaps that are designated as cash flow hedges to hedge against changes in interest rates that could impact expected future issuances of debt. Unrealized gains or losses on the forward-starting interest rate swaps are reported in Accumulated other comprehensive loss and are recognized in earnings over the life of the future fixed-rate notes. When the company discontinues hedge accounting because it is no longer probable that an anticipated transaction will occur within the originally expected period of execution, or within an additional two-month period thereafter, changes to fair value accumulated in other comprehensive income are recognized immediately in earnings. There were no outstanding interest rate swap contracts as of March 31, 2019 and December 31, 2018 . Fair Value of Derivative Instruments The classification and fair values of derivative instruments are as follows: Fair Value of Derivatives March 31, December 31, (MILLIONS OF DOLLARS) Balance Sheet Location 2019 2018 Derivatives Not Designated as Hedging Instruments Foreign currency forward-exchange contracts Other current assets $ 5 $ 6 Foreign currency forward-exchange contracts Other current liabilities (7 ) (7 ) Total derivatives not designated as hedging instruments $ (2 ) $ (1 ) Derivatives Designated as Hedging Instruments: Cross-currency interest rate swap contracts Other current assets $ 7 $ 3 Cross-currency interest rate swap contracts Other non-current assets 15 8 Total derivatives designated as hedging instruments 22 11 Total derivatives $ 20 $ 10 The company’s cross-currency interest rate swaps are subject to master netting arrangements to mitigate credit risk by permitting net settlement of transactions with the same counterparty. We may also enter into collateral security arrangements with certain of our counterparties to exchange cash collateral when the net fair value of certain derivative instruments fluctuates from contractually established thresholds. At March 31, 2019 , there was $8 million of collateral received related to the long-term cross-currency interest rate swaps. We use a market approach in valuing financial instruments on a recurring basis. Our derivative financial instruments are measured at fair value on a recurring basis using Level 2 inputs in the calculation of fair value. The amounts of net gains/(losses) on derivative instruments not designated as hedging instruments, recorded in Other (income)/deductions—net , are as follows: Three Months Ended March 31, (MILLIONS OF DOLLARS) 2019 2018 Foreign currency forward-exchange contracts $ (4 ) $ 10 These amounts were substantially offset in Other (income)/deductions—net by the effect of changing exchange rates on the underlying foreign currency exposures. The amounts of unrecognized net gains on cross-currency interest rate swap contracts, recorded, net of tax, in Accumulated other comprehensive income/(loss) , are as follows: Three Months Ended March 31, (MILLIONS OF DOLLARS) 2019 2018 Cross-currency interest rate swap contracts $ 18 $ — Gains on cross-currency interest rate swap contracts, recognized within Interest expense, net of capitalized interest, are as follows: Three Months Ended March 31, (MILLIONS OF DOLLARS) 2019 2018 Cross-currency interest rate swap contracts $ 4 $ — The net amount of deferred gains/(losses) related to derivative instruments designated as cash flow hedges that is expected to be reclassified from Accumulated other comprehensive loss |
Leases
Leases | 3 Months Ended |
Mar. 31, 2019 | |
Leases [Abstract] | |
Leases | We have facilities, vehicles and equipment under various non-cancellable operating leases with third parties. These leases generally have remaining terms ranging from one to 15 years, inclusive of renewal options that are reasonably certain of exercise. Supplemental information for operating leases is as follows: March 31, (MILLIONS OF DOLLARS, EXCEPT LEASE TERM AND DISCOUNT RATE AMOUNTS) 2019 Supplemental Income Statement information for operating leases Operating lease expense $ 9 Variable lease payments not included in the measurement of lease liabilities 4 Short-term lease payments not included in the measurement of lease liabilities 3 Supplemental Cash Flow information for operating leases Cash paid for amounts included in the measurement of lease liabilities $ 9 Lease obligations obtained in exchange for right-of-use assets (non-cash) 176 Supplemental Balance Sheet information for operating leases Operating lease right of use assets $ 158 Operating lease liabilities Operating lease liabilities - current $ 33 Operating lease liabilities - noncurrent 134 Total operating lease liabilities $ 167 Weighted-average remaining lease term—operating leases (years) 6.69 Weighted-average discount rate—operating leases 3.69 % Future minimum lease payments under non-cancellable operating lease contracts as of March 31, 2019, are as follows: Total Less: After Lease Imputed (MILLIONS OF DOLLARS) 2019 (a) 2020 2021 2022 2023 2023 Payments Interest Total Maturities $ 28 $ 34 $ 28 $ 24 $ 19 $ 59 $ 192 $ (25 ) $ 167 (a) 2019 excludes the three months ended March 31, 2019 Future minimum lease payments under non-cancellable operating lease contracts as of December 31, 2018, in accordance with the superceded leasing standard, are as follows: After (MILLIONS OF DOLLARS) 2019 2020 2021 2022 2023 2023 Total Maturities $ 38 $ 30 $ 24 $ 21 $ 15 $ 45 $ 173 Total rent expense, net of sublease rental income, in accordance with the superceded leasing standard, was approximately $45 million in 2018. Lease Accounting Policy Below are the significant accounting policies updated as of January 1, 2019, as a result of the adoption of the new lease accounting guidance. For additional information, see Note 3. Accounting Standards . We determine if a contract contains a lease at inception. Our current portfolio includes only operating leases which are recorded as a right of use asset, as of the lease commencement date, in an amount equal to the present value of future payments over the lease term. We have elected not to recognize right of use assets and lease liabilities for short-term leases of vehicles and equipment with a lease term of twelve months or less. Options to extend or terminate a lease are considered in the lease term to the extent that the option is reasonably certain of exercise. A corresponding lease liability is recorded within other current liabilities and operating lease liabilities . The present value of future payments is discounted using the rate implicit in the lease, when available. When the implicit rate is not available, as is frequently the case with our lease portfolio, the present value is calculated using our incremental borrowing rate, as determined as of the commencement date. The incremental borrowing rate represents the rate of interest that we would expect to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. As we do not borrow on a collateralized basis, our non-collateralized borrowing rate is used as an input in deriving the incremental borrowing rate. Fixed lease payments are recognized on straight-line basis over the lease term, while variable payments are recognized in the period incurred. Variable lease payments include real estate taxes and charges for other nonlease services due to lessors that are not dependent on an index or rate and utilization based charges associated with fleet vehicles. |
Inventories
Inventories | 3 Months Ended |
Mar. 31, 2019 | |
Inventory Disclosure [Abstract] | |
Inventories | components of inventory are as follows: March 31, December 31, (MILLIONS OF DOLLARS) 2019 2018 Finished goods $ 655 $ 744 Work-in-process 523 481 Raw materials and supplies 183 166 Inventories $ 1,361 $ 1,391 |
Goodwill and Other Intangible A
Goodwill and Other Intangible Assets | 3 Months Ended |
Mar. 31, 2019 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Goodwill and Other Intangible Assets | e components of, and changes in, the carrying amount of goodwill are as follows: (MILLIONS OF DOLLARS) U.S. International Total Balance, December 31, 2018 $ 1,265 $ 1,254 $ 2,519 Additions — — — Other (a) 1 2 3 Balance, March 31, 2019 $ 1,266 $ 1,256 $ 2,522 (a) Includes a measurement period adjustment related to the acquisition of Abaxis and adjustments for foreign currency translation. The gross goodwill balance was $3,058 million and $3,055 million as of March 31, 2019 , and December 31, 2018 , respectively. Accumulated goodwill impairment losses were $536 million as of March 31, 2019 , and December 31, 2018 . B. Other Intangible Assets The components of identifiable intangible assets are as follows: As of March 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) $ 1,856 $ (559 ) $ 1,297 $ 1,854 $ (523 ) $ 1,331 Brands 213 (157 ) 56 212 (154 ) 58 Trademarks and trade names (a) 166 (53 ) 113 166 (51 ) 115 Other 413 (197 ) 216 412 (178 ) 234 Total finite-lived intangible assets 2,648 (966 ) 1,682 2,644 (906 ) 1,738 Indefinite-lived intangible assets: In-process research and development 196 — 196 197 — 197 Brands 37 — 37 37 — 37 Trademarks and trade names 67 — 67 67 — 67 Product rights 7 — 7 7 — 7 Total indefinite-lived intangible assets 307 — 307 308 — 308 Identifiable intangible assets $ 2,955 $ (966 ) $ 1,989 $ 2,952 $ (906 ) $ 2,046 (a) In connection with the acquisition of Abaxis in 2018, the company recorded $894 million of intangible assets, as shown in the table below, representing the preliminary 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 Trademarks and tradenames 104 20 Other 180 4 Total $ 894 C. Amortization Amortization expense related to finite-lived acquired intangible assets that contribute to our ability to sell, manufacture, research, market and distribute products, compounds and intellectual property is included in Amortization of intangible assets as it benefits multiple business functions. Amortization expense related to finite-lived acquired intangible assets that are associated with a single function is included in Cost of sales, Selling, general and administrative expenses or Research and development expenses , as appropriate. Total amortization expense for finite-lived intangible assets was $58 million and $25 million for three months ended March 31, 2019, and March 31, 2018 |
Share-Based Payments
Share-Based Payments | 3 Months Ended |
Mar. 31, 2019 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Share-Based Payments | company may grant a variety of share-based payments under the Zoetis 2013 Equity and Incentive Plan (the Equity Plan) to our employees and non-employee directors. The principal types of share-based awards available under the Equity Plan may include, but are not limited to, stock options, restricted stock and restricted stock units (RSUs), deferred stock units (DSUs), performance-vesting restricted stock units (PSUs) and other equity-based or cash-based awards. The components of share-based compensation expense are as follows: Three Months Ended March 31, (MILLIONS OF DOLLARS) 2019 2018 Stock options / stock appreciation rights $ 3 $ 2 RSUs / DSUs (a) 12 7 PSUs 3 2 Share-based compensation expense—total (b) $ 18 $ 11 (a) For the three months ended March 31, 2019 , includes share-based compensation expense of $5 million related to the acquisition of Abaxis, for the post-merger service period. For additional details, see Note 5. Acquisitions and Divestitures . (b) Amounts capitalized to inventory were insignificant. During the three months ended March 31, 2019 , the company granted 436,746 stock options with a weighted-average exercise price of $87.51 per stock option and a weighted-average fair value of $21.78 per stock option. The fair-value based method for valuing each Zoetis stock option grant on the grant date uses the Black-Scholes-Merton option-pricing model, which incorporates a number of valuation assumptions. The weighted-average fair value was estimated based on the following assumptions: risk-free interest rate of 2.57% ; expected dividend yield of 0.75% ; expected stock price volatility of 23.10% ; and expected term of 5.7 years. In general, stock options vest after three years of continuous service and the values determined through this fair-value based method generally are amortized on a straight-line basis over the vesting term into Cost of sales, Selling, general and administrative expenses, or Research and development expenses, as appropriate. During the three months ended March 31, 2019 , the company granted 355,747 RSUs, with a weighted-average grant date fair value of $ 87.50 per RSU. RSUs are accounted for using a fair-value-based method that utilizes the closing price of Zoetis common stock on the date of grant. In general, RSUs vest after three years of continuous service from the grant date and the values generally are amortized on a straight-line basis over the vesting term into Cost of sales, Selling, general and administrative expenses, or Research and development expenses, as appropriate. During the three months ended March 31, 2019 , the company granted 190,170 PSUs with a weighted-average grant date fair value of $101.51 per PSU. PSUs are accounted for using a Monte Carlo simulation model. The units underlying the PSUs will be earned and vested over a three -year performance period, based upon the total shareholder return of the company in comparison to the total shareholder return of the companies comprising the S&P 500 stock market index at the start of the performance period, excluding companies that during the performance period are acquired or no longer publicly traded (Relative TSR). The weighted-average fair value was estimated based on volatility assumptions of Zoetis common stock and an average of the S&P 500 companies, which were 20.3% and 25.3% , respectively. Depending on the company’s Relative TSR performance at the end of the performance period, the recipient may earn between 0% and 200% of the target number of units. Vested units are settled in shares of the company’s common stock. PSU values are amortized on a straight-line basis over the vesting term into Cost of sales, Selling, general and administrative expenses, or Research and development expenses, |
Stockholders' Equity
Stockholders' Equity | 3 Months Ended |
Mar. 31, 2019 | |
Equity [Abstract] | |
