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What changed in Zoetis's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Zoetis's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+261 added−290 removedSource: 10-K (2024-02-13) vs 10-K (2023-02-14)

Top changes in Zoetis's 2023 10-K

261 paragraphs added · 290 removed · 224 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

93 edited+15 added−32 removed75 unchanged
Biggest changeAmong the factors that could cause actual results to differ materially from past results and future plans and projected future results are the following: • unanticipated safety, quality or efficacy concerns or issues about our products; • the possible impact and timing of competing products, including generic alternatives, on our products and our ability to compete against such products; • the continuing decline in global economic conditions, including the current crisis in Ukraine, and inflation; • the economic, political, legal and business environment of the foreign jurisdictions in which we do business; • the impact of the COVID-19 global pandemic on our business, global supply chain, customers and workforce; • disruptive innovations and advances in medical practices and technologies; • consolidation of our customers and distributors; • changes in the distribution channel for companion animal products; • an outbreak of infectious disease carried by animals; • restrictions and bans on the use of and consumer preferences regarding antibacterials in food-producing animals; • perceived adverse effects linked to the consumption of food derived from animals that utilize our products or animals generally; • increased regulation or decreased governmental support relating to the raising, processing or consumption of food-producing animals; • failure to successfully acquire businesses, license rights or products, integrate businesses, form and manage alliances or divest businesses; • adverse weather conditions and the availability of natural resources; • the impact of climate change on our activities and the activities of our customers and suppliers, including, for example, altered distribution and intensity of rainfall, prolonged droughts or flooding, increased frequency of wildfires and other natural disasters, rising sea levels, and rising heat index; • failure of our R&D, acquisition and licensing efforts to generate new products and product lifecycle innovations; • difficulties or delays in the development or commercialization of new products; • product launch delays, inventory shortages, recalls or unanticipated costs caused by manufacturing problems and capacity imbalances; • fluctuations in foreign exchange rates and potential currency controls; • legal factors, including product liability claims, antitrust litigation and governmental investigations, including tax disputes, environmental concerns, commercial disputes and patent disputes with branded and generic competitors, any of which could preclude commercialization of products or negatively affect the profitability of existing products; • failure to protect our intellectual property rights or to operate our business without infringing the intellectual property rights of others; • a cyber-attack, information security breach or other misappropriation of our data; • quarterly fluctuations in demand and costs; • governmental laws and regulations affecting domestic and foreign operations, including without limitation, tax obligations and changes affecting the tax treatment by the U.S. of income earned outside the U.S. that may result from pending or possible future proposals; • governmental laws and regulations affecting our interactions with veterinary healthcare providers; and • the other factors set forth under "Risk Factors" in Item 1A of Part I of this 2022 Annual Report.
Biggest changeAmong the factors that could cause actual results to differ materially from past results and future plans and projected future results are the following: • the possible impact and timing of competing products, including generic alternatives, on our products and our ability to compete against such products; • unanticipated safety, quality or efficacy concerns or issues about our products; • the decline in global economic conditions, including the conflict between Israel and Hamas (including any escalation or expansion), economic weakness in China and inflation; • the economic, political, legal and business environment of the foreign jurisdictions in which we do business; • consolidation of our customers and distributors; • changes in the distribution channel for companion animal products; • disruptive innovations and advances in medical practices and technologies; • an outbreak of infectious disease carried by animals; • failure to successfully acquire businesses, license rights or products, integrate businesses, form and manage alliances or divest businesses; • restrictions and bans on the use of and consumer preferences regarding antibacterials in food-producing animals; • perceived adverse effects linked to the consumption of food derived from animals that utilize our products or animals generally; • increased regulation or decreased governmental support relating to the raising, processing or consumption of food-producing animals; • adverse weather conditions and the availability of natural resources; • the impact of climate change on our activities and the activities of our customers and suppliers, including, for example, altered distribution and intensity of rainfall, prolonged droughts or flooding, increased frequency of wildfires and other natural disasters, rising sea levels, and rising heat index; • product launch delays, inventory shortages, recalls or unanticipated costs caused by manufacturing problems and capacity imbalances; • failure of our R&D, acquisition and licensing efforts to generate new products and product lifecycle innovations; • difficulties or delays in the development or commercialization of new products; • illegal distribution and/or sale of our products or the misuse or off-label use of our products; • legal factors, including product liability claims, antitrust litigation and governmental investigations, including tax disputes, environmental concerns, laws and regulations regarding data privacy, commercial disputes and patent disputes with branded and generic competitors, any of which could preclude commercialization of products or negatively affect the profitability of existing products; • fluctuations in foreign exchange rates and potential currency controls; • governmental laws and regulations affecting domestic and foreign operations, including without limitation, tax obligations and changes affecting the tax treatment by the U.S. of income earned outside the U.S. that may result from pending or possible future proposals; • failure to protect our intellectual property rights or to operate our business without infringing the intellectual property rights of others; • a cyberattack, information security breach or other misappropriation of our data; • failure to generate sufficient cash to service our substantial indebtedness; and • the other factors set forth under “Risk Factors” in Item 1A of Part I of this 2023 Annual Report.
We test goodwill for impairment on at least an annual basis, or more frequently if necessary, either by assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount or by performing a periodic quantitative assessment.
We test goodwill for impairment on at least an annual basis, or more frequently if necessary, either by assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount or by performing a periodic quantitative assessment.
These obligations include long-term debt, including interest obligations, purchase obligations, operating lease commitments, other liabilities, benefit plan obligations and uncertain tax positions. See Notes to Consolidated Financial Statements— Note 9. Financial Instruments , Note 18. Commitments and Contingencies, Note 10. Leases , Note 6. Restructuring Charges and Other Costs Associated with Acquisitions, Cost-Reduction and Productivity Initiatives, Note 14.
These obligations include long-term debt, including interest obligations, purchase obligations, lease commitments, other liabilities, benefit plan obligations and uncertain tax positions. See Notes to Consolidated Financial Statements— Note 9. Financial Instruments , Note 18. Commitments and Contingencies, Note 10. Leases , Note 6. Restructuring Charges and Other Costs Associated with Acquisitions, Cost-Reduction and Productivity Initiatives, Note 14.
(d) For 2022, primarily represents asset impairment charges related to: • Customer relationships, developed technology rights and property, plant and equipment in our diagnostics, poultry, cattle and swine businesses included in Other (income)/deductions-net; and • Inventory and other charges related to the consolidation of manufacturing sites in China, included in Cost of sales and Restructuring charges and certain acquisition related costs.
For 2022, primarily represents asset impairment charges related to: • Customer relationships, developed technology rights and property, plant and equipment in our diagnostics, poultry, cattle and swine businesses included in Other (income)/deductions-net; and • Inventory and other charges related to the consolidation of manufacturing sites in China, included in Cost of sales and Restructuring charges and certain acquisition related costs.
Reconciling items Reconciling items include certain costs that are not allocated to our operating segments results, such as costs associated with the following: • Corporate, which includes certain costs associated with information technology, facilities, legal, finance, human resources, business development and communications, among others.
Reconciling items Reconciling items include certain costs that are not allocated to our operating segments results, such as costs associated with the following: • Corporate, which includes certain costs associated with information technology, facilities, legal, finance, human resources, business development, certain diagnostics costs and communications, among others.
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. In addition, the credit facility contains other customary covenants. We were in compliance with all financial covenants as of December 31, 2022 and December 31, 2021.
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. In addition, the credit facility contains other customary covenants. We were in compliance with all financial covenants as of December 31, 2023 and December 31, 2022.
Significant Accounting Policies in the Notes to Consolidated Financial Statements for discussion of recent accounting pronouncements, including the respective dates of adoption or expected adoption and effects or expected effects on our consolidated financial position, results of operations and cash flows. 49 | Table of Contents Forward-looking statements and factors that may affect future results This report contains “forward-looking” statements.
Significant Accounting Policies in the Notes to Consolidated Financial Statements for discussion of recent accounting pronouncements, including the respective dates of adoption or expected adoption and effects or expected effects on our consolidated financial position, results of operations and cash flows. 50 | Table of Contents Forward-looking statements and factors that may affect future results This report contains “forward-looking” statements.
Unrealized gains/(losses) on the changes in the fair value of derivative instruments are recorded within Accumulated other comprehensive income/(loss) and reclassified into earnings depending on the nature and purpose of the financial instrument, as described in Note 9. Financial Instruments of the Notes to Consolidated Financial Statements. Analysis of the Consolidated Balance Sheets December 31, 2022 vs.
Unrealized gains/(losses) on the changes in the fair value of derivative instruments are recorded within Accumulated other comprehensive income/(loss) and reclassified into earnings depending on the nature and purpose of the financial instrument, as described in Note 9. Financial Instruments of the Notes to Consolidated Financial Statements. Analysis of the Consolidated Balance Sheets December 31, 2023 vs.
The amount of the service cost continuation payment to be paid by Zoetis to Pfizer was determined and fixed based on an actuarial assessment of the value of the grow-in benefits and will be paid in equal installments over a period of 10 years. As of December 31, 2022, there are no remaining payments due to Pfizer.
The amount of the service cost continuation payment to be paid by Zoetis to Pfizer was determined and fixed based on an actuarial assessment of the value of the grow-in benefits and will be paid in equal installments over a period of 10 years. As of December 31, 2023, there are no remaining payments due to Pfizer.
For the years ended December 31, 2022 and 2021, the number of days that accounts receivables were outstanding have remained within this range. We regularly monitor our accounts receivable for collectability, particularly in markets where economic conditions remain uncertain. We believe that our allowance for doubtful accounts is appropriate.
For the years ended December 31, 2023 and 2022, the number of days that accounts receivables were outstanding have remained within this range. We regularly monitor our accounts receivable for collectability, particularly in markets where economic conditions remain uncertain. We believe that our allowance for doubtful accounts is appropriate.
Impairments of identifiable intangible assets other than goodwill, are recorded in Restructuring charges and certain acquisition-related costs and Other (income)/deductions—net , as applicable. We did not have any material intangible asset impairment charges for the years ended December 31, 2022, 2021 and 2020.
Impairments of identifiable intangible assets other than goodwill, are recorded in Restructuring charges and certain acquisition-related costs and Other (income)/deductions—net , as applicable. We did not have any material intangible asset impairment charges for the years ended December 31, 2023, 2022 and 2021.
In particular, forward-looking statements include statements relating to our future actions, business plans or prospects, prospective products, product approvals or products under development, product and supply chain disruptions, the impact of the COVID-19 pandemic, R&D costs, timing and likelihood of success, future operating or financial performance, future results of current and anticipated products and services, strategies, sales efforts, expenses, production efficiencies, production margins, anticipated timing of generic market entries, integration of acquired businesses, interest rates, tax rates, changes in tax regimes and laws, foreign exchange rates, growth in emerging markets, the outcome of contingencies, such as legal proceedings, plans related to share repurchases and dividends, government regulation and financial results.
In particular, forward-looking statements include statements relating to our future actions, business plans or prospects, prospective products, product approvals or products under development, product and supply chain disruptions, R&D costs, timing and likelihood of success, future operating or financial performance, future results of current and anticipated products and services, strategies, sales efforts, expenses, production efficiencies, production margins, anticipated timing of generic market entries, integration of acquired businesses, interest rates, tax rates, changes in tax regimes and laws, foreign exchange rates, growth in emerging markets, the outcome of contingencies, such as legal proceedings, plans related to share repurchases and dividends, government regulation and financial results.
December 31, 2021 For a discussion about the changes in Cash and cash equivalents , Short-term borrowings, Current portion of long-term debt and Long-term debt, net of discount and issuance costs , see “Analysis of financial condition, liquidity and capital resources” below.
December 31, 2022 For a discussion about the changes in Cash and cash equivalents , Short-term borrowings, Current portion of long-term debt and Long-term debt, net of discount and issuance costs , see “Analysis of financial condition, liquidity and capital resources” below.
Historically, we have not paid significant amounts under these provisions and, as of December 31, 2022 and 2021, recorded amounts for the estimated fair value of these indemnifications are not material. New accounting standards See Note 3.
Historically, we have not paid significant amounts under these provisions and, as of December 31, 2023 and 2022, recorded amounts for the estimated fair value of these indemnifications are not material. New accounting standards See Note 3.
Our normal, ongoing defense costs or settlements of and accruals on legal matters made in the normal course of our business would not be considered certain significant items. Reconciliation A reconciliation of net income attributable to Zoetis, as reported under U.S.
Our normal, ongoing defense costs or settlements of and accruals on legal matters made in the normal course of our business would not be considered certain significant items. 43 | Table of Contents Reconciliation A reconciliation of net income attributable to Zoetis, as reported under U.S.
In connection with the employee matters agreement, Zoetis is responsible for payment of three-fifths of the total cost of the service credit continuation ($38 million) for these plans.
In connection with the employee matters agreement, Zoetis was responsible for payment of three-fifths of the total cost of the service credit continuation ($38 million) for these plans.
Restructuring charges and certain acquisition-related costs consist of all restructuring charges (those associated with acquisition activity and those associated with cost reduction/productivity initiatives), as well as costs associated with acquiring and integrating businesses. Restructuring charges are associated with employees, assets and activities that will not continue in the company.
Restructuring charges and certain acquisition-related costs consist of all restructuring charges (those associated with cost reduction/productivity initiatives and those associated with acquisition activity), as well as costs associated with acquiring and integrating businesses. Restructuring charges 35 | Table of Contents are associated with employees, assets and activities that will not continue in the company.
The net changes in Noncurrent deferred tax assets, Noncurrent deferred tax liabilities, Income taxes payable and Other taxes payable primarily reflect adjustments to the accrual for the income tax provision, the timing of income tax payments, the tax impact of various acquisitions and the impact of the remeasurement of deferred tax assets and liabilities as a result of changes in tax rates.
Property, Plant and Equipment The net changes in Noncurrent deferred tax assets, Noncurrent deferred tax liabilities, Income taxes payable and Other taxes payable primarily reflect adjustments to the accrual for the income tax provision, the timing of income tax payments, the tax impact of various acquisitions and the impact of the remeasurement of deferred tax assets and liabilities as a result of changes in tax rates.
There were no amounts drawn under either credit facility as of December 31, 2022 or December 31, 2021. 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.
There were no amounts drawn under the credit facility as of December 31, 2023 or December 31, 2022. 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.
Consequently, you should not consider the above to be a complete discussion of all potential risks or uncertainties. 50 | Table of Contents
Consequently, you should not consider the above to be a complete discussion of all potential risks or uncertainties. 51 | Table of Contents
As part of the separation from Pfizer, Pfizer transferred to us the net pension obligations associated with certain international defined benefit plans. We expect to contribute a total of $5 million to these plans in 2023. As of December 31, 2022, the supplemental savings plan liability was $43 million. For additional information, see Notes to Consolidated Financial Statements— Note 14.
As part of the separation from Pfizer, Pfizer transferred to us the net pension obligations associated with certain international defined benefit plans. We expect to contribute a total of $7 million to these plans in 2024. As of December 31, 2023, the supplemental savings plan liability was $51 million. For additional information, see Notes to Consolidated Financial Statements— Note 14.
Significant Accounting Policies: Amortization of Intangible Assets, Depreciation and Certain Long-Lived Assets and, for deferred tax assets, in Note 3.
Significant Accounting Policies: Amortization of Intangible Assets, Depreciation and Certain Long-Lived Assets and, for deferred tax assets, in Note 3. Significant Accounting Policies: Deferred Tax Assets and Liabilities and Income Tax Contingencies .
Pursuant to the indenture, we are able to redeem the 2013, 2015, 2017, 2018, 2020 and 2022 senior notes of 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.
Pursuant to the indenture, we are able to redeem the senior notes of 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.
Acquisition-related costs are associated with acquiring and integrating acquired businesses, such as Abaxis in 2018, and may include transaction costs and expenditures for consulting and the integration of systems and processes. Other (income)/deductions—net consists of various items, primarily net (gains)/losses on asset disposals, interest income, royalty-related income, foreign exchange translation (gains)/losses and certain asset impairment charges.
Acquisition-related costs are associated with acquiring and integrating acquired businesses and may include transaction costs and expenditures for consulting and the integration of systems and processes. Other (income)/deductions—net consists of various items, primarily net (gains)/losses on business sales and divestitures, as well as asset disposals, interest income, royalty-related income, foreign exchange translation (gains)/losses and certain asset impairment charges.
Dividends payable increased as a result of an increase in the dividend rate for the first quarter 2023 dividend, which was declared on December 8, 2022.
Dividends payable increased as a result of an increase in the dividend rate for the first quarter 2024 dividend, which was declared on December 7, 2023.
The increase was primarily as a result of: • unfavorable manufacturing and other costs; • unfavorable foreign exchange; • higher freight and import costs; and • inventory obsolescence, scrap and other charges, partially offset by: • favorable product mix; and • price increases.
The decrease was primarily as a result of: • price increases; • lower freight costs; and • favorable foreign exchange, partially offset by: • unfavorable manufacturing and other costs; • inventory obsolescence, scrap and other charges; and • unfavorable product mix.
