Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2020 | May 01, 2020 | |
Cover [Abstract] | ||
Document Quarterly Report | true | |
Document Period End Date | Mar. 31, 2020 | |
Document Transition Report | false | |
Entity File Number | 001-35797 | |
Entity Registrant Name | Zoetis Inc. | |
Entity Incorporation, State or Country Code | DE | |
Entity Tax Identification Number | 46-0696167 | |
Entity Address, Address Line One | 10 Sylvan Way, | |
Entity Address, City or Town | Parsippany, | |
Entity Address, State or Province | NJ | |
Entity Address, Postal Zip Code | 07054 | |
City Area Code | 973 | |
Local Phone Number | 822-7000 | |
Title of 12(b) Security | Common Stock, par value $0.01 per share | |
Trading Symbol | ZTS | |
Security Exchange Name | NYSE | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Entity Small Business | false | |
Entity Emerging Growth Company | false | |
Entity Shell Company | false | |
Entity common Stock, Shares Outstanding | 474,940,772 | |
Document Type | 10-Q | |
Amendment Flag | false | |
Document Fiscal Year Focus | 2020 | |
Document Fiscal Period Focus | Q1 | |
Entity Central Index Key | 0001555280 | |
Current Fiscal Year End Date | --12-31 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($) shares in Millions, $ in Millions | 3 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | ||
Income Statement [Abstract] | |||
Revenue | $ 1,534 | $ 1,455 | |
Costs and expenses: | |||
Cost of sales | 459 | 518 | |
Selling, general and administrative expenses | 389 | 369 | |
Research and development expenses | 107 | 102 | |
Amortization of intangible assets | 40 | 38 | |
Restructuring charges and certain acquisition-related costs | 9 | 5 | |
Interest expense, net of capitalized interest | 53 | 56 | |
Other (income)/deductions—net | (20) | (14) | |
Income before provision for taxes on income | [1] | 497 | 381 |
Provision for taxes on income | 74 | 69 | |
Net income before allocation to noncontrolling interests | 423 | 312 | |
Net income | $ 423 | $ 312 | |
Earnings per share | |||
Basic (in dollars per share) | $ 0.89 | $ 0.65 | |
Diluted (in dollars per share) | $ 0.88 | $ 0.65 | |
Weighted-average common shares outstanding: | |||
Basic (in shares) | 475.6 | 479.6 | |
Diluted (in shares) | 479 | 483.1 | |
Dividends paid per common share (in dollars per share) | $ 0.200 | $ 0.164 | |
[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, 2020 | Mar. 31, 2019 | |
Net income | $ 423 | $ 312 |
Other comprehensive (loss)/income, net of taxes: | ||
Unrealized gains on derivatives for net investment hedges, net | (28) | 0 |
Foreign currency translation adjustments, net | (44) | 23 |
Total other comprehensive (loss)/income, net of tax | (55) | 31 |
Comprehensive income | 368 | 343 |
Unrecognized net gains/(losses) on cross-currency interest rate swap contracts, recorded, net of tax | $ 17 | $ 8 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - USD ($) $ in Millions | Mar. 31, 2020 | Dec. 31, 2019 | |
Assets | |||
Cash and cash equivalents | [1] | $ 1,951 | $ 1,934 |
Restricted cash | 1 | 2 | |
Accounts receivable, less allowance for doubtful accounts of $21 in 2020 and $21 in 2019 | 965 | 1,086 | |
Inventories | 1,481 | 1,410 | |
Other current assets | 375 | 318 | |
Total current assets | 4,772 | 4,748 | |
Property, plant and equipment, less accumulated depreciation of $1,769 in 2020 and $1,737 in 2019 | 1,977 | 1,940 | |
Operating lease right of use assets | 182 | 189 | |
Goodwill | 2,583 | 2,592 | |
Identifiable intangible assets, less accumulated amortization | 1,821 | 1,890 | |
Noncurrent deferred tax assets | 88 | 88 | |
Other noncurrent assets | 105 | 98 | |
Total assets | 11,528 | 11,545 | |
Liabilities and Equity | |||
Current portion of long-term debt | 500 | 500 | |
Accounts payable | 265 | 301 | |
Dividends payable | 95 | 95 | |
Accrued expenses | 476 | 543 | |
Accrued compensation and related items | 212 | 276 | |
Income taxes payable | 123 | 36 | |
Other current liabilities | 50 | 55 | |
Total current liabilities | 1,721 | 1,806 | |
Long-term debt, net of discount and issuance costs | 5,963 | 5,947 | |
Noncurrent deferred tax liabilities | 421 | 434 | |
Operating lease liabilities | 159 | 164 | |
Other taxes payable | 260 | 257 | |
Other noncurrent liabilities | 251 | 229 | |
Total liabilities | 8,775 | 8,837 | |
Commitments and Contingencies | |||
Stockholders' equity: | |||
Common stock, $0.01 par value: 6,000,000,000 authorized; 501,891,243 and 501,891,243 shares issued; 474,865,353 and 475,582,210 shares outstanding at March 31, 2020, and December 31, 2019, respectively | 5 | 5 | |
Treasury stock, at cost, 27,025,890 and 26,363,033 shares of common stock at March 31, 2020, and December 31, 2019, respectively | (2,252) | (2,042) | |
Additional paid-in capital | 1,017 | 1,044 | |
Retained earnings | 4,764 | 4,427 | |
Accumulated other comprehensive loss | (781) | (726) | |
Total equity | 2,753 | 2,708 | |
Total liabilities and equity | $ 11,528 | $ 11,545 | |
[1] | As of March 31, 2020, and December 31, 2019, includes $1 million and $2 million, respectively, of restricted cash. |
CONDENSED CONSOLIDATED BALANC_2
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (PARENTHETICAL) - USD ($) $ in Millions | Mar. 31, 2020 | Dec. 31, 2019 |
Statement of Financial Position [Abstract] | ||
Allowance for doubtful accounts | $ 21 | $ 21 |
Accumulated depreciation | $ 1,769 | $ 1,737 |
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 | 474,865,353 | 475,582,210 |
Treasury stock, shares | 27,025,890 | 26,363,033 |
CONDENSED CONSOLIDATED STATEM_3
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED) - USD ($) $ in Millions | Total | Common Stock | Treasury Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Share Repurchase Program | [2] | Share Repurchase ProgramTreasury Stock | [2] | |||
Common Stock, Shares, Issued | 501,900,000 | ||||||||||||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||||||||||
Treasury stock, shares | [1] | 22,300,000 | |||||||||||
Beginning balance at Dec. 31, 2018 | $ 2,185 | $ 5 | $ (1,487) | $ 1,026 | $ 3,270 | $ (629) | |||||||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||||||||||
Net income | 312 | 312 | |||||||||||
Other comprehensive income | 31 | 31 | |||||||||||
Share-based compensation awards | [2] | $ 17 | 44 | (19) | (8) | ||||||||
Treasury stock acquired, shares | [1] | (1,700,000) | [3] | (1,100,000) | |||||||||
Treasury stock acquired | [3] | $ (150) | (150) | [2] | |||||||||
Employee benefit plan contribution from Pfizer Inc. | [4] | 1 | 1 | ||||||||||
Dividends declared | (79) | (79) | |||||||||||
Ending balance at Mar. 31, 2019 | $ 2,317 | 5 | $ (1,593) | 1,008 | 3,495 | (598) | |||||||
Common Stock, Shares, Issued | 501,900,000 | ||||||||||||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||||||||||
Treasury stock, shares | [1] | 22,900,000 | |||||||||||
Common Stock, Shares, Issued | 501,891,243 | ||||||||||||
Treasury stock, shares | 26,363,033 | 26,400,000 | [1] | ||||||||||
Beginning balance at Dec. 31, 2019 | $ 2,708 | 5 | $ (2,042) | 1,044 | 4,427 | (726) | |||||||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||||||||||
Net income | 423 | 423 | |||||||||||
Other comprehensive income | (55) | (55) | |||||||||||
Share-based compensation awards | [2] | 21 | $ 40 | (28) | 9 | ||||||||
Treasury stock acquired, shares | [1] | (1,800,000) | [3] | (1,200,000) | |||||||||
Treasury stock acquired | [3] | (250) | $ (250) | ||||||||||
Employee benefit plan contribution from Pfizer Inc. | [4] | 1 | 1 | ||||||||||
Dividends declared | (95) | (95) | |||||||||||
Ending balance at Mar. 31, 2020 | $ 2,753 | $ 5 | $ (2,252) | $ 1,017 | $ 4,764 | $ (781) | |||||||
Common Stock, Shares, Issued | 501,891,243 | ||||||||||||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||||||||||
Treasury stock, shares | 27,025,890 | 27,000,000 | [1] | ||||||||||
[1] | Shares may not add due to rounding. | ||||||||||||
[2] | Includes the issuance of shares of Zoetis Inc. common stock and the reacquisition of shares of treasury stock associated with exercises of employee share-based awards. Also includes the reacquisition of shares of treasury stock associated with the vesting of employee share-based awards to satisfy tax withholding requirements. For additional information, see Note 13. Share-based Payments and Note 14. Stockholders' Equity . | ||||||||||||
[3] | Reflects the acquisition of treasury shares in connection with the share repurchase program. For additional information see Note 14. Stockholders' Equity . | ||||||||||||
[4] | 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 CASH FLOWS (UNAUDITED) - USD ($) $ in Millions | 3 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | ||
Operating Activities | |||
Net income | $ 423 | $ 312 | |
Adjustments to reconcile net income to net cash provided by operating activities: | |||
Depreciation and amortization expense | 110 | 98 | [1],[2] |
Share-based compensation expense | 16 | 18 | |
Asset write-offs and asset impairments | 0 | 1 | |
Net gain on sale of assets | 17 | 0 | |
Provision for losses on inventory | 13 | 14 | |
Deferred taxes | (9) | (16) | |
Employee benefit plan contribution from Pfizer Inc. | 1 | 1 | |
Other changes in assets and liabilities, net of acquisitions and divestitures: | |||
Accounts receivable | 109 | 75 | |
Inventories | (97) | 17 | |
Other assets | (65) | 24 | |
Accounts payable | (35) | (79) | |
Other liabilities | (128) | (103) | |
Other tax accounts, net | 87 | 27 | |
Net cash provided by operating activities | 408 | 389 | |
Investing Activities | |||
Capital expenditures | (94) | (63) | |
Other acquisitions | (6) | 0 | |
Proceeds from maturities and redemptions of investments | 0 | 36 | |
Net proceeds on swaps designated as net investment hedges | 24 | 0 | |
Net proceeds from sale of assets | 20 | 0 | |
Other investing activities | (1) | 4 | |
Net cash used in investing activities | (57) | (23) | |
Financing Activities | |||
Decrease in short-term borrowings, net | 0 | (9) | |
Payment of contingent consideration related to previously acquired assets | 0 | (8) | |
Share-based compensation-related proceeds, net of taxes paid on withholding shares | 17 | 3 | |
Purchases of treasury stock | (250) | (150) | |
Cash dividends paid | (95) | (79) | |
Net cash used in financing activities | (328) | (243) | |
Effect of exchange-rate changes on cash and cash equivalents | (6) | 3 | |
Net increase in cash and cash equivalents | 17 | 126 | |
Cash and cash equivalents at beginning of period | 1,934 | 1,602 | |
Cash and cash equivalents at end of period | 1,951 | 1,728 | |
Cash paid during the period for: | |||
Income taxes | 22 | 29 | |
Interest, net of capitalized interest | 95 | 96 | |
Non-cash transactions: | |||
Capital expenditures | 2 | $ 5 | |
Dividends Payable | $ 95 | ||
[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. |
Organization
Organization | 3 Months Ended |
Mar. 31, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization | 1. Organization Zoetis 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. |
Basis of Presentation
Basis of Presentation | 3 Months Ended |
Mar. 31, 2020 | |
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 U.S. are as of and for the three-month periods ended February 29, 2020 and February 28, 2019. Revenue, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be representative of those for the full year. Certain reclassifications of prior year information have been made to conform to the current year's presentation. |
Accounting Standards
Accounting Standards | 3 Months Ended |
Mar. 31, 2020 | |
Accounting Policies [Abstract] | |