Stockholders' Equity | tis is authorized to issue 6 billion shares of common stock and 1 billion shares of preferred stock. In December 2016, the company's Board of Directors authorized a $1.5 billion share repurchase program. As of March 31, 2019 , there was approximately $151 million remaining under this authorization. In December 2018, the company's Board of Directors authorized an additional $2.0 billion share repurchase program. Purchases of Zoetis shares may be made at the discretion of management, depending on market conditions and business needs. Changes in common shares and treasury stock were as follows: (MILLIONS) Common Shares Issued (a) Treasury Stock (a) Balance, December 31, 2017 501.89 15.76 Share-based compensation — (0.99 ) Share repurchase program — 2.40 Balance, March 31, 2018 501.89 17.17 Balance, December 31, 2018 501.89 22.33 Share-based compensation — (1.14 ) Share repurchase program — 1.67 Balance, March 31, 2019 501.89 22.87 (a) Shares may not add due to rounding. Upon reissuance of treasury stock, differences between the proceeds from reissuance and the cost of the treasury stock that result in gains are recorded in Additional paid-in capital . Losses are recorded in Additional paid-in capital to the extent that they can offset previously recorded gains. If no such credit exists, the differences are recorded in Retained earnings . Accumulated other comprehensive income/(loss) Changes, net of tax, in accumulated other comprehensive loss, excluding noncontrolling interests, were as follows: Currency Translation Adjustments Accumulated Other Cash Flow Net Investment Other Currency Comprehensive (MILLIONS OF DOLLARS) Hedges Hedges Translation Adj Benefit Plans (Loss)/Income Balance, December 31, 2017 $ (3 ) $ — $ (487 ) $ (15 ) $ (505 ) Other comprehensive income, net of tax — — 76 — 76 Balance, March 31, 2018 $ (3 ) $ — $ (411 ) $ (15 ) $ (429 ) Balance, December 31, 2018 $ (4 ) $ 10 $ (621 ) $ (14 ) $ (629 ) Other comprehensive income, net of tax — 8 23 — 31 Balance, March 31, 2019 $ (4 ) $ 18 $ (598 ) $ (14 ) $ (598 ) |
Earnings per Share
Earnings per Share | 3 Months Ended |
Mar. 31, 2019 | |
Earnings Per Share [Abstract] | |
Earnings per Share | following table presents the calculation of basic and diluted earnings per share: Three Months Ended March 31, (MILLIONS OF DOLLARS AND SHARES, EXCEPT PER SHARE DATA) 2019 2018 Numerator Net income before allocation to noncontrolling interests $ 312 $ 350 Less: Net loss attributable to noncontrolling interests — (2 ) Net income attributable to Zoetis Inc. $ 312 $ 352 Denominator Weighted-average common shares outstanding 479.6 485.9 Common stock equivalents: stock options, RSUs, PSUs and DSUs 3.5 3.9 Weighted-average common and potential dilutive shares outstanding 483.1 489.8 Earnings per share attributable to Zoetis Inc. stockholders—basic $ 0.65 $ 0.72 Earnings per share attributable to Zoetis Inc. stockholders—diluted $ 0.65 $ 0.72 The number of stock options outstanding under the company's Equity Plan that were excluded from the computation of diluted earnings per share, as the effect would have been antidilutive, were de minimis for both the three months ended March 31, 2019 and March 31, 2018 |
Commitments and Contingencies
Commitments and Contingencies | 3 Months Ended |
Mar. 31, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | and certain of our subsidiaries are subject to numerous contingencies arising in the ordinary course of business. For a discussion of our tax contingencies, see Note 8. Income Taxes . A. Legal Proceedings Our non-tax contingencies include, among others, the following: • Product liability and other product-related litigation, which can include injury, consumer, off-label promotion, antitrust and breach of contract claims. • Commercial and other matters, which can include product-pricing claims and environmental claims and proceedings. • Patent litigation, which typically involves challenges to the coverage and/or validity of our patents or those of third parties on various products or processes. • Government investigations, which can involve regulation by national, state and local government agencies in the United States and in other countries. Certain of these contingencies could result in losses, including damages, fines and/or civil penalties, and/or criminal charges, which could be substantial. We believe that we have strong defenses in these types of matters, but litigation is inherently unpredictable and excessive verdicts do occur. We do not believe that any of these matters will have a material adverse effect on our financial position. However, we could incur judgments, enter into settlements or revise our expectations regarding the outcome of certain matters, and such developments could have a material adverse effect on our results of operations or cash flows in the period in which the amounts are paid. We have accrued for losses that are both probable and reasonably estimable. Substantially all of these contingencies are subject to significant uncertainties and, therefore, determining the likelihood of a loss and/or the measurement of any loss can be complex. Consequently, we are unable to estimate the range of reasonably possible loss in excess of amounts accrued. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but the assessment process relies on estimates and assumptions that may prove to be incomplete or inaccurate, and unanticipated events and circumstances may occur that might cause us to change those estimates and assumptions. Amounts recorded for legal and environmental contingencies can result from a complex series of judgments about future events and uncertainties and can rely on estimates and assumptions. The principal matters to which we are a party are discussed below. In determining whether a pending matter is significant for financial reporting and disclosure purposes, we consider both quantitative and qualitative factors in order to assess materiality, such as, among other things, the amount of damages and the nature of any other relief sought in the proceeding, if such damages and other relief are specified; our view of the merits of the claims and of the strength of our defenses; whether the action purports to be a class action and our view of the likelihood that a class will be certified by the court; the jurisdiction in which the proceeding is pending; any experience that we or, to our knowledge, other companies have had in similar proceedings; whether disclosure of the action would be important to a reader of our financial statements, including whether disclosure might change a reader’s judgment about our financial statements in light of all of the information about the company that is available to the reader; the potential impact of the proceeding on our reputation; and the extent of public interest in the matter. In addition, with respect to patent matters, we consider, among other things, the financial significance of the product protected by the patent. Ulianopolis, Brazil In February 2012, the Municipality of Ulianopolis (State of Para, Brazil) filed a complaint against Fort Dodge Saúde Animal Ltda. (FDSAL), a Zoetis entity, and five other large companies alleging that waste sent to a local waste incineration facility for destruction, but that was not ultimately destroyed as the facility lost its operating permit, caused environmental impacts requiring cleanup. The Municipality is seeking recovery of cleanup costs purportedly related to FDSAL's share of all waste accumulated at the incineration facility awaiting destruction, and compensatory damages to be allocated among the six defendants. We believe we have strong arguments against the claim, including defense strategies against any claim of joint and several liability. At the request of the Municipal prosecutor, in April 2012, the lawsuit was suspended for one year. Since that time, the prosecutor has initiated investigations into the Municipality's actions in the matter as well as the efforts undertaken by the six defendants to remove and dispose of their individual waste from the incineration facility. On October 3, 2014, the Municipal prosecutor announced that the investigation remained ongoing and outlined the terms of a proposed Term of Reference (a document that establishes the minimum elements to be addressed in the preparation of an Environmental Impact Assessment), under which the companies would be liable to withdraw the waste and remediate the area. On March 5, 2015, we presented our response to the prosecutor’s proposed Term of Reference, arguing that the proposed terms were overly general in nature and expressing our interest in discussing alternatives to address the matter. The prosecutor agreed to consider our request to engage a technical consultant to conduct an environmental diagnostic of the contaminated area. On May 29, 2015, we, in conjunction with the other defendant companies, submitted a draft cooperation agreement to the prosecutor, which outlined the proposed terms and conditions for the engagement of a technical consultant to conduct the environmental diagnostic. On August 19, 2016, the parties and the prosecutor agreed to engage the services of a third-party consultant to conduct a limited environmental assessment of the site. The site assessment was conducted during June 2017, and a written report summarizing the results of the assessment was provided to the parties and the prosecutor in November 2017. The report noted that waste is still present on the site and that further (Phase II) environmental assessments are needed before a plan to manage that remaining waste can be prepared. On April 1, 2019, the defendants met with the Prosecutor to discuss the conclusions set forth in the written report. Following that discussion, on April 10, 2019, the Prosecutor issued a procedural order requesting that the defendants prepare and submit, by July 10, 2019, a technical proposal outlining the steps needed to conduct the additional Phase II environmental assessments. We are in the process of coordinating with the other defendants with respect to the preparation of a response to the Prosecutor’s order. Lascadoil Contamination in Animal Feed An investigation by the U.S. Food and Drug Administration (FDA) and the Michigan Department of Agriculture is ongoing to determine how lascadoil, oil for industrial use, made its way into the feed supply of certain turkey and hog feed mills in Michigan. The contaminated feed is believed to have caused the deaths of approximately 50,000 turkeys and the contamination (but not death) of at least 20,000 hogs in August 2014. While it remains an open question as to how the lascadoil made its way into the animal feed, the allegations are that lascadoil intended to be sold for reuse as biofuel was inadvertently sold to producers of soy oil, who in turn, unknowingly sold the contaminated soy oil to fat recycling vendors, who then sold the contaminated soy oil to feed mills for use in animal feed. Indeed, related to the FDA investigation, Shur-Green Farms LLC, a producer of soy oil, recalled certain batches of soy oil allegedly contaminated with lascadoil on October 13, 2014. During the course of its investigation, the FDA identified the process used to manufacture Zoetis’ Avatec® (lasalocid sodium) and Bovatec® (lasalocid sodium) products as one possible source of the lascadoil, since lascadoil contains small amounts of lasalocid, the active ingredient found in both products. Zoetis has historically sold any and all industrial lascadoil byproduct to an environmental company specializing in waste disposal. The environmental company is contractually obligated to incinerate the lascadoil or resell it for use in biofuel. Under the terms of the agreement, the environmental company is expressly prohibited from reselling the lascadoil to be used as a component in food. The FDA inspected the Zoetis site where Avatec and Bovatec are manufactured, and found no evidence that Zoetis was involved in the contamination of the animal feed. On March 10, 2015, plaintiffs Restaurant Recycling, LLC (Restaurant Recycling) and Superior Feed Ingredients, LLC (Superior), both of whom are in the fat recycling business, filed a complaint in the Seventeenth Circuit Court for the State of Michigan against Shur-Green Farms alleging negligence and breach of warranty claims arising from their purchase of soy oil allegedly contaminated with lascadoil. Plaintiffs resold the allegedly contaminated soy oil to turkey feed mills for use in feed ingredient. Plaintiffs also named Zoetis as a defendant in the complaint alleging that Zoetis failed to properly manufacture its products and breached an implied warranty that the soy oil was fit for use at turkey and hog mills. Zoetis was served with the complaint on June 3, 2015, and we filed our answer, denying all allegations, on July 15, 2015. On August 10, 2015, several of the turkey feed mills filed a joint complaint against Restaurant Recycling, Superior, Shur-Green Farms and others, alleging claims for negligence, misrepresentation, and breach of warranty, arising out of their alleged purchase and use of the contaminated soy oil. The complaint raises only one count against Zoetis for negligence. We filed an answer to the complaint on November 2, 2015, denying the allegation. On May 16, 2016, two additional turkey producers filed a complaint in the Seventeenth Circuit Court for the State of Michigan against the company, Restaurant Recycling, Superior, Shur-Green Farms and others, alleging claims for negligence and breach of warranties. We filed an answer to the complaint on June 20, 2016, denying the allegations. The Court has consolidated all three cases in Michigan for purposes of discovery and disposition. On July 28, 2017, we filed a motion for summary disposition on the grounds that no genuine issues of material fact exist and that Zoetis is entitled to judgment as a matter of law. On October 19, 2017, the Court granted our motion and dismissed all claims against Zoetis. On October 31, 2017, the plaintiffs filed motions for reconsideration of the Court's decision granting summary disposition. The Court, denied all such motions on December 6, 2017, for the same reasons cited in the Court’s original decision. On December 27, 2017, the plaintiffs filed a request with the Michigan Court of Appeals seeking an interlocutory (or interim) appeal of the lower Court’s decision, which we opposed on January 17, 2018. On July 5, 2018, the Court of Appeals denied the plaintiffs’ request for an interlocutory appeal. The case has been remanded back to the lower Court, where it will proceed to trial (unless settled) without Zoetis. The plaintiffs will have the option to seek an appeal of the lower Court's decision granting Zoetis' motion for summary disposition after the final adjudication of the case. Other Matters On February 14, 2019, the General Court of the European Union (General Court) annulled the January 11, 2016 decision of the European Commission (EC) that selective tax advantages granted by Belgium under its "excess profit" tax scheme constitute illegal state aid. On April 26, 2019, the EC announced that it will appeal the decision of the General Court. Due to the uncertainty with respect to the outcome of the appeal to be filed by the EC, the company has not reflected any potential benefits associated with the decision of the General Court in its consolidated financial statements as of March 31, 2019. We will continue to monitor the developments of the appeal and its ultimate resolution. The European Commission published a decision on alleged competition law infringements by several human health pharmaceutical companies on June 19, 2013. One of the involved legal entities is Alpharma LLC (previously having the name Zoetis Products LLC). Alpharma LLC's involvement is solely related to its human health activities prior to Pfizer's acquisition of King/Alpharma. Zoetis paid a fine in the amount of Euro 11 million (approximately $14 million ) and was reimbursed in full by Pfizer in accordance with the Global Separation Agreement between Pfizer and Zoetis, which provides that Pfizer is obligated to indemnify Zoetis for any liabilities arising out of claims not related to its animal health assets. We filed an appeal of the decision on September 6, 2013, to the General Court of the European Union. On September 8, 2016, the General Court upheld the decision of the European Commission. On November 25, 2016, we filed an appeal to the Court of Justice of the European Union. On January 24, 2019, the Court heard oral argument on the merits of the appeal, and we now await the Court’s decision. B. Guarantees and Indemnifications In the ordinary course of business and in connection with the sale of assets and businesses, we indemnify our counterparties against certain liabilities that may arise in connection with the transaction or related to activities prior to the transaction. These indemnifications typically pertain to environmental, tax, employee and/or product-related matters and patent-infringement claims. If the indemnified party were to make a successful claim pursuant to the terms of the indemnification, we would be required to reimburse the loss. These indemnifications are generally subject to threshold amounts, specified claim periods and other restrictions and limitations. Historically, we have not paid significant amounts under these provisions and, as of March 31, 2019 |