In 2022 and 2021, we performed a periodic quantitative impairment assessment as of September 30, 2022 and 2021, respectively, which did not result in the impairment of goodwill associated with any of our reporting units.
In 2023, we performed a qualitative impairment assessment as of September 30, 2023, which did not result in the impairment of goodwill associated with any of our reporting units. In 2022, we performed a periodic quantitative impairment assessment as of September 30, 2022, which did not result in the impairment of goodwill associated with any of our reporting units.
As of December 31, 2022, we had access to $51 million of lines of credit which expire at various times and are generally renewed annually. There were $2 million of borrowings outstanding related to these facilities as of December 31, 2022 and no borrowings outstanding related to these facilities as of December 31, 2021.
As of December 31, 2023, we had access to $56 million of lines of credit which expire at various times and are generally renewed annually. There were $3 million of borrowings outstanding related to these facilities as of December 31, 2023 and $2 million borrowings outstanding related to these facilities as of December 31, 2022.
The adjusted net income and adjusted EPS measures are not, and should not be viewed as, a substitute for U.S. GAAP reported net income attributable to Zoetis and reported EPS.
The adjusted net income and adjusted EPS measures are not, and should not be viewed as, a substitute for U.S. GAAP reported net income attributable to Zoetis and reported EPS. See the Adjusted Net Income section below for more information.
Jurisdictional mix of earnings can vary depending on repatriation decisions, operating fluctuations in the normal course of business and the impact of non-deductible and non-taxable items. On August 16, 2022, the U.S.
Jurisdictional mix of earnings can vary depending on repatriation decisions, operating fluctuations in the normal course of business and the impact of non-deductible items and non-taxable items.
Other R&D-related costs associated with non-U.S. market and regulatory activities are generally included in the International segment. 2022 vs. 2021 Other business activities net loss increased by $18 million, or 4%, in 2022 compared with 2021, reflecting an increase in R&D costs due to an increase in compensation-related costs to support innovation, increase in facility costs and an increase in project investments, partially offset by favorable foreign exchange and higher earnings in our human health business.
Other R&D-related costs associated with non-U.S. market and regulatory activities are generally included in the International segment. 2023 vs. 2022 Other business activities net loss increased by $72 million, or 17%, in 2023 compared with 2022, reflecting an increase in R&D costs due to an increase in certain compensation-related costs to support innovation, an increase in operating costs and higher project investments, as well as lower earnings in our human health business, partially offset by favorable foreign exchange.
For all of our reporting units, there are a number of future events and factors that may impact future results and that could potentially have an impact on the outcome of subsequent goodwill impairment testing.
For all of our reporting units, there are a number of future events and factors that may impact future results and that could potentially have an impact on the outcome of subsequent goodwill impairment testing. For a list of these factors, see Forward-looking statements and factors that may affect future results.
The classification of the above items excluded from adjusted net income are as follows: Year Ended December 31, (MILLIONS OF DOLLARS) 2022 2021 2020 Cost of sales: Purchase accounting adjustments $ 6 $ 6 $ 8 Inventory write-offs 4 2 15 Other 4 6 4 Total Cost of sales 14 14 27 Selling, general & administrative expenses: Purchase accounting adjustments 29 30 54 Other — — 13 Total Selling, general & administrative expenses 29 30 67 Research & development expenses: Purchase accounting adjustments 1 1 1 Total Research & development expenses 1 1 1 Amortization of intangible assets: Purchase accounting adjustments 124 138 135 Total Amortization of intangible assets 124 138 135 Restructuring charges and certain acquisition-related costs: Integration costs 4 10 17 Transaction costs 1 — — Employee termination costs 3 17 8 Asset impairments 2 13 — Exit costs 1 3 — Total Restructuring charges and certain acquisition-related costs 11 43 25 Other (income)/deductions—net: Net loss/(gain) on sale of assets — 3 (18) Asset impairments 41 31 22 Other 1 — — Total Other (income)/deductions—net 42 34 4 Provision for taxes on income 38 57 53 Total purchase accounting adjustments, acquisition-related costs, and certain significant items—net of tax $ 183 $ 203 $ 206 45 | Analysis of the Consolidated Statements of Comprehensive Income Changes in other comprehensive income for the periods presented are primarily related to foreign currency translation adjustments and unrealized gains/(losses) on derivative instruments.
(d) Primarily represents a net gain on the sale of a majority interest in our pet insurance business. 45 | Table of Contents The classification of the above items excluded from adjusted net income are as follows: Year Ended December 31, (MILLIONS OF DOLLARS) 2023 2022 2021 Cost of sales: Purchase accounting adjustments $ 10 $ 6 $ 6 Inventory write-offs 2 4 2 Other 1 4 6 Total Cost of sales 13 14 14 Selling, general & administrative expenses: Purchase accounting adjustments 21 29 30 Total Selling, general & administrative expenses 21 29 30 Research & development expenses: Purchase accounting adjustments 1 1 1 Total Research & development expenses 1 1 1 Amortization of intangible assets: Purchase accounting adjustments 127 124 138 Total Amortization of intangible assets 127 124 138 Restructuring charges and certain acquisition-related costs: Integration costs 3 4 10 Transaction costs 4 1 — Employee termination costs 41 3 17 Asset impairments 1 2 13 Exit costs 4 1 3 Total Restructuring charges and certain acquisition-related costs 53 11 43 Other (income)/deductions—net: Net loss on sale of assets — — 3 Asset impairments 21 41 31 Net gain on sale of businesses (101) — — Other — 1 — Total Other (income)/deductions—net (80) 42 34 Provision for taxes on income 22 38 57 Total purchase accounting adjustments, acquisition-related costs, and certain significant items—net of tax $ 113 $ 183 $ 203 Analysis of the Consolidated Statements of Comprehensive Income Changes in other comprehensive income for the periods presented are primarily related to foreign currency translation adjustments and unrealized gains/(losses) on derivative instruments.
GAAP; certain asset impairments; adjustments related to the resolution of certain tax positions; significant currency devaluation; the impact of adopting certain significant, event-driven tax legislation; costs related to our CEO transition in fiscal 2020; or charges related to legal matters. See Notes to Consolidated Financial Statements— Note 18. Commitments and Contingencies .
GAAP; certain asset impairment charges; adjustments related to the resolution of certain tax positions; significant currency devaluation; the impact of adopting certain significant, event-driven tax legislation; or charges related to legal matters. See Notes to Consolidated Financial Statements— Note 18. Commitments and Contingencies .
The net cash used in financing activities for 2021 was primarily attributable to the purchase of treasury shares, the repayment of the $300 million aggregate principal amount of our 2018 floating rate senior notes due 2021 and the $300 million aggregate principal amount of our 2018 senior notes due 2021, the payment of dividends and taxes paid on withholding shares, partially offset by proceeds in connection with the issuance of common stock under our equity incentive plan.
The net cash used in financing activities for 2023 was primarily attributable to the repayment at maturity of the $1.35 billion aggregate principal amount of our 2013 senior notes due 2023 in February 2023, the purchase of treasury shares, the payment of dividends and taxes paid on withholding shares, partially offset by proceeds in connection with the issuance of common stock under our equity incentive plan.
Accrued compensation and related items decreased primarily due to the payments of 2021 annual incentive bonuses and savings plan contributions to eligible employees, as well as payments for sales incentive bonuses, partially offset by the accrual of 2022 annual incentive bonuses and savings plan contributions to eligible employees, sales incentive bonus accrual and the timing of the payment of payroll taxes.
Accrued compensation and related items increased primarily due to the accrual of 2023 annual incentive bonuses, sales incentive bonuses and savings plan contributions to eligible employees, as well as the timing of the bi-weekly payroll, partially offset by the payments of 2022 annual incentive bonuses and sales incentive bonuses, as well as savings plan contributions to eligible employees.
Year Ended December 31, % Change (MILLIONS OF DOLLARS) 2022 2021 2020 22/21 21/20 Revenue $ 8,080 $ 7,776 $ 6,675 4 16 Costs and expenses: Cost of sales (a) 2,454 2,303 2,057 7 12 % of revenue 30.4 % 29.6 % 30.8 % Selling, general and administrative expenses (a) 2,009 2,001 1,726 0 16 % of revenue 25 % 26 % 26 % Research and development expenses (a) 539 508 463 6 10 % of revenue 7 % 7 % 7 % Amortization of intangible assets (a) 150 161 160 (7) 1 Restructuring charges and certain acquisition-related costs 11 43 25 (74) 72 Interest expense, net of capitalized interest 221 224 231 (1) (3) Other (income)/deductions—net 40 48 17 (17) * Income before provision for taxes on income 2,656 2,488 1,996 7 25 % of revenue 33 % 32 % 30 % Provision for taxes on income 545 454 360 20 26 Effective tax rate 20.5 % 18.2 % 18.0 % Net income before allocation to noncontrolling interests 2,111 2,034 1,636 4 24 Less: Net loss attributable to noncontrolling interests (3) (3) (2) — 50 Net income attributable to Zoetis $ 2,114 $ 2,037 $ 1,638 4 24 % of revenue 26 % 26 % 25 % * Calculation not meaningful.
Year Ended December 31, % Change (MILLIONS OF DOLLARS) 2023 2022 2021 23/22 22/21 Revenue $ 8,544 $ 8,080 $ 7,776 6 4 Costs and expenses: Cost of sales (a) 2,561 2,454 2,303 4 7 % of revenue 30.0 % 30.4 % 29.6 % Selling, general and administrative expenses (a) 2,151 2,009 2,001 7 — % of revenue 25 % 25 % 26 % Research and development expenses (a) 614 539 508 14 6 % of revenue 7 % 7 % 7 % Amortization of intangible assets (a) 149 150 161 (1) (7) Restructuring charges and certain acquisition-related costs 53 11 43 * (74) Interest expense, net of capitalized interest 239 221 224 8 (1) Other (income)/deductions—net (159) 40 48 * (17) Income before provision for taxes on income 2,936 2,656 2,488 11 7 % of revenue 34 % 33 % 32 % Provision for taxes on income 596 545 454 9 20 Effective tax rate 20.3 % 20.5 % 18.2 % Net income before allocation to noncontrolling interests 2,340 2,111 2,034 11 4 Less: Net loss attributable to noncontrolling interests (4) (3) (3) 33 — Net income attributable to Zoetis $ 2,344 $ 2,114 $ 2,037 11 4 % of revenue 27 % 26 % 26 % * Calculation not meaningful.
While all identifiable intangible assets can be impacted by events and thus lead to impairment, in general, identifiable intangible assets that are at the highest risk of impairment include IPR&D assets ($77 million as of December 31, 2022). IPR&D assets are higher-risk assets because R&D is an inherently risky activity.
While all identifiable intangible assets can be impacted by events and thus lead to impairment, in general, identifiable intangible assets that are at the highest risk of impairment include IPR&D assets ($141 million as of December 31, 2023). IPR&D assets are higher-risk assets given the uncertain nature of R&D activity.
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.
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.
Adjusted net income General description of adjusted net income (a non-GAAP financial measure) Adjusted net income is an alternative view of performance used by management, and we believe that investors’ understanding of our performance is enhanced by disclosing this performance measure. The adjusted net income measure is an important internal measurement for us.
Segment Information for further information. 42 | Table of Contents Adjusted net income General description of adjusted net income (a non-GAAP financial measure) Adjusted net income is an alternative view of performance used by management, and we believe that investors’ understanding of our performance is enhanced by disclosing this performance measure.
Adjusted net income includes the following charges for each of the periods presented: Year Ended December 31, (MILLIONS OF DOLLARS) 2022 2021 2020 Interest expense, net of capitalized interest $ 221 $ 224 $ 231 Interest income (50) (6) (12) Income taxes 583 511 413 Depreciation 266 236 202 Amortization 40 37 40 Adjusted net income, as shown above, excludes the following items: Year Ended December 31, (MILLIONS OF DOLLARS) 2022 2021 2020 Purchase accounting adjustments: Amortization and depreciation $ 160 $ 175 $ 198 Total purchase accounting adjustments—pre-tax 160 175 198 Income taxes (a) 40 39 56 Total purchase accounting adjustments—net of tax 120 136 142 Acquisition-related costs: Integration costs 4 10 17 Transaction costs 1 — — Restructuring costs — 2 1 Total acquisition-related costs—pre-tax 5 12 18 Income taxes (a) 1 2 (1) Total acquisition-related costs—net of tax 4 10 19 Certain significant items: Operational efficiency initiative (b) — — (18) Other restructuring charges and cost-reduction/productivity initiatives (c) 8 24 11 Certain asset impairment charges (d) 47 46 37 Net loss on sale of assets — 3 — Other (e) 1 — 13 Total certain significant items—pre-tax 56 73 43 Income taxes (a) (3) 16 (2) Total certain significant items—net of tax 59 57 45 Total purchase accounting adjustments, acquisition-related costs, and certain significant items—net of tax $ 183 $ 203 $ 206 (a) Income taxes include the tax effect of the associated pre-tax amounts, calculated by determining the jurisdictional location of the pre-tax amounts and applying that jurisdiction's applicable tax rate.
Adjusted net income includes the following for each of the periods presented: Year Ended December 31, (MILLIONS OF DOLLARS) 2023 2022 2021 Interest expense, net of capitalized interest $ 239 $ 221 $ 224 Interest income (103) (50) (6) Income taxes 618 583 511 Depreciation 302 266 236 Amortization 36 40 37 44 | Table of Contents Adjusted net income, as shown above, excludes the following items: Year Ended December 31, (MILLIONS OF DOLLARS) 2023 2022 2021 Purchase accounting adjustments: Amortization and depreciation $ 153 $ 160 $ 175 Cost of sales 6 — — Total purchase accounting adjustments—pre-tax 159 160 175 Income taxes (a) 32 40 39 Total purchase accounting adjustments—net of tax 127 120 136 Acquisition-related costs: Integration costs 3 4 10 Transaction costs 4 1 — Restructuring costs 2 — 2 Total acquisition-related costs—pre-tax 9 5 12 Income taxes (a) 2 1 2 Total acquisition-related costs—net of tax 7 4 10 Certain significant items: Other restructuring charges and cost-reduction/productivity initiatives (b) 44 8 24 Certain asset impairment charges (c) 24 47 46 Net loss on sale of assets — — 3 Net gain on sale of businesses (d) (101) — — Other — 1 — Total certain significant items—pre-tax (33) 56 73 Income taxes (a) (12) (3) 16 Total certain significant items—net of tax (21) 59 57 Total purchase accounting adjustments, acquisition-related costs, and certain significant items—net of tax $ 113 $ 183 $ 203 (a) Income taxes include the tax effect of the associated pre-tax amounts, calculated by determining the jurisdictional location of the pre-tax amounts and applying that jurisdiction's applicable tax rate.
The higher effective tax rate for 2022 was attributable to a less favorable jurisdictional mix of earnings (which includes the impact of the location of earnings and repatriation costs), a lower benefit in the U.S. related to foreign-derived intangible income and lower net discrete tax benefits in 2022.
The lower effective tax rate for 2023 was primarily attributable to a higher benefit in the U.S. related to foreign-derived intangible income, a more favorable jurisdictional mix of earnings (which includes the impact of the location of earnings and repatriation costs), partially offset by a higher net discrete tax expense in 2023, mainly related to changes to prior years' tax positions.
Stockholders' Equity . 46 | Table of Contents Analysis of the Consolidated Statements of Cash Flows Year Ended December 31, $ Change (MILLIONS OF DOLLARS) 2022 2021 2020 22/21 21/20 Net cash provided by (used in): Operating activities $ 1,912 $ 2,213 $ 2,126 $ (301) $ 87 Investing activities (883) (458) (572) (425) 114 Financing activities (904) (1,862) 123 958 (1,985) Effect of exchange-rate changes on cash and cash equivalents (29) (12) (7) (17) (5) Net increase/(decrease) in cash and cash equivalents $ 96 $ (119) $ 1,670 $ 215 $ (1,789) Operating activities 2022 vs. 2021 Net cash provided by operating activities was $1,912 million in 2022 compared with $2,213 million in 2021.
Analysis of the Consolidated Statements of Cash Flows Year Ended December 31, $ Change (MILLIONS OF DOLLARS) 2023 2022 2021 23/22 22/21 Net cash provided by (used in): Operating activities $ 2,353 $ 1,912 $ 2,213 $ 441 $ (301) Investing activities (777) (883) (458) 106 (425) Financing activities (3,109) (904) (1,862) (2,205) 958 Effect of exchange-rate changes on cash and cash equivalents (7) (29) (12) 22 (17) Net (decrease)/increase in cash and cash equivalents $ (1,540) $ 96 $ (119) $ (1,636) $ 215 Operating activities 2023 vs. 2022 Net cash provided by operating activities was $2,353 million in 2023 compared with $1,912 million in 2022.
Selected measures of liquidity and capital resources Certain relevant measures of our liquidity and capital resources follow: December 31, (MILLIONS OF DOLLARS) 2022 2021 Cash and cash equivalents $ 3,581 $ 3,485 Accounts receivable, net (a) 1,215 1,133 Short-term borrowings 2 — Current portion of long-term debt 1,350 — Long-term debt 6,552 6,592 Working capital 4,339 5,133 Ratio of current assets to current liabilities 2.37:1 3.86:1 (a) Accounts receivable are usually collected over a period of 45 to 75 days .