Accounting Standards | 3. Accounting Standards Recently Adopted Accounting Standards In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Topic 350-40), an accounting standards update which expands the scope of costs associated with cloud computing arrangements that must be capitalized. Under the new guidance, costs associated with implementing a cloud computing arrangement that is a service contract must be capitalized and expensed over the term of the hosting arrangement. We adopted this guidance as of January 1, 2020, the required effective date, on a prospective basis. The adoption did not have a significant impact on our consolidated financial statements. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326), an accounting standards update which requires an entity to measure and recognize expected credit losses for certain financial instruments, including trade receivables, as an allowance that reflects the entity's current estimate of credit losses expected to be incurred. For available-for-sale debt securities with unrealized losses, the standard requires allowances to be recorded instead of reducing the amortized cost of the investment. We adopted this guidance as of January 1, 2020, the required effective date, on a prospective basis. The adoption did not have a significant impact on our consolidated financial statements. Recently Issued Accounting Standards In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting . The new guidance provides temporary optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform. Adoption of the provisions of ASU 2020-04 are optional and effective as of March 12, 2020, but only available through December 31, 2022. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements and related disclosures, as well as the timing of the potential adoption. |
Revenue
Revenue | 3 Months Ended |
Mar. 31, 2020 | |
Revenue Recognition and Deferred Revenue [Abstract] | |
Revenue | 4. Revenue A. Revenue from Product Sales We offer a diversified portfolio of products which allows us to capitalize on local and regional customer needs. Generally, our products are promoted to veterinarians and livestock producers by our sales organization which includes sales representatives and technical and veterinary operations specialists, and then sold directly by us or through distributors, retailers and e-commerce outlets. The depth of our product portfolio enables us to address the varying needs of customers in different species and geographies. Many of our top selling product lines are distributed across both of our operating segments, leveraging our research and development (R&D) operations and manufacturing and supply chain network. Over the course of our history, we have focused on developing a diverse portfolio of animal health products, including medicines, vaccines and diagnostics, complemented by biodevices, genetic tests and a range of services. We refer to a single product in all brands, or its dosage forms for all species, as a product line. We have approximately 300 comprehensive product lines, including products for both livestock and companion animals across each of our major product categories. In the fourth quarter of 2019, the company modified the list of major product categories to include a category for dermatology products, which was previously included within other 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; • anti-infectives : products that prevent, kill or slow the growth of bacteria, fungi or protozoa; • parasiticides : products that prevent or eliminate external and internal parasites such as fleas, ticks and worms; • other pharmaceutical products : pain and sedation, antiemetic, reproductive, and oncology products; • dermatology products: products that relieve itch associated with allergic conditions and atopic dermatitis; • medicated feed additives : products added to animal feed that provide medicines to livestock; and • animal health diagnostics : portable blood and urine analysis systems and point-of-care diagnostic products, including instruments and reagents, rapid immunoassay tests, reference laboratory kits and blood glucose monitors. Our remaining revenue is derived from other non-pharmaceutical product categories, such as nutritionals and agribusiness, as well as products and services in smaller but fast growing areas, including biodevices, genetic tests and precision livestock farming. 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) 2020 2019 United States $ 786 $ 718 Australia 43 48 Brazil 63 60 Canada 40 41 China 66 60 France 29 32 Germany 34 37 Italy 21 28 Japan 41 37 Mexico 32 28 Spain 28 27 United Kingdom 55 57 Other developed markets 87 84 Other emerging markets 189 179 1,514 1,436 Contract manufacturing & human health 20 19 Total Revenue $ 1,534 $ 1,455 Revenue by major species Three Months Ended March 31, (MILLIONS OF DOLLARS) 2020 2019 U.S. Companion animal $ 499 $ 445 Livestock 287 273 786 718 International Companion animal 298 284 Livestock 430 434 728 718 Contract manufacturing & human health 20 19 Total Revenue $ 1,534 $ 1,455 Revenue by species Three Months Ended March 31, (MILLIONS OF DOLLARS) 2020 2019 Companion Animal: Dogs and Cats $ 746 $ 688 Horses 51 41 797 729 Livestock: Cattle 370 380 Swine 157 149 Poultry 148 139 Fish 26 23 Sheep and other 16 16 717 707 Contract manufacturing & human health 20 19 Total Revenue $ 1,534 $ 1,455 Revenue by major product category Three Months Ended March 31, (MILLIONS OF DOLLARS) 2020 2019 Vaccines $ 349 $ 358 Anti-infectives 280 286 Parasiticides 255 231 Other pharmaceuticals 197 190 Dermatology 197 159 Medicated feed additives 125 112 Animal health diagnostics 60 60 Other non-pharmaceuticals 51 40 1,514 1,436 Contract manufacturing & human health 20 19 Total Revenue $ 1,534 $ 1,455 B. Revenue from Contracts with Customers Contract liabilities reflected within Other current liabilities as of December 31, 2019 and December 31, 2018, and subsequently recognized as revenue during the first three months of 2020 and 2019 were approximately $3 million and $1 million, respectively. Contract liabilities as of March 31, 2020 and December 31, 2019 were approximately $10 million and $11 million, respectively. |
Acquisitions and Divestitures
Acquisitions and Divestitures | 3 Months Ended |
Mar. 31, 2020 | |
Business Combinations [Abstract] | |
Acquisitions and Divestitures | 5. Acquisitions and Divestitures A. Acquisitions Other Acquisitions In the first quarter of 2020, we acquired the net assets of Ethos Diagnostic Science, a veterinary reference laboratory business with labs across the U.S. This transaction did not have a significant impact on our consolidated financial statements. During 2019, we completed the acquisitions of Platinum Performance, a nutrition-focused animal health business for companion animals and Phoenix Lab and ZNLabs, both full service veterinary reference laboratory companies with networks of labs across the U.S. These transactions did not have a significant impact on our consolidated financial statements. B. Divestitures During the three months ended March 31, 2020, we received cash proceeds of $20 million resulting from a payment received pursuant to an agreement related to the 2016 sale of certain U.S. manufacturing sites. |
Restructuring Charges and Other
Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives | 3 Months Ended |
Mar. 31, 2020 | |
Restructuring and Related Activities [Abstract] | |
Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives | 6. Restructuring Charges and Other Costs Associated with Acquisitions, Cost-Reduction and Productivity Initiatives In 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 R&D, as well as functions such as information technology, shared services and corporate operations. 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) 2020 2019 Restructuring charges and certain acquisition-related costs: Integration costs (a) $ 6 $ 1 Restructuring charges (b) : Employee termination costs 3 4 Total Restructuring charges and certain acquisition-related costs $ 9 $ 5 (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, 2020 primarily relate to CEO transition-related costs which are associated with Manufacturing/research/corporate. The restructuring charges for the three months ended March 31, 2019 primarily relate to the acquisition of Abaxis which are associated with Manufacturing/research/corporate. (MILLIONS OF DOLLARS) Accrual (a) Balance, December 31, 2019 (b) $ 45 Provision 3 Utilization and other (c) (7) Balance, March 31, 2020 (b) $ 41 (a) Changes in our restructuring accrual represents employee termination costs. (b) At March 31, 2020, and December 31, 2019, included in Accrued expenses ($19 million and $23 million, respectively) and Other noncurrent liabilities ($22 million and $22 million, respectively). |
Other (Income)_Deductions - Net
Other (Income)/Deductions - Net | 3 Months Ended |
Mar. 31, 2020 | |
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) 2020 2019 Royalty-related income $ (1) $ (5) Interest income (6) (10) Net gain on sale of assets (a) (17) — Foreign currency loss (b) 5 — Other, net (1) 1 Other (income)/deductions—net $ (20) $ (14) (a) For the three months ended March 31, 2020, represents a net gain resulting from net cash proceeds received pursuant to an agreement related to the 2016 sale of certain U.S. manufacturing sites. (b) Primarily driven by costs related to hedging and exposures to certain emerging and developed market currencies. |
Income Taxes
Income Taxes | 3 Months Ended |
Mar. 31, 2020 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | 8. Income Taxes A. Taxes on Income Our effective tax rate was 14.9% for the three months ended March 31, 2020, compared with 18.1% for the three months ended March 31, 2019. The lower effective tax rate for the three months ended March 31, 2020, was primarily attributable to: • a $23 million and $13 million discrete tax benefit recorded in the three months ended March 31, 2020 and 2019, respectively, related to the excess tax benefits for share-based payments; and • a $6 million discrete tax benefit recorded in the three months ended March 31, 2020 related to a remeasurement of deferred taxes resulting from the integration of acquired businesses, partially offset by: • 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 $3 million and $4 million discrete tax benefit recorded in the three months ended March 31, 2020 and 2019, respectively, related to a remeasurement of deferred taxes as a result of changes in non-U.S. statutory tax rates. B. Deferred Taxes As of March 31, 2020, the total net deferred income tax liability of $333 million is included in Noncurrent deferred tax assets ($88 million) and Noncurrent deferred tax liabilities ($421 million). As of December 31, 2019, the total net deferred income tax liability of $346 million is included in Noncurrent deferred tax assets ($88 million) and Noncurrent deferred tax liabilities ($434 million). C. Tax Contingencies As of March 31, 2020, the net tax liabilities associated with uncertain tax positions of $184 million (exclusive of interest and penalties related to uncertain tax positions of $13 million) are included in Noncurrent deferred tax assets and Other noncurrent assets ($2 million) and Other taxes payable ($182 million). As of December 31, 2019, the net tax liabilities associated with uncertain tax positions of $182 million (exclusive of interest and penalties related to uncertain tax positions of $12 million) are included in Noncurrent deferred tax assets and Other noncurrent assets ($2 million) and Other taxes payable ($180 million). 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. |
Financial Instruments
Financial Instruments | 3 Months Ended |
Mar. 31, 2020 | |
Financial Instruments [Abstract] | |