Segment Information
Segment Information | 3 Months Ended |
Mar. 31, 2019 | |
Segment Reporting [Abstract] | |
Segment Information | rating Segments We manage our operations through two geographic operating segments: the United States and International. Each operating segment has responsibility for its commercial activities. Within each of these operating segments, we offer a diversified product portfolio, including vaccines, parasiticides, anti-infectives, medicated feed additives, animal health diagnostics and other pharmaceuticals, for both livestock and companion animal customers. Our chief operating decision maker uses the revenue and earnings of the two operating segments, among other factors, for performance evaluation and resource allocation. Other Costs and Business Activities Certain costs are not allocated to our operating segment results, such as costs associated with the following: • Other business activities, includes our Client Supply Services (CSS) contract manufacturing results, our human health diagnostics 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. Segment Assets We manage our assets on a total company basis, not by operating segment. Therefore, our chief operating decision maker does not regularly review any asset information by operating segment and, accordingly, we do not report asset information by operating segment. Earnings Depreciation and Amortization (a) Three Months Ended Three Months Ended March 31, March 31, (MILLIONS OF DOLLARS) 2019 2018 2019 2018 U.S. Revenue $ 718 $ 634 Cost of sales 147 140 Gross profit 571 494 Gross margin 79.5 % 77.9 % Operating expenses 110 96 Other (income)/deductions — — U.S. Earnings 461 398 $ 10 $ 8 International Revenue (b) 718 726 Cost of sales 210 234 Gross profit 508 492 Gross margin 70.8 % 67.8 % Operating expenses 132 133 Other (income)/deductions — 1 International Earnings 376 358 13 11 Total operating segments 837 756 23 19 Other business activities (80 ) (81 ) 5 5 Reconciling Items: Corporate (162 ) (153 ) 14 13 Purchase accounting adjustments (66 ) (23 ) 55 23 Acquisition-related costs (5 ) (1 ) — — Certain significant items (c) (70 ) (3 ) — — Other unallocated (73 ) (78 ) 1 — Total Earnings (d) $ 381 $ 417 $ 98 $ 60 (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 $181 million and $184 million for the three months ended March 31, 2019 , and March 31, 2018 , respectively. (c) For the three months ended March 31, 2019 , primarily represents a change in estimate related to inventory costing of $68 million , and consulting fees of $2 million related to our supply network strategy. For the three months ended March 31, 2018 , primarily represents: (i) employee termination costs and consulting fees related to our supply network strategy, and (ii) a charge related to the implementation of new accounting guidance as a result of the enactment of the Tax Act. (d) |
Accounting Standards (Policies)
Accounting Standards (Policies) | 3 Months Ended |
Mar. 31, 2019 | |
Accounting Policies [Abstract] | |
Basis of Presentation | The accompanying unaudited condensed consolidated financial statements were prepared following the requirements of the Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by accounting principles generally accepted in the United States of America (U.S. GAAP) can be condensed or omitted. Balance sheet amounts and operating results for subsidiaries operating outside the United States are as of and for the three -month periods ended February 28, 2019 , and February 28, 2018 |
Recently Adopted Accounting Standards and Recently Issued Accounting Standards | In February 2018, the FASB issued an accounting standards update which permits companies to reclassify from accumulated other comprehensive income to retained earnings stranded tax effects resulting from the new federal corporate income tax rate. In the period of adoption, a company may choose to either apply the amendments retrospectively to each period in which the effect of the change in federal income tax rate is recognized or to apply the amendments in that reporting period. We adopted this guidance as of January 1, 2019, the required effective date. The company has elected to not reclassify the stranded income tax effects from accumulated other comprehensive income to retained earnings as the amount is insignificant. In February 2016, the FASB issued an accounting standards update which requires lessees to recognize most leases on the balance sheet with a corresponding right of use asset. Leases will be classified as financing or operating which will drive the expense recognition pattern. For lessees, the income statement presentation and expense recognition pattern for financing and operating leases is similar to the current model for capital and operating leases, respectively. Companies may elect to exclude short-term leases. The update also requires additional disclosures that will better enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. We adopted this guidance as of January 1, 2019, the required effective date, using the effective date transition method. As permitted under the effective date transition method, financial information and disclosure for periods prior to the date of initial application will not be updated. An adjustment to opening retained earnings was not required in conjunction with our adoption. For additional information, see Note 10. Leases . We have elected not to reassess whether expired or existing contracts contain leases, nor did we reassess the classification of existing leases as of the adoption date. We did not use hindsight in our assessment of lease terms as of the effective date. Recently Issued Accounting Standards |
Tax Contingencies | Our tax liabilities for uncertain tax positions relate primarily to issues common among multinational corporations. Any settlements or statute of limitations expirations could result in a significant decrease in our uncertain tax positions. Substantially all of these unrecognized tax benefits, if recognized, would impact our effective income tax rate. We do not expect that within the next twelve months any of our uncertain tax positions could significantly decrease as a result of settlements with taxing authorities or the expiration of the statutes of limitations. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but our estimates of uncertain tax positions and potential tax benefits may not be representative of actual outcomes, and any variation from such estimates could materially affect our financial statements in the period of settlement or when the statutes of limitations expire, as we treat these events as discrete items in the period of resolution. Finalizing audits with the relevant taxing authorities can include formal administrative and legal proceedings, and, as a result, it is difficult to estimate the timing and range of possible changes related to our uncertain tax positions, and such changes could be significant. |
Foreign Exchange and Interest Rate Risk | Foreign Exchange Risk A significant portion of our revenue, earnings and net investment in foreign affiliates is exposed to changes in foreign exchange rates. We seek to manage our foreign exchange risk, in part, through operational means, including managing same-currency revenue in relation to same-currency costs and same-currency assets in relation to same-currency liabilities. Depending on market conditions, foreign exchange risk is also managed through the use of various derivative financial instruments. These derivative financial instruments serve to manage the exposure of our net investment in certain foreign operations to changes in foreign exchange rates and protect net income against the impact of translation into U.S. dollars of certain foreign exchange-denominated transactions. All derivative financial instruments used to manage foreign currency risk are measured at fair value and are reported as assets or liabilities on the condensed consolidated balance sheet. The derivative financial instruments primarily offset exposures in the Australian dollar, British pound, Canadian dollar, Chinese yuan, euro, and Japanese yen. Changes in fair value are reported in earnings or in Accumulated other comprehensive income/(loss), depending on the nature and purpose of the financial instrument, as follows: • 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 aggregate notional amount of foreign exchange derivative financial instruments offsetting foreign currency exposures was $1.1 billion and $1.3 billion , as of March 31, 2019 , and December 31, 2018 , respectively. The vast majority of the foreign exchange derivative financial instruments mature within 60 days and all mature within one year. • 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 recorded as a component of cumulative translation adjustment within Accumulated other comprehensive loss and reclassified into earnings when the foreign investment is sold or substantially liquidated. Gains and losses excluded from the assessment of hedge effectiveness are recognized in earnings ( Interest expense—net of capitalized interest) . The cash flows from these contracts are reflected within the investing section of our condensed consolidated statement of cash flows. The aggregate notional amount of cross-currency interest rate swap contracts was 507 million euro and 25 million swiss francs as of March 31, 2019 , and 400 million euro as of December 31, 2018 , with various terms of up to six years. Interest Rate Risk The company may use interest rate swap contracts on certain investing and borrowing transactions to manage its net exposure to interest rates and to reduce its overall cost of borrowing. In anticipation of issuing fixed-rate debt, we may use forward-starting interest rate swaps that are designated as cash flow hedges to hedge against changes in interest rates that could impact expected future issuances of debt. Unrealized gains or losses on the forward-starting interest rate swaps are reported in Accumulated other comprehensive loss |
Legal Proceedings | Our non-tax contingencies include, among others, the following: • Product liability and other product-related litigation, which can include injury, consumer, off-label promotion, antitrust and breach of contract claims. • Commercial and other matters, which can include product-pricing claims and environmental claims and proceedings. • Patent litigation, which typically involves challenges to the coverage and/or validity of our patents or those of third parties on various products or processes. • Government investigations, which can involve regulation by national, state and local government agencies in the United States and in other countries. Certain of these contingencies could result in losses, including damages, fines and/or civil penalties, and/or criminal charges, which could be substantial. We believe that we have strong defenses in these types of matters, but litigation is inherently unpredictable and excessive verdicts do occur. We do not believe that any of these matters will have a material adverse effect on our financial position. However, we could incur judgments, enter into settlements or revise our expectations regarding the outcome of certain matters, and such developments could have a material adverse effect on our results of operations or cash flows in the period in which the amounts are paid. We have accrued for losses that are both probable and reasonably estimable. Substantially all of these contingencies are subject to significant uncertainties and, therefore, determining the likelihood of a loss and/or the measurement of any loss can be complex. Consequently, we are unable to estimate the range of reasonably possible loss in excess of amounts accrued. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but the assessment process relies on estimates and assumptions that may prove to be incomplete or inaccurate, and unanticipated events and circumstances may occur that might cause us to change those estimates and assumptions. Amounts recorded for legal and environmental contingencies can result from a complex series of judgments about future events and uncertainties and can rely on estimates and assumptions. |
