ZOETIS INC. Overview of our business Zoetis is a global leader in the animal health industry, focused on the discovery, development, manufacture and commercialization of medicines, vaccines, diagnostic products, biodevices, genetic tests and precision livestock farming technology. For nearly 70 years, we have been innovating ways to predict, prevent, detect, and treat animal illness, and continue to stand by those raising and caring for animals worldwide - from livestock farmers to veterinarians and pet owners. We manage our operations through two geographic operating segments:the United States (U.S. ) and International. Within each of these operating segments, we offer a diversified product portfolio for both companion animal and livestock customers in order to capitalize on local and regional trends and customer needs. See Notes to Condensed Consolidated Financial Statements - Note 16. Segment Information. We directly market our products to veterinarians and livestock producers located in approximately 45 countries acrossNorth America ,Europe ,Africa ,Asia ,Australia andSouth America , and are a market leader in nearly all of the major regions in which we operate. Through our efforts to establish an early and direct presence in many emerging markets, such asBrazil ,Chile ,China andMexico , we believe we are one of the largest animal health medicines and vaccines businesses as measured by revenue across emerging markets as a whole. In markets where we do not have a direct commercial presence, we generally contract with distributors that provide logistics and sales and marketing support for our products. We believe our investments in one of the industry's largest sales organizations, including our extensive network of technical and veterinary operations specialists, our high-quality manufacturing and reliability of supply, and our long track record of developing products that meet customer needs, has led to enduring and valued relationships with our customers. Our research and development (R&D) efforts enable us to deliver innovative products to address unmet needs and evolve our product lines so they remain relevant for our customers. Our products include over 300 products and product lines that we sell in over 100 countries for the prediction, prevention, detection and treatment of diseases and conditions that affect various companion animal and livestock species. The diversity of our product portfolio and our global operations provides stability to our overall business. For instance, in livestock, impacts on our revenue that may result from disease outbreaks or weather conditions in a particular market or region are often offset by increased sales in other regions from exports and other species as consumers shift to other proteins. Beginning in the first quarter of 2021, certain costs associated with information technology that specifically support our global manufacturing operations, which were previously reported in Other unallocated, are now reported in Corporate. In addition, in the first quarter of 2021, the company realigned certain management responsibilities. These changes did not impact the determination of our operating segments, however they resulted in the reallocation of certain costs between segments. These changes primarily include the following: (i) certain diagnostics costs, which were previously reported in Corporate, are now reported in ourU.S. results; and (ii) certain other miscellaneous costs, which were previously reported in ourU.S. results, are now reported in Corporate. Certain reclassifications of prior year information have been made to conform to the current year's presentation. A summary of our 2021 performance compared with the comparable 2020 period follows: % Change Three Months Ended Related to March 31, Foreign (MILLIONS OF DOLLARS) 2021 2020 Total Exchange Operational(a) Revenue$ 1,871 $ 1,534 22 1 21 Net income attributable to Zoetis 559 423 32 (2) 34 Adjusted net income(a) 603 455 33 (1) 34 (a) Operational growth and adjusted net income are non-GAAP financial measures. See the Non-GAAP financial measures section of this Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) for more information. Our operating environment For a description of our operating environment, including factors which could materially affect our business, financial condition, or future results, see "Our Operating Environment" in the MD&A of our 2020 Annual Report on Form 10-K. Set forth below are updates to certain of the factors disclosed in our 2020 Form 10-K. Uncertainty Relating to COVID-19 We continue to closely monitor the impact of the coronavirus (COVID-19) pandemic and the resulting global recession on all aspects of our business across geographies, including how it has and may continue to impact our customers, workforce, suppliers and vendors. We are currently designated an essential business globally and have continued physical operations with respect to research and development, manufacturing and our supply chain. As the pandemic continues to progress, the severity of the impact across markets remains uncertain as the number of cases rises and falls in various jurisdictions leading to changes in the imposition of restrictive measures intended to contain the virus. Due to numerous uncertainties regarding the continuing COVID-19 pandemic, we are unable to fully predict the impact that it will ultimately have on our future financial position and operating results. These uncertainties include the severity of the virus, the duration of the outbreak and number of recurrences, the effectiveness of measures to contain and treat the virus, including the timing, adoption and effectiveness of widespread vaccinations, governmental, business or other actions in response to the pandemic (which could include actions that result in limitations on, or disruptions to, our manufacturing, transportation and other operations, or mandates to provide products or services), impacts on our supply chain, the effect on customer demand, or changes to our operations. We cannot predict the impact that the COVID-19 pandemic will have on our customers, vendors and suppliers; 21 | -------------------------------------------------------------------------------- Table of Contents however, any material effect on these parties could adversely impact us. In particular, our livestock customers have been, and may continue to be, negatively impacted by facility closures, reduced packing plant capacity, quarantines, travel bans and labor shortages, and the shift in protein production from foodservice to grocery, among other impacts. In addition, our companion animal customers have been, and may in the future be, negatively impacted by lack of demand for veterinary services in areas where lockdown and stay-at-home orders are in place. The impact of COVID-19 on our customers has reduced and could continue to reduce the demand for our products, which could continue to adversely impact our revenue. The health of our workforce, and our ability to meet staffing needs in our manufacturing operations and other critical functions, cannot be predicted and are vital to our operations. Further, the impacts of a prolonged global recession and the continued disruptions to, and volatility in, the credit and financial markets, as well as other unanticipated consequences, remain unknown. In order to preserve liquidity, we issued debt securities inMay 2020 and we may in the future incur additional indebtedness, whether through the issuance of debt securities, drawdowns under our credit facility or otherwise. An increase in our outstanding indebtedness will result in additional interest expense. 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. It is not clear what the potential effects any such alterations or modifications may ultimately have on our business, including the effects on our customers, workforce, and prospects, or on our financial results for the remainder of fiscal 2021. For further information regarding the impact of COVID-19 on the Company, please see Item 1A, Risk Factors on this Quarterly Report on Form 10-Q. Quarterly Variability of Financial Results Our quarterly financial results are subject to variability related to a number of factors including but not limited to: the impact of the COVID-19 pandemic discussed above, weather patterns, herd management decisions, economic conditions, regulatory actions, competitive dynamics, disease outbreaks, product and geographic mix, timing of price increases and timing of investment decisions. Disease Outbreaks Sales of our livestock products could be adversely affected by the outbreak of disease carried by animals. Outbreaks of disease may reduce regional or global sales of particular animal-derived food products or result in reduced exports of such products, either due to heightened export restrictions or import prohibitions, which may reduce demand for our products. Also, the outbreak of any highly contagious disease near our main production sites could require us to immediately halt production of our products at such sites or force us to incur substantial expenses in procuring raw materials or products elsewhere. Alternatively, sales of products that treat specific disease outbreaks may increase. 