Risks to our meeting future funding requirements are described in Global economic conditions below. 47 | Table of Contents Selected measures of liquidity and capital resources Certain relevant measures of our liquidity and capital resources follow: December 31, (MILLIONS OF DOLLARS) 2023 2022 Cash and cash equivalents $ 2,041 $ 3,581 Accounts receivable, net (a) 1,304 1,215 Short-term borrowings 3 2 Current portion of long-term debt — 1,350 Long-term debt 6,564 6,552 Working capital 4,454 4,339 Ratio of current assets to current liabilities 3.36:1 2.37:1 (a) Accounts receivable are usually collected over a period of 45 to 75 days .
Significant Accounting Policies: Deferred Tax Assets and Liabilities and Income Tax Contingencies . 35 | Table of Contents Examples of events or circumstances that may be indicative of impairment include: • a significant adverse change in the extent or manner in which an asset is used.
Examples of events or circumstances that may be indicative of impairment include: • a significant adverse change in the extent or manner in which an asset is used.
Our impairment reviews of most of our long-lived assets depend on the determination of fair value, as defined by U.S. GAAP, and these judgments can materially impact our results of operations. A single estimate of fair value can result from a complex series of judgments about future events and uncertainties and can rely on estimates and assumptions.
Our impairment reviews of most of our long-lived assets depend on the determination of fair value, as defined by U.S. GAAP, and these judgments can materially impact our results of operations.
Other current assets decreased primarily due to the deferral of a prepaid tax benefit in connection with a prepayment from a related foreign entity in Belgium and the jurisdictional netting of income taxes receivable and income taxes payable, partially offset by collateral posted related to derivative contracts and the mark-to-market adjustment of derivative instruments .
Other current assets increased primarily due to the recognition of the deferral of a prepaid tax benefit in connection with a prepayment from a related foreign entity in Belgium, the jurisdictional netting of income taxes receivable and income taxes payable, as well as an increase in collateral posted related to derivative contracts, partially offset by the mark-to-market adjustment of derivative instruments. 46 | Table of Contents Property, plant and equipment less accumulated depreciation increased primarily as a result of capital spending, partially offset by depreciation expense.
International segment earnings increased by $42 million, or 2%, in 2022 compared with 2021. Operational earnings growth was $239 million, or 12%, primarily due to revenue and gross margin growth, partially offset by higher operating expenses.
International segment earnings increased by $47 million, or 2%, in 2023 compared with 2022. Operational earnings growth was $88 million, or 4%, primarily due to higher revenue, partially offset by higher cost of sales and operating expenses.
The net cash used in investing activities for 2022 was primarily attributable to capital expenditures and acquisitions, partially offset by net proceeds from derivative instrument activity. The net cash used in investing activities for 2021 was primarily attributable to capital expenditures, acquisitions and purchase of investments, partially offset by proceeds from net proceeds from derivative instrument activity.
The net cash used in investing activities for 2022 was primarily attributable to capital expenditures and acquisitions partially offset by net proceeds from derivative instrument activity. Financing activities 2023 vs. 2022 Net cash used in financing activities was $3,109 million in 2023 compared with $904 million in 2022.
Upon the occurrence of a change of control of us and a downgrade of the 2013, 2015, 2017, 2018, 2020 and 2022 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, 2018, 2020 and 2022 senior notes at a price equal to 101% of the aggregate principal amount of the 2013, 2015, 2017, 2018, 2020 and 2022 senior notes together with accrued and unpaid interest to, but excluding, the date of repurchase. 48 | Table of Contents Our outstanding debt securities are as follows: Description Principal Amount Interest Rate Terms 2015 Senior Notes due 2025 $750 million 4.500% Interest due semi annually, not subject to amortization, aggregate principal due on November 13, 2025 2022 Senior Notes due 2025 $600 million 5.400% Interest due semi annually, not subject to amortization, aggregate principal due on November 14, 2025 2017 Senior Notes due 2027 $750 million 3.000% Interest due semi annually, not subject to amortization, aggregate principal due on September 12, 2027 2018 Senior Notes due 2028 $500 million 3.900% Interest due semi annually, not subject to amortization, aggregate principal due on August 20, 2028 2020 Senior Notes due 2030 $750 million 2.000% Interest due semi annually, not subject to amortization, aggregate principal due on May 15, 2030 2022 Senior Notes due 2032 $750 million 5.600% Interest due semi annually, not subject to amortization, aggregate principal due on November 16, 2032 2013 Senior Notes due 2043 $1,150 million 4.700% Interest due semi annually, not subject to amortization, aggregate principal due on February 1, 2043 2017 Senior Notes due 2047 $500 million 3.950% Interest due semi annually, not subject to amortization, aggregate principal due on September 12, 2047 2018 Senior Notes due 2048 $400 million 4.450% Interest due semi annually, not subject to amortization, aggregate principal due on August 20, 2048 2020 Senior Notes due 2050 $500 million 3.000% Interest due semi annually, not subject to amortization, aggregate principal due on May 15, 2050 Credit ratings Two major corporate debt-rating organizations, Moody's and S&P, assign ratings to our short-term and long-term debt.
Our outstanding debt securities are as follows: Description Principal Amount Interest Rate Terms 2015 Senior Notes due 2025 $750 million 4.500% Interest due semi annually, not subject to amortization, aggregate principal due on November 13, 2025 2022 Senior Notes due 2025 $600 million 5.400% Interest due semi annually, not subject to amortization, aggregate principal due on November 14, 2025 2017 Senior Notes due 2027 $750 million 3.000% Interest due semi annually, not subject to amortization, aggregate principal due on September 12, 2027 2018 Senior Notes due 2028 $500 million 3.900% Interest due semi annually, not subject to amortization, aggregate principal due on August 20, 2028 2020 Senior Notes due 2030 $750 million 2.000% Interest due semi annually, not subject to amortization, aggregate principal due on May 15, 2030 2022 Senior Notes due 2032 $750 million 5.600% Interest due semi annually, not subject to amortization, aggregate principal due on November 16, 2032 2013 Senior Notes due 2043 $1,150 million 4.700% Interest due semi annually, not subject to amortization, aggregate principal due on February 1, 2043 2017 Senior Notes due 2047 $500 million 3.950% Interest due semi annually, not subject to amortization, aggregate principal due on September 12, 2047 2018 Senior Notes due 2048 $400 million 4.450% Interest due semi annually, not subject to amortization, aggregate principal due on August 20, 2048 2020 Senior Notes due 2050 $500 million 3.000% Interest due semi annually, not subject to amortization, aggregate principal due on May 15, 2050 Credit ratings Two major corporate debt-rating organizations, Moody's and S&P, assign ratings to our short-term and long-term debt.
Interest expense, net of capitalized interest Year Ended December 31, % Change (MILLIONS OF DOLLARS) 2022 2021 2020 22/21 21/20 Interest expense, net of capitalized interest $ 221 $ 224 $ 231 (1) (3) 2022 vs. 2021 Interest expense, net of capitalized interest, decreased by $3 million, or 1%, in 2022 compared with 2021, primarily as a result of the redemption, upon maturity, of the $300 million aggregate principal amount of our 2018 floating rate senior notes and the $300 million aggregate principal amount of our 2018 senior notes in August 2021, as well as higher gains on foreign exchange derivative instruments, partially offset by the issuance of $1.35 billion aggregate principal amount of our senior notes in November 2022.
Interest expense, net of capitalized interest Year Ended December 31, % Change (MILLIONS OF DOLLARS) 2023 2022 2021 23/22 22/21 Interest expense, net of capitalized interest $ 239 $ 221 $ 224 8 (1) 2023 vs. 2022 Interest expense, net of capitalized interest, increased by $18 million, or 8%, in 2023 compared with 2022, primarily as a result of higher interest rates on the $1.35 billion aggregate principal amount of our 2022 senior notes issued in November 2022 as compared to the $1.35 billion aggregate principal amount of our 2013 senior notes redeemed in February 2023, upon maturity, partially offset by lower average debt balances in 2023 compared to 2022, as well as an increase in capitalized interest and higher gains on foreign exchange derivative instruments.
Growth in our fish portfolio was primarily the result of increased sales of vaccines across key salmon markets, including Norway and Chile. Sales of sheep products grew as a result of favorable market conditions and new product launches in Australia. Sales of poultry products grew due to price, market growth and demand generation efforts in key poultry markets.
Sales of cattle products grew due to price and improved supply of key products. Sales of poultry products grew due to market growth, demand generation efforts and price in key poultry markets. Growth in our fish portfolio was primarily the result of increased sales of vaccines across key salmon markets, primarily Norway, partially offset by lower sales in Chile.
Foreign exchange decreased our reported revenue growth by approximately 4%. 38 | Table of Contents Costs and Expenses Cost of sales Year Ended December 31, % Change (MILLIONS OF DOLLARS) 2022 2021 2020 22/21 21/20 Cost of sales $ 2,454 $ 2,303 $ 2,057 7 12 % of revenue 30.4 % 29.6 % 30.8 % 2022 vs. 2021 Cost of sales as a percentage of revenue was 30.4% in 2022, compared with 29.6% in 2021.
Costs and Expenses Cost of sales Year Ended December 31, % Change (MILLIONS OF DOLLARS) 2023 2022 2021 23/22 22/21 Cost of sales $ 2,561 $ 2,454 $ 2,303 4 7 % of revenue 30.0 % 30.4 % 29.6 % 2023 vs. 2022 Cost of sales as a percentage of revenue was 30.0% in 2023, compared with 30.4% in 2022.
Contingencies For a discussion about income tax contingencies, see Notes to Consolidated Financial Statements— Note 8D. Tax Matters: Tax Contingencies . For a discussion about legal contingencies, guarantees and indemnifications, see Notes to Consolidated Financial Statement— Note 18. Commitments and Contingencies . Non-GAAP financial measures We report information in accordance with U.S. generally accepted accounting principles (GAAP).
For a discussion about legal contingencies, guarantees and indemnifications, see Notes to Consolidated Financial Statement— Note 18. Commitments and Contingencies . Non-GAAP financial measures We report information in accordance with U.S. generally accepted accounting principles (GAAP). Management also measures performance using non-GAAP financial measures that may exclude certain amounts from the most directly comparable GAAP measure.
See the Adjusted Net Income section below for more information. 37 | Table of Contents Analysis of the Consolidated Statements of Income The following discussion and analysis of our Consolidated Statements of Income should be read along with our consolidated financial statements, and the notes thereto.
Analysis of the Consolidated Statements of Income The following discussion and analysis of our Consolidated Statements of Income should be read along with our consolidated financial statements, and the notes thereto.
Companion animal $ 3,341 $ 2,990 $ 2,391 12 — 12 25 — 25 Livestock 972 1,052 1,166 (8) — (8) (10) — (10) 4,313 4,042 3,557 7 — 7 14 — 14 International Companion animal 1,862 1,699 1,261 10 (9) 19 35 5 30 Livestock 1,819 1,953 1,774 (7) (7) — 10 2 8 3,681 3,652 3,035 1 (8) 9 20 3 17 Total Companion animal 5,203 4,689 3,652 11 (3) 14 28 1 27 Livestock 2,791 3,005 2,940 (7) (5) (2) 2 1 1 Contract manufacturing & human health 86 82 83 5 (2) 7 (1) — (1) $ 8,080 $ 7,776 $ 6,675 4 (4) 8 16 1 15 Earnings by segment and the operational and foreign exchange changes versus the comparable prior year period were as follows: % Change 22/21 21/20 Related to Related to Year Ended December 31, Foreign Exchange Foreign Exchange (MILLIONS OF DOLLARS) 2022 2021 2020 Total Operational Total Operational U.S. $ 2,763 $ 2,569 $ 2,239 8 — 8 15 — 15 International 1,990 1,948 1,547 2 (10) 12 26 5 21 Total reportable segments 4,753 4,517 3,786 5 (5) 10 19 2 17 Other business activities (424) (406) (372) 4 9 Reconciling Items: Corporate (1,073) (1,052) (879) 2 20 Purchase accounting adjustments (160) (175) (198) (9) (12) Acquisition-related costs (5) (12) (18) (58) (33) Certain significant items (56) (73) (43) (23) 70 Other unallocated (379) (311) (280) 22 11 Income before income taxes $ 2,656 $ 2,488 $ 1,996 7 25 2022 vs. 2021 U.S. operating segment U.S. segment revenue increased by $271 million, or 7%, in 2022 compared with 2021, of which $351 million resulted from growth in companion animal products, offset by a $80 million decline in livestock products. • Companion animal revenue growth was driven primarily by increased sales of parasiticides, primarily Simparica Trio.
Companion animal $ 3,529 $ 3,341 $ 2,990 6 — 6 12 — 12 Livestock 1,026 972 1,052 6 — 6 (8) — (8) 4,555 4,313 4,042 6 — 6 7 — 7 International Companion animal 2,047 1,862 1,699 10 (2) 12 10 (9) 19 Livestock 1,864 1,819 1,953 2 (5) 7 (7) (7) — 3,911 3,681 3,652 6 (3) 9 1 (8) 9 Total Companion animal 5,576 5,203 4,689 7 (1) 8 11 (3) 14 Livestock 2,890 2,791 3,005 4 (2) 6 (7) (5) (2) Contract manufacturing & human health 78 86 82 (9) 1 (10) 5 (2) 7 $ 8,544 $ 8,080 $ 7,776 6 (1) 7 4 (4) 8 Earnings by segment and the operational and foreign exchange changes versus the comparable prior year period were as follows: % Change 23/22 22/21 Related to Related to Year Ended December 31, Foreign Exchange Foreign Exchange (MILLIONS OF DOLLARS) 2023 2022 2021 Total Operational Total Operational U.S. $ 2,863 $ 2,763 $ 2,569 4 — 4 8 — 8 International 2,037 1,990 1,948 2 (2) 4 2 (10) 12 Total reportable segments 4,900 4,753 4,517 3 (1) 4 5 (5) 10 Other business activities (496) (424) (406) 17 4 Reconciling Items: Corporate (1,042) (1,073) (1,052) (3) 2 Purchase accounting adjustments (159) (160) (175) (1) (9) Acquisition-related costs (9) (5) (12) 80 (58) Certain significant items 33 (56) (73) * (23) Other unallocated (291) (379) (311) (23) 22 Income before income taxes $ 2,936 $ 2,656 $ 2,488 11 7 * Calculation not meaningful. 2023 vs. 2022 U.S. operating segment U.S. segment revenue increased by $242 million, or 6%, in 2023 compared with 2022, of which $188 million resulted from growth in companion animal products and $54 million growth in livestock products. 41 | Table of Contents • Companion animal revenue growth was primarily due to our mAb products for OA pain, Librela and Solensia, as well as increased sales of key dermatology, small animal parasiticides, small animal vaccines and small animal diagnostics, partially offset by lower sales of anti-infective products.
These impacts, primarily associated with certain acquisitions, include amortization related to the increase in fair value of the acquired finite-lived intangible assets and depreciation related to the increase/decrease to fair value of the acquired fixed assets.
These impacts, primarily associated with certain acquisitions, include amortization related to the increase in fair value of the acquired finite-lived intangible assets and depreciation related to the increase/decrease to fair value of the acquired fixed assets. Therefore, the adjusted net income measure includes the revenue earned upon the sale of the acquired products without considering the aforementioned significant charges.
For additional information about the sources and uses of our funds, see the Analysis of the Consolidated Balance Sheets and Analysis of the Consolidated Statements of Cash Flows sections of this MD&A. 47 | Table of Contents Credit facility and other lines of credit In December 2022, 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), which expires in December 2027.
Credit facility and other lines of credit In December 2022, 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), which expires in December 2027.
Income taxes in Purchase accounting adjustments also includes: • For 2022, tax benefits related to a deferred adjustment as a result of a change in tax basis. • For 2020, tax benefits related to the remeasurement of deferred tax assets and liabilities resulting from the integration of acquired businesses and changes in statutory tax rates.
Income taxes in Purchase accounting adjustments also includes: • For 2022, tax benefits related to a deferred adjustment as a result of a change in tax basis.
Costs and expenses Costs of sales consist primarily of cost of materials, facilities and other infrastructure used to manufacture our medicine and vaccine products, as well as costs to operate our reference labs and royalty expenses associated with the intellectual property of our products, when relevant. 34 | Table of Contents Selling, general and administrative (SG&A) expenses consist of, among other things, the internal and external costs of marketing, promotion, advertising and shipping and handling as well as certain costs related to business technology, facilities, legal, finance, human resources, business development, public affairs and procurement.
Selling, general and administrative (SG&A) expenses consist of, among other things, the internal and external costs of marketing, promotion, advertising and shipping and handling as well as certain costs related to business technology, facilities, legal, finance, human resources, business development, public affairs and procurement.