Financial Instruments | 9. Financial Instruments A. Debt Credit 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 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, 2020, and December 31, 2019. There were no amounts drawn under the credit facility as of March 31, 2020 or December 31, 2019. 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, 2020, we had access to $75 million of lines of credit which expire at various times through 2020 and are generally renewed annually. There were no borrowings outstanding related to these facilities as of March 31, 2020 and December 31, 2019. Commercial Paper Program In February 2013, we entered into a commercial paper program with a capacity of up to $1.0 billion. As of March 31, 2020, and December 31, 2019, there was no commercial paper outstanding under this program. 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. 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. 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 (2013 senior notes) 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) 2020 2019 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 (49) (51) Less current portion of long-term debt 500 500 Cumulative fair value adjustment for interest rate swap contracts 12 (2) Long-term debt, net of discount and issuance costs $ 5,963 $ 5,947 The fair value of our long-term debt was $6,384 million and $6,587 million as of March 31, 2020, and December 31, 2019, 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, 2020, matures in the following years: After (MILLIONS OF DOLLARS) 2020 2021 2022 2023 2024 2024 Total Maturities $ 500 $ 600 $ — $ 1,350 $ — $ 4,050 $ 6,500 Interest Expense Interest expense, net of capitalized interest, was $53 million and $56 million for the three months ended March 31, 2020 and March 31, 2019, respectively. Capitalized interest expense was $4 million and $3 million for the three months ended March 31, 2020 and March 31, 2019, respectively. B. 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 vast majority of the foreign exchange derivative financial instruments mature within 60 days and all mature within three years. • For cross-currency interest rate swaps, which are designated as a hedge against our net investment in foreign operations, changes in the fair value are recorded as a component of cumulative translation adjustment within Accumulated other comprehensive income/(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 cross-currency interest rate swap contracts have varying maturities of up to five 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 income/(loss) and are recognized in earnings over the life of the future fixed-rate notes. When the company discontinues hedge accounting because it is no longer probable that an anticipated transaction will occur within the originally expected period of execution, or within an additional two-month period thereafter, changes to fair value accumulated in other comprehensive income are recognized immediately in earnings. For the three months ended March 31, 2020, we entered into forward-starting interest rate swaps, having an effective date and mandatory termination date in March 2023, to hedge against interest rate exposure related principally to the anticipated future issuance of fixed-rate debt to be used primarily to refinance our 3.250% 2013 senior notes due 2023. • We may use fixed-to-floating interest rate swaps that are designated as fair value hedges to hedge against changes in the fair value of certain fixed-rate debt attributable to changes in the benchmark LIBOR rate. These derivative instruments effectively convert a portion of the company’s long-term debt from fixed rate to floating rate debt based on three-month LIBOR plus a spread. Gains or losses on the fixed-to-floating interest rate swaps due to changes in LIBOR are recorded in Interest expense, net of capitalized interest . Changes in the fair value of the fixed-to-floating interest rate swaps are offset by changes in the fair value of the underlying fixed rate debt. As of March 31, 2020, we had an outstanding fixed-to-floating interest rate swap which corresponds to a portion of the 3.900% 2018 senior notes due 2028. The amounts recorded during the three months ended March 31, 2020 for changes in the fair value of this hedge are not material to our consolidated financial statements. Outstanding Positions The aggregate notional amounts of derivative instruments are as follows: Notional March 31, December 31, (MILLIONS) 2020 2019 Foreign currency forward-exchange contracts $ 1,272 $ 1,364 Cross-currency interest rate swap contracts (in foreign currency): Euro 650 650 Swiss franc 25 25 Danish krone 600 600 Forward-starting interest rate swaps $ 450 $ 250 Fixed-to-floating interest rate swap contracts $ 150 $ 150 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 2020 2019 Derivatives Not Designated as Hedging Instruments Foreign currency forward-exchange contracts Other current assets $ 19 $ 7 Foreign currency forward-exchange contracts Other current liabilities (5) (5) Total derivatives not designated as hedging instruments $ 14 $ 2 Derivatives Designated as Hedging Instruments: Forward-starting interest rate swap contracts Other noncurrent assets $ — $ 5 Forward-starting interest rate swap contracts Other noncurrent liabilities (32) (1) Cross-currency interest rate swap contracts Other current assets 7 4 Cross-currency interest rate swap contracts Other noncurrent assets 36 20 Cross-currency interest rate swap contracts Other current liabilities (3) (3) Fixed-to-floating interest rate swap contracts Other noncurrent assets 12 (2) Total derivatives designated as hedging instruments 20 23 Total derivatives $ 34 $ 25 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, 2020, there was $28 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 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) 2020 2019 Foreign currency forward-exchange contracts $ 6 $ (4) 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/(losses) on 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) 2020 2019 Forward-starting interest rate swap contracts $ (27) $ — Cross-currency interest rate swap contracts $ 17 $ 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) 2020 2019 Cross-currency interest rate swap contracts $ 6 $ 4 The net amount of deferred gains related to derivative instruments designated as cash flow hedges that is expected to be reclassified from Accumulated other comprehensive income/(loss) into earnings over the next 12 months is insignificant. |
Leases
Leases | 3 Months Ended |
Mar. 31, 2020 | |
Leases [Abstract] | |
Leases | 10. Leases We have facilities, vehicles and equipment under various non-cancellable operating leases with third parties. These leases generally have remaining terms ranging from 1 to 15 years, inclusive of renewal options that are reasonably certain of exercise. Supplemental information for operating leases is as follows: (MILLIONS OF DOLLARS, EXCEPT LEASE TERM AND DISCOUNT RATE AMOUNTS) As of March 31, 2020 As of December 31, 2019 Supplemental Balance Sheet information for operating leases Operating lease right of use assets $ 182 $ 189 Operating lease liabilities Operating lease liabilities - current (in Other current liabilities ) $ 33 $ 35 Operating lease liabilities - noncurrent 159 164 Total operating lease liabilities $ 192 $ 199 Weighted-average remaining lease term—operating leases (years) 7.05 7.12 Weighted-average discount rate—operating leases 3.34 % 3.76 % Three Months Ended (MILLIONS OF DOLLARS) March 31, 2020 March 31, 2019 Supplemental Income Statement information for operating leases Operating lease expense $ 11 $ 9 Variable lease payments not included in the measurement of lease liabilities 5 4 Short-term lease payments not included in the measurement of lease liabilities 2 3 Supplemental Cash Flow information for operating leases Cash paid for amounts included in the measurement of lease liabilities $ 11 $ 9 Lease obligations obtained in exchange for right-of-use assets (non-cash) 4 176 Future minimum lease payments under non-cancellable operating lease contracts as of March 31, 2020 are as follows: Total Less: After Lease Imputed (MILLIONS OF DOLLARS) 2020 (a) 2021 2022 2023 2024 2024 Payments Interest Total Maturities $ 31 $ 37 $ 33 $ 27 $ 23 $ 68 $ 219 $ (27) $ 192 (a) 2020 excludes the three months ended March 31, 2020. |
Inventories
Inventories | 3 Months Ended |
Mar. 31, 2020 | |
Inventory Disclosure [Abstract] | |
Inventories | 11. Inventories The components of inventory are as follows: March 31, December 31, (MILLIONS OF DOLLARS) 2020 2019 Finished goods $ 731 $ 701 Work-in-process 543 511 Raw materials and supplies 207 198 Inventories $ 1,481 $ 1,410 |
Goodwill and Other Intangible A
Goodwill and Other Intangible Assets | 3 Months Ended |
Mar. 31, 2020 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Goodwill and Other Intangible Assets | 12. Goodwill and Other Intangible Assets A. 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, 2019 $ 1,367 $ 1,225 $ 2,592 Other (a) — (9) (9) Balance, March 31, 2020 $ 1,367 $ 1,216 $ 2,583 (a) Includes adjustments for foreign currency translation. The gross goodwill balance was $3,119 million and $3,128 million as of March 31, 2020 and December 31, 2019, respectively. Accumulated goodwill impairment losses were $536 million as of March 31, 2020 and December 31, 2019. B. Other Intangible Assets The components of identifiable intangible assets are as follows: As of March 31, 2020 As of December 31, 2019 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 $ 1,946 $ (691) $ 1,255 $ 1,938 $ (657) $ 1,281 Brands and tradenames 424 (228) 196 424 (223) 201 Other 445 (267) 178 441 (249) 192 Total finite-lived intangible assets 2,815 (1,186) 1,629 2,803 (1,129) 1,674 Indefinite-lived intangible assets: Brands and tradenames 104 — 104 104 — 104 In-process research and development 81 — 81 105 — 105 Product rights 7 — 7 7 — 7 Total indefinite-lived intangible assets 192 — 192 216 — 216 Identifiable intangible assets $ 3,007 $ (1,186) $ 1,821 $ 3,019 $ (1,129) $ 1,890 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 $62 million and $58 million for the three months ended March 31, 2020 and March 31, 2019, respectively. |
Share-Based Payments
Share-Based Payments | 3 Months Ended |
Mar. 31, 2020 | |
Share-based Payment Arrangement [Abstract] | |
Share-Based Payments | 13. Share-based Payments The Zoetis 2013 Equity and Incentive Plan (the Equity Plan) provides long-term incentives 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) 2020 2019 Stock options / stock appreciation rights $ 3 $ 3 RSUs / DSUs 8 12 PSUs 5 3 Share-based compensation expense—total (a) $ 16 $ 18 (a) Amounts capitalized to inventory were insignificant for the three months ended March 31, 2020 and March 31, 2019. During the three months ended March 31, 2020, the company granted 279,843 stock options with a weighted-average exercise price of $144.03 per stock option and a weighted-average fair value of $33.92 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 1.50%; expected dividend yield of 0.55%; expected stock price volatility of 24.01%; and expected term of 5.5 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, 2020, the company granted 226,713 RSUs, with a weighted-average grant date fair value of $144.03 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, 2020, the company granted 85,279 PSUs with a weighted-average grant date fair value of $217.49 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 20.2% and 24.8%, respectively. Depending on the company’s Relative TSR performance at the end of the performance period, the recipient may earn from 0% to 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, 2020 | |
Equity [Abstract] | |
Stockholders' Equity | 14. Stockholders' Equity Zoetis is authorized to issue 6 billion shares of common stock and 1 billion shares of preferred stock. In December 2018, the company's Board of Directors authorized a $2.0 billion share repurchase program. As of March 31, 2020, there was approximately $1.4 billion remaining under this authorization. Purchases of Zoetis shares may be made at the discretion of management, depending on market conditions and business needs. Accumulated other comprehensive loss Changes, net of tax, in accumulated other comprehensive loss, were as follows: Currency Translation Adjustments Other Currency Accumulated Other Cash Flow Net Investment Translation Comprehensive (MILLIONS OF DOLLARS) Hedges Hedges Adjustments Benefit Plans Loss 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) Balance, December 31, 2019 $ — $ 21 $ (724) $ (23) $ (726) Other comprehensive (loss)/income, net of tax (28) 17 (44) — (55) Balance, March 31, 2020 $ (28) $ 38 $ (768) $ (23) $ (781) |
Earnings per Share
Earnings per Share | 3 Months Ended |
Mar. 31, 2020 | |
Earnings Per Share [Abstract] | |
Earnings per Share | 15. 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) 2020 2019 Numerator Net income $ 423 $ 312 Denominator Weighted-average common shares outstanding 475.6 479.6 Common stock equivalents: stock options, RSUs, PSUs and DSUs 3.4 3.5 Weighted-average common and potential dilutive shares outstanding 479.0 483.1 Earnings per share —basic $ 0.89 $ 0.65 Earnings per share —diluted $ 0.88 $ 0.65 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 the three months ended March 31, 2020 and March 31, 2019, respectively. |
Commitments and Contingencies
Commitments and Contingencies | 3 Months Ended |
