NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Organization
Zoetis Inc. (including its subsidiaries, collectively, Zoetis, the company, we, us or our) is 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. We organize and operate our business in two geographic regions: the United States (U.S.) and International.
We directly market our products in approximately 45 countries across North America, Europe, Africa, Asia, Australia and South America. Our products are sold in more than 100 countries, including developed and emerging markets. We have a diversified business, marketing products across eight core species: dogs, cats and horses (collectively, companion animals) and cattle, swine, poultry, fish and sheep (collectively, livestock); and within seven major product categories: parasiticides, vaccines, dermatology, anti-infectives, pain and sedation, other pharmaceutical and animal health diagnostics.
2. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements were prepared following the requirements of the Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by accounting principles generally accepted in the United States of America (U.S. GAAP) can be condensed or omitted.
Revenue, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be representative of those for the full year.
We are responsible for the unaudited condensed consolidated financial statements included in this Form 10-Q. The condensed consolidated financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of our financial position and operating results. The information included in this interim report should be read in conjunction with the financial statements and accompanying notes included in our 2025 Annual Report on Form 10-K.
Prior to fiscal 2026, our consolidated financial statements, which have a year-end of December 31, have reflected results of subsidiaries operating outside the U.S. on a one-month financial reporting lag with a year-end of November 30. Effective January 1, 2026, we eliminated the one-month financial reporting lag for our subsidiaries operating outside of the U.S. and adjusted their year-end to December 31 (the “Fiscal Year Alignment”). The elimination of this financial reporting lag represented a change in accounting principle which the Company considers preferable because it provides investors with more timely access to financial information about these subsidiaries. This change in accounting principle was applied retrospectively to all periods prior to January 1, 2026. The condensed consolidated financial statements as of and for the three months ended March 31, 2025, the Condensed Consolidated Balance Sheet as of December 31, 2025 and the related Notes to Condensed Consolidated Financial Statements have been recast to reflect this change in accounting principle. In addition, we plan to recast the condensed consolidated financial statements as of and for the three and six months ended June 30, 2025 and three and nine months ended September 30, 2025 and the consolidated financial statements as of and for the twelve months ended December 31, 2025 and 2024 when they are presented as comparatives in future financial statements.
The following table presents a summary of the changes to the quarterly results:
| | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, 2025 |
| (MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA) | | As previously reported | | Increase/
(decrease) | | As recast |
| Revenue | | $ | 2,220 | | | $ | (22) | | | $ | 2,198 | |
| Income before provision for taxes on income | | $ | 810 | | | $ | (37) | | | $ | 773 | |
| Provision for taxes on income | | $ | 179 | | | $ | (8) | | | $ | 171 | |
| Net income attributable to Zoetis Inc. | | $ | 631 | | | $ | (29) | | | $ | 602 | |
| Earnings per share - Basic | | $ | 1.41 | | | $ | (0.07) | | | $ | 1.34 | |
| Earnings per share - Diluted | | $ | 1.41 | | | $ | (0.07) | | | $ | 1.34 | |
The following table presents a summary of the changes to total assets, liabilities and equity:
| | | | | | | | | | | | | | | | | | | | |
| (MILLIONS OF DOLLARS) | | As previously reported | | Increase/
(decrease) | | As recast |
| Total assets as of December 31, 2025 | | $ | 15,467 | | | $ | 23 | | | $ | 15,490 | |
| Total liabilities as of December 31, 2025 | | $ | 12,136 | | | $ | (61) | | | $ | 12,075 | |
| Total equity as of January 1, 2025 | | $ | 4,770 | | | $ | 74 | | | $ | 4,844 | |
| Total equity as of December 31, 2025 | | $ | 3,331 | | | $ | 84 | | | $ | 3,415 | |
The following table presents a summary of the changes to the results of the Condensed Consolidated Statement of Cash Flows:
| | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, 2025 |
| (MILLIONS OF DOLLARS) | | As previously reported | | Increase/
(decrease) | | As recast |
| Net cash provided by operating activities | | $ | 587 | | | $ | (72) | | | $ | 515 | |
| Net cash used in investing activities | | $ | (175) | | | $ | (28) | | | $ | (203) | |
| Net cash used in financing activities | | $ | (677) | | | $ | — | | | $ | (677) | |
Certain reclassifications of other prior year information have been made to conform to the current year presentation.
3. Accounting Standards
Recently Issued Accounting Standards
In November 2025, the FASB issued ASU No. 2025-09, Derivatives and Hedging (Topic 815), to more closely align financial reporting with the economics of an entity’s risk management activities. The amendments in this update are effective for all entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. Early adoption is permitted. The amendments in this ASU should be applied prospectively with an option to adopt the amendments for hedging relationships existing as of the date of adoption. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.
In September 2025, the FASB issued ASU No. 2025-07, Derivatives and Hedging (Topic 815) and Revenue from Contracts with Customers (Topic 606). The guidance amendments add a new scope exception in ASC 815 for certain contracts and clarifies the accounting for share-based payments to a customer. The amendments in this update are effective for all entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.
In September 2025, the FASB issued ASU No. 2025-06, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40). The guidance amendments remove all references to a prescriptive and sequential software development method, also referred to as “project stages” throughout Subtopic 350-40, and specify new requirements for determining when to begin capitalization of capitalizable project costs. The amendments in this update are effective for all entities for annual reporting period beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.
In November 2024, the FASB issued ASU No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The new guidance requires a public business entity to provide disaggregated disclosures, in the notes to the financial statements, of certain categories of expenses that are included in expense line items on the face of the income statement. The amendments in this update are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. We are currently evaluating the impact that the new guidance will have on our notes to the consolidated financial statements.
4. Revenue
A. Revenue from Product Sales
We offer a diversified portfolio of products which allows us to capitalize on local and regional customer needs. Generally, our products are promoted to veterinarians and livestock producers by our sales organization which includes sales representatives and technical and veterinary operations specialists, and then sold directly by us or through distributors, retailers or e-commerce outlets. The depth of our product portfolio enables us to address the varying needs of customers in different species and geographies. Many of our top-selling product lines are distributed across both of our operating segments, leveraging our research and development (R&D) operations and manufacturing and supply chain network.
Over the course of our history, we have focused on developing a diverse portfolio of animal health products that deliver solutions across the continuum of care, including medicines, vaccines and diagnostics, complemented by biodevices, genetic tests and a range of services. We typically refer to all products with the same primary active pharmaceutical or biological ingredient(s) as a single product line even if such products include different brands, dosages, formulations or indicated species. For vaccines, we typically consider a group of vaccines as a single product line if they share the same brand, including medicines, vaccines and diagnostics, complemented by biodevices, genetic tests and a range of services. We refer to all different brands of a particular product, or its dosage forms for all species, as a product line. We have approximately 300 comprehensive product lines, including products for both companion animals and livestock, within each of our major product categories.
Our major product categories are:
•parasiticides: products that prevent or eliminate external and internal parasites such as fleas, ticks, lice and worms;
•vaccines: biological preparations that help prevent diseases of the respiratory, gastrointestinal and reproductive tracts or induce a specific immune response;
•dermatology: products that relieve itch associated with allergic conditions and atopic dermatitis;
•anti-infectives: products that prevent, kill or slow the growth of bacteria, fungi or protozoa;
•pain and sedation: products that alleviate pain, primarily associated with osteoarthritis and postoperative pain;
•other pharmaceutical: hormones, cardiopulmonary, topical and oral hygiene therapeutics, central nervous system drugs, diuretics, antiemetic, euthanasia, hepato-digestive products and other categories; and
•animal health diagnostics: testing and analysis of blood, urine and other animal samples and related products and services, including point-of-care diagnostic products, instruments and reagents, rapid immunoassay tests, reference laboratory kits and services and blood glucose monitors.