Guarantees and Indemnifications | the ordinary course of business and in connection with the sale of assets and businesses, we indemnify our counterparties against certain liabilities that may arise in connection with the transaction or related to activities prior to the transaction. These indemnifications typically pertain to environmental, tax, employee and/or product-related matters and patent-infringement claims. If the indemnified party were to make a successful claim pursuant to the terms of the indemnification, we would be required to reimburse the loss. These indemnifications are generally subject to threshold amounts, specified claim periods and other restrictions and limitations. Historically, we have not paid significant amounts under these provisions and, as of March 31, 2019 |
Segment Information | Operating Segments We manage our operations through two geographic operating segments: the United States and International. Each operating segment has responsibility for its commercial activities. Within each of these operating segments, we offer a diversified product portfolio, including vaccines, parasiticides, anti-infectives, medicated feed additives, animal health diagnostics and other pharmaceuticals, for both livestock and companion animal customers. Our chief operating decision maker uses the revenue and earnings of the two operating segments, among other factors, for performance evaluation and resource allocation. Other Costs and Business Activities Certain costs are not allocated to our operating segment results, such as costs associated with the following: • Other business activities, includes our Client Supply Services (CSS) contract manufacturing results, our human health diagnostics 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. Segment Assets |
Lease Accounting Policy | Lease Accounting Policy Below are the significant accounting policies updated as of January 1, 2019, as a result of the adoption of the new lease accounting guidance. For additional information, see Note 3. Accounting Standards . We determine if a contract contains a lease at inception. Our current portfolio includes only operating leases which are recorded as a right of use asset, as of the lease commencement date, in an amount equal to the present value of future payments over the lease term. We have elected not to recognize right of use assets and lease liabilities for short-term leases of vehicles and equipment with a lease term of twelve months or less. Options to extend or terminate a lease are considered in the lease term to the extent that the option is reasonably certain of exercise. A corresponding lease liability is recorded within other current liabilities and operating lease liabilities . The present value of future payments is discounted using the rate implicit in the lease, when available. When the implicit rate is not available, as is frequently the case with our lease portfolio, the present value is calculated using our incremental borrowing rate, as determined as of the commencement date. The incremental borrowing rate represents the rate of interest that we would expect to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. As we do not borrow on a collateralized basis, our non-collateralized borrowing rate is used as an input in deriving the incremental borrowing rate. Fixed lease payments are recognized on straight-line basis over the lease term, while variable payments are recognized in the period incurred. Variable lease payments include real estate taxes and charges for other nonlease services due to lessors that are not dependent on an index or rate and utilization based charges associated with fleet vehicles. |
Acquisitions and Divestitures (
Acquisitions and Divestitures (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Business Combinations [Abstract] | |
Schedule of Business Acquisitions, by Acquisition [Table Text Block] | presents the preliminary fair values allocated to Abaxis' assets and liabilities as of the acquisition date, have been updated to reflect these measurement period adjustments. (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) (215) Total net assets acquired 984 Goodwill (g) 978 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 preliminary estimate of 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 preliminary estimate of 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 preliminary estimated 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 preliminary estimate of fair value of identifiable intangible assets is determined using the income approach, which includes a forecast of expected future cash flows. For additional information regarding identifiable intangible assets, see Note 12. 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 preliminary estimate of deferred tax effects resulting from the acquisition include the expected federal, state, and foreign tax consequences associated with temporary differences between the preliminary 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. Income Taxes . (g) Goodwill represents the excess of consideration transferred over the preliminary estimate of fair values of the assets acquired and liabilities assumed. It is |
Business Acquisition, Pro Forma Information [Table Text Block] | Supplemental Pro Forma Information (Unaudited): The following table provides unaudited supplemental pro forma financial information as if the acquisition of Abaxis had occurred on January 1, 2017. Three Months Ended March 31, (MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA) 2018 Revenue $ 1,433 Net income attributable to Zoetis Inc. 322 |
Revenue Revenue Recognition and
Revenue Revenue Recognition and Deferred Revenue (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Revenue Recognition and Deferred Revenue [Abstract] | |
Revenue from External Customers by Geographic Areas | Revenue by geographic area Three Months Ended March 31, (MILLIONS OF DOLLARS) 2019 2018 United States $ 718 $ 634 Australia 48 48 Brazil 60 70 Canada 41 40 China 60 64 France 32 33 Germany 37 38 Italy 28 27 Japan 37 41 Mexico 28 24 Spain 27 25 United Kingdom 57 52 Other developed markets 84 79 Other emerging markets 179 185 1,436 1,360 Contract manufacturing & human health diagnostics 19 6 Total Revenue $ 1,455 $ 1,366 |
Revenue from External Customers by Major Species | Revenue by major species Three Months Ended March 31, (MILLIONS OF DOLLARS) 2019 2018 U.S. Livestock $ 273 $ 292 Companion animal 445 342 718 634 International Livestock 434 478 Companion animal 284 248 718 726 Contract manufacturing & human health diagnostics 19 6 Total Revenue $ 1,455 $ 1,366 |
Revenue from External Customers by Species | Revenue by species Three Months Ended March 31, (MILLIONS OF DOLLARS) 2019 2018 Livestock: Cattle $ 380 $ 416 Swine 149 175 Poultry 139 136 Fish 23 22 Other 16 21 707 770 Companion Animal: Dogs and Cats 688 549 Horses 41 41 729 590 Contract manufacturing & human health diagnostics 19 6 Total Revenue $ 1,455 $ 1,366 |
Schedule of Significant Product Revenues | Revenue by major product category Three Months Ended March 31, (MILLIONS OF DOLLARS) 2019 2018 Vaccines $ 358 $ 356 Anti-infectives 286 297 Other pharmaceuticals 349 319 Parasiticides 231 191 Medicated feed additives 112 137 Animal health diagnostics 60 11 Other non-pharmaceuticals 40 49 1,436 1,360 Contract manufacturing & human health diagnostics 19 6 Total Revenue $ 1,455 $ 1,366 B. Revenue from Contracts with Customers Contract liabilities reflected within Other current liabilities as of December 31, 2018 and December 31, 2017, and subsequently recognized as revenue during the first three months of 2019 and 2018 were approximately $1 million and $2 million , respectively. Contract liabilities as of March 31, 2019 and March 31, 2018 were approximately $10 million and $4 million , respectively. Estimated future revenue expected to be generated from long-term contracts with unsatisfied performance obligations as of March 31, 2019 |
Restructuring Charges and Oth_2
Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Restructuring and Related Activities [Abstract] | |
Restructuring and Related Costs | The components of, and changes in, our restructuring accruals are as follows: (MILLIONS OF DOLLARS) Accrual (a) Balance, December 31, 2018 (b) $ 45 Provision 4 Utilization and other (c) (19 ) Balance, March 31, 2019 (b) $ 30 (a) Changes in our restructuring accrual represents employee termination costs. (b) At March 31, 2019 , and December 31, 2018 , included in Accrued expenses ( $13 million and $27 million , respectively) and Other noncurrent liabilities ( $17 million and $18 million , respectively). (c) Three Months Ended March 31, (MILLIONS OF DOLLARS) 2019 2018 Restructuring charges and certain acquisition-related costs: Integration costs (a) $ 1 $ 1 Restructuring charges (b)(c) : Employee termination costs 4 1 Total Restructuring charges and certain acquisition-related costs $ 5 $ 2 (a) Integration costs represent external, incremental costs directly related to integrating acquired businesses and primarily include expenditures for consulting and the integration of systems and processes, as well as product transfer costs. (b) The restructuring charges for the three months ended March 31, 2019 primarily relate to the acquisition of Abaxis. The restructuring charges for the three months ended March 31, 2018 primarily relate to the supply network strategy initiative. (c) The restructuring charges are associated with the following: • For the three months ended March 31, 2019 and March 31, 2018 , Manufacturing/research/corporate of $4 million and $1 million |
Other (Income)_Deductions - N_2
Other (Income)/Deductions - Net (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Other Income and Expenses [Abstract] | |
Components of Other (Income)/Deductions—Net | The components of Other (income)/deductions—net are as follows: Three Months Ended March 31, (MILLIONS OF DOLLARS) 2019 2018 Royalty-related income $ (5 ) $ (7 ) Interest income (10 ) (6 ) Foreign currency loss (a) — 8 Other, net 1 — Other (income)/deductions—net $ (14 ) $ (5 ) (a) |
Financial Instruments (Tables)
Financial Instruments (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Financial Instruments [Abstract] | |
Available-for-sale Securities | he investment securities portfolio consists of debt securities that are investment grade. Information on investments in the debt securities, including the contractual maturities, or as necessary, the estimated maturities, of the available-for-sale securities is as follows: Gross Unrealized As of March 31, 2019 As of December 31, 2018 (MILLIONS OF DOLLARS) Amortized Cost Gains Losses Fair Value Amortized Cost Gains Losses Fair Value Available-for-sale debt securities Municipal Bonds $ 1 $ — $ — $ 1 $ 1 $ — $ — $ 1 Corporate Bonds 64 — — 64 100 — — 100 Total debt securities $ 65 $ — $ — $ 65 $ 101 $ — $ — $ 101 Maturities by Period (a) As of March 31, 2019 As of December 31, 2018 (MILLIONS OF DOLLARS) Within 1 year Over 1 to 5 years Over 5 years Total 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 64 — — 64 98 2 — 100 Total debt securities $ 65 $ — $ — $ 65 $ 99 $ 2 $ — $ 101 (a) Long term investments are included in Other noncurrent assets |
Schedule of Long-term Debt Instruments | The components of our long-term debt are as follows: March 31, 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 (56 ) (57 ) Long-term debt, net of discount and issuance costs $ 6,444 $ 6,443 |
Schedule of Maturities of Long-term Debt | The principal amount of long-term debt outstanding, as of March 31, 2019 , matures in the following years: After (MILLIONS OF DOLLARS) 2020 2021 2022 2023 2023 Total Maturities $ 500 $ 600 $ — $ 1,350 $ 4,050 $ 6,500 |
Schedule of Derivative Instruments in Statement of Financial Position, Fair Value | The classification and fair values of derivative instruments are as follows: Fair Value of Derivatives March 31, December 31, (MILLIONS OF DOLLARS) Balance Sheet Location 2019 2018 Derivatives Not Designated as Hedging Instruments Foreign currency forward-exchange contracts Other current assets $ 5 $ 6 Foreign currency forward-exchange contracts Other current liabilities (7 ) (7 ) Total derivatives not designated as hedging instruments $ (2 ) $ (1 ) Derivatives Designated as Hedging Instruments: Cross-currency interest rate swap contracts Other current assets $ 7 $ 3 Cross-currency interest rate swap contracts Other non-current assets 15 8 Total derivatives designated as hedging instruments 22 11 Total derivatives $ 20 $ 10 |
Schedule of Other Derivatives Not Designated as Hedging Instruments, Statements of Financial Performance and Financial Position, Location | The amounts of net gains/(losses) on derivative instruments not designated as hedging instruments, recorded in Other (income)/deductions—net , are as follows: Three Months Ended March 31, (MILLIONS OF DOLLARS) 2019 2018 Foreign currency forward-exchange contracts $ (4 ) $ 10 |
Schedule of Net Investment Hedges in Accumulated Other Comprehensive Income (Loss) | The amounts of unrecognized net gains on cross-currency interest rate swap contracts, recorded, net of tax, in Accumulated other comprehensive income/(loss) , are as follows: Three Months Ended March 31, (MILLIONS OF DOLLARS) 2019 2018 Cross-currency interest rate swap contracts $ 18 $ — |
Schedule of Net Investment Hedges, Statements of Financial Performance and Financial Position, Location | Gains on cross-currency interest rate swap contracts, recognized within Interest expense, net of capitalized interest, are as follows: Three Months Ended March 31, (MILLIONS OF DOLLARS) 2019 2018 Cross-currency interest rate swap contracts $ 4 $ — |
Leases (Tables)
Leases (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Leases [Abstract] | |
Lease, Cost [Table Text Block] | Supplemental information for operating leases is as follows: March 31, (MILLIONS OF DOLLARS, EXCEPT LEASE TERM AND DISCOUNT RATE AMOUNTS) 2019 Supplemental Income Statement information for operating leases Operating lease expense $ 9 Variable lease payments not included in the measurement of lease liabilities 4 Short-term lease payments not included in the measurement of lease liabilities 3 Supplemental Cash Flow information for operating leases Cash paid for amounts included in the measurement of lease liabilities $ 9 Lease obligations obtained in exchange for right-of-use assets (non-cash) 176 Supplemental Balance Sheet information for operating leases Operating lease right of use assets $ 158 Operating lease liabilities Operating lease liabilities - current $ 33 Operating lease liabilities - noncurrent 134 Total operating lease liabilities $ 167 Weighted-average remaining lease term—operating leases (years) 6.69 Weighted-average discount rate—operating leases 3.69 % |
Lessee, Operating Lease, Liability, Maturity [Table Text Block] | Future minimum lease payments under non-cancellable operating lease contracts as of March 31, 2019, are as follows: Total Less: After Lease Imputed (MILLIONS OF DOLLARS) 2019 (a) 2020 2021 2022 2023 2023 Payments Interest Total Maturities $ 28 $ 34 $ 28 $ 24 $ 19 $ 59 $ 192 $ (25 ) $ 167 (a) |