GAAP, to adjusted net income follows: Year Ended December 31, % Change (MILLIONS OF DOLLARS) 2022 2021 2020 22/21 21/20 GAAP reported net income attributable to Zoetis $ 2,114 $ 2,037 $ 1,638 4 24 Purchase accounting adjustments—net of tax 120 136 142 (12) (4) Acquisition-related costs—net of tax 4 10 19 (60) (47) Certain significant items—net of tax 59 57 45 4 27 Non-GAAP adjusted net income (a) $ 2,297 $ 2,240 $ 1,844 3 21 (a) The effective tax rate on adjusted pretax income is 20.3%, 18.6% and 18.3% in 2022, 2021 and 2020, respectively.
GAAP, to adjusted net income follows: Year Ended December 31, % Change (MILLIONS OF DOLLARS) 2023 2022 2021 23/22 22/21 GAAP reported net income attributable to Zoetis $ 2,344 $ 2,114 $ 2,037 11 4 Purchase accounting adjustments—net of tax 127 120 136 6 (12) Acquisition-related costs—net of tax 7 4 10 75 (60) Certain significant items—net of tax (21) 59 57 * 4 Non-GAAP adjusted net income (a) $ 2,457 $ 2,297 $ 2,240 7 3 * Calculation not meaningful.
The credit facility replaced the company’s existing revolving credit facility dated as of December 21, 2016. Subject to certain conditions, we have the right to increase the credit facility up to $1.5 billion.
Subject to certain conditions, we have the right to increase the credit facility up to $1.5 billion.
These costs also include certain compensation costs, certain procurement costs, and other miscellaneous operating expenses that are not charged to our operating segments, as well as interest income and expense; • Certain transactions and events such as (i) Purchase accounting adjustments , which includes expenses associated with the amortization of fair value adjustments to inventory, intangible assets and property, plant and equipment; (ii) Acquisition-related activities , which includes costs for acquisitions and integration; and (iii) Certain significant items , which includes non-acquisition-related restructuring charges, certain asset impairment charges, certain legal and commercial settlements, and costs associated with cost reduction/productivity initiatives; and • Other unallocated , which includes (i) certain overhead expenses associated with our global manufacturing operations not charged to our operating segments; (ii) certain costs associated with finance that specifically support our global manufacturing operations; (iii) certain supply chain and global logistics costs; and (iv) certain procurement costs. 2022 vs. 2021 Corporate expenses increased by $21 million, or 2%, in 2022 compared with 2021, primarily due to unfavorable foreign exchange and investments in information technology, partially offset by lower compensation-related costs and interest expense, as well as higher interest income and charitable contributions in the prior year.
These costs also include certain compensation costs, certain procurement costs, and other miscellaneous operating expenses that are not charged to our operating segments, as well as interest income and expense; • Certain transactions and events such as Purchase accounting adjustments , Acquisition-related activities and Certain significant items , which are defined below; and • Other unallocated , which includes (i) certain overhead expenses associated with our global manufacturing operations not charged to our operating segments; (ii) certain costs associated with finance that specifically support our global manufacturing operations; (iii) certain supply chain and global logistics costs; and (iv) certain procurement costs. 2023 vs. 2022 Corporate expenses decreased by $31 million, or 3%, in 2023 compared with 2022, primarily associated with favorable foreign exchange, higher interest income and a settlement received from a third-party for underpayment of royalties related to prior periods, partially offset by higher compensation-related costs, investments in information technology and higher interest expense.
Therefore, the adjusted net income measure includes the revenue earned upon the sale of the acquired products without considering the aforementioned significant charges. 42 | Table of Contents While certain purchase accounting adjustments can occur through 20 or more years, this presentation provides an alternative view of our performance that is used by management to internally assess business performance.
While certain purchase accounting adjustments can occur through 20 or more years, this presentation provides an alternative view of our performance that is used by management to internally assess business performance.
(c) For 2022, primarily represents employee termination and exit costs associated with cost-reduction and productivity initiatives in certain international markets, as well as product transfer costs. 44 | Table of Contents For 2021, primarily represents employee termination costs associated with the realignment of our international operations and other costs associated with cost-reduction and productivity initiatives.
(b) For 2023, primarily represents employee termination and exit costs related to organizational structure refinements and other cost-reduction and productivity initiatives. For 2022, primarily represents employee termination and exit costs associated with cost-reduction and productivity initiatives in certain international markets, as well as product transfer costs.
Other unallocated expenses increased by $68 million, or 22%, in 2022 compared with 2021, primarily due to higher manufacturing costs and freight charges, partially offset by favorable foreign exchange. See Notes to Consolidated Financial Statements— Note 19. Segment Information for further information.
Other unallocated expenses decreased by $88 million, or 23%, in 2023 compared with 2022, primarily due to lower manufacturing costs and freight charges, partially offset by unfavorable foreign exchange, as well as inventory obsolescence, scrap and other charges. See Notes to Consolidated Financial Statements— Note 19.
Revenue Total revenue by operating segment was as follows: Year Ended December 31, % Change (MILLIONS OF DOLLARS) 2022 2021 2020 22/21 21/20 U.S. $ 4,313 $ 4,042 $ 3,557 7 14 International 3,681 3,652 3,035 1 20 Total operating segments 7,994 7,694 6,592 4 17 Contract manufacturing & human health 86 82 83 5 (1) Total Revenue $ 8,080 $ 7,776 $ 6,675 4 16 On a global basis, the mix of revenue between companion animal and livestock products was as follows: Year Ended December 31, % Change (MILLIONS OF DOLLARS) 2022 2021 2020 22/21 21/20 Companion animal $ 5,203 $ 4,689 $ 3,652 11 28 Livestock 2,791 3,005 2,940 (7) 2 Contract manufacturing & human health 86 82 83 5 (1) Total Revenue $ 8,080 $ 7,776 $ 6,675 4 16 2022 vs. 2021 Total revenue increased by $304 million, or 4%, in 2022 compared with 2021 reflecting operational revenue growth of $609 million, or 8%.
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. 38 | Table of Contents Revenue Total revenue by operating segment was as follows: Year Ended December 31, % Change (MILLIONS OF DOLLARS) 2023 2022 2021 23/22 22/21 U.S. $ 4,555 $ 4,313 $ 4,042 6 7 International 3,911 3,681 3,652 6 1 Total operating segments 8,466 7,994 7,694 6 4 Contract manufacturing & human health 78 86 82 (9) 5 Total Revenue $ 8,544 $ 8,080 $ 7,776 6 4 On a global basis, the mix of revenue between companion animal and livestock products was as follows: Year Ended December 31, % Change (MILLIONS OF DOLLARS) 2023 2022 2021 23/22 22/21 Companion animal $ 5,576 $ 5,203 $ 4,689 7 11 Livestock 2,890 2,791 3,005 4 (7) Contract manufacturing & human health 78 86 82 (9) 5 Total Revenue $ 8,544 $ 8,080 $ 7,776 6 4 2023 vs. 2022 Total revenue increased by $464 million, or 6%, in 2023 compared with 2022 reflecting operational revenue growth of $579 million, or 7%.
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, 2018, 2020 and 2022 senior notes may be declared immediately due and payable.
In addition, the indenture contains other customary terms, including certain events of default, upon the occurrence of which, the senior notes may be declared immediately due and payable.
Restructuring charges and certain acquisition-related costs in 2021 primarily consisted of employee termination costs associated with the realignment of our international operations and other costs associated with cost-reduction and productivity initiatives, asset impairment charges related to the consolidation of manufacturing sites in China and integration costs related to recent acquisitions.
For 2021, primarily represents employee termination costs associated with the realignment of our international operations and other costs associated with cost-reduction and productivity initiatives. (c) For 2023, primarily represents certain asset impairment charges related to our precision animal health and diagnostics businesses included in Other (income)/deductions-net , Cost of sales and Restructuring charges and certain acquisition related costs .
Additionally, we measure our overall performance on this basis in conjunction with other performance metrics.
The adjusted net income measure is an important internal measurement for us. Additionally, we measure our overall performance on this basis in conjunction with other performance metrics.
For a list of these factors, see Forward-looking statements and factors that may affect future results. 36 | Table of Contents For a description of our accounting policy, see Notes to Consolidated Financial Statements— Note 3. Significant Accounting Policies: Amortization of Intangible Assets, Depreciation and Certain Long-Lived Assets .
For a description of our accounting policy, see Notes to Consolidated Financial Statements— Note 3. Significant Accounting Policies: Amortization of Intangible Assets, Depreciation and Certain Long-Lived Assets . Contingencies For a discussion about income tax contingencies, see Notes to Consolidated Financial Statements— Note 8D. Tax Matters: Tax Contingencies .
Operational revenue growth was primarily due to the following: • volume growth from new products of approximately 4%; • price growth of approximately 3%; and • volume growth from key dermatology products of approximately 2%, partially offset by: • volume decrease from other in-line products of approximately 1%.
Operational revenue growth was primarily due to the following: • price growth of approximately 5%; and • volume growth from new products of approximately 2%. Foreign exchange decreased our reported revenue growth by approximately 1%.
GAAP and, therefore, have limits in their usefulness to investors and may not be comparable to the calculation of similar measures of other companies. We present certain identified non-GAAP measures solely to provide investors with useful information to more fully understand how management assesses performance.
We present certain identified non-GAAP measures solely to provide investors with useful information to more fully understand how management assesses performance.
Financing activities 2022 vs. 2021 Net cash used in financing activities was $904 million in 2022 compared with $1,862 million in 2021.
Investing activities 2023 vs. 2022 Net cash used in investing activities was $777 million in 2023 compared with $883 million in 2022.
Research and development expenses Year Ended December 31, % Change (MILLIONS OF DOLLARS) 2022 2021 2020 22/21 21/20 Research and development expenses $ 539 $ 508 $ 463 6 10 % of revenue 7 % 7 % 7 % 2022 vs. 2021 R&D expenses increased by $31 million, or 6%, in 2022 compared with 2021, primarily as a result of: • an increase in certain compensation-related costs to support innovation; • higher other operating costs; and • increased spending driven by project investments, partially offset by: • favorable foreign exchange.
Selling, general and administrative expenses Year Ended December 31, % Change (MILLIONS OF DOLLARS) 2023 2022 2021 23/22 22/21 Selling, general and administrative expenses $ 2,151 $ 2,009 $ 2,001 7 — % of revenue 25 % 25 % 26 % 2023 vs. 2022 SG&A expenses increased by $142 million, or 7%, in 2023 compared with 2022, primarily as a result of: • compensation-related costs and the resulting increases in office expenses and travel and entertainment expenses; • higher charitable contributions; • higher freight and logistics costs due to increased sales volume; and • technology project investments, partially offset by: • favorable foreign exchange; and • the reduced impact of purchase accounting adjustments. 39 | Table of Contents Research and development expenses Year Ended December 31, % Change (MILLIONS OF DOLLARS) 2023 2022 2021 23/22 22/21 Research and development expenses $ 614 $ 539 $ 508 14 6 % of revenue 7 % 7 % 7 % 2023 vs. 2022 R&D expenses increased by $75 million, or 14%, in 2023 compared with 2022, primarily as a result of: • an increase in certain compensation-related costs to support innovation and portfolio progression; • higher other operating costs; and • higher spend in project investments.
The higher effective tax rate for 2021, compared with 2020, was primarily attributable to changes in the jurisdictional mix of earnings, which includes the impact of the location of earnings, repatriation costs, operating fluctuations in the normal course of business and the impact of non-deductible and non-taxable items, as well as higher net discrete tax benefits in 2020, partially offset by a benefit in the U.S. related to foreign-derived intangible income in 2021. 43 | Table of Contents A reconciliation of reported diluted earnings per share (EPS), as reported under U.S.
The lower effective tax rate for 2023, compared with 2022, was primarily attributable to a higher benefit in the U.S. related to foreign-derived intangible income, a more favorable jurisdictional mix of earnings (which includes the impact of the location of earnings and repatriation costs), partially offset by a higher net discrete tax expense in 2023, mainly related to changes to prior years’ tax positions.
GAAP, to non-GAAP adjusted diluted EPS follows: Year Ended December 31, % Change 2022 2021 2020 22/21 21/20 Earnings per share—diluted (a) : GAAP reported EPS attributable to Zoetis—diluted $ 4.49 $ 4.27 $ 3.42 5 25 Purchase accounting adjustments—net of tax 0.26 0.29 0.30 (10) (3) Acquisition-related costs—net of tax 0.01 0.02 0.04 (50) (50) Certain significant items—net of tax 0.12 0.12 0.09 — 33 Non-GAAP adjusted EPS—diluted $ 4.88 $ 4.70 $ 3.85 4 22 (a) Diluted earnings per share was computed using the weighted-average common shares outstanding during the period plus the common stock equivalents related to stock options, restricted stock units, performance-vesting restricted stock units and deferred stock units.
GAAP, to non-GAAP adjusted diluted EPS follows: Year Ended December 31, % Change 2023 2022 2021 23/22 22/21 Earnings per share—diluted (a) : GAAP reported EPS attributable to Zoetis—diluted $ 5.07 $ 4.49 $ 4.27 13 5 Purchase accounting adjustments—net of tax 0.28 0.26 0.29 8 (10) Acquisition-related costs—net of tax 0.02 0.01 0.02 * (50) Certain significant items—net of tax (0.05) 0.12 0.12 * — Non-GAAP adjusted EPS—diluted $ 5.32 $ 4.88 $ 4.70 9 4 * Calculation not meaningful.
Management also measures performance using non-GAAP financial measures that may exclude certain amounts from the most directly comparable GAAP measure. Despite the importance of these measures to management in goal setting and performance measurement, non-GAAP financial measures have no standardized meaning prescribed by U.S.
Despite the importance of these measures to management in goal setting and performance measurement, non-GAAP financial measures have no standardized meaning prescribed by U.S. GAAP and, therefore, have limits in their usefulness to investors and may not be comparable to the calculation of similar measures of other 37 | Table of Contents companies.
These notes are comprised of $600 million aggregate principal amount of 5.400% senior notes due 2025 and $750 million aggregate principal amount of 5.600% senior notes due 2032. On February 1, 2023, the net proceeds were used to redeem in full, upon maturity, the $1.35 billion aggregate principal amount of our 3.250% 2013 senior notes due 2023.
On February 1, 2023, the net proceeds were used to redeem in full, upon maturity, the $1.35 billion aggregate principal amount of our 3.250% 2013 senior notes due 2023. 48 | Table of Contents Our senior notes are governed by an indenture and supplemental indentures (collectively, the indenture) between us and Deutsche Bank Trust Company Americas, as trustee.
Amortization of intangible assets Year Ended December 31, % Change (MILLIONS OF DOLLARS) 2022 2021 2020 22/21 21/20 Amortization of intangible assets $ 150 $ 161 $ 160 (7) 1 2022 vs. 2021 Amortization of intangible assets decreased in 2022 compared with 2021, primarily due t o assets that became fully amortized in the current year. 39 | Table of Contents Restructuring charges and certain acquisition-related costs Year Ended December 31, % Change (MILLIONS OF DOLLARS) 2022 2021 2020 22/21 21/20 Restructuring charges and certain acquisition-related costs $ 11 $ 43 $ 25 (74) 72 2022 vs. 2021 Restructuring charges and certain acquisition-related costs were $11 million and $43 million in 2022 and 2021, respectively.
Amortization of intangible assets Year Ended December 31, % Change (MILLIONS OF DOLLARS) 2023 2022 2021 23/22 22/21 Amortization of intangible assets $ 149 $ 150 $ 161 (1) (7) 2023 vs. 2022 Amortization of intangible assets decreased in 2023 compared with 2022 primarily due t o asset impairments taken in 2023 and 2022, as well as assets that became fully amortized in the current year, partially offset by intangible assets acquired during 2023 and 2022.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur credit ratings may not reflect all risks of an investment in our senior notes. Actual or anticipated changes or downgrades in our credit ratings, including any announcement that our ratings are under further review for a downgrade, could affect the market prices of our securities and increase our borrowing costs.
Biggest changeActual or anticipated changes or downgrades in our credit ratings, including any announcement that our ratings are under further review for a downgrade, could affect the market prices of our securities and increase our borrowing costs. 26 | Table of Contents We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
If any of our top-selling products and product lines experience issues, such as loss of patent protection, material product liability litigation, new or unexpected side effects, manufacturing or supply chain disruptions, regulatory proceedings, labeling changes, negative publicity, changes to veterinarian or customer preferences, and/or disruptive innovations or the introduction of competing and/or more effective products, our revenues could be negatively impacted, perhaps significantly.
If any of our top-selling products or product lines experience issues, such as loss of patent protection, material product liability litigation, new or unexpected side effects, manufacturing or supply chain disruptions, regulatory proceedings, labeling changes, negative publicity, changes to veterinarian or customer preferences, and/or disruptive innovations or the introduction of competing and/or more effective products, our revenues could be negatively impacted, perhaps significantly.
Higher corn prices may contribute to reductions in herd or flock sizes that may result in reduced spending on animal health products. Adverse weather conditions and natural disasters may also have a material impact on the aquaculture business.
Higher corn prices may contribute to reductions in herd or flock sizes that may result in reduced spending on animal health products. Adverse weather conditions and natural disasters may also have a material adverse impact on the aquaculture business.
Such events can also interfere with our livestock customers’ operations due to power outages, fuel shortages, damage to their farms or facilities or disruption of transportation channels, among other things. For example, severe droughts can lead to a decrease in harvested corn and higher corn prices, which may impact the profitability of livestock producers of cattle, pork and poultry.