Our remaining revenue is derived from other non-pharmaceutical product categories, such as nutritionals, as well as products and services in biodevices, genetic testing and precision animal health.
Our companion animal products help extend and improve the quality of life for pets; increase convenience and compliance for pet owners; and help veterinarians improve the quality of their care and the efficiency of their businesses. Growth in the companion animal medicines, vaccines and diagnostics sector is driven by economic development, related increases in disposable income and increases in pet ownership and spending on pet care. Companion animals are also living longer, deepening the human-animal bond, receiving increased medical treatment and benefiting from advances in animal health medicine, vaccines and diagnostics.
Our livestock products primarily help prevent or treat diseases and conditions to allow veterinarians and producers to care for their animals and to enable the cost-effective production of safe, high-quality animal protein. Human population growth and increasing standards of living are important long-term growth drivers for our livestock products in three major ways. First, population growth and increasing standards of living drive demand for improved nutrition, particularly through increased consumption of animal protein. Second, population growth leads to greater natural resource constraints driving a need for enhanced productivity. Finally, as standards of living improve and the global food chain faces increased scrutiny, there is more focus on food quality, safety and reliability of supply.
The following tables present our revenue disaggregated by geographic area, species and major product category:
Revenue by geographic area
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended |
| | | | March 31, |
| (MILLIONS OF DOLLARS) | | | | | | 2026 | | 2025 |
| United States | | | | | | $ | 1,090 | | | $ | 1,183 | |
| Australia | | | | | | 89 | | | 79 | |
| Brazil | | | | | | 90 | | | 81 | |
| Canada | | | | | | 73 | | | 70 | |
| Chile | | | | | | 38 | | | 35 | |
| China | | | | | | 63 | | | 55 | |
| France | | | | | | 37 | | | 39 | |
| Germany | | | | | | 59 | | | 55 | |
| Italy | | | | | | 39 | | | 30 | |
| Japan | | | | | | 35 | | | 32 | |
| Mexico | | | | | | 48 | | | 35 | |
| Spain | | | | | | 40 | | | 29 | |
| United Kingdom | | | | | | 78 | | | 74 | |
| Other developed markets | | | | | | 169 | | | 133 | |
| Other emerging markets | | | | | | 291 | | | 238 | |
| | | | | | 2,239 | | | 2,168 | |
| Contract manufacturing & human health | | | | | | 23 | | | 30 | |
| Total Revenue | | | | | | $ | 2,262 | | | $ | 2,198 | |
Revenue by major species | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended |
| | | | March 31, |
| (MILLIONS OF DOLLARS) | | | | | | 2026 | | 2025 |
| U.S. | | | | | | | | |
| Companion animal | | | | | | $ | 865 | | | $ | 973 | |
| Livestock | | | | | | 225 | | | 210 | |
| | | | | | 1,090 | | | 1,183 | |
| International | | | | | | | | |
| Companion animal | | | | | | 654 | | | 568 | |
| Livestock | | | | | | 495 | | | 417 | |
| | | | | | 1,149 | | | 985 | |
| Total | | | | | | | | |
| Companion animal | | | | | | 1,519 | | | 1,541 | |
| Livestock | | | | | | 720 | | | 627 | |
| Contract manufacturing & human health | | | | | | 23 | | | 30 | |
| Total Revenue | | | | | | $ | 2,262 | | | $ | 2,198 | |
Revenue by species | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended |
| | | | March 31, |
| (MILLIONS OF DOLLARS) | | | | | | 2026 | | 2025 |
| Companion Animal: | | | | | | | | |
| Dogs and Cats | | | | | | $ | 1,443 | | | $ | 1,477 | |
| Horses | | | | | | 76 | | | 64 | |
| | | | | | 1,519 | | | 1,541 | |
| Livestock: | | | | | | | | |
| Cattle | | | | | | 392 | | | 341 | |
| Swine | | | | | | 123 | | | 105 | |
| Poultry | | | | | | 118 | | | 106 | |
| Fish | | | | | | 66 | | | 55 | |
| Sheep and other | | | | | | 21 | | | 20 | |
| | | | | | 720 | | | 627 | |
| Contract manufacturing & human health | | | | | | 23 | | | 30 | |
| Total Revenue | | | | | | $ | 2,262 | | | $ | 2,198 | |
Revenue by major product category | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended |
| | | | March 31, |
| (MILLIONS OF DOLLARS) | | | | | | 2026 | | 2025 |
| Parasiticides | | | | | | $ | 586 | | | $ | 572 | |
| Vaccines | | | | | | 519 | | | 439 | |
| Dermatology | | | | | | 349 | | | 379 | |
| Anti-infectives | | | | | | 241 | | | 238 | |
| Pain and sedation | | | | | | 203 | | | 207 | |
| Other pharmaceutical | | | | | | 158 | | | 158 | |
| Animal health diagnostics | | | | | | 117 | | | 104 | |
| Other non-pharmaceutical | | | | | | 66 | | | 71 | |
| | | | | | | | |
| | | | | | 2,239 | | | 2,168 | |
| Contract manufacturing & human health | | | | | | 23 | | | 30 | |
| Total Revenue | | | | | | $ | 2,262 | | | $ | 2,198 | |
B. Revenue from Contracts with Customers
Contract liabilities reflected within Other current liabilities as of December 31, 2025 and 2024, and subsequently recognized as revenue during each of the first three months of 2026 and 2025 were $10 million and $3 million, respectively. Contract liabilities as of March 31, 2026 and December 31, 2025 were $21 million and $16 million, respectively.
Estimated future revenue expected to be generated from long-term contracts with unsatisfied performance obligations as of March 31, 2026 is not material.
5. Acquisitions
In the first quarter of 2026, we entered into a definitive agreement with Neogen Corporation to acquire Neogen’s animal genomics business. The transaction is subject to customary closing conditions and the satisfaction of regulatory requirements. We expect to complete the acquisition in the second half of 2026.
During 2025, we acquired Veterinary Pathology Group (VPG), a leading veterinary diagnostic laboratory group with multiple locations across the U.K. and Ireland. This transaction did not have a material impact on our consolidated financial statements.
6. Restructuring Charges and Other Costs Associated with Acquisitions and Divestitures
In connection with our cost-reduction/productivity initiatives, we typically incur restructuring costs and charges associated with workforce reductions and site closings. In connection with our acquisition and divestiture activities, we typically incur costs and charges associated with executing the transactions. Acquisition activity may also include integrating the acquired operations, which may include expenditures for consulting and the integration of systems and processes, product transfers and restructuring the company, which may include charges related to employees, assets and activities that will not continue in the company. Divestiture activity may also include costs to separate the divested operations, which may include expenditures for consulting and the disintegration of systems and processes, transfer costs, and restructuring charges, which may include charges related to employees, assets and activities that will not continue in the company's ongoing operations. All operating functions can be impacted by these actions, including sales and marketing, manufacturing and R&D, as well as functions such as business technology, shared services and corporate functions.
The components of costs incurred in connection with restructuring initiatives, acquisitions, divestitures and cost-reduction/productivity initiatives are as follows: | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended |
| | | | March 31, |
| (MILLIONS OF DOLLARS) | | | | | | 2026 | | 2025 |
| Restructuring charges and certain acquisition and divestiture-related costs: | | | | | | | | |
| Acquisition-related costs | | | | | | $ | 2 | | | $ | — | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Restructuring charges, net(a): | | | | | | | | |
| Employee termination costs, net | | | | | | 20 | | | — | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Total Restructuring charges and certain acquisition and divestiture-related costs | | | | | | $ | 22 | | | $ | — | |
(a) Restructuring charges for the three months ended March 31, 2026 primarily related to employee termination costs due to organizational structure refinements.