Lessee, Operating Lease, Disclosure [Table Text Block] | Future minimum lease payments under non-cancellable operating lease contracts as of December 31, 2018, in accordance with the superceded leasing standard, are as follows: After (MILLIONS OF DOLLARS) 2019 2020 2021 2022 2023 2023 Total Maturities $ 38 $ 30 $ 24 $ 21 $ 15 $ 45 $ 173 |
Inventories (Tables)
Inventories (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Inventory Disclosure [Abstract] | |
Components of Inventory | The components of inventory are as follows: March 31, December 31, (MILLIONS OF DOLLARS) 2019 2018 Finished goods $ 655 $ 744 Work-in-process 523 481 Raw materials and supplies 183 166 Inventories $ 1,361 $ 1,391 |
Goodwill and Other Intangible_2
Goodwill and Other Intangible Assets (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Changes in the Carrying Amount of Goodwill | The components of, and changes in, the carrying amount of goodwill are as follows: (MILLIONS OF DOLLARS) U.S. International Total Balance, December 31, 2018 $ 1,265 $ 1,254 $ 2,519 Additions — — — Other (a) 1 2 3 Balance, March 31, 2019 $ 1,266 $ 1,256 $ 2,522 (a) |
Components of Identifiable Intangible Assets | The components of identifiable intangible assets are as follows: As of March 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) $ 1,856 $ (559 ) $ 1,297 $ 1,854 $ (523 ) $ 1,331 Brands 213 (157 ) 56 212 (154 ) 58 Trademarks and trade names (a) 166 (53 ) 113 166 (51 ) 115 Other 413 (197 ) 216 412 (178 ) 234 Total finite-lived intangible assets 2,648 (966 ) 1,682 2,644 (906 ) 1,738 Indefinite-lived intangible assets: In-process research and development 196 — 196 197 — 197 Brands 37 — 37 37 — 37 Trademarks and trade names 67 — 67 67 — 67 Product rights 7 — 7 7 — 7 Total indefinite-lived intangible assets 307 — 307 308 — 308 Identifiable intangible assets $ 2,955 $ (966 ) $ 1,989 $ 2,952 $ (906 ) $ 2,046 (a) In connection with the acquisition of Abaxis in 2018, the company recorded $894 million of intangible assets, as shown in the table below, representing the preliminary 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 Trademarks and tradenames 104 20 Other 180 4 Total $ 894 |
Share-Based Payments (Tables)
Share-Based Payments (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Components of Share-based Compensation Expense | The components of share-based compensation expense are as follows: Three Months Ended March 31, (MILLIONS OF DOLLARS) 2019 2018 Stock options / stock appreciation rights $ 3 $ 2 RSUs / DSUs (a) 12 7 PSUs 3 2 Share-based compensation expense—total (b) $ 18 $ 11 (a) For the three months ended March 31, 2019 , includes share-based compensation expense of $5 million related to the acquisition of Abaxis, for the post-merger service period. For additional details, see Note 5. Acquisitions and Divestitures . (b) Amounts capitalized to inventory were insignificant. |
Stockholders' Equity (Tables)
Stockholders' Equity (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Equity [Abstract] | |
Changes in Common Shares and Treasury Stock | Changes in common shares and treasury stock were as follows: (MILLIONS) Common Shares Issued (a) Treasury Stock (a) Balance, December 31, 2017 501.89 15.76 Share-based compensation — (0.99 ) Share repurchase program — 2.40 Balance, March 31, 2018 501.89 17.17 Balance, December 31, 2018 501.89 22.33 Share-based compensation — (1.14 ) Share repurchase program — 1.67 Balance, March 31, 2019 501.89 22.87 (a) Shares may not add due to rounding. |
Changes, Net of Tax, in Accumulated Other Comprehensive Loss | Changes, net of tax, in accumulated other comprehensive loss, excluding noncontrolling interests, were as follows: Currency Translation Adjustments Accumulated Other Cash Flow Net Investment Other Currency Comprehensive (MILLIONS OF DOLLARS) Hedges Hedges Translation Adj Benefit Plans (Loss)/Income Balance, December 31, 2017 $ (3 ) $ — $ (487 ) $ (15 ) $ (505 ) Other comprehensive income, net of tax — — 76 — 76 Balance, March 31, 2018 $ (3 ) $ — $ (411 ) $ (15 ) $ (429 ) Balance, December 31, 2018 $ (4 ) $ 10 $ (621 ) $ (14 ) $ (629 ) Other comprehensive income, net of tax — 8 23 — 31 Balance, March 31, 2019 $ (4 ) $ 18 $ (598 ) $ (14 ) $ (598 ) |
Earnings per Share (Tables)
Earnings per Share (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Earnings Per Share [Abstract] | |
Basic and Diluted Earnings Per Share | The following table presents the calculation of basic and diluted earnings per share: Three Months Ended March 31, (MILLIONS OF DOLLARS AND SHARES, EXCEPT PER SHARE DATA) 2019 2018 Numerator Net income before allocation to noncontrolling interests $ 312 $ 350 Less: Net loss attributable to noncontrolling interests — (2 ) Net income attributable to Zoetis Inc. $ 312 $ 352 Denominator Weighted-average common shares outstanding 479.6 485.9 Common stock equivalents: stock options, RSUs, PSUs and DSUs 3.5 3.9 Weighted-average common and potential dilutive shares outstanding 483.1 489.8 Earnings per share attributable to Zoetis Inc. stockholders—basic $ 0.65 $ 0.72 Earnings per share attributable to Zoetis Inc. stockholders—diluted $ 0.65 $ 0.72 |
Segment Information Segment Inf
Segment Information Segment Information (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Segment Reporting [Abstract] | |
Schedule of Selected Income Statement Information by Segment | Segment Assets We manage our assets on a total company basis, not by operating segment. Therefore, our chief operating decision maker does not regularly review any asset information by operating segment and, accordingly, we do not report asset information by operating segment. Earnings Depreciation and Amortization (a) Three Months Ended Three Months Ended March 31, March 31, (MILLIONS OF DOLLARS) 2019 2018 2019 2018 U.S. Revenue $ 718 $ 634 Cost of sales 147 140 Gross profit 571 494 Gross margin 79.5 % 77.9 % Operating expenses 110 96 Other (income)/deductions — — U.S. Earnings 461 398 $ 10 $ 8 International Revenue (b) 718 726 Cost of sales 210 234 Gross profit 508 492 Gross margin 70.8 % 67.8 % Operating expenses 132 133 Other (income)/deductions — 1 International Earnings 376 358 13 11 Total operating segments 837 756 23 19 Other business activities (80 ) (81 ) 5 5 Reconciling Items: Corporate (162 ) (153 ) 14 13 Purchase accounting adjustments (66 ) (23 ) 55 23 Acquisition-related costs (5 ) (1 ) — — Certain significant items (c) (70 ) (3 ) — — Other unallocated (73 ) (78 ) 1 — Total Earnings (d) $ 381 $ 417 $ 98 $ 60 (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 $181 million and $184 million for the three months ended March 31, 2019 , and March 31, 2018 , respectively. (c) For the three months ended March 31, 2019 , primarily represents a change in estimate related to inventory costing of $68 million , and consulting fees of $2 million related to our supply network strategy. For the three months ended March 31, 2018 , primarily represents: (i) employee termination costs and consulting fees related to our supply network strategy, and (ii) a charge related to the implementation of new accounting guidance as a result of the enactment of the Tax Act. (d) |
Organization (Details)
Organization (Details) - Mar. 31, 2019 | species | country | region | category | product_category |
Product Information [Line Items] | |||||
Number of regional segments | region | 2 | ||||
Number of countries in which entity markets products | 45 | ||||
Number of core animal species | species | 8 | ||||
Number of major product categories | 6 | 300 | |||
Product | |||||
Product Information [Line Items] | |||||
Number of countries in which entity markets products | 100 |
Acquisitions and Divestitures_2
Acquisitions and Divestitures (Details) - USD ($) $ / shares in Units, $ in Millions | Jul. 31, 2018 | Mar. 31, 2019 | Mar. 31, 2018 | |
Business Acquisition [Line Items] | ||||
Business Acquisition, Name of Acquired Entity | Abaxis, Inc. (Abaxis), a California corporation and a leader in the development, manufacture and marketing of diagnostic instruments for veterinary point-of-care services. | |||
Acquisition-related costs | $ 5 | |||
Amortization of intangible assets | $ 25 | |||
Interest expense, net of capitalized interest | 56 | 47 | ||
Share-based compensation expense | 18 | $ 11 | ||
Identifiable intangible assets | 894 | |||
Goodwill, Acquired During Period | 0 | |||
Abaxis Inc | ||||
Business Acquisition [Line Items] | ||||
Share price (in dollars per share) | $ 83 | |||
Payments to Acquire Businesses, Gross | $ 1,962 | |||
Amortization of intangible assets | 33 | |||
Depreciation | 1 | |||
Interest expense, net of capitalized interest | 15 | |||
Share-based compensation expense | $ 3 | |||
Property, plant and equipment | [1] | 54 | ||
Identifiable intangible assets | [2] | 894 | ||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Current Liabilities, Other | 22 | |||
Goodwill, Acquired During Period | [3] | 978 | ||
Measurement period adjustment [Member] | Abaxis Inc | ||||
Business Acquisition [Line Items] | ||||
Identifiable intangible assets | $ (1) | |||
[1] | Property, plant and equipment is comprised of machinery and equipment, furniture and fixtures, computer equipment, leasehold improvements and construction in progress. The preliminary estimated 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. | |||
[2] | Identifiable intangible assets primarily consist of developed technology rights, customer relationships, and trademarks and tradenames. The preliminary estimate of fair value of identifiable intangible assets is determined using the income approach, which includes a forecast of expected future cash flows. For additional information regarding identifiable intangible assets, see Note 12. Goodwill and Other Intangible Assets | |||
[3] | Goodwill represents the excess of consideration transferred over the preliminary estimate of 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. The allocation of goodwill to the reporting units is preliminary and will be completed as the company obtains the information necessary to complete the analysis, but no later than one year from the date of the acquisition. |
Acquisitions and Divestitures -
Acquisitions and Divestitures - Consideration Transferred (Details) - Abaxis Inc $ in Millions | Jul. 31, 2018USD ($) | |
Business Acquisition [Line Items] | ||
Payments to Acquire Businesses, Gross | $ 1,898 | [1] |
CashPaidForEqutyAwardsVestedAtAcquisition | 54 | [2] |
Business Combination, Consideration Transferred | 1,962 | |
BusinessCombinationPreMergerService [Member] | ||
Business Acquisition [Line Items] | ||
Equity Issued in Business Combination, Fair Value Disclosure | $ 10 | [3] |
[1] | Represents cash paid for cancellation and conversion of each outstanding share of Abaxis' common stock at the acquisition date. | |
[2] | 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. | |
[3] | 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. |
Acquisitions and Divestitures_3
Acquisitions and Divestitures - Preliminary Fair Values Allocated (Details) - USD ($) $ in Millions | Jul. 31, 2018 | Mar. 31, 2019 | |
Business Acquisition [Line Items] | |||
Identifiable intangible assets | $ 894 | ||
Goodwill, Acquired During Period | $ 0 | ||
Abaxis Inc | |||
Business Acquisition [Line Items] | |||
Cash and cash equivalents | $ 64 | ||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Current Assets, Marketable Securities | [1] | 107 | |
Accounts receivable | [2] | 30 | |
Inventories | [3] | 79 | |
Other current assets | 6 | ||
Property, plant and equipment | [4] | 54 | |
Identifiable intangible assets | [5] | 894 | |
Other noncurrent assets | 29 | ||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Current Liabilities, Accounts Payable | 21 | ||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Current Liabilities, Accrued Compensation and Related Items | 10 | ||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Current Liabilities, Other | 22 | ||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Noncurrent Liabilities | 11 | ||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Deferred Tax Liabilities Noncurrent | [6] | 215 | |
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Net | 984 | ||
Goodwill, Acquired During Period | [7] | 978 | |
Business Combination, Consideration Transferred | 1,962 | ||
Measurement period adjustment [Member] | Abaxis Inc | |||
Business Acquisition [Line Items] | |||
Identifiable intangible assets | $ (1) | ||
[1] | Short term investments include investments in debt securities that are classified as available-for-sale and measured at fair value. | ||
[2] | The fair value approximates the gross contractual amount of accounts receivable. The contractual amount not expected to be collected is immaterial. | ||
[3] | Acquired inventory is comprised of finished goods, work in process and raw materials. The preliminary estimate of 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 preliminary estimate of 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. | ||
[4] | Property, plant and equipment is comprised of machinery and equipment, furniture and fixtures, computer equipment, leasehold improvements and construction in progress. The preliminary estimated 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. | ||
[5] | Identifiable intangible assets primarily consist of developed technology rights, customer relationships, and trademarks and tradenames. The preliminary estimate of fair value of identifiable intangible assets is determined using the income approach, which includes a forecast of expected future cash flows. For additional information regarding identifiable intangible assets, see Note 12. Goodwill and Other Intangible Assets | ||
[6] | The acquisition was structured as a stock purchase and therefore we assumed the historical tax basis of Abaxis' assets and liabilities. The preliminary estimate of deferred tax effects resulting from the acquisition include the expected federal, state, and foreign tax consequences associated with temporary differences between the preliminary 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. Income Taxes | ||
[7] | Goodwill represents the excess of consideration transferred over the preliminary estimate of 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. The allocation of goodwill to the reporting units is preliminary and will be completed as the company obtains the information necessary to complete the analysis, but no later than one year from the date of the acquisition. |
Acquisitions and Divestitures_4
Acquisitions and Divestitures - Supplemental Pro Forma Financial Information (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Business Acquisition [Line Items] | ||
Amortization of intangible assets | $ 25 | |