Mar. 31, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | 16. Commitments and Contingencies We 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 U.S. 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 a technical proposal outlining the steps needed to conduct the additional Phase II environmental assessments. The defendants presented the technical proposal to the Prosecutor on October 21, 2019. On March 3, 2020, the Prosecutor notified the defendants that he submitted the proposal to the Ministry of the Environment for its review and consideration. The technical proposal remains pending. Lascadoil Contamination in Animal Feed An investigation by the U.S. Food and Drug Administration (FDA) and the Michigan Department of Agriculture into the alleged contamination of the feed supply of certain turkey and hog feed mills in Michigan led to the recall of certain batches of soy oil (intended for use as an animal feed additive) that had originated with Shur-Green Farms LLC, a producer of soy oil, and that had been contaminated with lascadoil, an industrial by-product of certain Zoetis manufacturing processes. 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. The investigation posited that Shur-Green inadvertently contaminated soy oil with lascadoil which it purchased from Zoetis for use as a bio-fuel ingredient, and then sold the contaminated soy oil to fat recycling vendors, who in turn unknowingly sold to feed mills for use in animal feed. During the course of its investigation, the FDA identified the process used to manufacture Zoetis’ Avatec ® (lasalocid sodium) and Bovatec ® (lasalocid sodium) products as the possible source of the lascadoil, since lascadoil contains small amounts of lasalocid, the active ingredient found in both products. Zoetis sold the industrial lascadoil byproduct to Shur-Green, through its broker, Heritage Interactive Services, LLC. Under the terms of the sale agreement, the lascadoil could only be incinerated or resold for use in biofuel and the agreement expressly prohibited the reselling of lascadoil for use 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 trial began on November 4, 2019. We have been advised that the remaining parties may have reached an agreement in principle to settle the dispute, but we have not yet received any formal notification from the Court that the case has concluded. Depending on the exact nature of the settlement, the plaintiffs may still 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 May 8, 2019, the EC filed an appeal to the decision of the General Court. On September 16, 2019, the EC opened separate in-depth investigations to assess whether Belgium excess profit rulings granted to 39 multinational companies, including Zoetis, constituted state aid for those companies. 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, 2020. We will continue to monitor the developments of the appeal and its ultimate resolution. The EC 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 |
Segment Information
Segment Information | 3 Months Ended |
Mar. 31, 2020 | |
Segment Reporting [Abstract] | |
Segment Information | 17. Segment Information Operating Segments We manage our operations through two geographic operating segments: the U.S. 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. In the first quarter of 2020, the company realigned certain management responsibilities. These changes did not impact the determination of our operating segments, however they resulted in the reallocation of certain costs between segments. These changes primarily include the following: (i) R&D costs related to our aquaculture business, which were previously reported in our international commercial segment, are now reported in Other business activities; (ii) certain other miscellaneous costs, which were previously reported in international commercial segment results, are now reported in Corporate; and (iii) certain diagnostic and other miscellaneous costs, which were previously reported in our U.S. results, are now reported in Corporate. 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 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 information technology, facilities, legal, finance, human resources, business development, certain diagnostic costs 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 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 information 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. Selected Statement of Income Information Earnings Depreciation and Amortization (a) Three Months Ended Three Months Ended March 31, March 31, (MILLIONS OF DOLLARS) 2020 2019 2020 2019 U.S. Revenue $ 786 $ 718 Cost of sales 167 147 Gross profit 619 571 Gross margin 78.8 % 79.5 % Operating expenses 125 110 Other (income)/deductions-net 1 — U.S. Earnings 493 461 $ 13 $ 10 International Revenue (b) 728 718 Cost of sales 224 210 Gross profit 504 508 Gross margin 69.2 % 70.8 % Operating expenses 125 132 Other (income)/deductions-net — — International Earnings 379 376 14 13 Total operating segments 872 837 27 23 Other business activities (87) (80) 6 5 Reconciling Items: Corporate (173) (162) 22 14 Purchase accounting adjustments (54) (66) 54 55 Acquisition-related costs (7) (5) — — Certain significant items (c) 11 (70) — — Other unallocated (65) (73) 1 1 Total Earnings (d) $ 497 $ 381 $ 110 $ 98 (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 $170 million and $181 million for the three months ended March 31, 2020 and March 31, 2019, respectively. (c) For the three months ended March 31, 2020, primarily represents a net gain resulting from net cash proceeds received pursuant to an agreement related to the 2016 sale of certain U.S. manufacturing sites of $17 million, partially offset by CEO transition-related costs of $4 million. 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. |
Accounting Standards (Policies)
Accounting Standards (Policies) | 3 Months Ended |
Mar. 31, 2020 | |
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 U.S. are as of and for the three-month periods ended February 29, 2020 and February 28, 2019. |
Recently Adopted Accounting Standards and Recently Issued Accounting Standards | Recently Adopted Accounting Standards In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Topic 350-40), an accounting standards update which expands the scope of costs associated with cloud computing arrangements that must be capitalized. Under the new guidance, costs associated with implementing a cloud computing arrangement that is a service contract must be capitalized and expensed over the term of the hosting arrangement. We adopted this guidance as of January 1, 2020, the required effective date, on a prospective basis. The adoption did not have a significant impact on our consolidated financial statements. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326), an accounting standards update which requires an entity to measure and recognize expected credit losses for certain financial instruments, including trade receivables, as an allowance that reflects the entity's current estimate of credit losses expected to be incurred. For available-for-sale debt securities with unrealized losses, the standard requires allowances to be recorded instead of reducing the amortized cost of the investment. We adopted this guidance as of January 1, 2020, the required effective date, on a prospective basis. The adoption did not have a significant impact on our consolidated financial statements. Recently Issued Accounting Standards In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting |
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. |
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 U.S. 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 | B. Guarantees and IndemnificationsIn 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, 2020, recorded amounts for the estimated fair value of these indemnifications were not significant. |
Segment Information | Operating Segments We manage our operations through two geographic operating segments: the U.S. 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. In the first quarter of 2020, the company realigned certain management responsibilities. These changes did not impact the determination of our operating segments, however they resulted in the reallocation of certain costs between segments. These changes primarily include the following: (i) R&D costs related to our aquaculture business, which were previously reported in our international commercial segment, are now reported in Other business activities; (ii) certain other miscellaneous costs, which were previously reported in international commercial segment results, are now reported in Corporate; and (iii) certain diagnostic and other miscellaneous costs, which were previously reported in our U.S. results, are now reported in Corporate. 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 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 information technology, facilities, legal, finance, human resources, business development, certain diagnostic costs 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 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 information 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. |
Commitment and Contingencies (P
Commitment and Contingencies (Policies) | 3 Months Ended |
Mar. 31, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | |
Guarantees and Indemnifications | B. Guarantees and IndemnificationsIn 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, 2020, recorded amounts for the estimated fair value of these indemnifications were not significant. |
Revenue Revenue Recognition and
Revenue Revenue Recognition and Deferred Revenue (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
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) 2020 2019 United States $ 786 $ 718 Australia 43 48 Brazil 63 60 Canada 40 41 China 66 60 France 29 32 Germany 34 37 Italy 21 28 Japan 41 37 Mexico 32 28 Spain 28 27 United Kingdom 55 57 Other developed markets 87 84 Other emerging markets 189 179 1,514 1,436 Contract manufacturing & human health 20 19 Total Revenue $ 1,534 $ 1,455 |
Revenue from External Customers by Major Species | Revenue by major species Three Months Ended March 31, (MILLIONS OF DOLLARS) 2020 2019 U.S. Companion animal $ 499 $ 445 Livestock 287 273 786 718 International Companion animal 298 284 Livestock 430 434 728 718 Contract manufacturing & human health 20 19 Total Revenue $ 1,534 $ 1,455 |
Revenue from External Customers by Species | Revenue by species Three Months Ended March 31, (MILLIONS OF DOLLARS) 2020 2019 Companion Animal: Dogs and Cats $ 746 $ 688 Horses 51 41 797 729 Livestock: Cattle 370 380 Swine 157 149 Poultry 148 139 Fish 26 23 Sheep and other 16 16 717 707 Contract manufacturing & human health 20 19 Total Revenue $ 1,534 $ 1,455 |
Schedule of Significant Product Revenues | Revenue by major product category Three Months Ended March 31, (MILLIONS OF DOLLARS) 2020 2019 Vaccines $ 349 $ 358 Anti-infectives 280 286 Parasiticides 255 231 Other pharmaceuticals 197 190 Dermatology 197 159 Medicated feed additives 125 112 Animal health diagnostics 60 60 Other non-pharmaceuticals 51 40 1,514 1,436 Contract manufacturing & human health 20 19 Total Revenue $ 1,534 $ 1,455 |
Restructuring Charges and Oth_2
Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Restructuring and Related Activities [Abstract] | |
Restructuring and Related Costs | 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) 2020 2019 Restructuring charges and certain acquisition-related costs: Integration costs (a) $ 6 $ 1 Restructuring charges (b) : Employee termination costs 3 4 Total Restructuring charges and certain acquisition-related costs $ 9 $ 5 (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, 2020 primarily relate to CEO transition-related costs which are associated with Manufacturing/research/corporate. The restructuring charges for the three months ended March 31, 2019 primarily relate to the acquisition of Abaxis which are associated with Manufacturing/research/corporate. (MILLIONS OF DOLLARS) Accrual (a) Balance, December 31, 2019 (b) $ 45 Provision 3 Utilization and other (c) (7) Balance, March 31, 2020 (b) $ 41 (a) Changes in our restructuring accrual represents employee termination costs. (b) At March 31, 2020, and December 31, 2019, included in Accrued expenses ($19 million and $23 million, respectively) and Other noncurrent liabilities ($22 million and $22 million, respectively). |