The change in our restructuring accrual is as follows:
| | | | | | | | | | | | | | |
| | | | | | | | | | | |
| (MILLIONS OF DOLLARS) | | | | | | | | | | Accrual |
Balance, December 31, 2025(a) | | | | | | | | | | $ | 25 | |
| Provision | | | | | | | | | | 20 | |
| | | | | | | | | | |
| | | | | | | | | | |
Utilization and other(b) | | | | | | | | | | (12) | |
| | | | | | | | | | |
Balance, March 31, 2026(a) | | | | | | | | | | $ | 33 | |
(a) At March 31, 2026 and December 31, 2025, included in Accrued expenses ($31 million and $23 million, respectively) and Other noncurrent liabilities ($2 million).
(b) Includes adjustments for foreign currency translation.
7. Other (Income)/Deductions—Net
The components of Other (income)/deductions—net are as follows:
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended |
| | | | March 31, |
| (MILLIONS OF DOLLARS) | | | | | | 2026 | | 2025 |
| | | | | | | | |
| Interest income | | | | | | $ | (21) | | | $ | (22) | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Net gain on sale of assets | | | | | | (6) | | | — | |
| | | | | | | | |
Foreign currency loss(a) | | | | | | 6 | | | 10 | |
| | | | | | | | |
| Other, net | | | | | | 1 | | | (3) | |
| Other (income)/deductions—net | | | | | | $ | (20) | | | $ | (15) | |
(a) Primarily driven by costs related to hedging and exposures to certain emerging and developed market currencies.
8. Income Taxes
On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was enacted into law in the U.S. The OBBBA includes significant provisions, such as the permanent extension of certain provisions that were originally enacted in the 2017 Tax Cuts and Jobs Act and were set to expire on December 31, 2025, modifications to certain international tax provisions and the restoration of tax treatment for certain business provisions, including 100% bonus depreciation for certain qualified property, domestic research and experimental cost expensing, and the business interest expense limitation. The new legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. OBBBA did not have a material impact on our financial results in 2025, including the effect on our effective tax rate and deferred tax assets and liabilities, and we do not expect it to have a material impact on 2026 and future periods.
A. Taxes on Income
Our effective tax rate was 20.7% and 22.1% for the three months ended March 31, 2026 and 2025, respectively. The lower effective tax rate for the three months ended March 31, 2026, compared with the three months ended March 31, 2025, was primarily attributable to a more favorable jurisdictional mix of earnings (which includes the impact of the location of pre-tax earnings, tax impact of permanent differences and repatriation decisions).
In 2024, the company implemented an initiative to maximize its cash position in the U.S. This initiative resulted in a tax benefit in the U.S. in connection with a prepayment from a related foreign entity in Belgium which qualifies as foreign-derived intangible income; however, this income tax benefit was deferred to 2025 and 2026. A portion of this benefit was recognized during the three months ended March 31, 2026 and 2025. The remaining deferred benefit is included in Other current assets on our Condensed Consolidated Balance Sheets as of March 31, 2026 in the amount of $14 million.
B. Deferred Taxes
As of March 31, 2026, the total net deferred income tax asset of $461 million is included in Noncurrent deferred tax assets ($591 million) and Noncurrent deferred tax liabilities ($130 million).
As of December 31, 2025, the total net deferred income tax asset of $499 million is included in Noncurrent deferred tax assets ($636 million) and Noncurrent deferred tax liabilities ($137 million).
C. Tax Contingencies
Uncertain Tax Positions
As of March 31, 2026, the net tax liabilities associated with uncertain tax positions of $223 million (exclusive of interest and penalties related to uncertain tax positions of $56 million) are included in Other taxes payable.
As of December 31, 2025, the net tax liabilities associated with uncertain tax positions of $222 million (exclusive of interest and penalties related to uncertain tax positions of $52 million) are included in Other taxes payable.
Our tax liabilities for uncertain tax positions relate primarily to issues common among multinational corporations. Any settlements or statute of limitations expirations could result in a significant decrease in our uncertain tax positions. Substantially all of these unrecognized tax benefits, if recognized, would impact our effective income tax rate. We do not expect that within the next twelve months any of our uncertain tax positions could significantly change as a result of settlements with taxing authorities or the expiration of the statutes of limitations. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but our estimates of uncertain tax positions and potential tax benefits may not be representative of actual outcomes, and any variation from such estimates could materially affect our financial statements in the period of settlement or when the statutes of limitations expire, as we treat these events as discrete items in the period of resolution. Finalizing audits with the relevant taxing authorities can include formal administrative and legal proceedings, and as a result, it is difficult to estimate the timing and range of possible changes related to our uncertain tax positions, and such changes could be significant.
Status of Tax Audits and Potential Impact on Accrual for Uncertain Tax Positions
We are currently under income tax audit by the U.S. Internal Revenue Service (IRS) for tax years 2017 and 2018. In July 2024, the IRS issued Notices of Proposed Adjustment (NOPA) related to the one-time mandatory deemed repatriation tax incurred on the 2018 U.S. Federal Income Tax return. In September 2024, the IRS issued a Revenue Agent Report (RAR) for the adjustments identified in the NOPA and a protest was filed with the IRS on November 15, 2024. As of March 31, 2026, the additional tax liability, based on the income adjustment proposed by the IRS under the RAR, is approximately $450 million, excluding interest and penalties.
Based on current facts and circumstances, we disagree with the IRS’ position and will defend our position taken on the 2018 U.S. Federal Income Tax return. We believe the amount previously accrued related to this uncertain tax position remains appropriate, but we will continue to evaluate the adequacy of our tax reserve as the audit progresses. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in our tax audits are not consistent with management’s expectations, we could be required to adjust our provision for income taxes, and this amount could be material to our financial statements.
9. Financial Instruments
A. Debt
Credit Facilities
In August 2025, we entered into a revolving credit agreement with a syndicate of banks providing for a multi-year $1.25 billion senior unsecured revolving credit facility (the credit facility), which expires in August 2030. The credit facility replaces the company’s previous revolving credit facility. Subject to certain conditions, we have the right to increase the credit facility to up to $1.75 billion. The credit facility contains a financial covenant requiring us to not exceed a maximum total leverage ratio (the ratio of consolidated net debt as of the end of the period to consolidated Earnings Before Interest, Income Taxes, Depreciation and Amortization (EBITDA) for such period) of 3.50:1. Upon entering into a material
acquisition, the maximum total leverage ratio increases to 4.00:1, and extends until the fourth full consecutive fiscal quarter ended immediately following the consummation of a material acquisition. In addition, the credit facility contains other customary covenants.
We were in compliance with all financial covenants as of March 31, 2026 and December 31, 2025. There were no amounts drawn under the credit facility as of March 31, 2026 and December 31, 2025.
We have additional lines of credit and other credit arrangements with a group of banks and other financial intermediaries for general corporate purposes. We maintain cash and cash equivalent balances in excess of our outstanding short-term borrowings. As of March 31, 2026, we had access to $47 million of lines of credit which expire at various times and are generally renewed annually. There were no borrowings outstanding related to these facilities as of March 31, 2026 and December 31, 2025.
Commercial Paper Program
In February 2013, we entered into a commercial paper program with a capacity of up to $1.0 billion. As of March 31, 2026 and December 31, 2025, there was no commercial paper outstanding under this program.
Convertible Senior Notes
On December 18, 2025, we completed a private offering (the “offering”) of 0.250% convertible senior notes (the “convertible senior notes”) with a maturity date of June 15, 2029, unless earlier repurchased, redeemed or converted. The aggregate principal amount of the convertible senior notes sold in the offering was $2.0 billion, which includes $250 million in aggregate principal amount of convertible senior notes issued pursuant to the initial purchasers’ option to purchase additional convertible senior notes on the same terms and conditions, which the initial purchasers exercised in full for settlement on December 18, 2025.