Such events could also interfere with our livestock customers’ operations due to power outages, fuel shortages, damage to their farms or facilities or disruption of transportation channels, among other things. For example, severe droughts can lead to a decrease in harvested corn and higher corn prices, which may impact the profitability of livestock producers of cattle, pork and poultry.
Our processes and controls may not always align with evolving standards for identifying, measuring and reporting ESG metrics, our interpretation of reporting standards that may be required by the SEC, European and other regulators may differ from those of others and such standards may change over time, any of which could result in significant revisions to our goals or reported progress in achieving such goals.
Our processes and controls may not always align with evolving standards for identifying, measuring and reporting ESG metrics, our interpretation of reporting standards that may be required by the SEC, European Union and other regulators may differ from those of others and such standards may change over time, any of which could result in significant revisions to our goals or reported progress in achieving such goals.
We depend on the efforts of our executive officers and certain key personnel, including research, technical, sales, marketing, manufacturing and administrative personnel. Our ability to recruit and retain such talent will depend on a number of factors, including compensation and benefits, work location and work environment.
We depend on the efforts of our executive officers and certain key personnel, including research, technical, sales, security, marketing, manufacturing and administrative personnel. Our ability to recruit and retain such talent will depend on a number of factors, including compensation and benefits, work location and work environment.
These two pillars combined may represent a significant change in the international tax regime, and there is risk of an adverse impact to our effective tax rate, but the amount of such impact remains uncertain at this time.
These two pillars combined represent a significant change in the international tax regime, and there is risk of an adverse impact to our effective tax rate, but the amount of such impact remains uncertain at this time.
Climate driven changes could have a material adverse impact on the financial performance of our business, and on our customers. The impacts from climate change may also impact Zoetis’ and our suppliers’ manufacturing processes.
Such climate driven changes could have a material adverse impact on the financial performance of our business, and on our customers. The impacts from climate change may also impact Zoetis’ and our suppliers’ manufacturing processes.
Specifically, our high level of debt could have important consequences, including: • making it more difficult for us to satisfy our obligations with respect to our debt; • limiting our ability to obtain additional financing to fund future working capital, capital expenditures, business development or other general corporate requirements, including dividends; • increasing our vulnerability to general adverse economic and industry conditions; • exposing us to the risk of increased interest rates as certain of our borrowings may in the future be at variable rates of interest; • limiting our flexibility in planning for and reacting to changes in the animal health industry; • placing us at a competitive disadvantage to other, less leveraged competitors; • impacting our effective tax rate; and 26 | Table of Contents • increasing our cost of borrowing.
Specifically, our high level of debt could have important consequences, including: • making it more difficult for us to satisfy our obligations with respect to our debt; • limiting our ability to obtain additional financing to fund future working capital, capital expenditures, business development or other general corporate requirements, including dividends; • increasing our vulnerability to general adverse economic and industry conditions; • exposing us to the risk of increased interest rates as certain of our borrowings may in the future be at variable rates of interest; • limiting our flexibility in planning for and reacting to changes in the animal health industry; • placing us at a competitive disadvantage to other, less leveraged competitors; • impacting our effective tax rate; and • increasing our cost of borrowing.
Our failure, or the failure of third parties we rely on, including CMOs, to comply with these regulatory requirements, allegations of such non-compliance or the discovery of previously unknown problems with a product or manufacturer could result in, among other things, inspection observation notices, warning letters or similar regulatory correspondence, fines, a partial or total shutdown of production in one or more of our facilities while an alleged violation is remediated, withdrawals or suspensions of current products from the market, and civil or criminal prosecution, as well as decreased sales as a result of negative publicity and product liability claims.
Our failure, or the failure of third parties we rely on, including CMOs, to comply with these regulatory requirements, allegations of such non-compliance or the discovery of previously unknown problems with a product or manufacturer could result in, among other things, inspection observation notices, warning letters or similar regulatory correspondence, fines, a partial or total shutdown of production in one or more of our facilities while an alleged violation is remediated, withdrawals or suspensions of current 21 | Table of Contents products from the market, and civil or criminal prosecution, as well as decreased sales as a result of negative publicity and product liability claims.
Examples of such risks include: (1) the availability and cost of low- or non-carbon-based energy sources and technologies, (2) evolving regulatory requirements affecting ESG standards or disclosures, (3) our ability to recruit, develop and retain diverse talent in our labor markets, and (4) the impact of our organic growth and acquisitions or dispositions of businesses or operations.
Examples of such risks include: (1) the availability and cost of low- or non-carbon-based energy sources and technologies, (2) evolving regulatory requirements and rulings affecting ESG and diversity standards or disclosures, (3) our ability to recruit, develop and retain diverse talent in our labor markets, and (4) the impact of our organic growth and acquisitions or dispositions of businesses or operations.
In addition, despite our efforts to protect sensitive, confidential or personal data or information, we (or our third party partners) may be vulnerable to material security breaches, theft, misplaced or lost data, programming errors, employee errors and/or malfeasance that could potentially lead to the compromise of sensitive, confidential or personal data or information, improper use of our systems or networks, unauthorized access, use, disclosure, modification or destruction of information (including confidential business information, trade secrets, intellectual property and corporate strategic plans), defective products, production downtimes and operational disruptions.
In addition, despite our efforts to protect sensitive, confidential or personal data or information, we (or our third party partners) may be vulnerable to material security breaches, theft, misplaced or lost data, programming errors, employee errors and/or malfeasance that could potentially lead to the compromise of sensitive, confidential or personal data or information, improper use of our systems or networks, unauthorized access, use, disclosure, modification or 25 | Table of Contents destruction of information (including confidential business information, trade secrets, intellectual property and corporate strategic plans), defective products, production downtimes and operational disruptions.
For example, ample amounts of clean water are needed to produce our products, and the effects from climate change could result in water supply interruptions and low water quality. In addition, increased frequency of natural disasters and adverse weather conditions may disrupt our manufacturing processes or our supply chain.
For example, ample amounts of clean water are needed to produce our products, and the effects from climate change could result in water supply interruptions and low water quality. In addition, increased frequency of natural disasters and adverse weather conditions as a result of climate change may disrupt our manufacturing processes or our supply chain.
Item 1A. Risk Factors. In addition to the other information set forth in this 2022 Annual Report, any of the factors described below could materially adversely affect our operating results, financial condition and liquidity, which could cause the trading price of our securities to decline.
Item 1A. Risk Factors. In addition to the other information set forth in this 2023 Annual Report, any of the factors described below could materially adversely affect our operating results, financial condition and liquidity, which could cause the trading price of our securities to decline.
If one or more of our large customers, including distributors, discontinue their relationship with us as a result of economic conditions, sanctions or otherwise, our operating results and financial condition may be materially adversely affected.
If one or more of our large customers, including distributors, discontinue their relationship with us as a result of economic conditions, public health conditions, sanctions or otherwise, our operating results and financial condition may be materially adversely affected.
Certain of our customers and suppliers may be affected directly by the current economic downturn and could face credit issues or cash flow problems that could give rise to payment delays, increased credit risk, bankruptcies and other financial hardships that could decrease the demand for our products or hinder our ability to collect amounts due from customers or goods from our suppliers.
Certain of our customers and suppliers may be affected directly by economic downturns and could face credit issues or cash flow problems that could give rise to payment delays, increased credit risk, bankruptcies and other financial hardships that could decrease the demand for our products or hinder our ability to collect amounts due from customers or goods from our suppliers.
In addition, concerns regarding greenhouse gas emissions and other potential environmental impacts of livestock production have led to some consumers opting to limit or avoid consuming animal products. If such events affect our customers’ businesses, they may purchase 19 | Table of Contents fewer Zoetis products, and our revenues may be negatively impacted.
In addition, concerns regarding greenhouse gas emissions and other potential environmental impacts of livestock production have led to some consumers opting to limit or avoid consuming animal products. If such events affect our customers’ businesses, they may purchase fewer Zoetis products, and our revenues may be negatively impacted.
The animal health industry is subject to regional and local trends and regulations and, as a result, products that are successful in some of our markets may not achieve similar 20 | Table of Contents success when introduced into new markets. Furthermore, the timing and cost of our R&D may increase, and our R&D may become less predictable.
The animal health industry is subject to regional and local trends and regulations and, as a result, products that are successful in some of our markets may not achieve similar success when introduced into new markets. Furthermore, the timing and cost of our R&D may increase, and our R&D may become less predictable.
As a result, we have had to take certain measures including placing limits on the amounts of product veterinarians could purchase and delayed the launch of the product in certain markets. 21 | Table of Contents Our manufacturing network, including our CMOs, may be unable to meet the demand for our products or we may have excess capacity if demand for our products changes.
As a result, we have had to take certain measures including placing limits on the amounts of product veterinarians could purchase and delayed the launch of the product in certain markets. Our manufacturing network, including our CMOs, may be unable to meet the demand for our products or we may have excess capacity if demand for our products changes.
Cyber-attacks could include wrongful conduct by hostile foreign governments, industrial espionage, the deployment of harmful malware, ransomware, denial-of-service attacks, and other means to threaten data confidentiality, integrity and availability.
Cyberattacks could include wrongful conduct by hostile foreign governments, industrial espionage, the deployment of harmful malware, ransomware, denial-of-service attacks, and other means to threaten data confidentiality, integrity and availability.
For example, our sales in certain emerging markets have suffered from extended periods of disruption due to natural disasters and adverse weather conditions. Furthermore, we have also experienced lower than expected sales in certain emerging markets due to local, regional and global 24 | Table of Contents restrictions on banking and commercial activities in those countries.
For example, our sales in certain emerging markets have suffered from extended periods of disruption due to natural disasters and adverse weather conditions. Furthermore, we have also experienced lower than expected sales in certain emerging markets due to local, regional and global restrictions on banking and commercial activities in those countries.
In recent years, outbreaks of various diseases, including African Swine Fever, avian influenza, foot-and-mouth disease, bovine spongiform encephalopathy (otherwise known as BSE or mad cow disease) and porcine epidemic diarrhea virus (otherwise known as PEDv), have impacted the animal health business.
In recent years, outbreaks of various diseases, including African Swine Fever, avian influenza, foot-and-mouth disease, bovine spongiform 17 | Table of Contents encephalopathy (otherwise known as BSE or mad cow disease) and porcine epidemic diarrhea virus (otherwise known as PEDv), have impacted the animal health business.
Any of these events could cause us to incur significant expenses and could materially adversely affect our operating results and financial condition. Our business may be negatively affected by weather conditions, natural disasters and the availability of natural resources.
Any of these events could cause us to incur significant expenses and could materially adversely affect our operating results and financial condition. 18 | Table of Contents Our business may be negatively affected by weather conditions, natural disasters and the availability of natural resources.
In recent years, there has been a trend towards the concentration of veterinarians in large clinics and hospitals. In addition, livestock producers, particularly swine and poultry producers, and our distributors, have seen consolidation in their industries.
Veterinarians and livestock producers are our primary customers. In recent years, there has been a trend towards the concentration of veterinarians in large clinics and hospitals. In addition, livestock producers, particularly swine and poultry producers, and our distributors, have seen consolidation in their industries.
In 2022, we generated approximately 42% of our revenue in currencies other than the U.S. dollar, principally the euro, Chinese renminbi, Brazilian real, Australian dollar, Canadian dollar and British pound. We are subject to currency exchange rate risk to the extent that our costs are denominated in currencies other than those in which we earn revenue.
In 2023, we generated approximately 43% of our revenue in currencies other than the U.S. dollar, principally the euro, Brazilian real, Australian dollar, Chinese renminbi, British pound and Canadian dollar. We are subject to currency exchange rate risk to the extent that our costs are denominated in currencies other than those in which we earn revenue.
In particular, forward-looking statements include statements relating to our future actions, business plans or prospects, prospective products, product approvals or products under development, product and supply chain disruptions, the impact of the COVID-19 pandemic and any recovery therefrom on our business, R&D costs, timing and likelihood of success, future operating or financial performance, future results of current and anticipated products and services, strategies, sales efforts, expenses, production efficiencies, production margins, anticipated timing of generic market entries, integration of acquired businesses, interest rates, tax rates, changes in tax regimes and laws, foreign exchange rates, growth in emerging markets, the outcome of contingencies, such as legal proceedings, plans related to share repurchases and dividends, government regulation and financial results.
In particular, forward-looking statements include statements relating to our future actions, business plans or prospects, prospective products, product approvals or products under development, product and supply chain disruptions, R&D costs, timing and likelihood of success, future operating or financial performance, future results of current and anticipated products and services, strategies, sales efforts, expenses, production efficiencies, production margins, anticipated timing of generic market entries, integration of acquired businesses, interest rates, tax rates, changes in tax regimes and laws, foreign exchange rates, growth in emerging markets, the outcome of contingencies, such as legal proceedings, plans related to share repurchases and dividends, government regulation and financial results.
The extent of protection afforded by our patents varies from country to country and is limited by the scope of the claimed subject matter of our patents, the term of the patent and the availability and enforcement of legal remedies in the applicable country.
The extent of protection afforded by our patents varies from country to country and is limited by the scope of the claimed 16 | Table of Contents subject matter of our patents, the term of the patent and the availability and enforcement of legal remedies in the applicable country.
In addition, we have been investing in data and digital capabilities and have expanded our diagnostics portfolio, and as a result, there could be an increased likelihood of a cyber-attack or breach of security that could negatively impact us or our customers. Cyber-attacks are increasing in their frequency, sophistication and intensity, and have become increasingly difficult to detect.
In addition, we have been investing in data and digital capabilities and have expanded our diagnostics portfolio, and as a result, there could be an increased likelihood of a cyberattack or breach of security that could negatively impact us or our customers. Cyberattacks are increasing in their frequency, sophistication and intensity, and have become increasingly difficult to detect.
Under accounting principles generally accepted in the United States of America (U.S. GAAP), if we determine goodwill or identifiable intangible assets are impaired, we will be required to write down these assets and record a non-cash impairment charge. As of December 31, 2022, we had goodwill of $2.7 billion and identifiable intangible assets, less accumulated amortization, of $1.4 billion.
Under accounting principles generally accepted in the United States of America (U.S. GAAP), if we determine goodwill or identifiable intangible assets are impaired, we will be required to write down these assets and record a non-cash impairment charge. As of December 31, 2023, we had goodwill of $2.8 billion and identifiable intangible assets, less accumulated amortization, of $1.3 billion.
In the years since the start of generic and other competition, sales of our Rimadyl chewable and Draxxin products have declined in the U.S., the largest market for these products, by 23% and 45%, respectively, and additional declines are expected in subsequent years.
In the years since the start of generic and other competition, sales of our Rimadyl chewable and Draxxin products have declined in the U.S., the largest market for these products, by 33% and 47%, respectively, and additional declines are expected in subsequent years.
For example, we have experienced challenges in manufacturing certain products including Simparica Trio, and the component parts of certain products including Librela and Solensia, that have impacted our ability to meet customer demand.
For example, during the COVID-19 pandemic we have experienced challenges in manufacturing certain products including Simparica Trio, and the component parts of certain products including Librela and Solensia, that have impacted our ability to meet customer demand.
In addition, labor costs may be subject to volatility caused by the supply of labor, governmental regulations, economic climate and other factors.
In addition, labor costs may be subject to volatility caused by the supply of labor, governmental regulations, economic climate and other 20 | Table of Contents factors.
As of December 31, 2022, we had approximately $8.0 billion of total unsecured indebtedness outstanding. In addition, we currently have agreements for a multi-year revolving credit facility and a commercial paper program, each with a capacity of up to $1.0 billion.
As of December 31, 2023, we had approximately $6.7 billion of total unsecured indebtedness outstanding. In addition, we currently have agreements for a multi-year revolving credit facility and a commercial paper program, each with a capacity of up to $1.0 billion.
There may be increased risk of product liability claims and other liability if veterinarians, livestock producers, pet owners or others attempt to use our products off-label, including the use of our products in species (including humans) for which they have not been approved.
There may be increased risk of product liability claims and other liability if veterinarians, livestock producers, pet owners or others attempt to use our products off-label, including the use of our products in species (including humans) for which they have not been approved. In addition, certain of our products are regulated by the U.S.
Companion animal owners increasingly have the option to purchase animal health products from sources other than veterinarians, such as Internet-based retailers, “big-box” retail stores or other over-the-counter distribution channels.
Companion animal owners increasingly have the option to purchase animal health products and, in some cases, veterinary services from sources other than veterinarians, such as internet-based retailers, “big-box” retail stores or other over-the-counter distribution channels.
These types of projects are subject to risks of delay or cost overruns inherent in any large construction project, and require licensure by various regulatory authorities. Significant cost overruns or delays in completing these projects could have an adverse effect on the Company’s return on investment. Risks related to legal matters and regulation Our business is subject to substantial regulation.
These types of projects are subject to risks of delay or cost overruns inherent in any large construction project, and require licensure by various regulatory authorities. Significant cost overruns or delays in completing these projects could have an adverse effect on the Company’s return on investment.