Other (Income)_Deductions - N_2
Other (Income)/Deductions - Net (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
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) 2020 2019 Royalty-related income $ (1) $ (5) Interest income (6) (10) Net gain on sale of assets (a) (17) — Foreign currency loss (b) 5 — Other, net (1) 1 Other (income)/deductions—net $ (20) $ (14) (a) For the three months ended March 31, 2020, represents a net gain resulting from net cash proceeds received pursuant to an agreement related to the 2016 sale of certain U.S. manufacturing sites. (b) Primarily driven by costs related to hedging and exposures to certain emerging and developed market currencies. |
Financial Instruments (Tables)
Financial Instruments (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Financial Instruments [Abstract] | |
Schedule of Long-term Debt Instruments | The components of our long-term debt are as follows: March 31, December 31, (MILLIONS OF DOLLARS) 2020 2019 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 (49) (51) Less current portion of long-term debt 500 500 Cumulative fair value adjustment for interest rate swap contracts 12 (2) Long-term debt, net of discount and issuance costs $ 5,963 $ 5,947 |
Schedule of Maturities of Long-term Debt | The principal amount of long-term debt outstanding, as of March 31, 2020, matures in the following years: After (MILLIONS OF DOLLARS) 2020 2021 2022 2023 2024 2024 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 2020 2019 Derivatives Not Designated as Hedging Instruments Foreign currency forward-exchange contracts Other current assets $ 19 $ 7 Foreign currency forward-exchange contracts Other current liabilities (5) (5) Total derivatives not designated as hedging instruments $ 14 $ 2 Derivatives Designated as Hedging Instruments: Forward-starting interest rate swap contracts Other noncurrent assets $ — $ 5 Forward-starting interest rate swap contracts Other noncurrent liabilities (32) (1) Cross-currency interest rate swap contracts Other current assets 7 4 Cross-currency interest rate swap contracts Other noncurrent assets 36 20 Cross-currency interest rate swap contracts Other current liabilities (3) (3) Fixed-to-floating interest rate swap contracts Other noncurrent assets 12 (2) Total derivatives designated as hedging instruments 20 23 Total derivatives $ 34 $ 25 |
Schedule of Other Derivatives Not Designated as Hedging Instruments, Statements of Financial Performance and Financial Position, Location | The amounts of net gains 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) 2020 2019 Foreign currency forward-exchange contracts $ 6 $ (4) |
Schedule of Net Investment Hedges in Accumulated Other Comprehensive Income (Loss) | The amounts of unrecognized net gains/(losses) on 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) 2020 2019 Forward-starting interest rate swap contracts $ (27) $ — Cross-currency interest rate swap contracts $ 17 $ 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) 2020 2019 Cross-currency interest rate swap contracts $ 6 $ 4 |
Schedule of Derivative Instruments | The aggregate notional amounts of derivative instruments are as follows: Notional March 31, December 31, (MILLIONS) 2020 2019 Foreign currency forward-exchange contracts $ 1,272 $ 1,364 Cross-currency interest rate swap contracts (in foreign currency): Euro 650 650 Swiss franc 25 25 Danish krone 600 600 Forward-starting interest rate swaps $ 450 $ 250 Fixed-to-floating interest rate swap contracts $ 150 $ 150 |
Leases (Tables)
Leases (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Leases [Abstract] | |
Lease, Cost [Table Text Block] | Supplemental information for operating leases is as follows: (MILLIONS OF DOLLARS, EXCEPT LEASE TERM AND DISCOUNT RATE AMOUNTS) As of March 31, 2020 As of December 31, 2019 Supplemental Balance Sheet information for operating leases Operating lease right of use assets $ 182 $ 189 Operating lease liabilities Operating lease liabilities - current (in Other current liabilities ) $ 33 $ 35 Operating lease liabilities - noncurrent 159 164 Total operating lease liabilities $ 192 $ 199 Weighted-average remaining lease term—operating leases (years) 7.05 7.12 Weighted-average discount rate—operating leases 3.34 % 3.76 % Three Months Ended (MILLIONS OF DOLLARS) March 31, 2020 March 31, 2019 Supplemental Income Statement information for operating leases Operating lease expense $ 11 $ 9 Variable lease payments not included in the measurement of lease liabilities 5 4 Short-term lease payments not included in the measurement of lease liabilities 2 3 Supplemental Cash Flow information for operating leases Cash paid for amounts included in the measurement of lease liabilities $ 11 $ 9 Lease obligations obtained in exchange for right-of-use assets (non-cash) 4 176 |
Lessee, Operating Lease, Liability, Maturity [Table Text Block] | Future minimum lease payments under non-cancellable operating lease contracts as of March 31, 2020 are as follows: Total Less: After Lease Imputed (MILLIONS OF DOLLARS) 2020 (a) 2021 2022 2023 2024 2024 Payments Interest Total Maturities $ 31 $ 37 $ 33 $ 27 $ 23 $ 68 $ 219 $ (27) $ 192 |
Inventories (Tables)
Inventories (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Inventory Disclosure [Abstract] | |
Components of Inventory | The components of inventory are as follows: March 31, December 31, (MILLIONS OF DOLLARS) 2020 2019 Finished goods $ 731 $ 701 Work-in-process 543 511 Raw materials and supplies 207 198 Inventories $ 1,481 $ 1,410 |
Goodwill and Other Intangible_2
Goodwill and Other Intangible Assets (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
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, 2019 $ 1,367 $ 1,225 $ 2,592 Other (a) — (9) (9) Balance, March 31, 2020 $ 1,367 $ 1,216 $ 2,583 (a) Includes adjustments for foreign currency translation. |
Components of Identifiable Intangible Assets | The components of identifiable intangible assets are as follows: As of March 31, 2020 As of December 31, 2019 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 $ 1,946 $ (691) $ 1,255 $ 1,938 $ (657) $ 1,281 Brands and tradenames 424 (228) 196 424 (223) 201 Other 445 (267) 178 441 (249) 192 Total finite-lived intangible assets 2,815 (1,186) 1,629 2,803 (1,129) 1,674 Indefinite-lived intangible assets: Brands and tradenames 104 — 104 104 — 104 In-process research and development 81 — 81 105 — 105 Product rights 7 — 7 7 — 7 Total indefinite-lived intangible assets 192 — 192 216 — 216 Identifiable intangible assets $ 3,007 $ (1,186) $ 1,821 $ 3,019 $ (1,129) $ 1,890 |
Share-Based Payments (Tables)
Share-Based Payments (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Share-based Payment Arrangement [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) 2020 2019 Stock options / stock appreciation rights $ 3 $ 3 RSUs / DSUs 8 12 PSUs 5 3 Share-based compensation expense—total (a) $ 16 $ 18 (a) Amounts capitalized to inventory were insignificant for the three months ended March 31, 2020 and March 31, 2019. |
Stockholders' Equity (Tables)
Stockholders' Equity (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Equity [Abstract] | |
Changes, Net of Tax, in Accumulated Other Comprehensive Loss | Changes, net of tax, in accumulated other comprehensive loss, were as follows: Currency Translation Adjustments Other Currency Accumulated Other Cash Flow Net Investment Translation Comprehensive (MILLIONS OF DOLLARS) Hedges Hedges Adjustments Benefit Plans Loss 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) Balance, December 31, 2019 $ — $ 21 $ (724) $ (23) $ (726) Other comprehensive (loss)/income, net of tax (28) 17 (44) — (55) Balance, March 31, 2020 $ (28) $ 38 $ (768) $ (23) $ (781) |
Earnings per Share (Tables)
Earnings per Share (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
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) 2020 2019 Numerator Net income $ 423 $ 312 Denominator Weighted-average common shares outstanding 475.6 479.6 Common stock equivalents: stock options, RSUs, PSUs and DSUs 3.4 3.5 Weighted-average common and potential dilutive shares outstanding 479.0 483.1 Earnings per share —basic $ 0.89 $ 0.65 Earnings per share —diluted $ 0.88 $ 0.65 |
Segment Information Segment Inf
Segment Information Segment Information (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
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. Selected Statement of Income Information Earnings Depreciation and Amortization (a) Three Months Ended Three Months Ended March 31, March 31, (MILLIONS OF DOLLARS) 2020 2019 2020 2019 U.S. Revenue $ 786 $ 718 Cost of sales 167 147 Gross profit 619 571 Gross margin 78.8 % 79.5 % Operating expenses 125 110 Other (income)/deductions-net 1 — U.S. Earnings 493 461 $ 13 $ 10 International Revenue (b) 728 718 Cost of sales 224 210 Gross profit 504 508 Gross margin 69.2 % 70.8 % Operating expenses 125 132 Other (income)/deductions-net — — International Earnings 379 376 14 13 Total operating segments 872 837 27 23 Other business activities (87) (80) 6 5 Reconciling Items: Corporate (173) (162) 22 14 Purchase accounting adjustments (54) (66) 54 55 Acquisition-related costs (7) (5) — — Certain significant items (c) 11 (70) — — Other unallocated (65) (73) 1 1 Total Earnings (d) $ 497 $ 381 $ 110 $ 98 (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 $170 million and $181 million for the three months ended March 31, 2020 and March 31, 2019, respectively. (c) For the three months ended March 31, 2020, primarily represents a net gain resulting from net cash proceeds received pursuant to an agreement related to the 2016 sale of certain U.S. manufacturing sites of $17 million, partially offset by CEO transition-related costs of $4 million. 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. |
Organization (Details)
Organization (Details) - Mar. 31, 2020 | species | product_category | country | category | region |
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 | 300 | 7 | |||
Product | |||||
Product Information [Line Items] | |||||
Number of countries in which entity markets products | 100 |
Revenue - Narrative (Details)
Revenue - Narrative (Details) $ in Millions | Mar. 31, 2020product_category | Mar. 31, 2020category | Mar. 31, 2020USD ($) | Mar. 31, 2019USD ($) |
Revenue Recognition and Deferred Revenue [Abstract] | ||||
Number of major product categories | 300 | 7 | ||
Other current liabilities | $ 3 | $ 1 | ||
Contract liabilities | $ 10 | $ 11 |
Revenue - Revenue by Geographic
Revenue - Revenue by Geographic Area (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Revenue from External Customer [Line Items] | ||
Revenue | $ 1,534 | $ 1,455 |
Other pharmaceuticals | ||
Revenue from External Customer [Line Items] | ||
Revenue | 197 | 190 |
UNITED STATES | ||
Revenue from External Customer [Line Items] | ||
Revenue | 786 | 718 |
AUSTRALIA | ||
Revenue from External Customer [Line Items] | ||
Revenue | 43 | 48 |
BRAZIL | ||
Revenue from External Customer [Line Items] | ||
Revenue | 63 | 60 |
CANADA | ||
Revenue from External Customer [Line Items] | ||
Revenue | 40 | 41 |
CHINA | ||
Revenue from External Customer [Line Items] | ||
Revenue | 66 | 60 |
FRANCE | ||
Revenue from External Customer [Line Items] | ||
Revenue | 29 | 32 |
GERMANY | ||
Revenue from External Customer [Line Items] | ||
Revenue | 34 | 37 |
ITALY | ||
Revenue from External Customer [Line Items] | ||
Revenue | 21 | 28 |
JAPAN | ||
Revenue from External Customer [Line Items] | ||
Revenue | 41 | 37 |
MEXICO | ||
Revenue from External Customer [Line Items] | ||
Revenue | 32 | 28 |
SPAIN | ||
Revenue from External Customer [Line Items] | ||
Revenue | 28 | 27 |
UNITED KINGDOM | ||
Revenue from External Customer [Line Items] | ||
Revenue | 55 | 57 |
Other Developed Markets [Member] | ||
Revenue from External Customer [Line Items] | ||
Revenue | 87 | 84 |
Other Emerging Markets [Member] | ||
Revenue from External Customer [Line Items] | ||
Revenue | 189 | 179 |
Total geographical area | ||
Revenue from External Customer [Line Items] | ||
Revenue | 1,514 | 1,436 |
Contract Manufacturing and Human Health Diagnostics [Member] | ||
Revenue from External Customer [Line Items] | ||
Revenue | $ 20 | $ 19 |
Revenue - Revenue by Major Spec