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 three months endedMarch 31, 2021 , approximately 46% of our revenue was denominated in foreign currencies. 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. As we operate in multiple foreign currencies, including the euro, Brazilian real, Chinese renminbi, Canadian dollar, Australian dollar, British pound and other currencies, changes in those currencies relative to theU.S. dollar will impact our revenue, cost of goods and expenses, and consequently, net income. 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 three months endedMarch 31, 2021 , approximately 54% of our total revenue was inU.S. dollars. Our year-over-year total revenue growth was favorably impacted by approximately 1% from changes in foreign currency values relative to theU.S. dollar. Non-GAAP financial measures We report information in accordance withU.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. Despite the importance of these measures to management in goal setting and performance measurement, non-GAAP financial measures have no standardized meaning prescribed byU.S. 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. Operational Growth We believe that it is important to not only understand overall revenue and earnings growth, but also "operational growth." Operational growth is a non-GAAP financial measure defined as revenue or earnings growth excluding the impact of foreign exchange. This measure provides information on the change in revenue and earnings as if foreign currency exchange rates had not changed between the current and prior periods to facilitate a period-to-period comparison. We believe this non-GAAP measure provides a useful comparison to previous periods for the company and investors, but should not be viewed as a substitute forU.S. GAAP reported growth. Adjusted Net Income and Adjusted Earnings Per Share Adjusted net income and the corresponding adjusted earnings per share (EPS) are non-GAAP financial measures of performance used by management. We believe these financial measures are useful supplemental information to investors when considered together with ourU.S. GAAP financial measures. We report adjusted net income to portray the results of our major operations, and the discovery, development, manufacture and commercialization of our products, prior to considering certain income statement elements. We define adjusted net income and adjusted EPS as net income attributable to Zoetis and EPS before the impact of purchase accounting adjustments, acquisition-related costs and certain significant items. We recognize that, as an internal measure of performance, the adjusted net income and adjusted EPS measures have limitations, and we do not restrict our performance management process solely to these metrics. A limitation of the adjusted net income and adjusted EPS measures is that they 22 | -------------------------------------------------------------------------------- Table of Contents provide a view of our operations without including all events during a period, such as the effects of an acquisition or amortization of purchased intangibles, and do not provide a comparable view of our performance to other companies. The adjusted net income and adjusted EPS measures are not, and should not be viewed as, a substitute forU.S. GAAP reported net income and reported EPS. See the Adjusted Net Income section below for more information. Analysis of the condensed consolidated statements of income The following discussion and analysis of our statements of income should be read along with our condensed consolidated financial statements and the notes thereto included elsewhere in Part I- Item 1 of this Quarterly Report on Form 10-Q. Three Months Ended March 31, % (MILLIONS OF DOLLARS) 2021 2020 Change Revenue$ 1,871 $ 1,534 22 Costs and expenses: Cost of sales 549 459 20 % of revenue 29.3 % 29.9 % Selling, general and administrative expenses 409 389 5 % of revenue 22 % 25 % Research and development expenses 118 107 10 % of revenue 6 % 7 % Amortization of intangible assets 40 40 - Restructuring charges and certain acquisition-related costs 9 9 - Interest expense, net of capitalized interest 57 53 8 Other (income)/deductions-net 2 (20) * Income before provision for taxes on income 687 497 38 % of revenue 37 % 32 % Provision for taxes on income 129 74 74 Effective tax rate 18.8 % 14.9 % Net income before allocation to noncontrolling interests 558 423 32 Less: Net loss attributable to noncontrolling interests (1) - - Net income attributable to Zoetis Inc.$ 559 $ 423 32 % of revenue 30 % 28 % *Calculation not meaningful Revenue Three months endedMarch 31, 2021 vs. three months endedMarch 31, 2020 Total revenue increased by$337 million , or 22%, in the three months endedMarch 31, 2021 , compared with the three months endedMarch 31, 2020 , an increase of$325 million , or 21%, on an operational basis. Operational revenue growth was comprised primarily of the following: •volume growth from in-line products, including key dermatology products, of approximately 16%; and •volume growth from new products of approximately 5%. Foreign exchange increased reported revenue growth by approximately 1%. Costs and Expenses Cost of sales Three Months Ended March 31, % (MILLIONS OF DOLLARS) 2021 2020 Change Cost of sales$ 549 $ 459 20 % of revenue 29.3 % 29.9 % Three months endedMarch 31, 2021 vs. three months endedMarch 31, 2020 Cost of sales as a percentage of revenue was 29.3% in the three months endedMarch 31, 2021 compared with 29.9% in the three months endedMarch 31, 2020 . The decrease was primarily as a result of: •favorable product mix, partially offset by: •unfavorable foreign exchange; and •higher freight and other charges. 23 | -------------------------------------------------------------------------------- Table of Contents Selling, general and administrative expenses Three Months Ended March 31, % (MILLIONS OF DOLLARS) 2021 2020 Change Selling, general and administrative expenses$ 409 $ 389 5 % of revenue 22 % 25 % Three months endedMarch 31, 2021 vs. three months endedMarch 31, 2020 SG&A expenses increased by$20 million , or 5%, in the three months endedMarch 31, 2021 , compared with the three months endedMarch 31, 2020 , primarily as a result of: •an increase in certain compensation-related costs; •investments to support revenue growth; •higher freight and logistics costs; and •unfavorable foreign exchange, partially offset by: •lower travel and entertainment expenses as a result of decreases in travel and events related to the COVID-19 pandemic; and •the reduced impact of purchase accounting adjustments. Research and development expenses Three Months Ended March 31, % (MILLIONS OF DOLLARS) 2021 2020 Change Research and development expenses$ 118 $ 107 10 % of revenue 6 % 7 % Three months endedMarch 31, 2021 vs. three months endedMarch 31, 2020 R&D expenses increased by$11 million , or 10%, in the three months endedMarch 31, 2021 , compared with the three months endedMarch 31, 2020 , primarily as a result of: •an increase in certain compensation-related costs; •increased spending driven by project investments; and •unfavorable foreign exchange, partially offset by: •lower travel and entertainment expenses as a result of decreases in travel and events related to the COVID-19 pandemic. Amortization of intangible assets Three Months Ended March 31, % (MILLIONS OF DOLLARS) 2021 2020 Change Amortization of intangible assets$ 40 $ 40 -
Three months ended
Three Months Ended
March 31, %
(MILLIONS OF DOLLARS) 2021 2020 Change
Restructuring charges and certain acquisition-related
costs $ 9 $ 9 -
Our acquisition-related costs primarily relate to restructuring charges for
employees, assets and activities that will not continue in the future, as well
as integration costs. Net restructuring charges are primarily related to
employee termination and exit costs. Our integration costs are generally
comprised of consulting costs related to the integration of systems and
processes, as well as product transfer costs.