The convertible senior notes were issued pursuant to an indenture, dated as of December 18, 2025, between us and Deutsche Bank Trust Company Americas, as trustee. If we call any convertible senior notes for redemption, a "make-whole fundamental change" will occur under the indenture with respect to those convertible senior notes, in which case the conversion rate applicable to the conversion of those convertible senior notes will be increased if they are converted during a specified period of time after they are called for redemption. The convertible senior notes are convertible at an initial conversion price of approximately $148.20 per share of common stock. Prior to March 15, 2029, the convertible senior notes are convertible during certain periods only: (i) if the trading price of our common stock is greater than or equal to 130% of the conversion price for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days prior to the end of a calendar quarter, (ii) the trading price per $1,000 principal amount of convertible senior notes for each trading day of the specified measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day, (iii) if we call the notes for redemption and (iv) upon the occurrence of certain corporate events, as set forth in the indenture. On or after March 15, 2029, holders may convert all or any portion of their notes, regardless of the foregoing conditions. Upon any conversion of the convertible senior notes, we will pay cash up to the aggregate principal amount of the notes to be converted and pay or deliver, as the case may be, cash, shares of our common stock or a combination thereof, at our election, in respect of the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the notes being converted.
The net proceeds from the offering were $1,970 million, after deducting the initial purchasers’ discounts and expenses of $30 million. We used the net proceeds from the offering as follows: (i) $187 million to fund the cost of entering into the capped call transactions described below, (ii) $248 million to purchase approximately 2.1 million shares of Zoetis’ common stock, par value $0.01 per share (the “common stock”), in privately negotiated transactions entered into concurrently with the pricing of the offering effected with or through one of the initial purchasers or its affiliate and (iii) the remaining $1,535 million for additional repurchases of common stock following the date of the offering, which repurchases were completed as of March 31, 2026.
In connection with the issuance of the convertible senior notes, we also entered into privately negotiated capped call transactions with certain counterparties (the “capped calls”). The capped calls each have a strike price of approximately $148.20 per share, subject to certain adjustments, which correspond to the initial conversion price of the convertible senior notes. The capped calls have initial cap prices of approximately $211.72 per share, subject to certain adjustments. The capped calls cover, subject to anti-dilution adjustments, approximately 13.5 million shares of our common stock. We have the option to settle the capped calls in either shares, cash or a combination thereof. The capped calls are generally intended to reduce or offset the potential dilution to our common stock upon any conversion of the convertible senior notes with such reduction or offset, as the case may be, subject to a cap based on the cap price. However, if the market price per share of our common stock, as measured under the terms of the capped calls, exceeds the cap prices of the capped calls, there would nevertheless be dilution and/or there would not be an offset of such cash payments, in each case, to the extent that such market price exceeds the cap price of the capped calls. The capped calls are separate transactions, and not part of the terms of the convertible senior notes. We analyzed the transactions under ASC 815, Derivatives and Hedging, and determined that the capped calls met the criteria for classification as an equity transaction with no subsequent remeasurement, as long as they continue to meet the conditions for equity classification. These capped calls are recorded in stockholders’ equity on our balance sheet and are not accounted for as a bifurcated derivative. The cost of the capped calls of $187 million, net of $42 million in deferred tax assets, was recorded as a decrease to Additional paid-in capital on our Consolidated Balance Sheets as of December 31, 2025.
On December 17, 2025, we and the lenders under the credit facility entered into the First Waiver to the Revolving Credit Agreement, dated as of December 17, 2025 (the “waiver”), among us, the lenders party thereto, the issuing banks party thereto and JPMorgan Chase Bank, N.A., as administrative agent. The waiver waived a technical provision in the credit facility and explicitly permits early conversions of the convertible senior notes pursuant to their terms.
Senior Notes and Other Long-Term Debt
On August 18, 2025, we issued $850 million aggregate principal amount of 4.150% senior notes due 2028 and $1.00 billion aggregate principal amount of 5.000% senior notes due 2035 (collectively, 2025 senior notes), with an original issue discount of $2 million. The net proceeds were used to redeem in full the $600 million aggregate principal amount of our 5.400% 2022 senior notes due 2025 and the $750 million aggregate principal amount of our 4.500% 2015 senior notes due 2025 on August 28, 2025 and September 17, 2025, respectively, and the remainder is being used for general corporate purposes.
Our senior notes are governed by an indenture and supplemental indentures (collectively, the indenture) between us and Deutsche Bank Trust Company Americas, as trustee. The indenture contains certain covenants, including limitations on our and certain of our subsidiaries’ ability to incur liens or engage in sale-leaseback transactions. The indenture also contains restrictions on our ability to consolidate, merge or sell substantially all of our assets. In addition, the indenture contains other customary terms, including certain events of default, upon the occurrence of which the senior notes may be declared immediately due and payable.
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. Upon the occurrence of a change of control of us and a downgrade of the 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 senior notes at a price equal to 101% of the aggregate principal amount of the senior notes together with accrued and unpaid interest to, but excluding, the date of repurchase.
The components of our long-term debt are as follows: | | | | | | | | | | | | | | |
| | March 31, | | December 31, |
| (MILLIONS OF DOLLARS) | | 2026 | | 2025 |
3.000% 2017 senior notes due 2027 | | $ | 750 | | | $ | 750 | |
3.900% 2018 senior notes due 2028 | | 500 | | | 500 | |
4.150% 2025 senior notes due 2028 | | 850 | | | 850 | |
0.250% 2025 convertible senior notes due 2029 | | 2,000 | | | 2,000 | |
2.000% 2020 senior notes due 2030 | | 750 | | | 750 | |
5.600% 2022 senior notes due 2032 | | 750 | | | 750 | |
5.000% 2025 senior notes due 2035 | | 1,000 | | | 1,000 | |
4.700% 2013 senior notes due 2043 | | 1,150 | | | 1,150 | |
3.950% 2017 senior notes due 2047 | | 500 | | | 500 | |
4.450% 2018 senior notes due 2048 | | 400 | | | 400 | |
3.000% 2020 senior notes due 2050 | | 500 | | | 500 | |
| | 9,150 | | | 9,150 | |
| Unamortized debt discount / debt issuance costs | | (89) | | | (93) | |
| | | | |
| Cumulative fair value adjustment for interest rate swap contracts | | (16) | | | (15) | |
| Long-term debt, net of discount and issuance costs | | $ | 9,045 | | | $ | 9,042 | |
The fair value of our long-term debt was $8,635 million and $8,842 million as of March 31, 2026 and December 31, 2025, respectively, and has been determined using a third-party model that uses significant inputs derived from, or corroborated by, observable market data, including benchmark security prices and Zoetis’ credit spreads (Level 2 inputs).
The following table provides the principal amount of debt outstanding, as of March 31, 2026, by scheduled maturity date: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | After | | |
| (MILLIONS OF DOLLARS) | | 2026 | | 2027 | | 2028 | | 2029 | | 2030 | | 2030 | | Total |
| Maturities | | $ | — | | | $ | 750 | | | $ | 1,350 | | | $ | 2,000 | | | $ | 750 | | | $ | 4,300 | | | $ | 9,150 | |
Interest Expense
Interest expense, net of capitalized interest, was $62 million for the three months ended March 31, 2026 and $54 million for the three months ended March 31, 2025. Capitalized interest expense was $10 million for the three months ended March 31, 2026 and $11 million for the three months ended March 31, 2025.