Revenue - Revenue by Major Species (Details) - USD ($) $ in Millions | 3 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | ||
Revenue from External Customer [Line Items] | |||
Revenue | $ 1,534 | $ 1,455 | |
Companion animal | |||
Revenue from External Customer [Line Items] | |||
Revenue | 717 | 707 | |
Companion animal | U.S. | |||
Revenue from External Customer [Line Items] | |||
Revenue | 287 | 273 | |
Companion animal | International | |||
Revenue from External Customer [Line Items] | |||
Revenue | 430 | 434 | |
Livestock | |||
Revenue from External Customer [Line Items] | |||
Revenue | 797 | 729 | |
Livestock | U.S. | |||
Revenue from External Customer [Line Items] | |||
Revenue | 499 | 445 | |
Livestock | International | |||
Revenue from External Customer [Line Items] | |||
Revenue | 298 | 284 | |
Operating Segments | U.S. | |||
Revenue from External Customer [Line Items] | |||
Revenue | 786 | 718 | |
Operating Segments | International | |||
Revenue from External Customer [Line Items] | |||
Revenue | [1] | $ 728 | $ 718 |
[1] | Revenue denominated in euros was $170 million and $181 million for the three months ended March 31, 2020 and March 31, 2019, respectively. |
Revenue - Revenue by Species (D
Revenue - Revenue by Species (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Revenue from External Customer [Line Items] | ||
Revenue | $ 1,534 | $ 1,455 |
Cattle | ||
Revenue from External Customer [Line Items] | ||
Revenue | 370 | 380 |
Swine | ||
Revenue from External Customer [Line Items] | ||
Revenue | 157 | 149 |
Poultry | ||
Revenue from External Customer [Line Items] | ||
Revenue | 148 | 139 |
Fish | ||
Revenue from External Customer [Line Items] | ||
Revenue | 26 | 23 |
Sheep and other | ||
Revenue from External Customer [Line Items] | ||
Revenue | 16 | 16 |
Companion animal | ||
Revenue from External Customer [Line Items] | ||
Revenue | 717 | 707 |
Dogs and Cats [Member] | ||
Revenue from External Customer [Line Items] | ||
Revenue | 746 | 688 |
Livestock | ||
Revenue from External Customer [Line Items] | ||
Revenue | 797 | 729 |
Other pharmaceuticals | ||
Revenue from External Customer [Line Items] | ||
Revenue | 197 | 190 |
Horses | ||
Revenue from External Customer [Line Items] | ||
Revenue | $ 51 | $ 41 |
Revenue - Revenue by Product (D
Revenue - Revenue by Product (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Revenue from External Customer [Line Items] | ||
Revenue | $ 1,534 | $ 1,455 |
Vaccines | ||
Revenue from External Customer [Line Items] | ||
Revenue | 349 | 358 |
Other pharmaceuticals | ||
Revenue from External Customer [Line Items] | ||
Revenue | 197 | 190 |
Anti-infectives | ||
Revenue from External Customer [Line Items] | ||
Revenue | 280 | 286 |
Parasiticides | ||
Revenue from External Customer [Line Items] | ||
Revenue | 255 | 231 |
Medicated feed additives | ||
Revenue from External Customer [Line Items] | ||
Revenue | 125 | 112 |
Animal health diagnostics | ||
Revenue from External Customer [Line Items] | ||
Revenue | 60 | 60 |
Other non-pharmaceuticals | ||
Revenue from External Customer [Line Items] | ||
Revenue | 51 | 40 |
Total products and services | ||
Revenue from External Customer [Line Items] | ||
Revenue | 1,514 | 1,436 |
Dermatology | ||
Revenue from External Customer [Line Items] | ||
Revenue | 197 | 159 |
Cattle | ||
Revenue from External Customer [Line Items] | ||
Revenue | $ 370 | $ 380 |
Acquisitions and Divestitures (
Acquisitions and Divestitures (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Business Acquisition [Line Items] | ||
Total Restructuring charges and certain acquisition-related costs | $ 9 | $ 5 |
Amortization of intangible assets | 62 | 58 |
Interest expense, net of capitalized interest | 53 | 56 |
Share-based compensation expense | 16 | $ 18 |
Contingent payment received related to sale of certain U.S. manufacturing sites | $ 20 |
Acquisitions and Divestitures -
Acquisitions and Divestitures - Supplemental Pro Forma Financial Information (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Business Acquisition [Line Items] | ||
Amortization of intangible assets | $ 62 | $ 58 |
Interest expense, net of capitalized interest | 53 | 56 |
Share-based compensation expense | $ 16 | $ 18 |
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, 2020 | Mar. 31, 2019 | Dec. 31, 2019 | |||
Restructuring Cost and Reserve [Line Items] | |||||
Total Restructuring charges and certain acquisition-related costs | $ 9 | $ 5 | |||
Restructuring charges (reversals) | 3 | ||||
Restructuring Reserve [Roll Forward] | |||||
Restructuring accrual balance | [1],[2] | 45 | |||
Provision | 3 | ||||
Utilization and other | [2],[3] | (7) | |||
Restructuring accrual balance | [1],[2] | 41 | |||
Other current liabilities | |||||
Restructuring Reserve [Roll Forward] | |||||
Accrued expenses | 19 | $ 23 | |||
Other Noncurrent Liabilities | |||||
Restructuring Reserve [Roll Forward] | |||||
Other noncurrent liabilities | 22 | $ 22 | |||
Employee Termination Costs | |||||
Restructuring Cost and Reserve [Line Items] | |||||
Employee termination costs | [4] | 3 | 4 | ||
Direct Cost | |||||
Restructuring Cost and Reserve [Line Items] | |||||
Integration costs | $ 6 | 1 | [5] | ||
Zoetis Initiatives | Reconciling Items | |||||
Restructuring Cost and Reserve [Line Items] | |||||
Restructuring and Other Cost Productivity Charges | $ 2 | ||||
[1] | At March 31, 2020, and December 31, 2019, included in Accrued expenses ($19 million and $23 million, respectively) and Other noncurrent liabilities | ||||
[2] | Changes in our restructuring accrual represents employee termination costs. | ||||
[3] | Includes adjustments for foreign currency translation. | ||||
[4] | The restructuring charges for the three months ended March 31, 2020 primarily relate to CEO transition-related costs which are associated with Manufacturing/research/corporate.The restructuring charges for the three months ended March 31, 2019 primarily relate to the acquisition of Abaxis which are associated with Manufacturing/research/corporate. | ||||
[5] | Integration costs represent external, incremental costs directly related to integrating acquired businesses and primarily include expenditures for consulting and the integration of systems and processes, as well as product transfer costs. |
Other (Income)_Deductions - N_3
Other (Income)/Deductions - Net (Details) - USD ($) $ in Millions | 3 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | ||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Royalty-related income | $ (1) | $ (5) | |
Interest income | (6) | (10) | |
Foreign currency loss | [1] | 5 | 0 |
Other, net | (1) | 1 | |
Other (income)/deductions—net | (20) | (14) | |
Reconciling Items | Zoetis Initiatives | |||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Net (gain)/loss on sale of assets | [2] | $ (17) | $ 0 |
[1] | Primarily driven by costs related to hedging and exposures to certain emerging and developed market currencies. | ||
[2] | For the three months ended March 31, 2020, represents a net gain resulting from net cash proceeds received pursuant to an agreement related to the 2016 sale of certain U.S. manufacturing sites. |
Income Taxes - Taxes on Income
Income Taxes - Taxes on Income (Details) - USD ($) $ in Millions | 3 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | Dec. 31, 2019 | |
Income Tax Contingency [Line Items] | |||
Effective tax rate for income from continuing operations | 14.90% | 18.10% | |
Liabilities associated with uncertain tax positions | $ 184 | $ 182 | |
Other Taxes Payable | |||
Income Tax Contingency [Line Items] | |||
Liabilities associated with uncertain tax positions | 182 | $ 180 | |
Share-based Payments | |||
Income Tax Contingency [Line Items] | |||
Income Tax Expense (Benefit), Continuing Operations, Adjustment of Deferred Tax (Asset) Liability | 23 | $ 13 | |
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 | 3 | $ 4 | |
Integration of Acquired Businesses | |||
Income Tax Contingency [Line Items] | |||
Income Tax Expense (Benefit), Continuing Operations, Adjustment of Deferred Tax (Asset) Liability | $ 6 |
Income Taxes - Deferred Taxes (
Income Taxes - Deferred Taxes (Details) - USD ($) $ in Millions | Mar. 31, 2020 | Dec. 31, 2019 |
Income Tax Disclosure [Abstract] | ||
Noncurrent deferred tax liabilities | $ 333 | $ 346 |
Noncurrent deferred tax assets | 88 | 88 |
Noncurrent deferred tax liabilities | $ 421 | $ 434 |
Income Taxes - Tax Contingencie
Income Taxes - Tax Contingencies (Details) - USD ($) $ in Millions | Mar. 31, 2020 | Dec. 31, 2019 |
Income Tax Contingency [Line Items] | ||
Liabilities associated with uncertain tax positions | $ 184 | $ 182 |
Unrecognized tax benefits, income tax penalties and interest accrued | 13 | 12 |
Noncurrent Deferred Tax Assets | ||
Income Tax Contingency [Line Items] | ||
Liabilities associated with uncertain tax positions | 2 | 2 |
Other Taxes Payable | ||
Income Tax Contingency [Line Items] | ||
Liabilities associated with uncertain tax positions | $ 182 | $ 180 |
Financial Instruments - Credit
Financial Instruments - Credit Facilities (Details) | Mar. 31, 2020USD ($) | Dec. 31, 2019USD ($) |
Line of Credit Facility [Line Items] | ||
Line of credit facility, maximum borrowing capacity | $ 75,000,000 | |
Line of credit facility | 0 | $ 0 |
Commercial Paper | 0 | $ 0 |
Revolving Credit Facility | ||
Line of Credit Facility [Line Items] | ||
Revolving credit facility, current borrowing capacity | 1,000,000,000 | |
Line of credit facility, maximum borrowing capacity | $ 1,500,000,000 | |
Operational Efficiency [Member] | ||
Line of Credit Facility [Line Items] | ||
Maximum total leverage ratio | 3.50 | |
Maximum total leverage ratio | 4 |
Financial Instruments - Commerc
Financial Instruments - Commercial Paper Program (Details) - USD ($) | 3 Months Ended | |||
Mar. 31, 2020 | Mar. 31, 2019 | Dec. 31, 2019 | Feb. 28, 2013 | |
Short-term Debt [Line Items] | ||||
Interest expense, net of capitalized interest | $ 53,000,000 | $ 56,000,000 | ||
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, 2020 | Dec. 31, 2019 | Aug. 20, 2018 | 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 | ||||
Long-term debt current portion | 500,000,000 | 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 | ||||
Senior Notes | 3.250% 2018 senior notes due 2021 | ||||||
Debt Instrument [Line Items] | ||||||
Debt, principal amount | 300,000,000 | 300,000,000 | ||||
Senior Notes | 3.000% 2017 senior notes due 2027 | ||||||
Debt Instrument [Line Items] | ||||||
Debt, principal amount | 750,000,000 | 750,000,000 | ||||
Senior Notes | 3.900% 2018 senior notes due 2028 | ||||||
Debt Instrument [Line Items] | ||||||
Debt, principal amount | 500,000,000 | 500,000,000 | ||||
Senior Notes | 3.950% 2017 senior notes due 2047 | ||||||
Debt Instrument [Line Items] | ||||||
Debt, principal amount | 500,000,000 | 500,000,000 | ||||
Senior Notes | 4.450% 2018 senior notes due 2048 | ||||||
Debt Instrument [Line Items] | ||||||
Debt, principal amount | $ 400,000,000 | $ 400,000,000 |
Financial Instruments - Schedul
Financial Instruments - Schedule of Long-term Debt (Details) - USD ($) $ in Millions | 3 Months Ended | ||||||
Mar. 31, 2020 | Mar. 31, 2019 | Dec. 31, 2019 | 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 | (49) | (51) | |||||
Long-term debt, net of discount and issuance costs | 5,963 | 5,947 | |||||
Interest expense, net of capitalized interest | 53 | $ 56 | |||||
Capitalized interest | 4 | $ 3 | |||||
Long-term debt current portion | 500 | 500 | |||||
Hedged Liability, Fair Value Hedge, Cumulative Increase (Decrease) | 12 | (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] | |||||||
Total long-term debt | 500 | 500 | |||||
Senior Notes | 2018 floating senior notes due 2021 | |||||||
Debt Instrument [Line Items] | |||||||
Total long-term debt | 300 | 300 | |||||
Senior Notes | 3.250% 2018 senior notes due 2021 | |||||||
Debt Instrument [Line Items] | |||||||
Total long-term debt | 300 | 300 | |||||
Senior Notes | 3.250% 2013 senior notes due 2023 | |||||||
Debt Instrument [Line Items] | |||||||
Total long-term debt | 1,350 | 1,350 | |||||
Senior Notes | 4.500% 2015 senior notes due 2025 | |||||||
Debt Instrument [Line Items] | |||||||
Total long-term debt | 750 | 750 | |||||
Senior Notes | 3.000% 2017 senior notes due 2027 | |||||||
Debt Instrument [Line Items] | |||||||