For additional information regarding restructuring charges and
acquisition-related costs, see Notes to Condensed Consolidated Financial
Statements- Note 6. Restructuring Charges and Other Costs Associated with
Acquisitions, Cost-Reduction and Productivity Initiatives.
Three months ended March 31, 2021 vs. three months ended March 31, 2020
Restructuring charges and certain acquisition-related costs were $9 million in
the three months ended March 31, 2021 and 2020. Restructuring charges and
certain acquisition-related costs in the three months ended March 31, 2021
consisted of employee termination and exit costs associated
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with cost-reduction and productivity initiatives, integration costs related to
recent acquisitions and restructuring charges related to CEO transition-related
costs. Restructuring charges and certain acquisition-related costs in the three
months ended March 31, 2020 consisted of integration costs related to
acquisitions and restructuring charges related to CEO transition-related costs.
Interest expense, net of capitalized interest
Three Months Ended
March 31, %
(MILLIONS OF DOLLARS) 2021 2020 Change
Interest expense, net of capitalized interest $ 57 $ 53 8
Three months ended March 31, 2021 vs. three months ended March 31, 2020
Interest expense, net of capitalized interest, increased by 8% in the three
months ended March 31, 2021 , compared with the three months ended March 31,
2020 , primarily as a result of the increase in long-term debt during the second
quarter of 2020.
Other (income)/deductions-net
Three Months Ended
March 31, %
(MILLIONS OF DOLLARS) 2021 2020 Change
Other (income)/deductions-net $ 2 $ (20) *
*Calculation not meaningful
Three months ended March 31, 2021 vs. three months ended March 31, 2020
The change in Other (income)/deductions-net is primarily as a result of a net
gain of $17 million in the three months ended March 31, 2020 related to net cash
proceeds received pursuant to an agreement related to the 2016 sale of certain
U.S. manufacturing sites and lower interest income for the three months ended
March 31, 2021 as compared to the prior year period.
Provision for taxes on income
Three Months Ended
March 31, %
(MILLIONS OF DOLLARS) 2021 2020 Change
Provision for taxes on income $ 129 $ 74 74
Effective tax rate 18.8 % 14.9 %
Three months ended March 31, 2021 vs. three months ended March 31, 2020
Our effective tax rate was 18.8% for the three months ended March 31, 2021 ,
compared with 14.9% for the three months ended March 31, 2020 . The higher
effective tax rate for the three months ended March 31, 2021 , was primarily
attributable to:
•a $13 million and a $23 million discrete tax benefit recorded in the three
months ended March 31, 2021 and 2020, respectively, related to the excess tax
benefits for share-based payments;
•a $6 million discrete tax benefit recorded in the three months ended March 31,
2020 related to a remeasurement of deferred taxes resulting from the integration
of acquired businesses; and
•a $1 million and a $3 million discrete tax benefit recorded in the three months
ended March 31, 2021 and 2020, respectively, related to a remeasurement of
deferred taxes as a result of a change in statutory tax rates,
partially offset by:
•changes in the jurisdictional mix of earnings, which includes the impact of the
location of earnings from operations and repatriation costs. The jurisdictional
mix of earnings can vary as a result of repatriation decisions, operating
fluctuations in the normal course of business and the impact of non-deductible
items and non-taxable items.
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Operating Segment Results
On a global basis, the mix of revenue between companion animal and livestock
products was as follows:
% Change
Three Months Ended Related to
March 31, Foreign
(MILLIONS OF DOLLARS) 2021 2020 Total Exchange Operational
U.S.
Companion animal $ 658 $ 499 32 - 32
Livestock 275 287 (4) - (4)
933 786 19 - 19
International
Companion animal 418 298 40 3 37
Livestock 504 430 17 - 17
922 728 27 2 25
Total
Companion animal 1,076 797 35 1 34
Livestock 779 717 9 1 8
Contract manufacturing & human
health 16 20 (20) 5 (25)
$ 1,871 $ 1,534 22 1 21
Earnings by segment and the operational and foreign exchange changes versus the comparable prior year period were as follows:
% Change
Three Months Ended Related to
March 31, Foreign
(MILLIONS OF DOLLARS) 2021 2020 Total Exchange Operational
U.S. :
Revenue $ 933 $ 786 19 - 19
Cost of Sales 184 167 10 - 10
Gross Profit 749 619 21 - 21
Gross Margin 80.3 % 78.8 %
Operating Expenses 131 125 5 - 5
Other (income)/deductions-net 1 1 - - -
U.S. Earnings 617 493 25 - 25
International:
Revenue 922 728 27 2 25
Cost of Sales 282 224 26 - 26
Gross Profit 640 504 27 2 25
Gross Margin 69.4 % 69.2 %
Operating Expenses 130 125 4 3 1
Other (income)/deductions-net - - * * *
International Earnings 510 379 35 3 32
Total operating segments 1,127 872 29 1 28
Other business activities (97) (87) 11
Reconciling Items:
Corporate (230) (187) 23
Purchase accounting adjustments (44) (54) (19)
Acquisition-related costs (5) (7) (29)
Certain significant items (8) 11 *
Other unallocated (56) (51) 10
Total Earnings $ 687 $ 497 38
* Calculation not meaningful.