B. Derivative Financial Instruments
Foreign Exchange Risk
A significant portion of our revenue, earnings and net investment in foreign affiliates is exposed to changes in foreign exchange rates. We seek to manage our foreign exchange risk, in part, through operational means, including managing same-currency revenue in relation to same-currency costs and same-currency assets in relation to same-currency liabilities. Depending on market conditions, foreign exchange risk is also managed through the use of various derivative financial instruments. These derivative financial instruments serve to manage the exposure of our net investment in certain foreign operations to changes in foreign exchange rates and protect net income against the impact of translation into U.S. dollars of certain foreign exchange-denominated transactions.
All derivative financial instruments used to manage foreign currency risk are measured at fair value and are reported as assets or liabilities on the Condensed Consolidated Balance Sheets. The derivative financial instruments primarily offset exposures in the Australian dollar, British pound, Chinese renminbi, Danish krone, euro and Norwegian krone. Changes in fair value are reported in earnings or in Accumulated other comprehensive loss, depending on the nature and purpose of the financial instrument, as follows:
•For foreign currency forward-exchange contracts not designated as hedging instruments, we recognize the gains and losses that are used to offset the same foreign currency assets or liabilities immediately into earnings along with the earnings impact of the items they generally offset. These contracts essentially take the opposite currency position of that reflected in the month-end balance sheet to counterbalance the effect of any currency movement. The vast majority of the foreign currency forward-exchange contracts mature within 60 days and all mature within two years.
•For foreign exchange derivative instruments that are designated as hedging instruments against our net investment in foreign operations, changes in the fair value are recorded as a component of cumulative translation adjustment within Accumulated other comprehensive loss and reclassified into earnings when the foreign investment is sold or substantially liquidated. These instruments include cross-currency interest rate swaps and foreign currency forward-exchange contracts. Gains and losses excluded from the assessment of hedge effectiveness are recognized in earnings (Interest expense, net of capitalized interest). The cash flows from these contracts are reflected within the investing section of our Condensed Consolidated Statements of Cash Flows. These contracts have varying maturities of up to three years.
Interest Rate Risk
The company may use interest rate swap contracts on certain investing and borrowing transactions to manage its net exposure to interest rates and to reduce its overall cost of borrowing.
•In anticipation of issuing fixed-rate debt, we may use forward-starting interest rate swaps that are designated as cash flow hedges to hedge against changes in interest rates that could impact expected future issuances of debt. Unrealized gains or losses on the forward-starting interest rate swaps are reported in Accumulated other comprehensive loss and are recognized in earnings over the life of the future fixed rate notes. If the company discontinues hedge accounting because it is no longer probable that an anticipated transaction will occur within the originally expected period of execution, or within an additional two-month period thereafter, changes to fair value accumulated in other comprehensive income are recognized immediately in earnings.
•During the period from 2019 to August 2025, we entered into forward-starting interest rate swaps with an aggregate notional value of $700 million. We designated these swaps as cash flow hedges against interest rate exposure related principally to the issuance of fixed-rate debt to refinance our senior notes due in 2025. Upon issuance of our 2025 senior notes, we terminated these contracts and received $11 million in cash from the counterparties for settlement. The settlement amount, which represented the fair value of the contracts at the time of termination, was recorded in Accumulated other comprehensive loss, and will be amortized into income (offset to Interest expense, net of capitalized interest) over the life of the 5.000% 2025 senior notes due 2035.
•We may use fixed-to-floating interest rate swaps that are designated as fair value hedges to hedge against changes in the fair value of certain fixed-rate debt attributable to changes in the benchmark of the Secured Overnight Financing Rate (SOFR). These derivative instruments effectively convert a portion of the company’s long-term debt from fixed-rate to floating-rate debt based on the daily SOFR rate plus a spread. Gains or losses on the fixed-to-floating interest rate swaps due to changes in SOFR are recorded in Interest expense, net of capitalized interest. Changes in the fair value of the fixed-to-floating interest rate swaps are offset by changes in the fair value of the underlying fixed-rate debt. As of March 31, 2026, we had outstanding fixed-to-floating interest rate swaps that correspond to a portion of the 3.900% 2018 senior notes due 2028 and the 2.000% 2020 senior notes due 2030. The amounts recorded during the three months ended March 31, 2026 for changes in the fair value of these hedges are not material to our condensed consolidated financial statements.
Outstanding Positions
The aggregate notional amount of derivative instruments are as follows: | | | | | | | | | | | | | | |
| | Notional |
| | March 31, | | December 31, |
| (MILLIONS) | | 2026 | | 2025 |
| Derivatives not Designated as Hedging Instruments: | | | | |
| Foreign currency forward-exchange contracts | | $ | 2,393 | | | $ | 2,198 | |
| | | | |
| Derivatives Designated as Hedging Instruments: | | | | |
| Foreign exchange derivative instruments (in foreign currency): | | | | |
| Euro | | 1,025 | | | 925 | |
| Danish krone | | 400 | | | 400 | |
| Swiss franc | | 35 | | | — | |
| | | | |
| | | | |
| | | | |
| | | | |
| Fixed-to-floating interest rate swap contracts | | $ | 250 | | | $ | 250 | |
| | | | |
Fair Value of Derivative Instruments
The classification and fair values of derivative instruments are as follows: | | | | | | | | | | | | | | |
| | Fair Value of Derivatives |
| | March 31, | | December 31, |
| (MILLIONS OF DOLLARS) | Balance Sheet Location | 2026 | | 2025 |
| Derivatives Not Designated as Hedging Instruments: | | | | |
| Foreign currency forward-exchange contracts | Other current assets | $ | 15 | | | $ | 8 | |
| | | | |
| Foreign currency forward-exchange contracts | Other current liabilities | (18) | | | (9) | |
| Foreign currency forward-exchange contracts | Other noncurrent liabilities | (1) | | | — | |
| Total derivatives not designated as hedging instruments | | $ | (4) | | | $ | (1) | |
| | | | |
| Derivatives Designated as Hedging Instruments: | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Foreign exchange derivative instruments | Other current assets | $ | 7 | | | $ | 6 | |
| Foreign exchange derivative instruments | Other noncurrent assets | 3 | | | — | |
| Foreign exchange derivative instruments | Other current liabilities | (22) | | | (25) | |
| Foreign exchange derivative instruments | Other noncurrent liabilities | (18) | | | (39) | |
| | | | |
| | | | |
| | | | |
| Fixed-to-floating interest rate swap contracts | Other noncurrent liabilities | (16) | | | (16) | |
| Total derivatives designated as hedging instruments | | (46) | | | (74) | |
| Total derivatives | | $ | (50) | | | $ | (75) | |
The company’s derivative transactions are subject to master netting agreements that mitigate credit risk by permitting net settlement of transactions with the same counterparty. The company also has collateral security agreements with certain of its counterparties. Under these collateral security agreements each party is required to post cash collateral when the net fair value of derivative instruments covered by the collateral agreement exceeds contractually established thresholds. At March 31, 2026, there was no collateral received and $50 million of collateral posted related to derivative instruments recorded in Other current assets. At December 31, 2025, there was no of collateral received and $70 million of collateral posted related to derivative instruments recorded in Other current liabilities and Other current assets, respectively.
We use a market approach in valuing financial instruments on a recurring basis. Our derivative financial instruments are measured at fair value on a recurring basis using Level 2 inputs in the calculation of fair value.
The amounts of net gains on derivative instruments not designated as hedging instruments, recorded in Other (income)/deductions—net, are as follows: | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended |
| | | | March 31, |
| (MILLIONS OF DOLLARS) | | | | | | 2026 | | 2025 |
| Foreign currency forward-exchange contracts | | | | | | $ | 9 | | | $ | 30 | |
These amounts were substantially offset in Other (income)/deductions—net by the effect of changing exchange rates on the underlying foreign currency exposures.