Total long-term debt | 750 | 750 | |||||
Senior Notes | 3.900% 2018 senior notes due 2028 | |||||||
Debt Instrument [Line Items] | |||||||
Total long-term debt | 500 | 500 | |||||
Senior Notes | 4.700% 2013 senior notes due 2043 | |||||||
Debt Instrument [Line Items] | |||||||
Total long-term debt | 1,150 | 1,150 | |||||
Senior Notes | 3.950% 2017 senior notes due 2047 | |||||||
Debt Instrument [Line Items] | |||||||
Total long-term debt | 500 | 500 | |||||
Senior Notes | 4.450% 2018 senior notes due 2048 | |||||||
Debt Instrument [Line Items] | |||||||
Total long-term debt | $ 400 | $ 400 |
Financial Instruments - Fair Va
Financial Instruments - Fair Value of Debt (Details) - USD ($) $ in Millions | Mar. 31, 2020 | Dec. 31, 2019 |
Senior Notes | Fair Value, Inputs, Level 2 | ||
Debt Instrument [Line Items] | ||
Fair value, debt instrument | $ 6,384 | $ 6,587 |
Financial Instruments - Long-te
Financial Instruments - Long-term Debt Maturity (Details) - USD ($) $ in Millions | 3 Months Ended | ||||||
Mar. 31, 2020 | Mar. 31, 2019 | Dec. 31, 2019 | Aug. 20, 2018 | Sep. 12, 2017 | Nov. 13, 2015 | Jan. 28, 2013 | |
Debt Instrument [Line Items] | |||||||
Long-term debt current portion | $ 500 | $ 500 | |||||
2020 | 500 | ||||||
2021 | 600 | ||||||
2022 | 0 | ||||||
2023 | 1,350 | ||||||
2024 | 0 | ||||||
After 2024 | 4,050 | ||||||
Total long-term debt | 6,500 | $ 6,500 | |||||
Interest expense, net of capitalized interest | 53 | $ 56 | |||||
Capitalized interest | $ 4 | $ 3 | |||||
Senior Notes | |||||||
Debt Instrument [Line Items] | |||||||
Total long-term debt | $ 1,500 | $ 1,250 | $ 1,250 | $ 3,650 |
Financial Instruments - Foreign
Financial Instruments - Foreign Exchange Risk (Details) € in Millions, kr in Millions, SFr in Millions, $ in Millions | 3 Months Ended | |||||||
Mar. 31, 2020DKK (kr) | Mar. 31, 2020EUR (€) | Mar. 31, 2020USD ($) | Mar. 31, 2020CHF (SFr) | Dec. 31, 2019DKK (kr) | Dec. 31, 2019EUR (€) | Dec. 31, 2019USD ($) | Dec. 31, 2019CHF (SFr) | |
Cross-currency interest rate swap contracts | ||||||||
Derivative [Line Items] | ||||||||
Derivative notional amount | kr 600 | € 650 | $ 150 | SFr 25 | kr 600 | € 650 | $ 150 | SFr 25 |
Derivatives Not Designated as Hedging Instruments | Foreign Exchange Contract | ||||||||
Derivative [Line Items] | ||||||||
Derivative notional amount | $ 1,272 | $ 1,364 | ||||||
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, kr in Millions, SFr in Millions, $ in Millions | 3 Months Ended | |||||||||
Mar. 31, 2020USD ($) | Mar. 31, 2019USD ($) | Mar. 31, 2020DKK (kr) | Mar. 31, 2020EUR (€) | Mar. 31, 2020USD ($) | Mar. 31, 2020CHF (SFr) | Dec. 31, 2019DKK (kr) | Dec. 31, 2019EUR (€) | Dec. 31, 2019USD ($) | Dec. 31, 2019CHF (SFr) | |
Derivatives, Fair Value [Line Items] | ||||||||||
Unrecognized net gains/(losses) on cross-currency interest rate swap contracts, recorded, net of tax | $ 17 | $ 8 | ||||||||
Other noncurrent liabilities | $ 251 | $ 229 | ||||||||
Other current liabilities | 50 | 55 | ||||||||
Other noncurrent assets | 105 | 98 | ||||||||
Total derivatives | 34 | 25 | ||||||||
Collateral received | 28 | |||||||||
Foreign currency forward-exchange contracts | Derivatives Not Designated as Hedging Instruments | ||||||||||
Derivatives, Fair Value [Line Items] | ||||||||||
Foreign currency forward-exchange contracts | 6 | (4) | ||||||||
Derivative notional amount | 1,272 | 1,364 | ||||||||
Total derivatives | 14 | 2 | ||||||||
Foreign currency forward-exchange contracts | Derivatives Not Designated as Hedging Instruments | Other current assets | ||||||||||
Derivatives, Fair Value [Line Items] | ||||||||||
Derivative assets | 19 | 7 | ||||||||
Foreign currency forward-exchange contracts | Derivatives Not Designated as Hedging Instruments | Other current liabilities | ||||||||||
Derivatives, Fair Value [Line Items] | ||||||||||
Derivative liabilities | (5) | (5) | ||||||||
Cross-currency interest rate swap contracts | ||||||||||
Derivatives, Fair Value [Line Items] | ||||||||||
Derivative notional amount | kr 600 | € 650 | 150 | SFr 25 | kr 600 | € 650 | 150 | SFr 25 | ||
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 | 17 | 18 | ||||||||
Gain (Loss) on Components Excluded from Assessment of Interest Rate Fair Value Hedge Effectiveness | 6 | 4 | ||||||||
Total derivatives | 20 | 23 | ||||||||
Cross-currency interest rate swap contracts | Derivatives Designated as Hedging Instruments: | Other current assets | ||||||||||
Derivatives, Fair Value [Line Items] | ||||||||||
Total derivatives | 7 | 4 | ||||||||
Cross-currency interest rate swap contracts | Derivatives Designated as Hedging Instruments: | Other current liabilities | ||||||||||
Derivatives, Fair Value [Line Items] | ||||||||||
Total derivatives | (3) | (3) | ||||||||
Cross-currency interest rate swap contracts | Derivatives Designated as Hedging Instruments: | Other noncurrent assets | ||||||||||
Derivatives, Fair Value [Line Items] | ||||||||||
Total derivatives | 36 | 20 | ||||||||
zts_FixedtoFloatInterestRateSwap | Derivatives Designated as Hedging Instruments: | Other Noncurrent Liabilities | ||||||||||
Derivatives, Fair Value [Line Items] | ||||||||||
Derivative assets | 12 | (2) | ||||||||
zts_ForwardStartingInterestRateSwap | 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 | $ (27) | $ 0 | ||||||||
zts_ForwardStartingInterestRateSwap | Derivatives Designated as Hedging Instruments: | Other noncurrent assets | ||||||||||
Derivatives, Fair Value [Line Items] | ||||||||||
Derivative assets | 0 | 5 | ||||||||
zts_ForwardStartingInterestRateSwap | Derivatives Designated as Hedging Instruments: | Other Noncurrent Liabilities | ||||||||||
Derivatives, Fair Value [Line Items] | ||||||||||
Derivative assets | $ (32) | $ (1) |
Financial Instruments - Interes
Financial Instruments - Interest Rate Risk (Details) € in Millions, kr in Millions, SFr in Millions, $ in Millions | 3 Months Ended | |||||||||
Mar. 31, 2020USD ($) | Mar. 31, 2019USD ($) | Mar. 31, 2020DKK (kr) | Mar. 31, 2020EUR (€) | Mar. 31, 2020USD ($) | Mar. 31, 2020CHF (SFr) | Dec. 31, 2019DKK (kr)swap | Dec. 31, 2019EUR (€)swap | Dec. 31, 2019USD ($)swap | Dec. 31, 2019CHF (SFr)swap | |
Derivative Instruments and Hedging Activities Disclosures [Line Items] | ||||||||||
Unrecognized net gains/(losses) on cross-currency interest rate swap contracts, recorded, net of tax | $ 17 | $ 8 | ||||||||
Cross-currency interest rate swap contracts | ||||||||||
Derivative Instruments and Hedging Activities Disclosures [Line Items] | ||||||||||
Derivative notional amount | kr 600 | € 650 | $ 150 | SFr 25 | kr 600 | € 650 | $ 150 | SFr 25 | ||
Derivatives Not Designated as Hedging Instruments | Foreign currency forward-exchange contracts | ||||||||||
Derivative Instruments and Hedging Activities Disclosures [Line Items] | ||||||||||
Derivative notional amount | $ 1,272 | $ 1,364 | ||||||||
Foreign currency forward-exchange contracts | 6 | (4) | ||||||||
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 | $ 17 | $ 18 | ||||||||
Derivatives Designated as Hedging Instruments: | Interest rate swaps | ||||||||||
Derivative Instruments and Hedging Activities Disclosures [Line Items] | ||||||||||
Derivative, Number of Instruments Held | 450 | 0 | 0 | 0 | 0 |
Financial Instruments Cross-cur
Financial Instruments Cross-currency forward-exchange contracts (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Foreign Currency Fair Value Hedge Derivative [Line Items] | ||
Unrecognized net gains/(losses) on cross-currency interest rate swap contracts, recorded, net of tax | $ 17 | $ 8 |
Financial Instruments Cross-c_2
Financial Instruments Cross-currency interest rate swap contracts (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
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 | $ 6 | $ 4 |
Financial Instruments Derivativ
Financial Instruments Derivative Notional Amounts (Details) € in Millions, kr in Millions, SFr in Millions, $ in Millions | Mar. 31, 2020DKK (kr) | Mar. 31, 2020EUR (€) | Mar. 31, 2020USD ($) | Mar. 31, 2020CHF (SFr) | Dec. 31, 2019DKK (kr)swap | Dec. 31, 2019EUR (€)swap | Dec. 31, 2019USD ($)swap | Dec. 31, 2019CHF (SFr)swap |
Cross-currency interest rate swap contracts | ||||||||
Derivative [Line Items] | ||||||||
Derivative notional amount | kr 600 | € 650 | $ 150 | SFr 25 | kr 600 | € 650 | $ 150 | SFr 25 |
Derivatives Not Designated as Hedging Instruments | Foreign Exchange Contract | ||||||||
Derivative [Line Items] | ||||||||
Derivative notional amount | $ 1,272 | $ 1,364 | ||||||
Derivatives Designated as Hedging Instruments: | Interest rate swaps | ||||||||
Derivative [Line Items] | ||||||||
Derivative, Number of Instruments Held | 450 | 0 | 0 | 0 | 0 |
Leases (Details)
Leases (Details) - USD ($) $ in Millions | 3 Months Ended | |||
Mar. 31, 2020 | Mar. 31, 2019 | Dec. 31, 2019 | ||
Lessee, Lease, Description [Line Items] | ||||
Operating lease expense | $ 11 | $ 9 | ||
Variable lease payments not included in the measurement of lease liabilities | 5 | 4 | ||
Short-term lease payments not included in the measurement of lease liabilities | 2 | 3 | ||
Cash paid for amounts included in the measurement of lease liabilities | 11 | 9 | ||
Lease obligations obtained in exchange for right-of-use assets (non-cash) | 4 | $ 176 | ||
Operating lease right of use assets | 182 | $ 189 | ||
Operating lease liabilities - current (in Other current liabilities) | 33 | 35 | ||
Operating lease liabilities - noncurrent | 159 | 164 | ||
Total operating lease liabilities | $ 192 | $ 199 | ||
Weighted-average remaining lease term—operating leases (years) | 7 years 18 days | 7 years 1 month 13 days | ||
Weighted-average discount rate—operating leases | 3.34% | 3.76% | ||
2020 | [1] | $ 31 | ||
2021 | 37 | |||
2022 | 33 | |||
2023 | 27 | |||
2024 | 23 | |||
After 2024 | 68 | |||
Total Lease Payments | 219 | |||
Less: Imputed Interest | $ (27) | |||
Minimum | ||||
Lessee, Lease, Description [Line Items] | ||||
Remaining terms | 1 year | |||
Maximum | ||||
Lessee, Lease, Description [Line Items] | ||||
Remaining terms | 15 years | |||
[1] | 2020 excludes the three months ended March 31, 2020 |
Inventories (Details)
Inventories (Details) - USD ($) $ in Millions | Mar. 31, 2020 | Dec. 31, 2019 |
Inventory Disclosure [Abstract] | ||
Finished goods | $ 731 | $ 701 |
Work-in-process | 543 | 511 |
Raw materials and supplies | 207 | 198 |
Inventories | $ 1,481 | $ 1,410 |
Goodwill and Other Intangible_3
Goodwill and Other Intangible Assets - Goodwill (Details) $ in Millions | 3 Months Ended | |
Mar. 31, 2020USD ($) | ||
Goodwill [Roll Forward] | ||
Beginning Balance | $ 2,592 | |
Other | (9) | [1] |
Ending Balance | 2,583 | |
United States (U.S.) | ||
Goodwill [Roll Forward] | ||
Beginning Balance | 1,367 | |
Other | 0 | [1] |
Ending Balance | 1,367 | |
International | ||
Goodwill [Roll Forward] | ||
Beginning Balance | 1,225 | |
Other | (9) | [1] |
Ending Balance | $ 1,216 | |
[1] | Includes adjustments for foreign currency translation. |
Goodwill and Other Intangible_4
Goodwill and Other Intangible Assets - Narrative (Details) - USD ($) $ in Millions | 3 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | Dec. 31, 2019 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |||
Gross goodwill | $ 3,119 | $ 3,128 | |
Accumulated goodwill impairment losses | 536 | $ 536 | |
Amortization of intangible assets | $ 62 | $ 58 |
Goodwill and Other Intangible_5
Goodwill and Other Intangible Assets - Other Intangible Assets (Details) - USD ($) $ in Millions | 3 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | Dec. 31, 2019 | |
Finite Lived and Indefinite Lived Intangible Assets [Line Items] | |||
Finite-lived intangible assets, gross carrying amount | $ 2,815 | $ 2,803 | |
Finite-lived intangible assets, accumulated amortization | (1,186) | (1,129) | |
Finite-lived intangible assets, identifiable intangible assets, less accumulated amortization | 1,629 | 1,674 | |
Total indefinite-lived intangible assets | 192 | 216 | |
Intangible Assets, gross carrying amount | 3,007 | 3,019 | |
Identifiable intangible assets, less accumulated amortization | 1,821 | 1,890 | |
Amortization of intangible assets | 62 | $ 58 | |
Trademarks and Trade Names | |||
Finite Lived and Indefinite Lived Intangible Assets [Line Items] | |||
Total indefinite-lived intangible assets | 104 | 104 | |
In Process Research and Development | |||