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Three months ended March 31, 2021 vs. three months ended March 31, 2020
U.S. operating segment
U.S. segment revenue increased by $147 million , or 19%, in the three months
ended March 31, 2021 , compared with the three months ended March 31, 2020 ,
reflecting an increase of approximately $159 million in companion animal
products, partially offset by a decrease of approximately $12 million in
livestock products.
•Companion animal revenue growth was driven primarily by increased sales of
parasiticides, including Simparica Trio , our new triple combination
parasiticide, as well as the Revolution/Stronghold franchise. In-line product
growth benefited from increased sales of our diagnostics products, the key
dermatology portfolio and vaccines.
•Livestock revenue declined due to poultry and swine, partially offset by growth
in cattle. Poultry declined due to lower revenue in our medicated feed additives
products. The reduction in swine in the quarter was primarily due to a
non-recurring government purchase in the same quarter last year. The increase in
cattle stemmed from marketing and promotion efforts benefiting the portfolio of
products.
U.S. segment earnings increased by $124 million , or 25%, in the three months
ended March 31, 2021 , compared with the three months ended March 31, 2020 ,
primarily due to revenue and gross margin growth.
International operating segment
International segment revenue increased by $194 million , or 27%, in the three
months ended March 31, 2021 , compared with the three months ended March 31,
2020 . Operational revenue increased by $182 million , or 25%, driven by growth of
approximately $110 million in companion animal products and growth of
approximately $72 million in livestock products.
•Companion animal operational revenue growth resulted primarily from increased
sales of our parasiticide products, including the Simparica franchise with the
launch of Simparica Trio , as well as the Revolution/Stronghold franchise. Key
dermatology products also contributed to growth with increased sales of Apoquel
and Cytopoint, as well as vaccines.
•Livestock operational revenue growth was driven by increased sales in swine,
cattle and fish. Sales of swine products grew as a result of expanding herd
production in the wake of African Swine Fever in China . Growth in cattle was
mainly due to the effect of marketing campaigns, key account penetration and
favorable export market conditions in Brazil and other emerging markets. Fish
growth was due to an increase in vaccine sales in key salmon markets, timing of
vaccinations and recent acquisitions.
•Additionally, International segment revenue was favorably impacted by foreign
exchange which increased revenue by approximately $12 million , or 2%, primarily
driven by the euro, Chinese yuan and Australian dollar, partially offset by the
Brazilian real.
International segment earnings increased by $131 million , or 35%, in the three
months ended March 31, 2021 , compared with the three months ended March 31,
2020 . Operational earnings growth was $122 million , or 32%, primarily due to
higher revenue and lower operating expenses.
Other business activities
Other business activities includes our Client Supply Services (CSS) contract
manufacturing results, our human health business and expenses associated with
our dedicated veterinary medicine research and development organization,
research alliances, U.S. regulatory affairs and other operations focused on the
development of our products. Other R&D-related costs associated with non-U.S.
market and regulatory activities are generally included in the International
segment.
Three months ended March 31, 2021 vs. three months ended March 31, 2020
Other business activities net loss increased by $10 million , in the three months
ended March 31, 2021 , compared with the three months ended March 31, 2020 ,
reflecting an increase in R&D costs due to an increase in compensation-related
costs, an increase in project investments and unfavorable foreign exchange,
partially offset by lower travel and entertainment expenses as a result of
decreases in travel and events related to the COVID-19 pandemic.
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. These costs also include certain compensation
costs, certain procurement costs, and other miscellaneous operating expenses
that are not charged to our operating segments, as well as interest income and
expense;
•Certain transactions and events such as (i) Purchase accounting adjustments,
which includes expenses associated with the amortization of fair value
adjustments to inventory, intangible assets, and property, plant and equipment;
(ii) Acquisition-related activities, which includes costs for acquisition and
integration; and (iii) Certain significant items, which includes
non-acquisition-related restructuring charges, certain asset impairment charges,
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.
Three months ended March 31, 2021 vs. three months ended March 31, 2020
Corporate expenses increased by $43 million , or 23%, in the three months ended
March 31, 2021 , compared with the three months ended March 31, 2020 , primarily
due to an increase in certain compensation-related costs, an increase in
interest expense due to the May 2020 debt issuance, lower interest income,
investments in information technology and unfavorable foreign exchange.
Other unallocated expenses increased by $5 million , or 10%, in the three months
ended March 31, 2021 , compared with the three months ended March 31, 2020 ,
primarily due to unfavorable foreign exchange, partially offset by continued
cost improvements.
See Notes to Condensed Consolidated Financial Statements-Note 16. Segment
Information for further information.
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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. Additionally, we measure our overall
performance on this basis in conjunction with other performance metrics. The
following are examples of how the adjusted net income measure is utilized:
•senior management receives a monthly analysis of our operating results that is
prepared on an adjusted net income basis;
•our annual budgets are prepared on an adjusted net income basis; and
•other goal setting and performance measurements.
Purchase accounting adjustments
Adjusted net income is calculated prior to considering certain significant
purchase accounting impacts that result from business combinations and net asset
acquisitions. These impacts, primarily associated with the acquisition of Abaxis
(acquired in July 2018 ), the Pharmaq business (acquired in November 2015 ),
certain assets of Abbott Animal Health (acquired in February 2015 ), King Animal
Health (KAH) (acquired in 2011), Fort Dodge Animal Health (FDAH) (acquired in
2009), and Pharmacia Animal Health business (acquired in 2003), 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.
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. We believe the
elimination of amortization attributable to acquired intangible assets provides
management and investors an alternative view of our business results by
providing a degree of parity to internally developed intangible assets for which
R&D costs previously have been expensed.
A completely accurate comparison of internally developed intangible assets and
acquired intangible assets cannot be achieved through adjusted net income. These
components of adjusted net income are derived solely from the impact of the
items listed above. We have not factored in the impact of any other differences
in experience that might have occurred if we had discovered and developed those
intangible assets on our own, and this approach does not intend to be
representative of the results that would have occurred in those circumstances.
For example, our R&D costs in total, and in the periods presented, may have been
different; our speed to commercialization and resulting revenue, if any, may
have been different; or our costs to manufacture may have been different. In
addition, our marketing efforts may have been received differently by our
customers. As such, in total, there can be no assurance that our adjusted net
income amounts would have been the same as presented had we discovered and
developed the acquired intangible assets.