As a global company, we are subject to various state, federal and international laws and regulations, including regulations relating to the development, quality assurance, manufacturing, importation, distribution, marketing and sale of our products. In addition, our manufacturing facilities are subject to periodic inspections by regulatory agencies.
Risks related to legal matters and regulation Our business is subject to substantial regulation. As a global company, we are subject to various state, federal and international laws and regulations, including regulations relating to the development, quality assurance, manufacturing, importation, distribution, marketing and sale of our products. In addition, our manufacturing facilities are subject to periodic inspections by regulatory agencies.
We also employ a network of 132 third-party CMOs. Many of our products involve complex manufacturing processes and are sole-sourced from certain manufacturing sites. Minor deviations in our or our suppliers' manufacturing or logistical processes, such as temperature excursions or improper package sealing, could result in delays, inventory shortages, unanticipated costs, product recalls, product liability and/or regulatory action.
Many of our products involve complex manufacturing processes and are sole-sourced from certain manufacturing sites. Minor deviations in our or our suppliers' manufacturing or logistical processes, such as temperature excursions or improper package sealing, could result in delays, inventory shortages, unanticipated costs, product recalls, product liability and/or regulatory action.
If animal health customers increase their use of new or existing generic products, our operating results and financial condition could be materially adversely affected. Our business is subject to risk based on global economic and political conditions. Macroeconomic, business, political and financial disruptions could have a material adverse effect on our operating results, financial condition and liquidity.
If animal health customers increase their use of new or existing generic products, our operating results and financial condition could be materially adversely affected. Our business is subject to risk based on global economic and political conditions.
We face competition from products produced by other companies, including generic alternatives to our products. We depend on patents and regulatory data exclusivity periods to provide us with exclusive marketing rights for some of our products.
Generic and other products may be viewed as more cost-effective than our products. We face competition from products produced by other companies, including generic alternatives to our products. We depend on patents and regulatory data exclusivity periods to provide us with exclusive marketing rights for some of our products.
Our total revenue attributable to antibacterials for livestock was approximately $1.0 billion for the year ended December 31, 2022. For example, regulations regarding antibiotic usage in animals have been introduced in certain markets, including the U.S., the EU, China, France, Germany, and Vietnam.
Our total revenue attributable to antibacterials for livestock was less than $950 million for the year ended December 31, 2023. For example, regulations regarding antibiotic usage in animals have been introduced in certain markets, including the U.S., the EU, China, France, Germany, and Vietnam.
To the extent that any of our competitors are more successful with respect to any key competitive factor or we are forced to reduce, or are unable to raise, the price of any of our products in order to remain competitive, our operating results and financial condition could be materially adversely affected. 16 | Table of Contents Generic and other products may be viewed as more cost-effective than our products.
To the extent that any of our competitors are more successful with respect to any key competitive factor or we are forced to reduce, or are unable to raise, the price of any of our products in order to remain competitive, our operating results and financial condition could be materially adversely affected.
Any of these events could materially adversely affect our operating results and financial condition. Our operations and reputation may be impacted if we do not comply with continually changing laws and regulations regarding data privacy. We collect and use personal data of our customers, employees and suppliers, including health information in our human health business, in a variety of ways.
Our operations and reputation may be impacted if we do not comply with continually changing laws and regulations regarding data privacy. We collect and use personal data of our customers, employees and suppliers, including health information in our human health business, in a variety of ways.
We may also experience difficulty or delays in implementing changes to our workforce in certain markets. In addition, labor problems at our suppliers, CMOs or other service providers could have a material adverse effect on our operating results and financial condition. Our business may be harmed if we are unable to retain and hire executive officers or other key personnel.
In addition, labor problems at our suppliers, CMOs or other service providers could have a material adverse effect on our operating results and financial condition. 19 | Table of Contents Our business may be harmed if we are unable to retain and hire executive officers or other key personnel.
Currency devaluations result in a diminished value of funds denominated in the currency of the country instituting the devaluation. Cash repatriation restrictions and exchange controls may limit our ability to convert foreign currencies into U.S. dollars or to remit dividends and other payments by our foreign subsidiaries or businesses located in or conducted within a country imposing restrictions or controls.
Cash repatriation restrictions and exchange controls may limit our ability to convert foreign currencies into U.S. dollars or to remit dividends and other payments by our foreign subsidiaries or businesses located in or conducted within a country imposing restrictions or controls.
While we have procedures to monitor and limit exposure to credit and collectability risk and have defensive measures in place to prevent and mitigate cyberattacks, there can be no assurances that such procedures and measures will effectively limit such risks and avoid losses.
While we have procedures to monitor and limit exposure to credit and collectability risk and have defensive measures in place to prevent and mitigate cyberattacks, there can be no assurances that such procedures and measures will effectively limit such risks and avoid losses. Consolidation of our customers and distributors could negatively affect the pricing of our products.
Also, in certain markets, there has been an increase in consumer preference towards proteins produced without the use of antibiotics. 18 | Table of Contents We cannot predict whether antibacterial resistance concerns will result in additional restrictions or bans, expanded regulations, public pressure to discontinue or reduce use of antibacterials in food-producing animals or increased consumer preference for antibiotic-free protein, any of which could materially adversely affect our operating results and financial condition.
We cannot predict whether antibacterial resistance concerns will result in additional restrictions or bans, expanded regulations, public pressure to discontinue or reduce use of antibacterials in food-producing animals or increased consumer preference for antibiotic-free protein, any of which could materially adversely affect our operating results and financial condition.
Due to economic and political conditions, tax rates in various jurisdictions may be subject to significant change. The company’s future effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws or their interpretation.
The company’s future effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws or their interpretation.
The costs imposed on us as a result of a cyberattack or network disruption could be significant. Among others, such costs could include increased expenditures on cyber security measures, litigation, regulatory investigations, fines, and sanctions, lost revenues from business interruption, damage to the public’s perception regarding our ability to keep our information secure and significant remediation costs.
Among others, such costs could include increased expenditures on cybersecurity measures, litigation, regulatory investigations, fines, and sanctions, lost revenues from business interruption, damage to the public’s perception regarding our ability to keep our information secure and significant remediation costs.
These competitors may have access to greater financial, marketing, technical and other resources or have significant market share in particular areas. As a result, they may be able to devote more resources to developing, manufacturing, marketing and selling their products, initiating or withstanding substantial price competition or more readily taking advantage of acquisitions or other opportunities.
As a result, they may be able to devote more resources to developing, manufacturing, marketing and selling their products, initiating or withstanding substantial price competition or more readily taking advantage of acquisitions or other opportunities.
Over time we may be unable to sustain our current margins due to the increased purchasing power of such retailers as compared to traditional veterinary practices. Any of these events could materially adversely affect our operating results and financial condition. An outbreak of infectious disease carried by animals could negatively affect the sale and production of our products.
Over time we may be unable to sustain our current margins due to the increased purchasing power of such retailers as compared to traditional veterinary practices. Any of these events could materially adversely affect our operating results and financial condition. Disruptive innovations and advances in medical practices and technologies could negatively affect the market for our products.
In addition, certain jurisdictions like Italy have implemented the use of electronic prescriptions, which has caused more disciplined use of antibiotics and decreased the demand for our antibacterial products.
In addition, certain jurisdictions like Italy have implemented the use of electronic prescriptions, which has caused more disciplined use of antibiotics and decreased the demand for our antibacterial products. Also, in certain markets, there has been an increase in consumer preference towards proteins produced without the use of antibiotics.
For example, our five top-selling products and product lines, Simparica/Simparica Trio, Apoquel, Cytopoint, Revolution/Revolution Plus/Stronghold and ceftiofur line, contributed approximately 37% of our revenue in 2022, and any issues with these top-selling products and product lines would have a more significant impact to our results of operations. The animal health industry is highly competitive.
For example, our five top-selling products and product lines, Simparica/Simparica Trio, Apoquel/Apoquel Chewable, Cytopoint, Revolution/Revolution Plus/Stronghold and ceftiofur line, contributed approximately 37% of our revenue in 2023, and any issues with these top-selling products and product lines would have a more significant impact to our results of operations. Our products are subject to unanticipated safety, quality or efficacy concerns.
Furthermore, our exposure to credit and collectability risk and cybersecurity risk is higher in certain international markets and as a result of the crisis resulting from Russia’s invasion of Ukraine, our ability to mitigate such risks may be limited.
Furthermore, our exposure to credit and collectability risk and cybersecurity risk is higher in certain international markets, our ability to mitigate such risks may be limited.
In addition, technological breakthroughs by others may obviate our technology and reduce or eliminate the market for our products. Introduction or acceptance of such products or technologies could materially adversely affect our operating results and financial condition. Consolidation of our customers and distributors could negatively affect the pricing of our products. Veterinarians and livestock producers are our primary customers.
In addition, technological breakthroughs by others may obviate our technology and reduce or eliminate the market for our products. Introduction or acceptance of such products or technologies could materially adversely affect our operating results and financial condition. An outbreak of infectious disease carried by animals could negatively affect the sale and production of our products.
We cannot predict with certainty the eventual outcome of pending or future litigation matters. An adverse outcome of litigation or legal matters could result in our being responsible for significant damages. Any of these negative effects resulting from litigation matters could materially adversely affect our operating results and financial condition.
We cannot predict with certainty the eventual outcome of pending or future litigation matters. An adverse outcome of litigation or legal matters could result in our being responsible for significant damages.
In addition, because our financial statements are reported in U.S. dollars, changes in currency exchange rates between the U.S. dollar and other currencies have had, and will continue to have, an impact on our results of operations. We also face risks arising from currency devaluations and the imposition of cash repatriation restrictions and exchange controls.
In addition, because our financial statements are reported in U.S. dollars, changes in currency exchange rates, including changes in countries with highly inflationary economies, between the U.S. dollar and other currencies have had, and will continue to have, an impact on our results of operations.
The standards for tracking and reporting on ESG matters are relatively new, have not been harmonized and continue to evolve.
The standards for tracking and reporting on ESG matters and continue to evolve.
The illegal distribution and sale by third parties of counterfeit or illegally compounded versions of our products or of stolen, diverted or relabeled products could have a negative impact on our reputation and business.
Any of these negative effects resulting from litigation matters could materially adversely affect our operating results and financial condition. 22 | Table of Contents The illegal distribution and sale by third parties of counterfeit or illegally compounded versions of our products or of stolen, diverted or relabeled products could have a negative impact on our reputation and business.
Our efforts to accomplish and accurately report on these goals and objectives present numerous operational, reputational, financial, legal and other risks, any of which could have a material negative impact, including on our reputation. 23 | Table of Contents Our ability to achieve any goal or objective, including with respect to environmental and diversity initiatives, is subject to numerous risks, many of which are outside of our control.
Our efforts to accomplish and accurately report on these goals and objectives present numerous operational, reputational, financial, legal and other risks, any of which could have a material negative impact, including on our reputation.
Russia’s invasion of Ukraine and the imposition of sanctions and business disruptions and the measures taken in China to combat the COVID-19 pandemic, as well as inflation, are examples of recent global economic conditions that could have a material adverse effect on our operating results, financial condition and liquidity.
Russia’s invasion of Ukraine, the conflict between Israel and Hamas (including any escalation or expansion), economic weakness in China, the COVID-19 pandemic, as well as inflation, are examples of recent global economic conditions that could have an adverse effect on our operating results, financial condition and liquidity.
In addition, economic concerns and geopolitical instability may cause some pet owners to forgo or defer visits to veterinary practices or could reduce their willingness to treat pet health conditions or even to continue to own a pet. Moreover, customers may seek lower price alternatives to our products if they are negatively impacted by the current poor economic conditions.
In addition, economic concerns and geopolitical instability may cause shortages in veterinary healthcare workers or some pet owners to forgo or defer visits to veterinary practices or could reduce their willingness to treat pet health conditions or even to continue to own a pet.
Climate change regulation continues to evolve, and it is not possible to accurately estimate either a timetable for implementation or our future compliance costs relating to implementation.
Such regulation could take several forms that could result in additional costs in the form of investments of capital to maintain compliance with laws and regulations and taxes. Climate change regulation continues to evolve, and it is not possible to accurately estimate either a timetable for implementation or our future compliance costs relating to implementation.
We are regularly party to patent litigation and other intellectual property rights claims that are expensive and time consuming, and if resolved adversely, could have a significant impact on our business and financial condition. 25 | Table of Contents Risks related to information technology We may be unable to adequately protect our information technology systems from cyber-attacks, breaches of security or misappropriation of data, which could result in the disclosure of confidential information, damage our reputation, and subject us to significant financial and legal exposure.
Risks related to information technology We may be unable to adequately protect our information technology systems from cyberattacks, breaches of security or misappropriation of data, which could result in the disclosure of confidential information, damage our reputation, and subject us to significant financial and legal exposure.
Risks related to manufacturing and supply Manufacturing problems and capacity imbalances may cause product launch delays, inventory shortages, recalls or unanticipated costs. In order to sell our products, we must be able to produce and ship our products in sufficient quantities. On December 31, 2022, we had a global manufacturing network consisting of 29 manufacturing sites located in 12 countries.
In order to sell our products, we must be able to produce and ship our products in sufficient quantities. On December 31, 2023, we had a global manufacturing network consisting of 29 manufacturing sites located in 12 countries. We also employ a network of 109 third-party CMOs.
Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties. Risks related to our business and the animal health industry Our products are subject to unanticipated safety, quality or efficacy concerns.
Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties. Risks related to our business and the animal health industry The animal health industry is highly competitive. We believe many of our competitors are conducting R&D activities in areas served by our products and in areas in which we are developing products.
Similarly, our failure or perceived failure to pursue or fulfill our goals, targets and objectives or to satisfy various reporting standards within the timelines we announce, or at all, could also have similar negative impacts and expose us to government enforcement actions and private litigation.
Similarly, our failure or perceived failure to pursue or fulfill our goals, targets and objectives or to satisfy various reporting standards within the timelines we announce, or at all, could also have similar negative impacts and expose us to government enforcement actions and private litigation. 23 | Table of Contents Risks related to operating in foreign jurisdictions A significant portion of our operations are conducted in foreign jurisdictions, including jurisdictions presenting a high risk of bribery and corruption, and are subject to the economic, political, legal and business environments of the countries in which we do business.
Compliance with diverse legal requirements is costly and time-consuming and requires significant resources. In the event we believe or have reason to believe our employees have or may have violated applicable laws or regulations, we may be subject to investigation costs, potential penalties and other related costs which in turn could negatively affect our reputation and our results of operations.
In the event we believe or have reason to believe our employees have or may have violated applicable laws or regulations, we may be subject to investigation costs, potential penalties and other related costs which in turn could negatively affect our reputation and our results of operations. 24 | Table of Contents Risks related to tax matters The Company could be subject to changes in its tax rates, the adoption of new U.S. or foreign tax legislation or exposure to additional tax liabilities.
Any impairment of goodwill or identifiable intangible assets could have a material adverse effect on our operating results and financial position. Risks related to our research and development Our R&D, acquisition and licensing efforts may fail to generate new products and product lifecycle innovations.
Risks related to our research and development Our R&D, acquisition and licensing efforts may fail to generate new products and product lifecycle innovations.
Risks related to tax matters The Company could be subject to changes in its tax rates, the adoption of new U.S. or foreign tax legislation or exposure to additional tax liabilities. The multinational nature of our business subjects us to taxation in the U.S. and numerous foreign jurisdictions.
The multinational nature of our business subjects us to taxation in the U.S. and numerous foreign jurisdictions. Due to economic and political conditions, tax rates in various jurisdictions may be subject to significant change.
In the U.S., there is a significant possibility that some form of regulation will be enacted at the federal level to address the effects of climate change. Such regulation could 22 | Table of Contents take several forms that could result in additional costs in the form of investments of capital to maintain compliance with laws and regulations and taxes.
In the U.S., there is a significant possibility that some form of regulation will be enacted at the federal level to address the effects of climate change, including the climate change disclosure rules from the SEC that are expected to be finalized in 2024.
We believe many of our competitors are conducting R&D activities in areas served by our products and in areas in which we are developing products. Our competitors include standalone animal health businesses and the animal health businesses of large pharmaceutical companies. There are also many start-up companies working in the animal health area.
Our competitors include standalone animal health businesses, start-up companies working in the animal health area and the animal health businesses of large pharmaceutical companies. These competitors may have access to greater financial, marketing, technical and other resources or have significant market share in particular areas.
In addition, certain of our products could be misused or abused by humans, which could expose us to liability. For example, Ketamine, the active pharmaceutical ingredient in our Ketaset product (a nonnarcotic agent for anesthetic use in cats), is abused by humans as a hallucinogen.
For example, Ketamine, the active pharmaceutical ingredient in our Ketaset product (a nonnarcotic, nonbarbiturate agent for anesthetic use in cats), is classified as a Schedule III drug under the Controlled Substances Act due to its moderate to low potential for physical and psychological dependence.
Remote working arrangements could result in additional complexity or inefficiency or increase operational risks, including, but not limited to, risks associated with cybersecurity, information technology and systems which could have a material adverse effect on our business. Weak global economic conditions also may amplify the ongoing impact of the pandemic.