Interest expense, net of capitalized interest | $ 56 | 47 |
Share-based compensation expense | 18 | $ 11 |
Abaxis Inc | ||
Business Acquisition [Line Items] | ||
Business Acquisition, Pro Forma Revenue | 1,433 | |
Business Acquisition, Pro Forma Net Income (Loss) | 322 | |
Amortization of intangible assets | 33 | |
Depreciation | 1 | |
Interest expense, net of capitalized interest | 15 | |
Share-based compensation expense | $ 3 |
Revenue - Narrative (Details)
Revenue - Narrative (Details) $ in Millions | Mar. 31, 2019USD ($) | Mar. 31, 2019category | Mar. 31, 2019product_category | Mar. 31, 2018USD ($) |
Revenue Recognition and Deferred Revenue [Abstract] | ||||
Number of major product categories | 6 | 300 | ||
Other current liabilities | $ 1 | $ 2 | ||
Contract liabilities | $ 10 | $ 4 |
Revenue - Revenue by Geographic
Revenue - Revenue by Geographic Area (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Revenue from External Customer [Line Items] | ||
Revenue | $ 1,455 | $ 1,366 |
Contract Manufacturing and Human Health Diagnostics [Member] | ||
Revenue from External Customer [Line Items] | ||
Revenue | 19 | 6 |
UNITED STATES | ||
Revenue from External Customer [Line Items] | ||
Revenue | 718 | 634 |
Australia | ||
Revenue from External Customer [Line Items] | ||
Revenue | 48 | 48 |
Brazil | ||
Revenue from External Customer [Line Items] | ||
Revenue | 60 | 70 |
Canada | ||
Revenue from External Customer [Line Items] | ||
Revenue | 41 | 40 |
China | ||
Revenue from External Customer [Line Items] | ||
Revenue | 60 | 64 |
France | ||
Revenue from External Customer [Line Items] | ||
Revenue | 32 | 33 |
Germany | ||
Revenue from External Customer [Line Items] | ||
Revenue | 37 | 38 |
Italy | ||
Revenue from External Customer [Line Items] | ||
Revenue | 28 | 27 |
Japan | ||
Revenue from External Customer [Line Items] | ||
Revenue | 37 | 41 |
Mexico | ||
Revenue from External Customer [Line Items] | ||
Revenue | 28 | 24 |
Spain | ||
Revenue from External Customer [Line Items] | ||
Revenue | 27 | 25 |
United Kingdom | ||
Revenue from External Customer [Line Items] | ||
Revenue | 57 | 52 |
Other developed markets | ||
Revenue from External Customer [Line Items] | ||
Revenue | 84 | 79 |
Other emerging markets | ||
Revenue from External Customer [Line Items] | ||
Revenue | 179 | 185 |
Total geographical area | ||
Revenue from External Customer [Line Items] | ||
Revenue | $ 1,436 | $ 1,360 |
Revenue - Revenue by Major Spec
Revenue - Revenue by Major Species (Details) - USD ($) $ in Millions | 3 Months Ended | ||
Mar. 31, 2019 | Mar. 31, 2018 | ||
Revenue from External Customer [Line Items] | |||
Revenue | $ 1,455 | $ 1,366 | |
Livestock | |||
Revenue from External Customer [Line Items] | |||
Revenue | 707 | 770 | |
Livestock | U.S. | |||
Revenue from External Customer [Line Items] | |||
Revenue | 273 | 292 | |
Livestock | International | |||
Revenue from External Customer [Line Items] | |||
Revenue | 434 | 478 | |
Companion animal | |||
Revenue from External Customer [Line Items] | |||
Revenue | 729 | 590 | |
Companion animal | U.S. | |||
Revenue from External Customer [Line Items] | |||
Revenue | 445 | 342 | |
Companion animal | International | |||
Revenue from External Customer [Line Items] | |||
Revenue | 284 | 248 | |
Operating Segments | U.S. | |||
Revenue from External Customer [Line Items] | |||
Revenue | 718 | 634 | |
Operating Segments | International | |||
Revenue from External Customer [Line Items] | |||
Revenue | [1] | $ 718 | $ 726 |
[1] | Revenue denominated in euros was $181 million and $184 million for the three months ended March 31, 2019 , and March 31, 2018 |
Revenue - Revenue by Species (D
Revenue - Revenue by Species (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Revenue from External Customer [Line Items] | ||
Revenue | $ 1,455 | $ 1,366 |
Cattle | ||
Revenue from External Customer [Line Items] | ||
Revenue | 380 | 416 |
Swine | ||
Revenue from External Customer [Line Items] | ||
Revenue | 149 | 175 |
Poultry | ||
Revenue from External Customer [Line Items] | ||
Revenue | 139 | 136 |
Fish | ||
Revenue from External Customer [Line Items] | ||
Revenue | 23 | 22 |
Other | ||
Revenue from External Customer [Line Items] | ||
Revenue | 16 | 21 |
Livestock | ||
Revenue from External Customer [Line Items] | ||
Revenue | 707 | 770 |
Horses | ||
Revenue from External Customer [Line Items] | ||
Revenue | 688 | 549 |
Horses | ||
Revenue from External Customer [Line Items] | ||
Revenue | 41 | 41 |
Companion animal | ||
Revenue from External Customer [Line Items] | ||
Revenue | $ 729 | $ 590 |
Revenue - Revenue by Product (D
Revenue - Revenue by Product (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Revenue from External Customer [Line Items] | ||
Revenue | $ 1,455 | $ 1,366 |
Vaccines | ||
Revenue from External Customer [Line Items] | ||
Revenue | 358 | 356 |
Anti-infectives | ||
Revenue from External Customer [Line Items] | ||
Revenue | 286 | 297 |
Other pharmaceuticals | ||
Revenue from External Customer [Line Items] | ||
Revenue | 349 | 319 |
Parasiticides | ||
Revenue from External Customer [Line Items] | ||
Revenue | 231 | 191 |
Medicated feed additives | ||
Revenue from External Customer [Line Items] | ||
Revenue | 112 | 137 |
Animal health diagnostics | ||
Revenue from External Customer [Line Items] | ||
Revenue | 60 | 11 |
Other non-pharmaceuticals | ||
Revenue from External Customer [Line Items] | ||
Revenue | 40 | 49 |
Total products and services | ||
Revenue from External Customer [Line Items] | ||
Revenue | $ 1,436 | $ 1,360 |
Restructuring Charges and Oth_3
Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives (Details) - USD ($) $ in Millions | 3 Months Ended | |||
Mar. 31, 2019 | Mar. 31, 2018 | Dec. 31, 2018 | ||
Restructuring Cost and Reserve [Line Items] | ||||
Total Restructuring charges and certain acquisition-related costs | $ 5 | $ 2 | ||
Restructuring charges (reversals) | 4 | |||
Restructuring Reserve [Roll Forward] | ||||
Restructuring accrual balance | [1] | 45 | ||
Provision | 4 | |||
Utilization and other | [2] | (19) | ||
Restructuring accrual balance | [1] | 30 | ||
Other current liabilities | ||||
Restructuring Reserve [Roll Forward] | ||||
Accrued expenses | 13 | $ 27 | ||
Other Noncurrent Liabilities | ||||
Restructuring Reserve [Roll Forward] | ||||
Other noncurrent liabilities | 17 | $ 18 | ||
Employee Termination Costs | ||||
Restructuring Cost and Reserve [Line Items] | ||||
Employee termination costs | [3],[4] | 4 | 1 | |
Manufacturing, Research, Corporate | ||||
Restructuring Cost and Reserve [Line Items] | ||||
Restructuring charges (reversals) | 4 | 1 | ||
Restructuring Reserve [Roll Forward] | ||||
Provision | 4 | 1 | ||
Direct Cost | ||||
Restructuring Cost and Reserve [Line Items] | ||||
Integration costs | [5] | 1 | $ 1 | |
Zoetis Initiatives | Reconciling Items | ||||
Restructuring Cost and Reserve [Line Items] | ||||
Restructuring and Other Cost Productivity Charges | $ 2 | |||
[1] | At March 31, 2019 , and December 31, 2018 , included in Accrued expenses ( $13 million and $27 million , respectively) and Other noncurrent liabilities ( $17 million and $18 million | |||
[2] | Includes adjustments for foreign currency translation. | |||
[3] | The restructuring charges are associated with the following: • For the three months ended March 31, 2019 and March 31, 2018 , Manufacturing/research/corporate of $4 million and $1 million | |||
[4] | The restructuring charges for the three months ended March 31, 2019 primarily relate to the acquisition of Abaxis. The restructuring charges for the three months ended March 31, 2018 | |||
[5] | Integration costs represent external, incremental costs directly related to integrating acquired businesses and primarily include expenditures for consulting and the integration of systems and processes, as well as product transfer costs. |
Other (Income)_Deductions - N_3
Other (Income)/Deductions - Net (Details) - USD ($) $ in Millions | 3 Months Ended | ||
Mar. 31, 2019 | Mar. 31, 2018 | ||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Royalty-related income | $ (5) | $ (7) | |
Interest income | (10) | (6) | |
Foreign currency loss | [1] | 0 | 8 |
Other, net | 1 | 0 | |
Other (income)/deductions—net | $ (14) | $ (5) | |
[1] | Primarily driven by costs related to hedging and exposures to certain emerging market currencies. |
Income Taxes - Taxes on Income
Income Taxes - Taxes on Income (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Income Tax Contingency [Line Items] | ||
Effective tax rate for income from continuing operations | 18.10% | 16.10% |
Share-based Payments | ||
Income Tax Contingency [Line Items] | ||
Income Tax Expense (Benefit), Continuing Operations, Adjustment of Deferred Tax (Asset) Liability | $ 13 | $ 8 |
Change in Non-U.S. Statutory Tax Rates | ||
Income Tax Contingency [Line Items] | ||
Income Tax Expense (Benefit), Continuing Operations, Adjustment of Deferred Tax (Asset) Liability | $ 4 | $ 8 |
Income Taxes - Deferred Taxes (
Income Taxes - Deferred Taxes (Details) - USD ($) $ in Millions | Mar. 31, 2019 | Dec. 31, 2018 |
Income Tax Disclosure [Abstract] | ||
Net deferred income tax liability | $ 399 | $ 413 |
Noncurrent deferred tax assets | 65 | 61 |
Noncurrent deferred tax liabilities | $ 464 | $ 474 |
Income Taxes - Tax Contingencie
Income Taxes - Tax Contingencies (Details) - USD ($) $ in Millions | Mar. 31, 2019 | Dec. 31, 2018 |
Income Tax Contingency [Line Items] | ||
Liabilities associated with uncertain tax positions | $ 187 | $ 185 |
Unrecognized tax benefits, income tax penalties and interest accrued | 12 | 11 |
Noncurrent Deferred Tax Assets | ||
Income Tax Contingency [Line Items] | ||
Liabilities associated with uncertain tax positions | 3 | 3 |
Other Taxes Payable | ||
Income Tax Contingency [Line Items] | ||
Liabilities associated with uncertain tax positions | $ 184 | $ 182 |
Financial Instruments - Credit
Financial Instruments - Credit Facilities (Details) | 3 Months Ended | ||
Mar. 31, 2019USD ($) | Dec. 31, 2018USD ($) | Jul. 27, 2018 | |
Line of Credit Facility [Line Items] | |||
Line of credit facility, maximum borrowing capacity | $ 73,000,000 | ||
Revolving credit facility, minimum interest coverage ratio | 3.50 | ||
Line of credit facility | $ 0 | $ 0 | |
Commercial Paper | 0 | $ 0 | |
Operational Efficiency | |||
Line of Credit Facility [Line Items] | |||
Aggregate amount of all charges | 100,000,000 | ||
Revolving Credit Facility | |||
Line of Credit Facility [Line Items] | |||
Maximum total leverage ratio | 3.50 | ||
Revolving credit facility, current borrowing capacity | 1,000,000,000 | ||
Line of credit facility, maximum borrowing capacity | $ 1,500,000,000 | ||
Revolving credit facility, covenant compliance ratio | 3.50 | ||
Maximum total leverage ratio | 4 | ||
Revolving credit facility, minimum interest coverage ratio | 3.50 |
Financial Instruments - Commerc
Financial Instruments - Commercial Paper Program (Details) - USD ($) | 3 Months Ended | |||
Mar. 31, 2019 | Mar. 31, 2018 | Dec. 31, 2018 | Feb. 28, 2013 | |
Short-term Debt [Line Items] | ||||
Interest expense, net of capitalized interest | $ 56,000,000 | $ 47,000,000 | ||
Short-term Debt, Fair Value | $ 9,000,000 | |||
Line of credit facility | 0 | 0 | ||
Commercial Paper | $ 0 | $ 0 | ||
Commercial Paper | ||||
Short-term Debt [Line Items] | ||||
Capacity of commercial paper program | $ 1,000,000,000 |
Financial Instruments - Senior
Financial Instruments - Senior Notes Offering and Other Long-Term Debt (Details) - USD ($) | Mar. 31, 2019 | Dec. 31, 2018 | Aug. 20, 2018 | Oct. 31, 2017 | Sep. 12, 2017 | Nov. 13, 2015 | Jan. 28, 2013 |
Debt Instrument [Line Items] | |||||||
Commercial Paper | $ 0 | $ 0 | |||||
Debt, principal amount | 6,500,000,000 | 6,500,000,000 | |||||
Senior Notes | |||||||
Debt Instrument [Line Items] | |||||||
Debt, principal amount | $ 1,500,000,000 | $ 1,250,000,000 | $ 1,250,000,000 | $ 3,650,000,000 | |||
Debt, unamortized discount | 4,000,000 | $ 7,000,000 | $ 2,000,000 | $ 10,000,000 | |||
Debt, purchase price percent due to downgrade of investment grade | 101.00% | ||||||
Senior Notes | 2018 floating senior notes due 2021 | |||||||
Debt Instrument [Line Items] | |||||||
Debt, principal amount | 300,000,000 | 300,000,000 | 300,000,000 | ||||
Senior Notes | 3.250% 2018 senior notes due 2021 | |||||||
Debt Instrument [Line Items] | |||||||
Debt, principal amount | 300,000,000 | 300,000,000 | $ 300,000,000 | ||||
Interest rate percentage | 3.25% | ||||||
Senior Notes | 3.000% 2017 senior notes due 2027 | |||||||
Debt Instrument [Line Items] | |||||||
Debt, principal amount | 750,000,000 | 750,000,000 | |||||
Interest rate percentage | 3.00% | ||||||
Senior Notes | 3.900% 2018 senior notes due 2028 | |||||||
Debt Instrument [Line Items] | |||||||
Debt, principal amount | 500,000,000 | 500,000,000 | $ 500,000,000 | ||||
Interest rate percentage | 3.90% | ||||||
Senior Notes | 3.950% 2017 senior notes due 2047 | |||||||
Debt Instrument [Line Items] | |||||||
Debt, principal amount | 500,000,000 | 500,000,000 | |||||
Interest rate percentage | 3.95% | ||||||
Senior Notes | 4.450% 2018 senior notes due 2048 | |||||||
Debt Instrument [Line Items] | |||||||
Debt, principal amount | $ 400,000,000 | $ 400,000,000 | $ 400,000,000 | ||||
Interest rate percentage | 4.45% | ||||||
Senior Notes | Senior notes due 2018 | |||||||
Debt Instrument [Line Items] | |||||||
Interest rate percentage | 1.875% | ||||||
Long-term debt current portion | $ 750,000,000 | ||||||
Make whole premium and accrued interest | $ 4,000,000 |
Financial Instruments - Schedul
Financial Instruments - Schedule of Long-term Debt (Details) - USD ($) $ in Millions | 3 Months Ended | ||||||
Mar. 31, 2019 | Mar. 31, 2018 | Dec. 31, 2018 | Aug. 20, 2018 | Sep. 12, 2017 | Nov. 13, 2015 | Jan. 28, 2013 | |
Debt Instrument [Line Items] | |||||||
Total long-term debt | $ 6,500 | $ 6,500 | |||||
Unamortized debt discount / debt issuance costs | (56) | (57) | |||||
Long-term debt, net of discount and issuance costs | 6,444 | 6,443 | |||||
Interest expense, net of capitalized interest | 56 | $ 47 | |||||
Capitalized interest | 3 | $ 2 | |||||
Senior Notes | |||||||
Debt Instrument [Line Items] | |||||||
Total long-term debt | $ 1,500 | $ 1,250 | $ 1,250 | $ 3,650 | |||
Senior Notes | 3.450% 2015 senior notes due 2020 | |||||||
Debt Instrument [Line Items] | |||||||
Interest rate percentage | 3.45% | ||||||
Total long-term debt | 500 | 500 | |||||
Senior Notes | 2018 floating senior notes due 2021 | |||||||
Debt Instrument [Line Items] | |||||||
Total long-term debt | 300 | 300 | $ 300 | ||||
Senior Notes | 3.250% 2018 senior notes due 2021 | |||||||
Debt Instrument [Line Items] | |||||||
Interest rate percentage | 3.25% | ||||||
Total long-term debt | 300 | 300 | $ 300 | ||||