The amounts of unrecognized net (losses)/gains on interest rate swap contracts, recorded, net of tax, in Accumulated other comprehensive loss, are as follows: | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended |
| | | | March 31, |
| (MILLIONS OF DOLLARS) | | | | | | 2026 | | 2025 |
| Forward-starting interest rate swap contracts | | | | | | $ | — | | | $ | (11) | |
| Foreign exchange derivative instruments | | | | | | $ | 14 | | | $ | (33) | |
Gains on interest rate swap contracts, recognized within Interest expense, net of capitalized interest, are as follows: | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended |
| | | | March 31, |
| (MILLIONS OF DOLLARS) | | | | | | 2026 | | 2025 |
| Foreign exchange derivative instruments | | | | | | $ | 5 | | | $ | 5 | |
| | | | | | | | |
| | | | | | | | |
The net amount of deferred gains related to derivative instruments designated as cash flow hedges that is expected to be reclassified from Accumulated other comprehensive loss into earnings over the next 12 months is not material.
10. Inventories
The components of inventory are as follows: | | | | | | | | | | | | | | |
| | March 31, | | December 31, |
| (MILLIONS OF DOLLARS) | | 2026 | | 2025 |
| Finished goods | | $ | 1,081 | | | $ | 1,094 | |
| Work-in-process | | 1,108 | | | 991 | |
| Raw materials and supplies | | 361 | | | 379 | |
| Inventories | | $ | 2,550 | | | $ | 2,464 | |
11. Goodwill and Other Intangible Assets
A. Goodwill
The components of, and changes in, the carrying amount of goodwill are as follows: | | | | | | | | | | | | | | | | | | | | |
| (MILLIONS OF DOLLARS) | | U.S. | | International | | Total |
| Balance, December 31, 2025 | | $ | 1,515 | | | $ | 1,259 | | | $ | 2,774 | |
| | | | | | |
| | | | | | |
Other(a) | | — | | | 4 | | | 4 | |
| Balance, March 31, 2026 | | $ | 1,515 | | | $ | 1,263 | | | $ | 2,778 | |
(a) Includes adjustments for foreign currency translation.
The gross goodwill balance was $3,314 million and $3,310 million as of March 31, 2026 and December 31, 2025, respectively. Accumulated goodwill impairment losses were $536 million as of March 31, 2026 and December 31, 2025.
B. Other Intangible Assets
The components of identifiable intangible assets are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2026 | | As of December 31, 2025 |
| | | | | | Identifiable | | | | | | Identifiable |
| | Gross | | | | Intangible Assets | | Gross | | | | Intangible Assets |
| | Carrying | | Accumulated | | Less Accumulated | | Carrying | | Accumulated | | Less Accumulated |
| (MILLIONS OF DOLLARS) | | Amount | | Amortization | | Amortization | | Amount | | Amortization | | Amortization |
| Finite-lived intangible assets: | | | | | | | | | | | | |
| Developed technology rights | | $ | 1,945 | | | $ | (1,388) | | | $ | 557 | | | $ | 1,940 | | | $ | (1,352) | | | $ | 588 | |
| Brands and tradenames | | 362 | | | (253) | | | 109 | | | 362 | | | (251) | | | 111 | |
| Other | | 295 | | | (216) | | | 79 | | | 293 | | | (211) | | | 82 | |
| Total finite-lived intangible assets | | 2,602 | | | (1,857) | | | 745 | | | 2,595 | | | (1,814) | | | 781 | |
| Indefinite-lived intangible assets: | | | | | | | | | | | | |
| Brands and tradenames | | 67 | | | — | | | 67 | | | 67 | | | — | | | 67 | |
| In-process research and development | | 141 | | | — | | | 141 | | | 144 | | | — | | | 144 | |
| Product rights | | 6 | | | — | | | 6 | | | 6 | | | — | | | 6 | |
| Total indefinite-lived intangible assets | | 214 | | | — | | | 214 | | | 217 | | | — | | | 217 | |
| Identifiable intangible assets | | $ | 2,816 | | | $ | (1,857) | | | $ | 959 | | | $ | 2,812 | | | $ | (1,814) | | | $ | 998 | |
C. Amortization
Amortization expense related to finite-lived acquired intangible assets that contribute to our ability to sell, manufacture, research, market and distribute products, compounds and intellectual property is included in Amortization of intangible assets as it benefits multiple business functions. Amortization expense related to finite-lived acquired intangible assets that are associated with a single function is included in Cost of sales, Selling, general and administrative expenses or Research and development expenses, as appropriate. Total amortization expense for finite-lived intangible assets was $39 million for the three months ended March 31, 2026 and $40 million for the three months ended March 31, 2025.
12. Share-based Payments
The Zoetis 2013 Equity and Incentive Plan, Amended and Restated as of May 19, 2022 (Equity Plan), provides long-term incentives to our employees and non-employee directors. The principal types of share-based awards available under the Equity Plan may include, but are not limited to, stock options, restricted stock and restricted stock units (RSUs), deferred stock units (DSUs), performance-vesting restricted stock units (PSUs) and other equity-based or cash-based awards.
The components of share-based compensation expense are as follows: | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended |
| | | | March 31, |
| (MILLIONS OF DOLLARS) | | | | | | 2026 | | 2025 |
| Stock options / stock appreciation rights | | | | | | $ | 4 | | | $ | 3 | |
| RSUs / DSUs | | | | | | 16 | | | 11 | |
| PSUs | | | | | | 5 | | | 3 | |
Share-based compensation expense—total(a) | | | | | | $ | 25 | | | $ | 17 | |
(a) For the three months ended March 31, 2026 and 2025, we capitalized less than $1 million of share-based compensation expense to inventory.
During the three months ended March 31, 2026, the company granted 437,889 stock options with a weighted-average exercise price of $129.13 per stock option and a weighted-average fair value of $32.64 per stock option. The fair-value based method for valuing each Zoetis stock option grant on the grant date uses the Black-Scholes-Merton option-pricing model, which incorporates a number of valuation assumptions. The weighted-average fair value was estimated based on the following assumptions: risk-free interest rate of 3.64%; expected dividend yield of 1.63%; expected stock price volatility of 28.81%; and expected term of 4.4 years. Stock options granted prior to 2023 generally vest after three years of continuous service from the date of grant and have a contractual term of 10 years. Beginning in 2023, stock options granted are subject to graded vesting over three years from the date of grant and have a contractual term of 10 years. The values determined through this fair-value based method generally are amortized on a straight-line basis over the vesting term into Cost of sales, Selling, general and administrative expenses, or Research and development expenses, as appropriate.
During the three months ended March 31, 2026, the company granted 819,928 RSUs with a weighted-average grant date fair value of $128.64 per RSU. RSUs are accounted for using a fair-value-based method that utilizes the closing price of Zoetis common stock on the date of grant. RSUs granted prior to 2023 generally vest after three years of continuous service from the date of grant. Beginning in 2023, RSUs granted are subject to graded vesting over three years from the date of grant. The values generally are amortized on a straight-line basis over the vesting term into Cost of sales, Selling, general and administrative expenses, or Research and development expenses, as appropriate.