In support of our flexible work environment, many of our workforce work either part-time or full-time remotely, which could increase risks associated with cybersecurity, information technology and systems which could have a material adverse effect on our business. The costs imposed on us as a result of a cyberattack or network disruption could be significant.
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In addition to competition from established market participants, new entrants to the animal health medicines, vaccines and diagnostics industry, including start-up companies, could substantially reduce our market share or render our products obsolete.
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Macroeconomic, business, political and financial disruptions, including public health crises or pandemics, such as COVID-19, could have a material adverse effect on our operating results, financial condition and liquidity.
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The COVID-19 pandemic has negatively affected the global economy; has disrupted our and our customers', suppliers', and vendors' operations; has negatively affected certain elements of our business and operations; and may materially adversely affect our business, financial condition, results of operations and/or cash flows.
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Moreover, customers may seek lower price alternatives to our products if they are negatively impacted by the current poor economic conditions.
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Our global operations expose us to risks associated with public health crises, including epidemics and pandemics such as COVID-19. There is no certainty that measures taken by governmental authorities, including those taken in China, will be sufficient to mitigate the risks posed by the virus, and our ability to continue to perform critical functions could be harmed.
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We may also experience difficulty or delays in implementing changes to our workforce in certain markets.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties. We have 189 owned and leased properties, amounting to approximately 12.5 million square feet, around the world for sales and marketing, customer service, regulatory compliance, R&D, manufacturing and distribution, and administrative support functions. In many locations, operations are co-located to achieve synergies and operational efficiencies.
Biggest changeItem 2. Properties. We have approximately 190 owned and leased properties, amounting to approximately 13.5 million square feet, around the world for sales and marketing, customer service, regulatory compliance, R&D, manufacturing and distribution, and administrative support functions. In many locations, operations are co-located to achieve synergies and operational efficiencies.
Our largest R&D facility is our owned U.S. research and development site located in Kalamazoo, Michigan, which represents approximately 1.6 million square feet. None of our other non-manufacturing sites are more than 0.2 million square feet. The largest manufacturing site in our global manufacturing network is our manufacturing site located in Kalamazoo, Michigan, which represents approximately 0.6 million square feet.
Our largest R&D facility is our owned U.S. research and development site located in Kalamazoo, Michigan, which represents approximately 1.6 million square feet. None of our other non-manufacturing sites are more than 0.3 million square feet. The largest manufacturing site in our global manufacturing network is our manufacturing site located in Kalamazoo, Michigan, which represents approximately 0.6 million square feet.
No other site in our global manufacturing network is more than 0.6 million square feet. In addition, our global manufacturing network continues to be supplemented by 132 CMOs. Our corporate headquarters are located at 10 Sylvan Way, Parsippany, New Jersey 07054. Our operations extend internationally to 58 countries.
No other site in our global manufacturing network is more than 0.6 million square feet. In addition, our global manufacturing network continues to be supplemented by 109 CMOs. Our corporate headquarters are located at 10 Sylvan Way, Parsippany, New Jersey 07054. Our operations extend internationally to 57 countries.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeCertain legal proceedings in which we are involved are discussed in Notes to Consolidated Financial Statements— Note 18. Commitments and Contingencies , and are incorporated by reference from such discussion. Item 4. Mine Safety Disclosures. Not applicable. 28 | Table of Contents PART II
Biggest changeCertain legal proceedings in which we are involved are discussed in Notes to Consolidated Financial Statements— Note 18. Commitments and Contingencies , and are incorporated by reference from such discussion. Item 4. Mine Safety Disclosures. Not applicable. 29 | Table of Contents PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 28 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 29 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 31 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 51 Item 8. Financial Statements and Supplementary Data 52
Biggest changeItem 4. Mine Safety Disclosures 29 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 30 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 32 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 52 Item 8. Financial Statements and Supplementary Data 53

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIssuer purchases of equity securities for the three months ended December 31, 2022 were as follows: Issuer Purchases of Equity Securities Total Number of Shares Purchased (a) Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under Plans or Programs October 1 - October 31, 2022 385,234 $148.78 384,955 $2,934,545,331 November 1 - November 30, 2022 807,282 $143.37 806,710 $2,818,883,845 December 1 - December 31, 2022 1,523,900 $151.67 1,523,758 $2,587,042,238 Total 2,716,416 $148.80 2,715,423 $2,587,042,238 (a) The company repurchased 993 shares during the three-month period ended December 31, 2022, that were not part of the publicly announced share repurchase authorization.
Biggest changeIssuer purchases of equity securities for the three months ended December 31, 2023 were as follows: Issuer Purchases of Equity Securities (b) Total Number of Shares Purchased (a) Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under Plans or Programs October 1 - October 31, 2023 621,480 $167.90 619,842 $1,626,212,036 November 1 - November 30, 2023 312,415 $165.78 311,950 $1,574,494,738 December 1 - December 31, 2023 419,971 $189.76 418,966 $1,494,864,468 Total 1,353,866 $174.19 1,350,758 $1,494,864,468 (a) The company repurchased 3,108 shares during the three-month period ended December 31, 2023, that were not part of the publicly announced share repurchase authorization.
The shareholder return shown on the graph is not necessarily indicative of future performance, and we do not make or endorse any predictions as to future shareholder returns. The graph assumes an investment of $100 on December 31, 2017, in our common stock, the S&P 500 Index and the S&P 500 Pharmaceuticals Index and assumes dividends, if any, were reinvested.
The shareholder return shown on the graph is not necessarily indicative of future performance, and we do not make or endorse any predictions as to future shareholder returns. The graph assumes an investment of $100 on December 31, 2018, in our common stock, the S&P 500 Index and the S&P 500 Pharmaceuticals Index and assumes dividends, if any, were reinvested.
Because we are a holding company, our ability to pay cash dividends on our common stock will depend on the receipt of dividends or other distributions from certain of our subsidiaries. 29 | Table of Contents Stock Performance Graph (a) The graph below compares the cumulative total shareholder return on an investment in our common stock, the S&P 500 Index and the S&P 500 Pharmaceuticals Index for the five fiscal years beginning with the close of trading on December 31, 2017 and ending December 31, 2022.
Because we are a holding company, our ability to pay cash dividends on our common stock will depend on the receipt of dividends or other distributions from certain of our subsidiaries. 30 | Table of Contents Stock Performance Graph (a) The graph below compares the cumulative total shareholder return on an investment in our common stock, the S&P 500 Index and the S&P 500 Pharmaceuticals Index for the five fiscal years beginning with the close of trading on December 31, 2018 and ending December 31, 2023.
As of February 10, 2023, there were 463,386,716 shares of our common stock outstanding, held by 1,653 shareholders of record. Additional information relating to our common stock is included in this Annual Report on Form 10-K in Notes to Consolidated Financial Statements— Note 16. Stockholders' Equity .
As of February 9, 2024, there were 457,867,115 shares of our common stock outstanding, held by 1,574 shareholders of record. Additional information relating to our common stock is included in this Annual Report on Form 10-K in Notes to Consolidated Financial Statements— Note 16. Stockholders' Equity .
On December 7, 2021, our Board of Directors authorized an additional multi-year share repurchase program of up to $3.5 billion of our outstanding common stock. As of December 31, 2022, there was $2.6 billion remaining under this authorization. The programs do not have a stated expiration date.
Purchases of Equity Securities by the Issuer On December 7, 2021, our Board of Directors authorized a multi-year share repurchase program of up to $3.5 billion of our outstanding common stock. As of December 31, 2023, there was $1.5 billion remaining under this authorization. The program does not have a stated expiration date.
These shares were purchased from employees to satisfy tax withholding requirements on the vesting of restricted shares from equity-based awards.
These shares were purchased from employees to satisfy tax withholding requirements on the vesting of restricted shares from equity-based awards. (b) Amounts exclude the impact of excise tax on net share repurchases.
COMPARISON OF CUMULATIVE TOTAL RETURN Among Zoetis Inc., the S&P 500 Index and the S&P 500 Pharmaceuticals Index December 31, 2017 December 31, 2018 December 31, 2019 December 31, 2020 December 31, 2021 December 31, 2022 Zoetis Inc. $100 $119.45 $185.99 $233.91 $346.80 $209.79 S&P 500 Index $100 $95.62 $125.72 $148.85 $191.58 $156.88 S&P 500 Pharmaceuticals Index $100 $108.09 $124.40 $133.76 $168.21 $182.43 (a) This section is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference in any filing of Zoetis under the Securities Act of 1933, as amended, or the Exchange Act whether made before or after the date hereof and irrespective of any general incorporation language contained in any such filing. 30 | Table of Contents
COMPARISON OF CUMULATIVE TOTAL RETURN Among Zoetis Inc., the S&P 500 Index and the S&P 500 Pharmaceuticals Index December 31, 2018 December 31, 2019 December 31, 2020 December 31, 2021 December 31, 2022 December 31, 2023 Zoetis Inc. $100 $155.71 $195.83 $290.34 $175.64 $238.70 S&P 500 Index $100 $131.49 $155.68 $200.37 $164.08 $207.21 S&P 500 Pharmaceuticals Index $100 $115.09 $123.75 $155.62 $168.77 $169.33 (a) This section is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference in any filing of Zoetis under the Securities Act of 1933, as amended, or the Exchange Act whether made before or after the date hereof and irrespective of any general incorporation language contained in any such filing. 31 | Table of Contents
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Purchases of Equity Securities by the Issuer On December 12, 2018, our Board of Directors authorized a multi-year share repurchase program of up to $2.0 billion of our outstanding common stock. This program was completed as of June 30, 2022.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeWe are focused on providing greater value to our customers through the integration and connectedness of our portfolio and by reducing frictions in the way they engage with us and our products and solutions; • lead in digital and data analytics - We believe that healthcare insights enabled by data and digital technology and complemented with our comprehensive portfolio of products and solutions will be critical in enhancing care for animals and improving livestock productivity; • cultivate a high-performing organization - We view the strength of our leadership team and our talented colleagues around the world as a critical component of our past and future success.
Biggest changeWe are focused on providing greater value to our customers through the integration and connectedness of our portfolio and by reducing frictions in the way they engage with us and our products and solutions; • Power our business through digital solutions and data insights - We believe that digital and data have surpassed the stage of enablement and are now core decision drivers for the future of animal health.
Overview of our business We are a global leader in the animal health industry, focused on the discovery, development, manufacture and commercialization of medicines, vaccines, diagnostic products and services, biodevices, genetic tests and precision animal health technology.
Overview of our business We are a global leader in the animal health industry, focused on the discovery, development, manufacture and commercialization of medicines, vaccines, diagnostic products and services, biodevices, genetic tests and precision animal health.
For example, Draxxin currently competes with generic products in key markets including the U.S., Europe, Canada, Mexico and Australia. Since 2021, the first year of generic competition, sales of Draxxin declined by 45% in the U.S., its largest market, and additional declines are expected in subsequent years.
For example, Draxxin currently competes with generic products in key markets including the U.S., Europe, Canada, Mexico and Australia. Since 2021, the first year of generic competition, sales of Draxxin declined by 47% in the U.S., its largest market, and additional declines are expected in subsequent years.
The overall economic environment In addition to industry-specific factors, we, like other businesses, face challenges related to global economic conditions, the current economic downturn and high inflation. Growth in both the livestock and companion animal sectors is driven by overall economic development and related growth, particularly in many emerging markets.
The overall economic environment In addition to industry-specific factors, we, like other businesses, face challenges related to global economic conditions, an economic downturn and high inflation. Growth in both the livestock and companion animal sectors is driven by overall economic development and related growth, particularly in many emerging markets.
As we operate in multiple foreign currencies, including the Australian dollar, Brazilian real, British pound, Canadian dollar, Chinese yuan, euro and other currencies, changes in those currencies relative to the U.S. dollar will impact our revenue, cost of goods and expenses, and consequently, net income.
As we operate in multiple foreign currencies, including the Australian dollar, Brazilian real, British pound, Canadian dollar, Chinese renminbi, euro and other currencies, changes in those currencies relative to the U.S. dollar will impact our revenue, cost of goods and expenses, and consequently, net income.
Competition The animal health industry is highly competitive. Although our business is the largest based on revenue in the animal health industry (which includes medicines, vaccines and diagnostics), we face competition in the regions in which we operate. Principal methods of competition vary depending on the particular region, species, product category or individual product.
Although our business is the largest based on revenue in the animal health industry (which includes medicines, vaccines and diagnostics), we face competition in the regions in which we operate. Principal methods of competition vary depending on the particular region, species, product category or individual product.
Risk Factors and Forward-looking statements and factors that may affect future results sections of this MD&A. A discussion regarding our financial condition and results of operations for fiscal 2022 compared to fiscal 2021 is presented below.
Risk Factors and Forward-looking statements and factors that may affect future results sections of this MD&A. A discussion regarding our financial condition and results of operations for fiscal 2023 compared to fiscal 2022 is presented below.
The primary livestock species for the production of animal protein are cattle (both beef and dairy), swine, poultry, fish and sheep. Livestock health 31 | Table of Contents and production are essential to meeting the growing demand for animal protein of a global population.
The primary livestock species for the production of animal protein are cattle (both beef and dairy), swine, poultry, fish and sheep. Livestock health 32 | Table of Contents and production are essential to meeting the growing demand for animal protein of a global population.
Our ten top-selling products and product lines contributed 49% of our revenue. For additional information regarding our products, including descriptions of our product lines that each represented approximately 1% or more of our revenue in 2022, see
Our ten top-selling products and product lines contributed 49% of our revenue. For additional information regarding our products, including descriptions of our product lines that each represented approximately 1% or more of our revenue in 2023, see
Exchange rate fluctuations may also have an impact beyond our reported financial results and directly impact operations. These fluctuations may affect the ability to buy and sell our goods and services between markets impacted by significant exchange rate variances. For the year ended December 31, 2022, approximately 58% of our total revenue was in U.S. dollars.
Exchange rate fluctuations may also have an impact beyond our reported financial results and directly impact operations. These fluctuations may affect the ability to buy and sell our goods and services between markets impacted by significant exchange rate variances. For the year ended December 31, 2023, approximately 57% of our total revenue was in U.S. dollars.
A discussion regarding our financial condition and results of operations for fiscal 2021 compared to fiscal 2020 can be found under Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 15, 2022 (our “2021 Annual Report”), which is available free of charge on the SEC’s website at www.sec.gov.
A discussion regarding our financial condition and results of operations for fiscal 2022 compared to fiscal 2021 can be found under Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 14, 2023 (our “2022 Annual Report”), which is available free of charge on the SEC’s website at www.sec.gov.
In the past, certain of our customers and suppliers have been affected directly by economic downturns or inflation, which decreased the demand for our products and, in some cases, hindered our ability to collect amounts due from customers.
In the past, certain of our customers and suppliers have been affected directly by shortages in veterinary healthcare workers and economic downturns or inflation, which decreased the demand for our products and, in some cases, hindered our ability to collect amounts due from customers.
We believe the ability of pet owners to purchase our products online and from retail stores may increase pet owner compliance and result in increased sales, particularly in the near term. However, over time, we may be unable to sustain our current margins due to the increased purchasing power of such retailers as compared to traditional veterinary practices.
We believe the ability of pet owners to purchase our products online and from retail 33 | Table of Contents stores may increase pet owner compliance and result in increased sales. However, over time, we may be unable to sustain our current margins due to the increased purchasing power of such retailers as compared to traditional veterinary practices.
In 2022, our two top-selling products and product lines, Simparica/Simparica Trio and Apoquel, each contributed approximately 12% and 10% of our revenue, respectively, and combined with our next three top-selling products and product lines, Cytopoint, Revolution/Revolution Plus/Stronghold and ceftiofur line, these five products and product lines contributed approximately 37% of our revenue.
In 2023, our two top-selling products and product lines, Simparica/Simparica Trio and Apoquel/Apoquel Chewable, each contributed approximately 13% and 10% of our revenue, respectively, and combined with our next three top-selling products and product lines, Cytopoint, Revolution/Revolution Plus/Stronghold and ceftiofur line, these five products and product lines contributed approximately 37% of our revenue.
However, in the U.S. and certain other markets, companion animal owners increasingly have the option to purchase animal health products from sources other than veterinarians, such as Internet-based retailers, “big-box” retail stores or other over-the-counter distribution channels.
Changing distribution channels for companion animal products In most markets, companion animal owners typically purchase their animal health products directly from veterinarians. However, in the U.S. and certain other markets, companion animal owners increasingly have the option to purchase animal health products from sources other than veterinarians, such as internet-based retailers, “big-box” retail stores or other over-the-counter distribution channels.
While these factors have mitigated the impact of prior downturns in the global economy, economic challenges, including the current economic downturn and inflation, could increase cost sensitivity among our customers, which may result in reduced demand for our products, which could have a material adverse effect on our operating results and financial condition.
While these factors have mitigated the impact of prior downturns in the global economy, economic challenges, including an economic downturn and inflation, could increase cost sensitivity among our customers, which may result in reduced demand for our products, which could have a material adverse effect on our operating results and financial condition. Competition The animal health industry is highly competitive.
We believe we are an industry leader in animal health R&D, with a track record of generating new products and product lifecycle innovation.
We believe we are an industry leader in animal health R&D, with a track record of generating new products and product lifecycle innovation. The majority of our R&D programs focus on new products.