Senior Notes | 3.250% 2013 senior notes due 2023 | |||||||
Debt Instrument [Line Items] | |||||||
Interest rate percentage | 3.25% | ||||||
Total long-term debt | 1,350 | 1,350 | |||||
Senior Notes | 4.500% 2015 senior notes due 2025 | |||||||
Debt Instrument [Line Items] | |||||||
Interest rate percentage | 4.50% | ||||||
Total long-term debt | 750 | 750 | |||||
Senior Notes | 3.000% 2017 senior notes due 2027 | |||||||
Debt Instrument [Line Items] | |||||||
Interest rate percentage | 3.00% | ||||||
Total long-term debt | 750 | 750 | |||||
Senior Notes | 3.900% 2018 senior notes due 2028 | |||||||
Debt Instrument [Line Items] | |||||||
Interest rate percentage | 3.90% | ||||||
Total long-term debt | 500 | 500 | $ 500 | ||||
Senior Notes | 4.700% 2013 senior notes due 2043 | |||||||
Debt Instrument [Line Items] | |||||||
Interest rate percentage | 4.70% | ||||||
Total long-term debt | 1,150 | 1,150 | |||||
Senior Notes | 3.950% 2017 senior notes due 2047 | |||||||
Debt Instrument [Line Items] | |||||||
Interest rate percentage | 3.95% | ||||||
Total long-term debt | 500 | 500 | |||||
Senior Notes | 4.450% 2018 senior notes due 2048 | |||||||
Debt Instrument [Line Items] | |||||||
Interest rate percentage | 4.45% | ||||||
Total long-term debt | $ 400 | $ 400 | $ 400 |
Financial Instruments - Fair Va
Financial Instruments - Fair Value of Debt (Details) - USD ($) $ in Millions | Mar. 31, 2019 | Dec. 31, 2018 |
Senior Notes | Fair Value, Inputs, Level 2 | ||
Debt Instrument [Line Items] | ||
Fair value, debt instrument | $ 6,657 | $ 6,474 |
Financial Instruments - Long-te
Financial Instruments - Long-term Debt Maturity (Details) - USD ($) $ in Millions | 3 Months Ended | |||||||
Mar. 31, 2019 | Mar. 31, 2018 | Dec. 31, 2018 | Aug. 20, 2018 | Oct. 31, 2017 | Sep. 12, 2017 | Nov. 13, 2015 | Jan. 28, 2013 | |
Debt Instrument [Line Items] | ||||||||
2019 | $ 500 | |||||||
2020 | 600 | |||||||
2021 | 0 | |||||||
2022 | 1,350 | |||||||
After 2022 | 4,050 | |||||||
Total long-term debt | 6,500 | $ 6,500 | ||||||
Interest expense, net of capitalized interest | 56 | $ 47 | ||||||
Capitalized interest | $ 3 | $ 2 | ||||||
Senior Notes | ||||||||
Debt Instrument [Line Items] | ||||||||
Total long-term debt | $ 1,500 | $ 1,250 | $ 1,250 | $ 3,650 | ||||
Senior Notes | Senior notes due 2018 | ||||||||
Debt Instrument [Line Items] | ||||||||
Long-term debt current portion | $ 750 |
Financial Instruments - Investm
Financial Instruments - Investments (Details) - USD ($) $ in Millions | Mar. 31, 2019 | Dec. 31, 2018 | |
Debt Securities, Available-for-sale [Line Items] | |||
Debt Securities | $ 65 | $ 101 | |
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Gain, before Tax | 0 | 0 | |
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Loss, before Tax | 0 | 0 | |
Debt Securities, Available-for-sale | 65 | 101 | |
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, within One Year, Fair Value | [1] | 65 | 99 |
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, after One Through Five Years, Fair Value | [1] | 0 | 2 |
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, after Five Years, Fair Value | [1] | 0 | 0 |
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, Fair Value | [1] | 65 | 101 |
Municipal Bonds | |||
Debt Securities, Available-for-sale [Line Items] | |||
Debt Securities | 1 | 1 | |
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Gain, before Tax | 0 | 0 | |
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Loss, before Tax | 0 | 0 | |
Debt Securities, Available-for-sale | 1 | 1 | |
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, within One Year, Fair Value | [1] | 1 | 1 |
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, after One Through Five Years, Fair Value | [1] | 0 | 0 |
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, after Five Years, Fair Value | [1] | 0 | 0 |
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, Fair Value | [1] | 1 | 1 |
Corporate Bonds | |||
Debt Securities, Available-for-sale [Line Items] | |||
Debt Securities | 64 | 100 | |
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Gain, before Tax | 0 | 0 | |
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Loss, before Tax | 0 | 0 | |
Debt Securities, Available-for-sale | 64 | 100 | |
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, within One Year, Fair Value | [1] | 64 | 98 |
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, after One Through Five Years, Fair Value | [1] | 0 | 2 |
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, after Five Years, Fair Value | [1] | 0 | 0 |
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, Fair Value | [1] | $ 64 | $ 100 |
[1] | Long term investments are included in Other noncurrent assets |
Financial Instruments - Foreign
Financial Instruments - Foreign Exchange Risk (Details) € in Millions, SFr in Millions, $ in Billions | 3 Months Ended | |||||
Mar. 31, 2019USD ($) | Mar. 31, 2019CHF (SFr) | Mar. 31, 2019EUR (€) | Dec. 31, 2018USD ($) | Dec. 31, 2018EUR (€) | Jan. 28, 2013 | |
Senior Notes | Senior notes due 2018 | ||||||
Derivative [Line Items] | ||||||
Interest rate percentage | 1.875% | |||||
Cross-currency interest rate swap contracts | ||||||
Derivative [Line Items] | ||||||
Derivative notional amount | SFr 25 | € 507 | € 400 | |||
Derivatives Not Designated as Hedging Instruments | Foreign Exchange Contract | ||||||
Derivative [Line Items] | ||||||
Derivative notional amount | $ 1.1 | $ 1.3 | ||||
Maturity period (in days) | 60 days | |||||
Derivatives Not Designated as Hedging Instruments | Maximum | Foreign Exchange Contract | ||||||
Derivative [Line Items] | ||||||
Maturity period (in days) | 1 year |
Financial Instruments - Fair _2
Financial Instruments - Fair Value of Derivative Instruments (Details) € in Millions, SFr in Millions, $ in Millions | 3 Months Ended | |||||
Mar. 31, 2019USD ($) | Mar. 31, 2018USD ($) | Mar. 31, 2019CHF (SFr) | Mar. 31, 2019EUR (€) | Dec. 31, 2018USD ($) | Dec. 31, 2018EUR (€) | |
Derivatives, Fair Value [Line Items] | ||||||
Total derivatives | $ 20 | $ 10 | ||||
Foreign currency forward-exchange contracts | Derivatives Not Designated as Hedging Instruments | ||||||
Derivatives, Fair Value [Line Items] | ||||||
Foreign currency forward-exchange contracts | (4) | $ 10 | ||||
Derivative notional amount | 1,100 | 1,300 | ||||
Total derivatives | (2) | (1) | ||||
Foreign currency forward-exchange contracts | Derivatives Not Designated as Hedging Instruments | Other current assets | ||||||
Derivatives, Fair Value [Line Items] | ||||||
Derivative assets | 5 | 6 | ||||
Foreign currency forward-exchange contracts | Derivatives Not Designated as Hedging Instruments | Other current liabilities | ||||||
Derivatives, Fair Value [Line Items] | ||||||
Derivative liabilities | (7) | (7) | ||||
Cross-currency interest rate swap contracts | ||||||
Derivatives, Fair Value [Line Items] | ||||||
Derivative notional amount | SFr 25 | € 507 | € 400 | |||
Cross-currency interest rate swap contracts | Derivatives Designated as Hedging Instruments: | ||||||
Derivatives, Fair Value [Line Items] | ||||||
Unrecognized net gains/(losses) on cross-currency interest rate swap contracts, recorded, net of tax | 18 | 0 | ||||
Gain (Loss) on Components Excluded from Assessment of Interest Rate Fair Value Hedge Effectiveness | 4 | $ 0 | ||||
Total derivatives | 22 | 11 | ||||
Cross-currency interest rate swap contracts | Derivatives Designated as Hedging Instruments: | Other current assets | ||||||
Derivatives, Fair Value [Line Items] | ||||||
Total derivatives | 7 | $ 3 | ||||
Cross-currency interest rate swap contracts | Derivatives Designated as Hedging Instruments: | Other non-current assets | ||||||
Derivatives, Fair Value [Line Items] | ||||||
Total derivatives | $ 15 |
Financial Instruments - Interes
Financial Instruments - Interest Rate Risk (Details) € in Millions, SFr in Millions, $ in Millions | 3 Months Ended | ||||||
Mar. 31, 2019USD ($)swap | Mar. 31, 2018USD ($) | Mar. 31, 2019CHF (SFr)swap | Mar. 31, 2019EUR (€)swap | Dec. 31, 2018USD ($)swap | Dec. 31, 2018EUR (€)swap | Jan. 28, 2013 | |
Cross-currency interest rate swap contracts | |||||||
Derivative Instruments and Hedging Activities Disclosures [Line Items] | |||||||
Derivative notional amount | SFr 25 | € 507 | € 400 | ||||
Derivatives Not Designated as Hedging Instruments | Foreign currency forward-exchange contracts | |||||||
Derivative Instruments and Hedging Activities Disclosures [Line Items] | |||||||
Derivative notional amount | $ 1,100 | $ 1,300 | |||||
Foreign currency forward-exchange contracts | (4) | $ 10 | |||||
Derivatives Designated as Hedging Instruments: | Cross-currency interest rate swap contracts | |||||||
Derivative Instruments and Hedging Activities Disclosures [Line Items] | |||||||
Unrecognized net gains/(losses) on cross-currency interest rate swap contracts, recorded, net of tax | $ 18 | $ 0 | |||||
Derivatives Designated as Hedging Instruments: | Interest rate swaps | |||||||
Derivative Instruments and Hedging Activities Disclosures [Line Items] | |||||||
Derivative, Number of Instruments Held | swap | 0 | 0 | 0 | 0 | 0 | ||
Senior Notes | Senior notes due 2018 | |||||||
Derivative Instruments and Hedging Activities Disclosures [Line Items] | |||||||
Interest rate percentage | 1.875% |
Financial Instruments Cross-cur
Financial Instruments Cross-currency interest rate swap contracts (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Cross-currency interest rate swap contracts | Derivatives Designated as Hedging Instruments: | ||
Foreign Currency Fair Value Hedge Derivative [Line Items] | ||
Gain (Loss) on Components Excluded from Assessment of Interest Rate Fair Value Hedge Effectiveness | $ 4 | $ 0 |
Leases (Details)
Leases (Details) - USD ($) $ in Millions | 3 Months Ended | 12 Months Ended | |
Mar. 31, 2019 | Dec. 31, 2018 | ||
Lessee, Lease, Description [Line Items] | |||
Operating lease expense | $ 9 | ||
Variable lease payments not included in the measurement of lease liabilities | 4 | ||
Short-term lease payments not included in the measurement of lease liabilities | 3 | ||
Cash paid for amounts included in the measurement of lease liabilities | 9 | ||
Lease obligations obtained in exchange for right-of-use assets (non-cash) | 176 | ||
Operating lease right of use assets | 158 | ||
Operating lease liabilities - current | 33 | ||
Operating lease liabilities - noncurrent | 134 | ||
Total operating lease liabilities | $ 167 | ||
Weighted-average remaining lease term—operating leases (years) | 6 years 8 months 8 days | ||
Weighted-average discount rate—operating leases | 3.69% | ||
2019 | [1] | $ 28 | |
2020 | 34 | ||
2021 | 28 | ||
2022 | 24 | ||
2023 | 19 | ||
After 2023 | 59 | ||
Total Lease Payments | 192 | ||
Less: Imputed Interest | $ (25) | ||
2019 | $ 38 | ||
2020 | 30 | ||
2021 | 24 | ||
2022 | 21 | ||
2023 | 15 | ||
After 2023 | 45 | ||
Total | 173 | ||
Total rent expense | $ 45 | ||
Minimum | |||
Lessee, Lease, Description [Line Items] | |||
Weighted-average remaining lease term—operating leases (years) | 1 year | ||
Maximum | |||
Lessee, Lease, Description [Line Items] | |||
Weighted-average remaining lease term—operating leases (years) | 15 years | ||
[1] | 2019 excludes the three months ended March 31, 2019 |
Inventories (Details)
Inventories (Details) - USD ($) $ in Millions | Mar. 31, 2019 | Dec. 31, 2018 |
Inventory Disclosure [Abstract] | ||
Finished goods | $ 655 | $ 744 |
Work-in-process | 523 | 481 |
Raw materials and supplies | 183 | 166 |
Inventories | $ 1,361 | $ 1,391 |
Goodwill and Other Intangible_3
Goodwill and Other Intangible Assets - Goodwill (Details) - USD ($) $ in Millions | Jul. 31, 2018 | Mar. 31, 2019 | |
Goodwill [Roll Forward] | |||
Beginning Balance | $ 2,519 | ||
Goodwill, Acquired During Period | 0 | ||
Other | [1] | 3 | |
Ending Balance | 2,522 | ||
United States (U.S.) | |||
Goodwill [Roll Forward] | |||
Beginning Balance | 1,265 | ||
Goodwill, Acquired During Period | 0 | ||
Other | [1] | 1 | |
Ending Balance | 1,266 | ||
International | |||
Goodwill [Roll Forward] | |||
Beginning Balance | 1,254 | ||
Goodwill, Acquired During Period | 0 | ||
Other | [1] | 2 | |
Ending Balance | $ 1,256 | ||
Abaxis Inc | |||
Goodwill [Roll Forward] | |||
Goodwill, Acquired During Period | [2] | $ 978 | |
[1] | Includes a measurement period adjustment related to the acquisition of Abaxis and adjustments for foreign currency translation. | ||
[2] | Goodwill represents the excess of consideration transferred over the preliminary estimate of 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. The allocation of goodwill to the reporting units is preliminary and will be completed as the company obtains the information necessary to complete the analysis, but no later than one year from the date of the acquisition. |
Goodwill and Other Intangible_4
Goodwill and Other Intangible Assets - Narrative (Details) - USD ($) $ in Millions | 3 Months Ended | ||
Mar. 31, 2018 | Mar. 31, 2019 | Dec. 31, 2018 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |||
Gross goodwill | $ 3,058 | $ 3,055 | |
Accumulated goodwill impairment losses | $ 536 | $ 536 | |
Amortization of intangible assets | $ 25 |
Goodwill and Other Intangible_5
Goodwill and Other Intangible Assets - Other Intangible Assets (Details) - USD ($) $ in Millions | 3 Months Ended | ||||
Mar. 31, 2019 | Mar. 31, 2018 | Dec. 31, 2018 | Jul. 31, 2018 | ||
Finite Lived and Indefinite Lived Intangible Assets [Line Items] | |||||
Identifiable intangible assets | $ 894 | ||||
Finite-lived intangible assets, gross carrying amount | 2,648 | $ 2,644 | |||
Finite-lived intangible assets, accumulated amortization | (966) | (906) | |||
Finite-lived intangible assets, identifiable intangible assets, less accumulated amortization | 1,682 | 1,738 | |||
Total indefinite-lived intangible assets | 307 | 308 | |||
Intangible Assets, gross carrying amount | 2,955 | 2,952 | |||
Identifiable intangible assets, less accumulated amortization | 1,989 | 2,046 | |||
Amortization of intangible assets | $ 25 | ||||
Brands | |||||
Finite Lived and Indefinite Lived Intangible Assets [Line Items] | |||||
Total indefinite-lived intangible assets | 37 | 37 | |||
Trademarks and Trade Names | |||||
Finite Lived and Indefinite Lived Intangible Assets [Line Items] | |||||
Total indefinite-lived intangible assets | 67 | 67 | |||
In Process Research and Development | |||||
Finite Lived and Indefinite Lived Intangible Assets [Line Items] | |||||
Total indefinite-lived intangible assets | 196 | 197 | |||
Product Rights | |||||
Finite Lived and Indefinite Lived Intangible Assets [Line Items] | |||||
Total indefinite-lived intangible assets | 7 | 7 | |||
Developed Technology Rights | |||||