Acquisition-related costs
Adjusted net income is calculated prior to considering transaction and
integration costs associated with significant business combinations or net asset
acquisitions because these costs are unique to each transaction and represent
costs that were incurred to acquire and integrate certain businesses as a result
of the acquisition decision. We have made no adjustments for the resulting
synergies.
We believe that viewing income prior to considering these charges provides
investors with a useful additional perspective because the significant costs
incurred in a business combination result primarily from the need to eliminate
duplicate assets, activities or employees--a natural result of acquiring a fully
integrated set of activities. For this reason, we believe that the costs
incurred to convert disparate systems, to close duplicative facilities or to
eliminate duplicate positions (for example, in the context of a business
combination) can be viewed differently from those costs incurred in the ordinary
course of business.
The integration costs associated with a business combination may occur over
several years, with the more significant impacts generally ending within three
years of the transaction. Because of the need for certain external approvals for
some actions, the span of time needed to achieve certain restructuring and
integration activities can be lengthy. For example, due to the regulated nature
of the animal health medicines, vaccines and diagnostics business, the closure
of excess facilities can take several years, as all manufacturing changes are
subject to extensive validation and testing and must be approved by the U.S.
Food and Drug Administration and/or other regulatory authorities.
Certain significant items
Adjusted net income is calculated excluding certain significant items. Certain
significant items represent substantive, unusual items that are evaluated on an
individual basis. Such evaluation considers both the quantitative and the
qualitative aspect of their unusual nature. Unusual, in this context, may
represent items that are not part of our ongoing business; items that, either as
a result of their nature or size, we would not expect to occur as part of our
normal business on a regular basis; items that would be nonrecurring; or items
that relate to products that we no longer sell. While not all-inclusive,
examples of items that could be included as certain significant items would be
costs related to a major non-acquisition-related restructuring charge and
associated implementation costs for a program that is specific in nature with a
defined term, such as those related to our non-acquisition-related
cost-reduction and productivity initiatives; amounts related to disposals of
products or facilities that do not qualify as discontinued operations as defined
by U.S. GAAP; certain intangible asset impairments; 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 Condensed Consolidated Financial
Statements- Note 15. Commitments and Contingencies. 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.
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Reconciliation
A reconciliation of net income, as reported under U.S. GAAP, to adjusted net
income follows:
Three Months Ended
March 31, %
(MILLIONS OF DOLLARS) 2021 2020 Change
GAAP reported net income attributable to Zoetis $ 559 $ 423 32
Purchase accounting adjustments-net of tax 34 32 6
Acquisition-related costs-net of tax 4 8 (50)
Certain significant items-net of tax 6 (8) *
Non-GAAP adjusted net income(a) *Calculation not meaningful. (a) The effective tax rate on adjusted pretax income is 19.1% and 16.8% for the three months endedMarch 31, 2021 and 2020, respectively. The higher effective tax rate for the three months endedMarch 31, 2021 , compared with the three months endedMarch 31, 2020 , was primarily attributable to a$13 million and$23 million discrete tax benefit recorded in the three months endedMarch 31, 2021 and 2020, respectively, related to the excess tax benefits for share-based payments, partially offset by changes in the jurisdictional mix of earnings, which includes the impact of the location of earnings, repatriation costs, operating fluctuations in the normal course of business and the impact of non-deductible and non-taxable items. A reconciliation of reported diluted earnings per share (EPS), as reported underU.S. GAAP, to non-GAAP adjusted diluted EPS follows: Three Months Ended March 31, % 2021 2020 Change Earnings per share-diluted(a): GAAP reported EPS attributable to Zoetis -diluted$ 1.17 $ 0.88 33 Purchase accounting adjustments-net of tax 0.07 0.07 - Acquisition-related costs-net of tax 0.01 0.02 (50) Certain significant items-net of tax 0.01 (0.02) * Non-GAAP adjusted EPS-diluted$ 1.26 $ 0.95 33 * Calculation not meaningful. (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. Adjusted net income includes the following charges for each of the periods presented: Three Months Ended March 31, (MILLIONS OF DOLLARS) 2021 2020 Interest expense, net of capitalized interest$ 57 $ 53 Interest income 1 6 Income taxes 142 92 Depreciation 56 47 Amortization 9 9 29 |
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Table of Contents
Adjusted net income, as shown above, excludes the following items:
Three Months Ended
March 31,
(MILLIONS OF DOLLARS) 2021 2020
Purchase accounting adjustments:
Amortization and depreciation(a) $ 44 $ 54
Total purchase accounting adjustments-pre-tax 44 54
Income taxes(b) 10 22
Total purchase accounting adjustments-net of tax 34 32
Acquisition-related costs:
Integration costs 3 6
Restructuring costs 2 1
Total acquisition-related costs-pre-tax 5 7
Income taxes(b) 1 (1)
Total acquisition-related costs-net of tax 4 8
Certain significant items:
Operational efficiency initiative(c) - (17)
Supply network strategy(d) 1 2
Other restructuring charges and cost-reduction/productivity initiatives(e)
6 2
Certain asset impairment charges 1 -
Other(f) - 2
Total certain significant items-pre-tax 8 (11)
Income taxes(b) 2 (3)
Total certain significant items-net of tax 6 (8)
Total purchase accounting adjustments, acquisition-related costs, and certain significant items-net of tax