Finite Lived and Indefinite Lived Intangible Assets [Line Items] | |||
Total indefinite-lived intangible assets | 81 | 105 | |
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] | |||
Finite-lived intangible assets, gross carrying amount | 1,946 | 1,938 | |
Finite-lived intangible assets, accumulated amortization | (691) | (657) | |
Finite-lived intangible assets, identifiable intangible assets, less accumulated amortization | 1,255 | 1,281 | |
Brands | |||
Finite Lived and Indefinite Lived Intangible Assets [Line Items] | |||
Finite-lived intangible assets, identifiable intangible assets, less accumulated amortization | 196 | 201 | |
Trademarks and Trade Names | |||
Finite Lived and Indefinite Lived Intangible Assets [Line Items] | |||
Finite-lived intangible assets, gross carrying amount | 424 | 424 | |
Finite-lived intangible assets, accumulated amortization | (228) | (223) | |
Other Intangible Assets | |||
Finite Lived and Indefinite Lived Intangible Assets [Line Items] | |||
Finite-lived intangible assets, gross carrying amount | 445 | 441 | |
Finite-lived intangible assets, accumulated amortization | (267) | (249) | |
Finite-lived intangible assets, identifiable intangible assets, less accumulated amortization | $ 178 | $ 192 |
Share-Based Payments - Narrativ
Share-Based Payments - Narrative (Details) | 3 Months Ended |
Mar. 31, 2020$ / sharesshares | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Share-based compensation, options granted, shares | shares | 279,843 |
Share-based compensation, weighted average exercise price (in dollars per share) | $ 144.03 |
Share-based compensation, Options, weighted average grant date fair value (in dollars per share) | $ 33.92 |
Share-based compensation, risk free interest rate | 1.50% |
Share-based compensation, expected dividend rate | 0.55% |
Share-based compensation, expected volatility rate | 24.01% |
Share-based compensation, expected term | 5 years 6 months |
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 | 226,713 |
Share-based compensation, weighted average grant date fair value (in dollars per share) | $ 144.03 |
Performance Shares | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Share-based compensation, expected volatility rate | 20.20% |
Share-based compensation, award vesting period | 3 years |
Share-based compensation, granted, shares | shares | 85,279 |
Share-based compensation, weighted average grant date fair value (in dollars per share) | $ 217.49 |
Performance Shares | PeerCompanies | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Share-based compensation, expected volatility rate | 24.80% |
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, 2020 | Mar. 31, 2019 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Share-based compensation expense—direct | $ 16 | $ 18 |
Stock options / stock appreciation rights | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Share-based compensation expense—direct | 3 | 3 |
RSUs / DSUs | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Share-based compensation expense—direct | 8 | 12 |
PSUs | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Share-based compensation expense—direct | $ 5 | $ 3 |
Stockholders' Equity - Changes
Stockholders' Equity - Changes in Common Shares and Treasury Stock (Details) - USD ($) $ in Billions | 3 Months Ended | ||||
Mar. 31, 2020 | Mar. 31, 2019 | Dec. 31, 2019 | |||
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 | $ 1.4 | ||||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||
Common stock issued, shares | 501,891,243 | 501,900,000 | |||
Treasury stock, shares | 26,363,033 | 22,300,000 | [1] | ||
Treasury stock acquired, shares | [1],[2] | (1,700,000) | |||
Common stock issued, shares | 501,891,243 | 501,900,000 | |||
Treasury stock, shares | 27,025,890 | 22,900,000 | [1] | ||
Share Repurchase Program | |||||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||
Treasury stock acquired, shares | [1],[3] | (1,100,000) | |||
December 2018 Share Repurchase Program [Member] | |||||
Class of Stock [Line Items] | |||||
Stock repurchase program, authorized amount | $ 2 | ||||
[1] | Shares may not add due to rounding. | ||||
[2] | Reflects the acquisition of treasury shares in connection with the share repurchase program. For additional information see Note 14. Stockholders' Equity . | ||||
[3] | Includes the issuance of shares of Zoetis Inc. common stock and the reacquisition of shares of treasury stock associated with exercises of employee share-based awards. Also includes the reacquisition of shares of treasury stock associated with the vesting of employee share-based awards to satisfy tax withholding requirements. For additional information, see Note 13. Share-based Payments and Note 14. Stockholders' Equity . |
Stockholders' Equity - Change_2
Stockholders' Equity - Changes in Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Accumulated Other Comprehensive Income (Loss) [Roll Forward] | ||
Beginning balance | $ 2,708 | $ 2,185 |
Other comprehensive (loss)/income, net of tax | (55) | 31 |
Ending balance | 2,753 | 2,317 |
Accumulated Other Comprehensive Loss | ||
Accumulated Other Comprehensive Income (Loss) [Roll Forward] | ||
Beginning balance | (726) | (629) |
Other comprehensive (loss)/income, net of tax | (55) | 31 |
Ending balance | (781) | (598) |
Derivatives Net Unrealized Gains/ (Losses) | ||
Accumulated Other Comprehensive Income (Loss) [Roll Forward] | ||
Beginning balance | 0 | (4) |
Other comprehensive (loss)/income, net of tax | (28) | 0 |
Ending balance | (28) | (4) |
Net Investment Hedges | ||
Accumulated Other Comprehensive Income (Loss) [Roll Forward] | ||
Beginning balance | 21 | 10 |
Other comprehensive (loss)/income, net of tax | 17 | 8 |
Ending balance | 38 | 18 |
Currency Translation Adjustment Net Unrealized Gain/(Losses) | ||
Accumulated Other Comprehensive Income (Loss) [Roll Forward] | ||
Beginning balance | (724) | (621) |
Other comprehensive (loss)/income, net of tax | (44) | 23 |
Ending balance | (768) | (598) |
Benefit Plans Actuarial Gains/(Losses) | ||
Accumulated Other Comprehensive Income (Loss) [Roll Forward] | ||
Beginning balance | (23) | (14) |
Other comprehensive (loss)/income, net of tax | 0 | 0 |
Ending balance | $ (23) | $ (14) |
Earnings per Share (Details)
Earnings per Share (Details) - USD ($) $ / shares in Units, shares in Millions, $ in Millions | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Numerator | ||
Net income | $ 423 | $ 312 |
Net income | $ 423 | $ 312 |
Denominator | ||
Weighted-average common shares outstanding | 475.6 | 479.6 |
Common stock equivalents: stock options, RSUs, PSUs and DSUs | 3.4 | 3.5 |
Weighted-average common and potential dilutive shares outstanding | 479 | 483.1 |
Earnings per share attributable to Zoetis stockholders—basic (in dollars per share) | $ 0.89 | $ 0.65 |
Earnings per share attributable to Zoetis stockholders—diluted (in dollars per share) | $ 0.88 | $ 0.65 |
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, 2020customer | Jun. 19, 2013EUR (€) | Jun. 19, 2013USD ($) | 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 | € 11 | $ 14 |
Segment Information (Details)
Segment Information (Details) | 3 Months Ended |
Mar. 31, 2020segment | |
Segment Reporting [Abstract] | |
Number of operating segments | 2 |
Segment Information Selected St
Segment Information Selected Statement of Income (Details) - USD ($) $ in Millions | 3 Months Ended | |||
Mar. 31, 2020 | Mar. 31, 2019 | |||
Segment Reporting Information [Line Items] | ||||
Revenue | $ 1,534 | $ 1,455 | ||
Cost of Sales | 459 | 518 | ||
Other (income)/deductions—net | (20) | (14) | ||
Income before provision for taxes on income | [1] | 497 | 381 | |
Depreciation and amortization | 110 | 98 | [1],[2] | |
Other business activities | ||||
Segment Reporting Information [Line Items] | ||||
Income before provision for taxes on income | (87) | (80) | ||
Depreciation and amortization | [2] | 6 | 5 | |
Operating Segments | ||||
Segment Reporting Information [Line Items] | ||||
Income before provision for taxes on income | 872 | 837 | ||
Depreciation and amortization | [2] | 27 | 23 | |
Operating Segments | U.S. | ||||
Segment Reporting Information [Line Items] | ||||
Revenue | 786 | 718 | ||
Cost of Sales | 167 | 147 | ||
Gross Profit | $ 619 | $ 571 | ||
Gross margin, percentage | 78.80% | 79.50% | ||
Operating Expenses | $ 125 | $ 110 | ||
Other (income)/deductions—net | 1 | 0 | ||
Income before provision for taxes on income | 493 | 461 | ||
Depreciation and amortization | [2] | 13 | 10 | |
Operating Segments | International | ||||
Segment Reporting Information [Line Items] | ||||
Revenue | [3] | 728 | 718 | |
Cost of Sales | 224 | 210 | ||
Gross Profit | $ 504 | $ 508 | ||
Gross margin, percentage | 69.20% | 70.80% | ||
Operating Expenses | $ 125 | $ 132 | ||
Other (income)/deductions—net | 0 | 0 | ||
Income before provision for taxes on income | 379 | 376 | ||
Depreciation and amortization | [2] | 14 | 13 | |
Corporate | ||||
Segment Reporting Information [Line Items] | ||||
Income before provision for taxes on income | (173) | (162) | ||
Depreciation and amortization | [2] | 22 | 14 | |
Reconciling Items | ||||
Segment Reporting Information [Line Items] | ||||
Depreciation and amortization | [2] | 0 | 0 | |
Purchase accounting adjustments, Earnings | (54) | (66) | ||
Purchase accounting adjustments, Depreciation and Amortization | [2] | 54 | 55 | |
Acquisition-related costs | (7) | (5) | ||
Certain significant items, Earnings | [4] | 11 | (70) | |
Certain significant items, Depreciation and Amortization | [2],[4] | 0 | 0 | |
Other unallocated, Earnings | (65) | (73) | ||
Other Unallocated, Depreciation and Amortization | [2] | $ 1 | $ 1 | |
[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 $170 million and $181 million for the three months ended March 31, 2020 and March 31, 2019, respectively. | |||
[4] | For the three months ended March 31, 2020, primarily represents a net gain resulting from net cash proceeds received pursuant to an agreement related to the 2016 sale of certain U.S. manufacturing sites of $17 million, partially offset by CEO transition-related costs of $4 million. 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 $2 million related to our supply network strategy. |
Segment Information Selected _2
Segment Information Selected Statement of Income Narrative (Details) - USD ($) $ in Millions | 3 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | ||
Segment Reporting Information [Line Items] | |||
Revenue | $ 1,534 | $ 1,455 | |
Contingent payment received related to sale of certain U.S. manufacturing sites | 20 | ||
Inventory Adjustments | 68 | ||
Provision | 3 | ||
International | Operating Segments | |||
Segment Reporting Information [Line Items] | |||
Revenue | [1] | 728 | 718 |
International | Operating Segments | Euro Member Countries, Euro | |||
Segment Reporting Information [Line Items] | |||
Revenue | 170 | 181 | |
Zoetis Initiatives | Reconciling Items | |||
Segment Reporting Information [Line Items] | |||
Restructuring and Other Cost Productivity Charges | 2 | ||
Disposal Group, Not Discontinued Operation, Gain (Loss) on Disposal | [2] | (17) | 0 |
CEO Transition Costs [Member] | |||
Segment Reporting Information [Line Items] | |||
Restructuring and Other Cost Productivity Charges | 4 | ||
CHINA | |||
Segment Reporting Information [Line Items] | |||
Revenue | 66 | 60 | |
Employee Termination Costs | |||
Segment Reporting Information [Line Items] | |||
Employee termination costs | [3] | $ (3) | $ (4) |
[1] | Revenue denominated in euros was $170 million and $181 million for the three months ended March 31, 2020 and March 31, 2019, respectively. | ||
[2] | For the three months ended March 31, 2020, represents a net gain resulting from net cash proceeds received pursuant to an agreement related to the 2016 sale of certain U.S. manufacturing sites. | ||
[3] | The restructuring charges for the three months ended March 31, 2020 primarily relate to CEO transition-related costs which are associated with Manufacturing/research/corporate.The restructuring charges for the three months ended March 31, 2019 primarily relate to the acquisition of Abaxis which are associated with Manufacturing/research/corporate. |
Uncategorized Items - zts-20200
Label | Element | Value |
Dividends Payable | us-gaap_DividendsPayableCurrentAndNoncurrent | $ 79,000,000 |