Finite Lived and Indefinite Lived Intangible Assets [Line Items] | |||||
Identifiable intangible assets | $ 610 | ||||
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life | 10 years | ||||
Finite-lived intangible assets, gross carrying amount | [1],[2] | $ 1,856 | 1,854 | ||
Finite-lived intangible assets, accumulated amortization | [1],[2] | (559) | (523) | ||
Finite-lived intangible assets, identifiable intangible assets, less accumulated amortization | [1],[2] | 1,297 | 1,331 | ||
Brands | |||||
Finite Lived and Indefinite Lived Intangible Assets [Line Items] | |||||
Finite-lived intangible assets, gross carrying amount | 213 | 212 | |||
Finite-lived intangible assets, accumulated amortization | (157) | (154) | |||
Finite-lived intangible assets, identifiable intangible assets, less accumulated amortization | 56 | 58 | |||
Trademarks and Trade Names | |||||
Finite Lived and Indefinite Lived Intangible Assets [Line Items] | |||||
Identifiable intangible assets | $ 104 | ||||
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life | 20 years | ||||
Finite-lived intangible assets, gross carrying amount | [2] | $ 166 | 166 | ||
Finite-lived intangible assets, accumulated amortization | [2] | (53) | (51) | ||
Finite-lived intangible assets, identifiable intangible assets, less accumulated amortization | [2] | 113 | 115 | ||
Other Intangible Assets | |||||
Finite Lived and Indefinite Lived Intangible Assets [Line Items] | |||||
Identifiable intangible assets | $ 180 | ||||
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life | 4 years | ||||
Finite-lived intangible assets, gross carrying amount | [2] | $ 413 | 412 | ||
Finite-lived intangible assets, accumulated amortization | [2] | (197) | (178) | ||
Finite-lived intangible assets, identifiable intangible assets, less accumulated amortization | [2] | 216 | $ 234 | ||
Abaxis Inc | |||||
Finite Lived and Indefinite Lived Intangible Assets [Line Items] | |||||
Identifiable intangible assets | [3] | $ 894 | |||
Amortization of intangible assets | $ 33 | ||||
[1] | |||||
[2] | In connection with the acquisition of Abaxis in 2018, the company recorded $894 million of intangible assets, as shown in the table below, representing the preliminary fair value at the acquisition date. See Note 5. Acquisitions and Divestitures | ||||
[3] | Identifiable intangible assets primarily consist of developed technology rights, customer relationships, and trademarks and tradenames. The preliminary estimate of fair value of identifiable intangible assets is determined using the income approach, which includes a forecast of expected future cash flows. For additional information regarding identifiable intangible assets, see Note 12. Goodwill and Other Intangible Assets |
Share-Based Payments - Narrativ
Share-Based Payments - Narrative (Details) | 3 Months Ended |
Mar. 31, 2019$ / sharesshares | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Share-based compensation, options granted, shares | shares | 436,746 |
Share-based compensation, weighted average exercise price (in dollars per share) | $ 87.51 |
Share-based compensation, Options, weighted average grant date fair value (in dollars per share) | $ 21.78 |
Share-based compensation, risk free interest rate | 2.57% |
Share-based compensation, expected dividend rate | 0.75% |
Share-based compensation, expected volatility rate | 23.10% |
Share-based compensation, expected term | 5 years 8 months 12 days |
Stock options | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Share-based compensation, award vesting period | 3 years |
Restricted Stock Units (RSUs) | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Share-based compensation, award vesting period | 3 years |
Share-based compensation, granted, shares | shares | 355,747 |
Share-based compensation, weighted average grant date fair value (in dollars per share) | $ 87.50 |
Performance Shares | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Share-based compensation, expected volatility rate | 20.30% |
Share-based compensation, award vesting period | 3 years |
Share-based compensation, granted, shares | shares | 190,170 |
Share-based compensation, weighted average grant date fair value (in dollars per share) | $ 101.51 |
Performance Shares | PeerCompanies | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Share-based compensation, expected volatility rate | 25.30% |
Performance Shares | Minimum | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Share-based compensation, target number of units percentage | 0.00% |
Performance Shares | Maximum | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Share-based compensation, target number of units percentage | 200.00% |
Share-Based Payments - Componen
Share-Based Payments - Components of Share-Based Compensation Expense (Details) - USD ($) $ in Millions | 3 Months Ended | ||
Mar. 31, 2019 | Mar. 31, 2018 | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Share-based compensation expense—direct | [1] | $ 18 | $ 11 |
Stock options / stock appreciation rights | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Share-based compensation expense—direct | 3 | 2 | |
RSUs / DSUs(a) | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Share-based compensation expense—direct | [2] | 12 | 7 |
PSUs | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Share-based compensation expense—direct | 3 | $ 2 | |
Abaxis Inc | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Share-based compensation expense—direct | $ 5 | ||
[1] | mounts capitalized to inventory were insignificant. | ||
[2] | For the three months ended March 31, 2019 , includes share-based compensation expense of $5 million related to the acquisition of Abaxis, for the post-merger service period. For additional details, see Note 5. Acquisitions and Divestitures |
Stockholders' Equity - Changes
Stockholders' Equity - Changes in Common Shares and Treasury Stock (Details) - USD ($) | 3 Months Ended | ||||
Mar. 31, 2019 | Mar. 31, 2018 | Dec. 31, 2018 | Dec. 31, 2017 | ||
Class of Stock [Line Items] | |||||
Common stock, shares authorized | 6,000,000,000 | 6,000,000,000 | |||
Preferred stock, shares authorized | 1,000,000,000 | 1,000,000,000 | |||
Stock repurchase program, remaining authorized repurchase amount | $ 151,000,000 | ||||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||
Common stock issued, shares | 501,891,243 | 501,890,000 | |||
Treasury stock, shares | [1] | 22,328,917 | 15,760,000 | ||
Stock issued, employee stock purchase plans, shares | 0 | 0 | |||
Stock issued, employee benefit plan, shares | 0 | 0 | |||
Common stock issued, shares | 501,891,243 | 501,890,000 | |||
Treasury stock, shares | [1] | 22,865,242 | 17,166,998 | ||
Stock Compensation Plan | |||||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||
Treasury stock acquired, shares | [1] | (1,140,000) | (990,000) | ||
Share Repurchase Program | |||||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||
Treasury stock acquired, shares | [1] | (1,670,000) | (2,400,000) | ||
December 2016 Share Repurchase Program | |||||
Class of Stock [Line Items] | |||||
Stock repurchase program, authorized amount | $ 1,500,000,000 | ||||
December 2018 Share Repurchase Program [Member] | |||||
Class of Stock [Line Items] | |||||
Stock repurchase program, authorized amount | $ 2,000,000,000 | ||||
[1] | Shares may not add due to rounding. |
Stockholders' Equity - Change_2
Stockholders' Equity - Changes in Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Accumulated Other Comprehensive Income (Loss) [Roll Forward] | ||
Beginning balance | $ 2,185 | $ 1,786 |
Other comprehensive income, net of tax | 31 | 77 |
Ending balance | 2,317 | 1,975 |
Accumulated Other Comprehensive Loss | ||
Accumulated Other Comprehensive Income (Loss) [Roll Forward] | ||
Beginning balance | (629) | (505) |
Other comprehensive income, net of tax | 31 | 76 |
Ending balance | (598) | (429) |
Derivatives Net Unrealized Gains/ (Losses) | ||
Accumulated Other Comprehensive Income (Loss) [Roll Forward] | ||
Beginning balance | (4) | (3) |
Other comprehensive income, net of tax | 0 | 0 |
Ending balance | (4) | (3) |
Net Investment Hedges | ||
Accumulated Other Comprehensive Income (Loss) [Roll Forward] | ||
Beginning balance | 10 | |
Other comprehensive income, net of tax | 8 | |
Ending balance | 18 | |
Currency Translation Adjustment Net Unrealized Gain/(Losses) | ||
Accumulated Other Comprehensive Income (Loss) [Roll Forward] | ||
Beginning balance | (621) | (487) |
Other comprehensive income, net of tax | 23 | 76 |
Ending balance | (598) | (411) |
Benefit Plans Actuarial Gains/(Losses) | ||
Accumulated Other Comprehensive Income (Loss) [Roll Forward] | ||
Beginning balance | (14) | (15) |
Other comprehensive income, net of tax | 0 | 0 |
Ending balance | $ (14) | $ (15) |
Earnings per Share (Details)
Earnings per Share (Details) - USD ($) $ / shares in Units, shares in Millions, $ in Millions | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Numerator | ||
Net income before allocation to noncontrolling interests | $ 312 | $ 350 |
Less: Net loss attributable to noncontrolling interests | 0 | (2) |
Net income attributable to Zoetis Inc. | $ 312 | $ 352 |
Denominator | ||
Weighted-average common shares outstanding | 479.6 | 485.9 |
Common stock equivalents: stock options, RSUs, PSUs and DSUs | 3.5 | 3.9 |
Weighted-average common and potential dilutive shares outstanding | 483.1 | 489.8 |
Earnings per share attributable to Zoetis stockholders—basic (in dollars per share) | $ 0.65 | $ 0.72 |
Earnings per share attributable to Zoetis stockholders—diluted (in dollars per share) | $ 0.65 | $ 0.72 |
Stock options | ||
Denominator | ||
Antidilutive securities excluded from computation of earnings per share, amount | 1 |
Commitments and Contingencies (
Commitments and Contingencies (Details) € in Millions, $ in Millions | May 16, 2016producer | Jun. 03, 2015count | Aug. 31, 2014animal | Apr. 30, 2012 | Mar. 31, 2019customer | Jun. 19, 2013USD ($) | Jun. 19, 2013EUR (€) | Feb. 29, 2012defendant |
Ulianopolis, Brazil | ||||||||
Loss Contingencies [Line Items] | ||||||||
Number of additional defendants | defendant | 5 | |||||||
Number of claims seeking damages | defendant | 6 | |||||||
Duration of suspension of lawsuit | 1 year | |||||||
Lasadoil | ||||||||
Loss Contingencies [Line Items] | ||||||||
Number of deaths from contamination of animal feed | animal | 50,000 | |||||||
Number of contaminated animal from contamination of animal feed | animal | 20,000 | |||||||
Number of complaints | 2 | 1 | 3 | |||||
European Commission | ||||||||
Loss Contingencies [Line Items] | ||||||||
Amount reimbursed by Pfizer | $ 14 | € 11 |
Segment Information Segment I_2
Segment Information Segment Information (Details) $ in Millions | 3 Months Ended |
Mar. 31, 2019USD ($)segment | |
Segment Reporting [Abstract] | |
Inventory Adjustments | $ | $ 68 |
Number of operating segments | segment | 2 |
Segment Information Selected St
Segment Information Selected Statement of Income (Details) - USD ($) $ in Millions | 3 Months Ended | ||
Mar. 31, 2019 | Mar. 31, 2018 | ||
Segment Reporting Information [Line Items] | |||
Revenue | $ 1,455 | $ 1,366 | |
Cost of Sales | 518 | 447 | |
Other (income)/deductions—net | (14) | (5) | |
Income before provision for taxes on income | [1] | 381 | 417 |
Depreciation and amortization | [1],[2] | 98 | 60 |
Acquisition-related costs | 5 | ||
Other business activities | |||
Segment Reporting Information [Line Items] | |||
Income before provision for taxes on income | (80) | (81) | |
Depreciation and amortization | [2] | 5 | 5 |
Acquisition-related Costs [Member] | |||
Segment Reporting Information [Line Items] | |||
Depreciation and amortization | [2] | 0 | 0 |
Operating Segments | |||
Segment Reporting Information [Line Items] | |||
Income before provision for taxes on income | 837 | 756 | |
Depreciation and amortization | [2] | 23 | 19 |
Operating Segments | U.S. | |||
Segment Reporting Information [Line Items] | |||
Revenue | 718 | 634 | |
Cost of Sales | 147 | 140 | |
Gross Profit | $ 571 | $ 494 | |
Gross margin, percentage | 79.50% | 77.90% | |
Operating Expenses | $ 110 | $ 96 | |
Other (income)/deductions—net | 0 | 0 | |
Income before provision for taxes on income | 461 | 398 | |
Depreciation and amortization | [2] | 10 | 8 |
Operating Segments | International | |||
Segment Reporting Information [Line Items] | |||
Revenue | [3] | 718 | 726 |
Cost of Sales | 210 | 234 | |
Gross Profit | $ 508 | $ 492 | |
Gross margin, percentage | 70.80% | 67.80% | |
Operating Expenses | $ 132 | $ 133 | |
Other (income)/deductions—net | 0 | 1 | |
Income before provision for taxes on income | 376 | 358 | |
Depreciation and amortization | [2] | 13 | 11 |
Corporate | |||
Segment Reporting Information [Line Items] | |||
Income before provision for taxes on income | (162) | (153) | |
Depreciation and amortization | [2] | 14 | 13 |
Reconciling Items | |||
Segment Reporting Information [Line Items] | |||
Purchase accounting adjustments, Earnings | (66) | (23) | |
Purchase accounting adjustments, Depreciation and Amortization | [2] | 55 | 23 |
Acquisition-related costs | (5) | (1) | |
Certain significant items, Earnings | [4] | (70) | (3) |
Certain significant items, Depreciation and Amortization | [2],[4] | 0 | 0 |
Other unallocated, Earnings | (73) | (78) | |
Other Unallocated, Depreciation and Amortization | [2] | $ 1 | $ 0 |
[1] | Defined as income before provision for taxes on income. | ||
[2] | 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. | ||
[3] | Revenue denominated in euros was $181 million and $184 million for the three months ended March 31, 2019 , and March 31, 2018 | ||
[4] | For the three months ended March 31, 2019 , primarily represents a change in estimate related to inventory costing of $68 million , and consulting fees of $2 million related to our supply network strategy. For the three months ended March 31, 2018 , primarily represents: (i) employee termination costs and consulting fees related to our supply network strategy, and (ii) a charge related to the implementation of new accounting guidance as a result of the enactment of the Tax Act. |
Segment Information Selected _2
Segment Information Selected Statement of Income Narrative (Details) - USD ($) $ in Millions | 3 Months Ended | ||
Mar. 31, 2019 | Mar. 31, 2018 | ||
Segment Reporting Information [Line Items] | |||
Revenue | $ 1,455 | $ 1,366 | |
International | Operating Segments | |||
Segment Reporting Information [Line Items] | |||
Revenue | [1] | 718 | 726 |
International | Operating Segments | Euro Member Countries, Euro | |||
Segment Reporting Information [Line Items] | |||
Revenue | $ 181 | $ 184 | |
[1] | Revenue denominated in euros was $181 million and $184 million for the three months ended March 31, 2019 , and March 31, 2018 |