During the three months ended March 31, 2026, the company granted 183,488 PSUs with a weighted-average grant date fair value of $156.44 per PSU. Beginning in 2025, the units underlying the PSUs will be earned and vested over a three-year performance period in two tranches, each subject to an independent achievement condition: (1) a market condition comprising the total shareholder return of the company in comparison to the total shareholder return of the companies comprising the S&P 500 Health Care index at the start of the performance period, excluding companies that during the performance period are acquired or no longer publicly traded (Relative TSR); and (2) a performance condition comprising a three-year average annual operational revenue growth metric (average PSU operational revenue growth). PSUs that are earned and vested based upon a market condition are accounted for at fair-value using a Monte Carlo simulation model and PSUs that are earned and vested based upon a performance condition are accounted for at fair-value using the closing price of Zoetis common stock on the date of grant. The Monte Carlo weighted-average fair value was estimated based on volatility assumptions of Zoetis common stock and an average of the S&P 500 Health Care index companies, which were 26.3% and 30.7%, respectively. Depending on the company’s Relative TSR performance and the average PSU operational revenue growth at the end of the performance period, the recipient may earn from 0% to 200% of the target number of units. Vested units are settled in shares of the company’s common stock. PSU values are amortized on a straight-line basis over the vesting term into Cost of sales, Selling, general and administrative expenses, or Research and development expenses, as appropriate. PSU amortization for units that are earned and vested based upon the average PSU operational revenue growth is adjusted for subsequent changes in the expected outcome of the performance-related condition.
13. Stockholders’ Equity
Zoetis is authorized to issue 6 billion shares of common stock and 1 billion shares of preferred stock.
In August 2024, our Board of Directors authorized a multi-year share repurchase program of up to $6 billion of our outstanding common stock. As of March 31, 2026, there was $1.8 billion remaining under this authorization. Purchases of Zoetis shares may be made at the discretion of management, depending on market conditions and business needs.
Accumulated other comprehensive loss
Changes, net of tax, in accumulated other comprehensive loss, excluding noncontrolling interests were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | Currency Translation Adjustments | | | | |
| | | | | | Other Currency | | Benefit Plans | | Accumulated Other |
| | Cash Flow | | Net Investment | | Translation | | Actuarial | | Comprehensive |
| (MILLIONS OF DOLLARS) | | Hedges | | Hedges | | Adjustments | | Gains/(Losses) | | Loss |
| Balance, December 31, 2025 | | $ | 70 | | | $ | (39) | | | $ | (838) | | | $ | 3 | | | $ | (804) | |
| Other comprehensive (loss)/income, net of tax | | (2) | | | 14 | | | 20 | | | — | |
| 32 | |
| | | | | | | | | | |
| Balance, March 31, 2026 | | $ | 68 | | | $ | (25) | | | $ | (818) | | | $ | 3 | | | $ | (772) | |
| | | | | | | | | | |
| Balance, December 31, 2024 | | $ | 89 | | | $ | 62 | | | $ | (1,160) | | | $ | (1) | | | $ | (1,010) | |
| Other comprehensive (loss)/income, net of tax | | (13) | | | (33) | | | 132 | | | 2 | | | 88 | |
| | | | | | | | | | |
| Balance, March 31, 2025 | | $ | 76 | | | $ | 29 | | | $ | (1,028) | | | $ | 1 | | | $ | (922) | |
14. Earnings per Share
The following table presents the calculation of basic and diluted earnings per share: | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended |
| (MILLIONS OF DOLLARS AND SHARES, EXCEPT PER SHARE DATA) | | | | March 31, |
| | | | | 2026 | | 2025 |
| Numerator | | | | | | | | |
| Net income before allocation to noncontrolling interests | | | | | | $ | 601 | | | $ | 602 | |
| Less: Net income/(loss) attributable to noncontrolling interests | | | | | | — | | | — | |
| Net income attributable to Zoetis Inc. | | | | | | $ | 601 | | | $ | 602 | |
| Denominator | | | | | | | | |
| Weighted-average common shares outstanding | | | | | | 422.1 | | | 447.6 | |
| Common stock equivalents: stock options, RSUs, PSUs and DSUs | | | | | | 0.3 | | | 0.4 | |
| Weighted-average common and potential dilutive shares outstanding | | | | | | 422.4 | | | 448.0 | |
| Earnings per share attributable to Zoetis Inc. stockholders—basic | | | | | | $ | 1.42 | | | $ | 1.34 | |
| Earnings per share attributable to Zoetis Inc. stockholders—diluted | | | | | | $ | 1.42 | | | $ | 1.34 | |
The number of stock options outstanding under the company’s Equity Plan that were excluded from the computation of diluted earnings per share, as the effect would have been antidilutive, were not material for the three months ended March 31, 2026 and 2025.
For the convertible senior notes, we are required to settle the principal amount in cash and any conversion premium in excess of the principal amount in cash, shares of common stock, or a combination of cash and shares of common stock, at our election. As such, the convertible senior notes only have an impact on diluted earnings per share when the average share price of our common stock exceeds the conversion price. See Note 9. Financial Instruments.
15. Commitments and Contingencies
We and certain of our subsidiaries are subject to numerous contingencies arising in the ordinary course of business. For a discussion of our tax contingencies, see Note 8. Income Taxes.
A. Legal Proceedings
Our non-tax contingencies include, among others, the following:
• Product liability and other product-related litigation, which can include injury, consumer, off-label promotion, antitrust and breach of contract claims.
• Commercial and other matters, which can include product-pricing claims and environmental claims and proceedings.
• Patent litigation, which typically involves challenges to the coverage and/or validity of our patents or those of third parties on various products or processes.
• Government investigations, which can involve regulation by national, state and local government agencies in the U.S. and in other countries.
Certain of these contingencies could result in losses, including damages, fines and/or civil penalties, and/or criminal charges, which could be substantial.
We believe that we have strong defenses in these types of matters, but litigation is inherently unpredictable and excessive verdicts do occur. We do not believe that any of these matters will have a material adverse effect on our financial position. However, we could incur judgments, enter into settlements or revise our expectations regarding the outcome of certain matters, and such developments could have a material adverse effect on our results of operations or cash flows in the period in which the amounts are paid.
We have accrued for losses that are both probable and reasonably estimable. Substantially all of these contingencies are subject to significant uncertainties and, therefore, determining the likelihood of a loss and/or the measurement of any loss can be complex. Consequently, we are unable to estimate the range of reasonably possible loss in excess of amounts accrued. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but the assessment process relies on estimates and assumptions that may prove to be incomplete or inaccurate, and unanticipated events and circumstances may occur that might cause us to change those estimates and assumptions.
Amounts recorded for legal and environmental contingencies can result from a complex series of judgments about future events and uncertainties and can rely on estimates and assumptions.
The principal matters to which we are a party are discussed below. In determining whether a pending matter is significant for financial reporting and disclosure purposes, we consider both quantitative and qualitative factors in order to assess materiality, such as, among other things, the amount of damages and the nature of any other relief sought in the proceeding, if such damages and other relief are specified; our view of the merits of the claims and of the strength of our defenses; whether the action purports to be a class action and our view of the likelihood that a class will be certified by the court; the jurisdiction in which the proceeding is pending; any experience that we or, to our knowledge, other companies have had in similar proceedings; whether disclosure of the action would be important to a reader of our financial statements, including whether disclosure might change a reader’s judgment about our financial statements in light of all of the information about the company that is available to the reader; the potential impact of the proceeding on our reputation; and the extent of public interest in the matter. In addition, with respect to patent matters, we consider, among other things, the financial significance of the product protected by the patent.
Ulianopolis, Brazil
In February 2012, the Municipality of Ulianopolis (State of Para, Brazil) filed a complaint against Fort Dodge Saúde Animal Ltda. (FDSAL), a Zoetis entity, and five other large companies alleging that waste sent to a local waste incineration facility for destruction, but that was not ultimately destroyed as the facility lost its operating permit, caused environmental impacts requiring cleanup.
The Municipality is seeking recovery of cleanup costs purportedly related to FDSAL’s share of all waste accumulated at the incineration facility awaiting destruction, and compensatory damages to be allocated among the six defendants. We believe we have strong arguments against the claim, including defense strategies against any claim of joint and several liability.