$ 44 $ 32 (a) Amortization and depreciation expenses related to Purchase accounting adjustments with respect to identifiable intangible assets and property, plant and equipment. (b) Income taxes include the tax effect of the associated pre-tax amounts, calculated by determining the jurisdictional location of the pre-tax amounts and applying that jurisdiction's applicable tax rate. Income taxes in Purchase accounting adjustments also includes a tax benefit related to a remeasurement of deferred taxes resulting from the integration of acquired businesses for the three months endedMarch 31, 2020 , in addition to a tax benefit related to a remeasurement of deferred taxes as a result of changes in statutory tax rates, for the three months endedMarch 31, 2021 and 2020. Income taxes in Acquisition-related costs also includes a tax charge related to a remeasurement of deferred taxes resulting from the integration of acquired businesses for the three months endedMarch 31, 2020 . (c) For the three months ended March 31, 2020, represents a net gain resulting from net cash proceeds pursuant to an agreement related to the 2016 sale of certainU.S. manufacturing sites. (d) Represents product transfer costs related to cost-reduction and productivity initiatives. (e) For the three months endedMarch 31, 2021 , represents product transfer costs and employee termination costs related to cost-reduction and productivity initiatives and the CEO transition. For the three months endedMarch 31, 2020 , represents employee termination costs incurred as a result of the CEO transition. (f) For the three months endedMarch 31, 2020 , primarily represents CEO transition-related costs. 30 | -------------------------------------------------------------------------------- Table of Contents The classification of the above items excluded from adjusted net income are as follows: Three Months Ended March 31, (MILLIONS OF DOLLARS) 2021 2020 Cost of sales: Purchase accounting adjustments$ 2 $ 2 Inventory write-offs 1 - Consulting fees - 2 Other 3 - Total Cost of sales 6 4 Selling, general & administrative expenses: Purchase accounting adjustments 8 18 Other - 2 Total Selling, general & administrative expenses 8 20 Amortization of intangible assets: Purchase accounting adjustments 34 34 Total Amortization of intangible assets 34 34 Restructuring charges/(reversals) and certain acquisition-related costs: Integration costs 3 6 Employee termination costs 4 3 Exit costs 2 -
Total Restructuring charges/(reversals) and certain acquisition-related costs
9 9
Other (income)/deductions-net:
Net gain on sale of assets - (17)
Total Other (income)/deductions-net - (17)
Provision for taxes on income 13 18
Total purchase accounting adjustments, acquisition-related costs, and certain significant items-net of tax
$ 44 $ 32 Analysis of the condensed consolidated statements of comprehensive income Substantially all changes in other comprehensive income for the periods presented are related to foreign currency translation adjustments. These changes result from the strengthening or weakening of theU.S. dollar as compared to the currencies in the countries in which we do business. The gains and losses associated with these changes are deferred on the balance sheet in Accumulated other comprehensive loss until realized. Analysis of the condensed consolidated balance sheetsMarch 31, 2021 vs.December 31, 2020 For a discussion about the changes in Cash and cash equivalents, Short-term borrowings, and Long-term debt, net of discount and issuance costs, see "Analysis of financial condition, liquidity and capital resources" below. Accounts Receivable, less allowance for doubtful accounts increased as a result of higher sales in the period primarily due to the launch of new products and the impact of foreign exchange, partially offset by the timing of customer payments and rebate credits issued to customers. Accounts payable decreased as a result of the timing of payments. Accrued compensation and related items decreased primarily due to payment of 2020 annual bonuses to eligible employees and 2020 employee savings plan contributions, partially offset by the pro rata accrual of similar items for 2021. 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 taxes as a result of changes in tax rates. Other current liabilities and Other noncurrent liabilities decreased primarily due to the mark-to-market adjustments of derivative instruments and net investment gains related to our profit sharing plan. For an analysis of the changes in Total Equity, see the Condensed Consolidated Statements of Equity and Notes to Condensed Consolidated Financial Statements- Note 13. Stockholders' Equity. 31 | --------------------------------------------------------------------------------
Analysis of the condensed consolidated statements of cash flows
Three Months Ended
March 31, %
(MILLIONS OF DOLLARS) 2021 2020 Change
Net cash provided by (used in):
Operating activities $ 400 $ 408 (2)
Investing activities (63) (57) 11
Financing activities (339) (328) 3
Effect of exchange-rate changes on cash and cash
equivalents - (6) *
Net (decrease)/increase in cash and cash equivalents $ (2)
$ 17 *
*Calculation not meaningful.
Operating activities
Three months ended March 31, 2021 vs. three months ended March 31, 2020
Net cash provided by operating activities was $400 million for the three months
ended March 31, 2021 , and $408 million for the three months ended March 31,
2020 . The decrease in operating cash flows was primarily attributable to the
timing of receipts and payments in the ordinary course of business, partially
offset by higher cash earnings.
Investing activities
Three months ended March 31, 2021 vs. three months ended March 31, 2020
Our net cash used in investing activities was $63 million for the three months
ended March 31, 2021 , compared with net cash used in investing activities of $57
million for the three months ended March 31, 2020 . The net cash used in
investing activities for 2021 was primarily due to capital expenditures,
partially offset by proceeds from cross-currency interest rate swaps. The net
cash used in investing activities for 2020 was primarily due to capital
expenditures, partially offset by proceeds from cross-currency interest rate
swaps and proceeds resulting from a contingent payment received pursuant to an
agreement related to the 2016 sale of certain U.S. manufacturing sites.
Financing activities
Three months ended March 31, 2021 vs. three months ended March 31, 2020
Our net cash used in financing activities was $339 million for the three months
ended March 31, 2021 , compared with net cash used in financing activities of
$328 million for the three months ended March 31, 2020 . The net cash used in
financing activities for 2021 was primarily attributable to 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. The net cash used in financing activities for
2020 was primarily attributable to the purchase of treasury shares and the
payment of dividends, partially offset by net proceeds in connection with the
issuance of common stock under our equity incentive plan.
Analysis of financial condition, liquidity and capital resources
While we believe our cash and cash equivalents on hand, our operating cash flows
and our existing financing arrangements will be sufficient to support our future
cash needs, this may be subject to the environment in which we operate. Risks to
our ability to meet future funding requirements include global economic
conditions described in the following paragraph.
Global financial markets may be impacted by macroeconomic, business and
financial volatility. As markets change, we will continue to monitor our
liquidity position, but there can be no assurance that a challenging economic
environment or an economic downturn will not impact our liquidity or our ability
to obtain future financing.