We strive to make a meaningful difference in society through the three pillars of our sustainability approach: (1) by caring and collaborating with our customers, colleagues, and communities, and the animals that depend on them by improving access to care for animals, by creating a diverse, equitable, and inclusive work environment, and by supporting the veterinary profession; (2) by leveraging our innovation capabilities to develop solutions that improve productivity, keep animals healthy, and fight emerging infectious diseases; and (3) by taking actions to protect our planet that reduce our footprint on the environment.
We strive to make a meaningful difference in society through the three pillars of our sustainability approach: (1) by caring and collaborating with our customers, colleagues, and communities, and the animals that depend on them by improving access to care for animals and by supporting the veterinary profession; (2) by leveraging our innovation capabilities to develop solutions that improve productivity, keep animals healthy, and fight emerging infectious diseases; and (3) by taking actions to protect our planet that reduce our footprint on the environment; and • Perform with excellence and agility - We recognize the increasing uncertainty in our industry and more broadly across the world.
Foreign exchange rates Significant portions of our revenue and costs are exposed to changes in foreign exchange rates. Our products are sold in more than 100 countries and, as a result, our revenue is influenced by changes in foreign exchange rates. For the year ended December 31, 2022, approximately 42% of our revenue was denominated in foreign currencies.
Our products are sold in more than 100 countries and, as a result, our revenue is influenced by changes in foreign exchange rates. For the year ended December 31, 2023, approximately 43% of our revenue was denominated in foreign currencies.
A summary of our 2022 performance compared with the comparable 2021 and 2020 periods follows: Year Ended December 31, % Change (MILLIONS OF DOLLARS) 2022 2021 2020 22/21 21/20 Revenue $ 8,080 $ 7,776 $ 6,675 4 16 Net income attributable to Zoetis 2,114 2,037 1,638 4 24 Adjusted net income (a) 2,297 2,240 1,844 3 21 (a) Adjusted net income is a non-GAAP financial measure.
A summary of our 2023 performance compared with the comparable 2022 and 2021 periods follows: Year Ended December 31, % Change (MILLIONS OF DOLLARS) 2023 2022 2021 23/22 22/21 Revenue $ 8,544 $ 8,080 $ 7,776 6 4 Net income attributable to Zoetis 2,344 2,114 2,037 11 4 Adjusted net income (a) 2,457 2,297 2,240 7 3 (a) Adjusted net income is a non-GAAP financial measure.
Our total revenue attributable to antibacterials for livestock was approximately $1 billion for the year ended December 31, 2022. 32 | Table of Contents Similarly, concerns regarding greenhouse gas emissions and other potential environmental impacts of livestock production have led to some consumers opting to limit or avoid consuming animal products.
Our total revenue attributable to antibacterials for livestock was less than $950 million for the year ended December 31, 2023. Similarly, concerns regarding greenhouse gas emissions and other potential environmental impacts of livestock production have led to some consumers opting to limit or avoid consuming animal products.
Minor deviations in our manufacturing or logistical processes, such as temperature excursions or improper package sealing, could result in delays, inventory shortages, unanticipated costs, product recalls, product liability and/or regulatory action.
Many of our products involve complex manufacturing processes and are sole-sourced from certain manufacturing sites. Minor deviations in our manufacturing or logistical processes, such as temperature excursions or improper package sealing, could result in delays, inventory shortages, unanticipated costs, product recalls, product liability and/or regulatory action.
Our manufacturing network may be unable to meet the demand for our products or we may have excess capacity if demand for our products changes. The unpredictability of a product's regulatory or commercial success or failure, the lead time necessary to construct highly technical and complex manufacturing sites, and shifting customer demand increase the potential for capacity imbalances.
The unpredictability of a product's regulatory or commercial success or failure, the lead time necessary to construct highly technical and complex manufacturing sites, and shifting customer demand increase the potential for capacity imbalances.
We intend to grow our business by pursuing the following core strategies: • drive innovative growth - We seek to deliver new products and solutions as well as lifecycle innovations across the continuum of care that spans from disease prediction and prevention to detection and treatment.
We intend to grow our business by pursuing the following core strategies: • Lead through innovation across our diverse portfolio - We seek to define the future of animal health by delivering new products and solutions as well as lifecycle innovations across the continuum of care that spans from disease prediction and prevention to detection and treatment.
The majority of our R&D programs focus on product lifecycle innovation, which is defined as R&D programs that leverage existing animal health products by adding new species or claims, achieving approvals in new markets or creating new combinations and reformulations.
However, we also continue to invest in lifecycle innovation, which is defined as R&D programs that leverage existing animal health products by adding new species or claims, achieving approvals in new markets or creating new combinations and reformulations.
Their animals’ health and their ability to operate could be adversely affected if they experience a shortage of fresh water due to human 33 | Table of Contents population growth, climate change or floods, droughts or other weather conditions.
Their animals’ health and their ability to operate could be adversely affected if they experience a shortage of fresh water due to human population growth, climate change or floods, droughts or other weather conditions. In the event of adverse weather conditions, climate-change related impacts or a shortage of fresh water, veterinarians and livestock producers may purchase less of our products.
In addition, a number of factors could cause production interruptions that could result in launch delays, inventory shortages, recalls, unanticipated costs or issues with our supply agreements with third parties.
In addition, a number of factors could cause production interruptions that could result in launch delays, inventory shortages, recalls, unanticipated costs or issues with our supply agreements with third parties. Our manufacturing network may be unable to meet the demand for our products or we may have excess capacity if demand for our products changes.
A decrease in harvested corn results in higher corn prices, which could negatively impact the profitability of livestock producers of cattle, pork and poultry. Higher corn prices and reduced availability of grazing pastures contribute to reductions in herd or flock sizes that in turn result in less spending on animal health products.
Higher corn prices and reduced availability of grazing pastures contribute to reductions in herd or flock sizes that in turn result in less spending on animal health products. As such, a prolonged drought could have an adverse impact on our operating results and financial condition. Adverse weather conditions, natural disasters and climate change may also impact the aquaculture business.
For more information regarding the generic competition we expect to encounter as patents on certain of our key products expire, see Item 1. Business – Intellectual Property . Russia’s Invasion of Ukraine Russia’s invasion of Ukraine and the global response, including sanctions imposed by the United States and other countries, have increased global economic and political uncertainty.
For more information regarding the generic competition we expect to encounter as patents on certain of our key products expire, see Item 1. Business – Intellectual Property . Manufacturing and supply In order to sell our products, we must be able to produce and ship our products in sufficient quantities.
We are further committed to sustaining a diverse, equitable and inclusive work environment for our colleagues; and • champion a healthier, more sustainable future - As the world’s leading animal health company, our business purpose is well aligned with our social purpose.
We are committed to maintaining a workplace culture that attracts, retains and develops the best talent in the industry; • Advance sustainability in animal health for a better future - As the world’s leading animal health company, our business purpose is well aligned with our social purpose.
In the event of adverse weather conditions, climate-change related impacts or a shortage of fresh water, veterinarians and livestock producers may purchase less of our products. For example, drought conditions could negatively impact, among other things, the supply of corn and the availability of grazing pastures.
For example, drought conditions could negatively impact, among other things, the supply of corn and the availability of grazing pastures. A decrease in harvested corn results in higher corn prices, which could negatively impact the profitability of livestock producers of cattle, pork and poultry.
However, we believe the impact of this trend is limited as the livestock industry is still expected to continue to grow in order to feed a growing global population. Changing distribution channels for companion animal products In most markets, companion animal owners typically purchase their animal health products directly from veterinarians.
However, we believe the impact of this trend is limited as the livestock industry is still expected to continue to grow in order to feed a growing global population. Disease Outbreaks Sales of our livestock products have in the past, and may in the future be, adversely affected by the outbreak of disease carried by animals.
Our year-over-year total revenue growth was unfavorably impacted by 4% from changes in foreign currency values relative to the U.S. dollar. Our growth strategies We seek to enhance the health of animals and to bring solutions to our customers who raise and care for them.
Our year-over-year total revenue growth was unfavorably impacted by 1% from changes in foreign currency values relative to the U.S. dollar. 34 | Table of Contents Our strategic pillars Our vision is to be the most trusted and valued animal health company, shaping the future of animal care through our innovation, customer obsession and purpose-driven colleagues.
As such, a prolonged drought could have a material adverse impact on our operating results and financial condition. Adverse weather conditions, natural disasters and climate change may also impact the aquaculture business. Changes in water temperatures could affect the timing of reproduction and growth of various fish species, as well as trigger the outbreak of certain waterborne diseases.
Changes in water temperatures could affect the timing of reproduction and growth of various fish species, as well as trigger the outbreak of certain waterborne diseases. Foreign exchange rates Significant portions of our revenue and costs are exposed to changes in foreign exchange rates.
Removed
Manufacturing and supply In order to sell our products, we must be able to produce and ship our products in sufficient quantities. Many of our products involve complex manufacturing processes and are sole-sourced from certain manufacturing sites.
Added
Our internal R&D capabilities are differentiators, but we also collaborate across both academia and industry to ensure we are bringing the best possible innovations to our customers; • Deliver an exceptional experience to delight our customers - We believe that our customers' success is our success and that the best way to realize that success is by enabling veterinarians, livestock producers and pet owners to provide the best possible care for animals.
Removed
In 2022, we experienced supply chain challenges for certain products including Simparica Trio, and the component parts of certain products including Librela and Solensia, and some of our other products, resulting from strong demand as well as competition for manufacturing inputs with human health vaccine development during the pandemic.
Added
We are leaders in the translation of digital solutions and data insights to positive outcomes for our customers and for the animals they care for, whether for better identification of health care solutions in pets or improved production capabilities in livestock; • Support a workplace where our colleagues can thrive - We view the strength of our leadership team and our talented colleagues around the world as a critical component of our past and future success.
Removed
Our global manufacturing network team remains committed to addressing specific issues with ongoing supply chain optimizations, controlled launches for new products in additional markets and customer coordination. However, some of these challenges are expected to continue in 2023.
Added
We believe that by focusing on colleague well-being and inclusion and providing all of our colleagues with supportive tools, training and environment that we are best positioned to succeed. With that, our colleagues are committed to our purpose, our customers and each other.
Removed
As we announced on March 16, 2022, our first concern remains the safety of our colleagues and their families in Ukraine. Our operations in Russia are focused on maintaining a supply of medicines and vaccines in compliance with any sanctions that are put in place.
Added
While we aim to improve our ability to predict, we more importantly aim to be proactive in how effectively we manage our resources and how quickly we can redeploy focus to emerging themes or priorities. We actively: (1) review and manage our resource; (2) continuously improve key operational processes; and (3) ensure strategic focus on our core business.
Removed
We do not directly source input materials or components from Russia and do not have any manufacturing plants in Russia or Ukraine. This crisis did not have a material adverse effect on our results or financial condition during 2022 and we do not expect it to have a material adverse effect on our results or financial condition going forward.
Removed
COVID-19 Update We continue to closely monitor the impact of the COVID-19 pandemic and the resulting global economic downturn on all aspects of our business across geographies, including how it has and may continue to impact our customers, workforce, suppliers and vendors.
Removed
We cannot predict the impact that the COVID-19 pandemic will have on our customers, vendors and suppliers; however, any material effect on these parties could adversely impact us.
Removed
The situation surrounding COVID-19 remains fluid, and we will continue to actively monitor the situation and may take actions that alter our business operations that we determine are in the best interests of our workforce, customers, vendors, suppliers, and other stakeholders, or as required by federal, state, or local authorities.
Removed
For further information regarding the impact of COVID-19 on the Company, see Item 1A, Risk Factors in this Annual Report on Form 10-K. Disease Outbreaks Sales of our livestock products have in the past, and may in the future be, adversely affected by the outbreak of disease carried by animals.
Removed
Where appropriate, we complement internal R&D programs with external innovations; • enhance customer experience - We believe that delighting our customers with compelling and personalized experiences that enable them to provide the best care for animals is critical for our success.
Removed
We are committed to continuing to be a company our colleagues can be proud of and to attracting, retaining and developing the best, most diverse talent in the industry.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

11 edited+0 added−0 removed6 unchanged
Biggest changeA 100-basis point increase or (decrease) in LIBOR or SOFR-based interest rates would have resulted in a $3 million increase or (decrease) in the fair value of our forward-starting interest rate swaps at December 31, 2022. At December 31, 2022, our cash equivalents were primarily invested in money market funds.
Biggest changeA 100-basis point increase or (decrease) in SOFR-based interest rates would have resulted in a increase or (decrease) in the fair value of our forward-starting interest rate swaps by $6 million and $(7) million, respectively at December 31, 2023. At December 31, 2023, our cash equivalents were primarily invested in money market funds.
These contracts are used to offset the potential earnings effects from mostly intercompany short-term foreign currency assets and liabilities that arise from operations but are not designated as hedges. Our foreign currency forward-exchange contracts at December 31, 2022 were analyzed to determine their sensitivity to foreign exchange rate changes.
These contracts are used to offset the potential earnings effects from mostly intercompany short-term foreign currency assets and liabilities that arise from operations but are not designated as hedges. Our foreign currency forward-exchange contracts at December 31, 2023 were analyzed to determine their sensitivity to foreign exchange rate changes.
Foreign exchange risk Our primary net foreign currency translation exposures are the Australian dollar, Brazilian real, Canadian dollar, Chinese yuan, euro, and British pound. 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.
Foreign exchange risk Our primary net foreign currency translation exposures are the Australian dollar, Brazilian real, British pound, Canadian dollar, Chinese renminbi and euro. 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.
If the U.S. dollar were to strengthen or weaken against all other currencies by 10%, the amount recorded in cumulative translation adjustment (CTA) within Accumulated other comprehensive loss related to our net investment hedge would increase or decrease by approximately $79 million.
If the U.S. dollar were to strengthen or weaken against all other currencies by 10%, the amount recorded in cumulative translation adjustment (CTA) within Accumulated other comprehensive loss related to our net investment hedge would increase or decrease, respectively, by approximately $82 million.
At December 31, 2022, there were no commercial paper borrowings outstanding and no outstanding principal balance under our revolving credit facility. By entering into the aforementioned swap arrangements, we have assumed risks associated with variable interest rates based upon LIBOR and SOFR.
At December 31, 2023, there were no commercial paper borrowings outstanding and no outstanding principal balance under our revolving credit facility. By entering into the aforementioned swap arrangements, we have assumed risks associated with variable interest rates based upon SOFR.
If the U.S. dollar were to strengthen or weaken against all other currencies by 10%, the fair value of these contracts would increase or decrease by $5 million. The foreign currency gains and losses on the assets and liabilities are recorded in Other (income)/deductions-net . See Notes to Consolidated Financial Statements— Note 9. Financial Instruments: B. Derivative Financial Instruments .
If the U.S. dollar were to strengthen or weaken against all other currencies by 10%, the fair value of these contracts would decrease or increase, respectively, by $11 million. The foreign currency gains and losses on the assets and liabilities are recorded in Other (income)/deductions-net . See Notes to Consolidated Financial Statements— Note 9. Financial Instruments: B.
Additionally, as of December 31, 2022, because we held certain interest rate swap agreements that have the economic effect of modifying the fixed-interest obligations associated with our 3.900% Senior Notes due 2028 and our 2.00% Senior Notes due 2030, a portion of the fixed-rate interest payable on these senior notes effectively became variable based on LIBOR or SOFR.
Additionally, as of December 31, 2023, because we held certain interest rate swap agreements that have the economic effect of modifying the fixed-interest obligations associated with our 3.900% Senior Notes due 2028 and our 2.00% Senior Notes due 2030, a portion of the fixed-rate interest payable on these senior notes effectively became variable based on SOFR.
Interest rate risk Our outstanding debt balances are predominantly fixed rate debt. While changes in interest rates will have no impact on the interest we pay on our fixed rate debt, interest on our commercial paper and revolving credit facility will be exposed to interest rate fluctuations.
Derivative Financial Instruments . Interest rate risk Our outstanding debt balances are predominantly fixed rate debt. While changes in interest rates will have no impact on the interest we pay on our fixed rate debt, interest on our commercial paper and revolving credit facility will be exposed to interest rate fluctuations.
As of December 31, 2022, if LIBOR or SOFR-based interest rates would have been higher by 100 basis points, the change would have increased our interest expense annually by approximately $3 million, as it relates to our fixed to floating interest rate swap agreements. See Notes to Consolidated Financial Statements— Note 9. Financial Instruments .
As of December 31, 2023, if SOFR-based interest rates would have been higher by 100 basis points, the change would have increased our interest expense annually by approximately $3 million, as it relates to our fixed to floating interest rate swap agreements. See Notes to Consolidated Financial Statements— Note 9. Financial Instruments .
Our foreign exchange derivative instruments at December 31, 2022 were analyzed to determine their sensitivity to foreign exchange rate changes.
Our foreign exchange derivative instruments at December 31, 2023 were analyzed to determine their sensitivity to foreign exchange rate changes.
Interest paid on such funds fluctuates with the prevailing interest rate. 51 | Table of Contents
Interest paid on such funds fluctuates with the prevailing interest rate. 52 | Table of Contents

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