At the request of the Municipal prosecutor, in April 2012, the lawsuit was suspended for one year. Since that time, the prosecutor has initiated investigations into the Municipality's actions in the matter as well as the efforts undertaken by the six defendants to remove and dispose of their individual waste from the incineration facility. On October 3, 2014, the Municipal prosecutor announced that the investigation remained ongoing and outlined the terms of a proposed Term of Reference (a document that establishes the minimum elements to be addressed in the preparation of an Environmental Impact Assessment), under which the companies would be liable to withdraw the waste and remediate the area.
On March 5, 2015, we presented our response to the prosecutor’s proposed Term of Reference, arguing that the proposed terms were overly general in nature and expressing our interest in discussing alternatives to address the matter. The prosecutor agreed to consider our request to engage a technical consultant to conduct an environmental diagnostic of the contaminated area. On May 29, 2015, we, in conjunction with the other defendant companies, submitted a draft cooperation agreement to the prosecutor, which outlined the proposed terms and conditions for the engagement of a technical consultant to conduct the environmental diagnostic. On August 19, 2016, the parties and the prosecutor agreed to engage the services of a third-party consultant to conduct a limited environmental assessment of the site. The site assessment was conducted during June 2017, and a written report summarizing the results of the assessment was provided to the parties and the prosecutor in November 2017. The report noted that waste is still present on the site and that further (Phase II) environmental assessments are needed before a plan to manage that remaining waste can be prepared. On April 1, 2019, the defendants met with the Prosecutor to discuss the conclusions set forth in the written report. Following that discussion, on April 10, 2019, the Prosecutor issued a procedural order requesting that the defendants prepare and submit a technical proposal outlining the steps needed to conduct the additional Phase II environmental assessments. The defendants presented the technical proposal to the Prosecutor on October 21, 2019. On March 3, 2020, the Prosecutor notified the defendants that he submitted the proposal to the Ministry of the Environment for its review and consideration by the Prosecutor. On July 15, 2020, the Prosecutor recommended certain amendments to the proposal for the Phase II testing. On September 28, 2020, the parties and the Prosecutor agreed to the final terms and conditions concerning the cooperation agreement with respect to the Phase II testing. Phase II testing began the week of October 14, 2024. Currently, the parties, the prosecutor, the Municipality and their respective technical teams are collaborating to develop a plan to evaluate potential options for waste removal from the site and disposal.
B. Guarantees and Indemnifications
In the ordinary course of business and in connection with the sale of assets and businesses, we indemnify our counterparties against certain liabilities that may arise in connection with the transaction or related to activities prior to the transaction. These indemnifications typically pertain to environmental, tax, employee and/or product-related matters and patent-infringement claims. If the indemnified party were to make a successful claim pursuant to the terms of the indemnification, we would be required to reimburse the loss. These indemnifications are generally subject to threshold amounts, specified claim periods and other restrictions and limitations. Historically, we have not paid significant amounts under these provisions and, as of March 31, 2026, recorded amounts for the estimated fair value of these indemnifications were not material.
16. Segment Information
Operating Segments
We manage our operations through two geographic regions. Each operating segment has responsibility for its commercial activities. Within each of these operating segments, we offer a diversified product portfolio, including parasiticides, vaccines, dermatology, anti-infectives, pain and sedation, other pharmaceutical and animal health diagnostics for both companion animal and livestock customers.
Our operating segments are the U.S. and International. The chief operating decision maker (CODM), our Chief Executive Officer and Chief Financial Officer, uses the information provided to compare segment performance with segment resource requests and allocates human and capital resources based on segment’s actual results and expected future results.
Other Costs and Business Activities
Certain costs are not allocated to our operating segment results, such as costs associated with the following:
• Other business activities, includes our Client Supply Services contract manufacturing results, our human health business, and expenses associated with our dedicated veterinary medicine research and development organization, research alliances, U.S. regulatory affairs and other operations focused on the development of our products. Other R&D-related costs associated with non-U.S. market and regulatory activities are generally included in the international commercial segment.
• Corporate, includes enabling functions such as information technology, facilities, legal, finance, human resources, business development, certain diagnostic costs and communications, among others. These costs also include certain compensation costs, certain procurement costs and other miscellaneous operating expenses not charged to our operating segments, as well as interest income and expense.
•Certain transactions and events such as (i) Purchase accounting adjustments, where we incur expenses associated with the amortization of fair value adjustments to inventory, intangible assets and property, plant and equipment; (ii) Acquisition and divestiture-related costs, where we incur costs associated with acquiring and integrating newly acquired businesses, such as transaction costs and integration costs, as well as divestiture-related costs; and (iii) Certain significant items, which comprise substantive, unusual items that, either as a result of their nature or size, would not be expected to occur as part of our normal business on a regular basis, such as restructuring charges and implementation costs associated with our cost-reduction/productivity initiatives that are not associated with an acquisition or divestiture, certain asset impairment charges, certain legal and commercial settlements and the impact of divestiture-related gains and losses.
•Other unallocated includes (i) certain overhead expenses associated with our global manufacturing operations not charged to our operating segments; (ii) certain costs associated with finance that specifically support our global manufacturing operations; (iii) certain supply chain and global logistics costs; and (iv) certain procurement costs.
Segment Assets
We manage our assets on a total company basis, not by operating segment. Therefore, our CODM does not regularly review any asset information by operating segment and, accordingly, we do not report asset information by operating segment.
Selected Statement of Income Information
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Earnings | | Depreciation and Amortization(a) |
| | Three Months Ended | | Three Months Ended |
| | March 31, | | March 31, |
| (MILLIONS OF DOLLARS) | | 2026 | | 2025 | | 2026 | | 2025 |
| U.S. | | | | | | | | |
| Revenue | | $ | 1,090 | | | $ | 1,183 | | | | | |
| Cost of sales | | 194 | | | 199 | | | | | |
| Gross profit | | 896 | | | 984 | | | | | |
| Gross margin | | 82.2 | % | | 83.2 | % | | | | |
Operating expenses(b) | | 199 | | | 205 | | | | | |
| Other (income)/deductions-net | | — | | | — | | | | | |
| U.S. Earnings | | 697 | | | 779 | | | $ | 23 | | | $ | 23 | |
| | | | | | | | |
| International | | | | | | | | |
Revenue(c) | | 1,149 | | | 985 | | | | | |
| Cost of sales | | 334 | | | 295 | | | | | |
| Gross profit | | 815 | | | 690 | | | | | |
| Gross margin | | 70.9 | % | | 70.1 | % | | | | |
Operating expenses(b) | | 175 | | | 163 | | | | | |
| Other (income)/deductions-net | | 1 | | | — | | | | | |
| International Earnings | | 639 | | | 527 | | | 26 | | | 23 | |
| | | | | | | | |
| Total operating segments | | 1,336 | | | 1,306 | | | 49 | | | 46 | |
| | | | | | | | |
Other business activities | | (141) | | | (133) | | | 13 | | | 11 | |
| Reconciling Items: | | | | | | | | |
Corporate | | (315) | | | (278) | | | 25 | | | 29 | |
Purchase accounting adjustments | | (28) | | | (32) | | | 31 | | | 32 | |
Acquisition and divestiture-related costs | | (2) | | | — | | | — | | | — | |
Certain significant items | | (27) | | | (6) | | | — | | | — | |
Other unallocated | | (65) | | | (84) | | | 1 | | | 1 | |
Total Earnings(d) | | $ | 758 | | | $ | 773 | | | $ | 119 | | | $ | 119 | |
(a) Certain production facilities are shared. Depreciation and amortization is allocated to the reportable operating segments based on estimates of where the benefits of the related assets are realized.
(b) Operating expenses primarily consisted of field selling, other marketing expenses, advertising and promotions, and freight and logistics costs.
(c) Revenue denominated in euros was $263 million and $225 million for the three months ended March 31, 2026 and 2025, respectively.
(d) Defined as income before provision for taxes on income.