Selected measures of liquidity and capital resources
Certain relevant measures of our liquidity and capital resources follow:
March 31, December 31,
(MILLIONS OF DOLLARS) 2021 2020
Cash and cash equivalents $ 3,602 $ 3,604
Accounts receivable, net(a) 1,125 1,013
Short-term borrowings 4 4
Current portion of long-term debt 600 600
Long-term debt, net of discount and issuance costs 6,587
6,595
Working capital 4,728
4,441
Ratio of current assets to current liabilities 3.29:1
3.05:1
(a) Accounts receivable are usually collected over a period of 45 to 75 days. For the three months endedMarch 31, 2021 , compared withDecember 31, 2020 , the number of days that accounts receivables are outstanding 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. Our assessment is based on such factors as past due aging, historical and expected collection patterns, the financial condition of our customers, the robust nature of our credit and collection practices and the economic environment. For additional information about the sources and uses of our funds, see the Analysis of the condensed consolidated balance sheets and Analysis of the condensed consolidated statements of cash flows sections of this MD&A. 32 | -------------------------------------------------------------------------------- Table of Contents Credit facility and other lines of credit InDecember 2016 , we entered into an amended and restated revolving credit agreement with a syndicate of banks providing for a multi-year$1.0 billion senior unsecured revolving credit facility (the credit facility). InDecember 2018 , the maturity for the amended and restated credit facility was extended throughDecember 2023 . Subject to certain conditions, we have the right to increase the credit facility to up to$1.5 billion . The credit facility contains a financial covenant requiring us to not exceed a maximum total leverage ratio (the ratio of consolidated net debt as of the end of the period to consolidated Earnings Before Interest, Income Taxes, Depreciation and Amortization (EBITDA) for such period) of 3.50:1. Upon entering into a material acquisition, the maximum total leverage ratio increases to 4.00:1, and extends until the fourth full consecutive fiscal quarter ended immediately following the consummation of a material acquisition. The credit facility also contains a financial covenant requiring that we maintain a minimum interest coverage ratio (the ratio of EBITDA at the end of the period to interest expense for such period) of 3.50:1. In addition, the credit facility contains other customary covenants. We were in compliance with all financial covenants as ofMarch 31, 2021 andDecember 31, 2020 . There were no amounts drawn under the credit facility as ofMarch 31, 2021 orDecember 31, 2020 . 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 ofMarch 31, 2021 , we had access to$80 million of lines of credit which expire at various times through 2021 and are generally renewed annually. There were$4 million of borrowings outstanding related to these facilities as ofMarch 31, 2021 andDecember 31, 2020 . Domestic and international short-term funds Many of our operations are conducted outside theU.S. The amount of funds held in theU.S. will fluctuate due to the timing of receipts and payments in the ordinary course of business and due to other reasons, such as business development activities. As part of our ongoing liquidity assessments, we regularly monitor the mix ofU.S. and international cash flows (both inflows and outflows). Actual repatriation of overseas funds can result in additionalU.S. and local income taxes, such asU.S. state income taxes, local withholding taxes, and taxes on currency gains and losses. Global economic conditions Challenging economic conditions in recent years have not had, nor do we anticipate that it will have, a significant impact on our liquidity. Due to our operating cash flows, financial assets, access to capital markets and available lines of credit and revolving credit agreements, we continue to believe that we have the ability to meet our liquidity needs for the foreseeable future. As markets change, we continue to monitor our liquidity position. There can be no assurance that a challenging economic environment or an economic downturn would not impact our ability to obtain financing in the future. Debt OnMay 12, 2020 , we issued$1.25 billion aggregate principal amount of our senior notes (2020 senior notes), with an original issue discount of$10 million . These notes are comprised of$750 million aggregate principal amount of 2.000% senior notes due 2030 and$500 million aggregate principal amount of 3.000% senior notes due 2050. OnOctober 13, 2020 , the net proceeds were used to repay in full the aggregate principal amount of our 3.450% 2015 senior notes due 2020 and the remainder will be used for general corporate purposes. OnAugust 20, 2018 , we issued$1.5 billion aggregate principal amount of our senior notes (2018 senior notes), with an original issue discount of$4 million . OnSeptember 12, 2017 , we issued$1.25 billion aggregate principal amount of our senior notes (2017 senior notes), with an original issue discount of$7 million . OnNovember 13, 2015 , we issued$1.25 billion aggregate principal amount of our senior notes (2015 senior notes), with an original issue discount of$2 million . OnJanuary 28, 2013 , we issued$3.65 billion aggregate principal amount of our senior notes (2013 senior notes) in a private placement, with an original issue discount of$10 million . The 2013, 2015, 2017, 2018 and 2020 senior notes are governed by an indenture and supplemental indenture (collectively, the indenture) between us andDeutsche 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 lease-back 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 (if not cured or waived), the 2013, 2015, 2017, 2018 and 2020 senior notes may be declared immediately due and payable. Pursuant to the indenture, we are able to redeem the 2013, 2015, 2017 and 2020 senior notes and the 2018 fixed rate 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. The 2018 floating rate senior notes are not redeemable at our option prior to their maturity date. Pursuant to our tax matters agreement with Pfizer, we will not be permitted to redeem the 2013 senior notes due 2023 pursuant to this optional redemption provision, except under limited circumstances. Upon the occurrence of a change of control of us and a downgrade of the 2013, 2015, 2017, 2018 and 2020 senior notes below an investment grade rating by each of Moody's Investors Service, Inc. andStandard & Poor's Ratings Services , we are, in certain circumstances, required to make an offer to repurchase all of the outstanding 2013, 2015, 2017, 2018 and 2020 senior notes at a price equal to 101% of the aggregate principal amount of the 2013, 2015, 2017, 2018 and 2020 senior notes together with accrued and unpaid interest to, but excluding, the date of repurchase. 33 | -------------------------------------------------------------------------------- Table of Contents The components of our long-term debt follow: Description Principal Amount Interest Rate Terms Interest due quarterly, not subject to 2018 Floating Rate Senior Three-month USD amortization, aggregate principal due on August Notes due 2021$300 million LIBOR plus 0.44% 20,
2021
Interest due semi annually, not subject to
2018 Senior Notes due amortization, aggregate principal due on August
2021 $300 million 3.250% 20, 2021
Interest due semi annually, not subject to
2013 Senior Notes due amortization, aggregate principal due on February
2023 $1,350 million 3.250% 1, 2023
Interest due semi annually, not subject to
2015 Senior Notes due amortization, aggregate principal due on November
2025 $750 million 4.500% 13, 2025
Interest due semi annually, not subject to
2017 Senior Notes due
amortization, aggregate principal due on
$750 million 3.000% 12,
2027
Interest due semi annually, not subject to
2018 Senior Notes due amortization, aggregate principal due on August
2028 $500 million 3.900% 20, 2028
Interest due semi annually, not subject to
2020 Senior Notes due amortization, aggregate principal due on May 15,
2030 $750 million 2.000% 2030
Interest due semi annually, not subject to
2013 Senior Notes due amortization, aggregate principal due on February
2043 $1,150 million 4.700% 1, 2043
Interest due semi annually, not subject to
2017 Senior Notes due
amortization, aggregate principal due on
$500 million 3.950% 12,
2047
Interest due semi annually, not subject to
2018 Senior Notes due amortization, aggregate principal due on August
2048 $400 million 4.450% 20, 2048
Interest due semi annually, not subject to
2020 Senior Notes due amortization, aggregate principal due on May 15,
2050 $500 million 3.000% 2050
Credit Ratings
Two major corporate debt-rating organizations, Moody's and S&P, assign ratings
to our short-term and long-term debt. A security rating is not a recommendation
to buy, sell or hold securities and the rating is subject to revision or
withdrawal at any time by the rating organization. Each rating should be
evaluated independently of any other rating.
The following table provides the current ratings assigned by these rating
agencies to our commercial paper and senior unsecured non-credit-enhanced
long-term debt:
Commercial
Paper Long-term Debt Date of
Name of Rating Agency Rating Rating Outlook Last Action
Moody's P-2 Baa1 Stable August 2017
S&P A-2 BBB Stable December 2016
Share Repurchase Program
In December 2018 , the company's Board of Directors authorized a $2.0 billion
share repurchase program. As of March 31, 2021 , there was approximately $1.2
billion remaining under this authorization. Purchases of Zoetis shares may be
made at the discretion of management, depending on market conditions and
business needs. Share repurchases may be executed through various means,
including open market or privately negotiated transactions. We temporarily
suspended share repurchases beginning in the second quarter of 2020. In January
2021 , the company resumed share repurchases under its share repurchase program.
During the first three months of 2021, approximately 1.1 million shares were
repurchased.
Off-balance sheet arrangements
In the ordinary course of business and in connection with the sale of assets and
businesses, we may indemnify our counterparties against certain liabilities that
may arise in connection with a transaction or that are related to activities
prior to a 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, 2021 , or December 31, 2020 , recorded amounts for the estimated
fair value of these indemnifications are not significant.
New accounting standards
Recently Issued Accounting Standards Not Adopted as of March 31, 2021
A description of recently issued accounting standards is contained in Note 3.
Accounting Standards of the Notes to Condensed Consolidated Financial
Statements.
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Table of Contents
Forward-looking statements and factors that may affect future results
This report contains "forward-looking" statements. We generally identify
forward-looking statements by using words such as "anticipate," "estimate,"
"could," "expect," "intend," "project," "plan," "predict," "believe," "seek,"
"continue," "outlook," "objective," "target," "may," "might," "will," "should,"
"can have," "likely" or the negative version of these words or comparable words
or by using future dates in connection with any discussion of future
performance, actions or events.
In particular, forward-looking statements include statements relating to the
impact of the COVID-19 pandemic, our 2021 financial guidance, future actions,
business plans or prospects, prospective products, product approvals or products
under development, product supply 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.
These statements are not guarantees of future performance, actions or events.
Forward-looking statements are subject to risks and uncertainties, many of which
are beyond our control, and are based on assumptions that could prove to be
inaccurate. Among the factors that could cause actual results to differ
materially from past results and future plans and projected future results are
the following:
•the impact of the COVID-19 pandemic on our business, suppliers, customers and
workforce;
•unanticipated safety, quality or efficacy concerns about our products;
•issues with any of our top products;
•failure of our R&D, acquisition and licensing efforts to generate new products
and product lifecycle innovations;
•the possible impact and timing of competing products, including generic
alternatives, on our products and our ability to compete against such products;
•disruptive innovations and advances in medical practices and technologies;
•difficulties and delays in the development or commercialization of new
products;
•consolidation of our customers and distributors;
•changes in the distribution channel for companion animal products;
•failure to successfully acquire businesses, license rights or products,
integrate businesses, form and manage alliances or divest businesses;
•acquiring or implementing new business lines or offering new products and
services;
•restrictions and bans on the use of and consumer preferences regarding
antibacterials in food-producing animals;
•perceived adverse effects linked to the consumption of food derived from
animals that utilize our products or animals generally;
•adverse global economic conditions;
•increased regulation or decreased governmental support relating to the raising,
processing or consumption of food-producing animals;
•fluctuations in foreign exchange rates and potential currency controls;
•changes in tax laws and regulations;
•legal factors, including product liability claims, antitrust litigation and
governmental investigations, including tax disputes, environmental concerns,
commercial disputes and patent disputes with branded and generic competitors,
any of which could preclude commercialization of products or negatively affect
the profitability of existing products;
•failure to protect our intellectual property rights or to operate our business
without infringing the intellectual property rights of others;
•product launch delays, inventory shortages, recalls or unanticipated costs
caused by manufacturing problems and capacity imbalances;
•an outbreak of infectious disease carried by animals;
•adverse weather conditions and the availability of natural resources;
•the impact of climate change;
•the economic, political, legal and business environment of the foreign
jurisdictions in which we do business;
•a cyber-attack, information security breach or other misappropriation of our
data;
•quarterly fluctuations in demand and costs;
•governmental laws and regulations affecting domestic and foreign operations,
including without limitation, tax obligations and changes affecting the tax
treatment by the U.S. of income earned outside the U.S. that may result from
pending and possible future proposals; and
•governmental laws and regulations affecting our interactions with veterinary
healthcare providers.
However, there may also be other risks that we are unable to predict at this
time. These risks or uncertainties may cause actual results to differ materially
from those contemplated by a forward-looking statement. Such risks and
uncertainties may be amplified by the COVID-19 pandemic and its impact on the
global economy and our business. You should not put undue reliance on
forward-looking statements. Forward-looking statements speak only as of the date
on which they are made. We undertake no obligation to publicly update
forward-looking statements, whether as a result of new information, future
events or otherwise, except as required by law or by the rules and regulations
of the SEC . You are advised, however, to consult any further disclosures we make
on related subjects in our Form 10-Q and 8-K reports and our other filings with
the SEC . You should understand that it is not possible to predict or identify
all such factors. Consequently, you should not consider the above to be a
complete discussion of all potential risks or uncertainties.
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