Edgar Filing: Zoetis Inc.

Zoetis-2013.3.31-10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2013 or
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________

Commission File Number: 001-35797

Zoetis Inc.

(Exact name of registrant as specified in its charter)



Delaware		46-0696167
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
5 Giralda Farms, Madison, New Jersey		07940
(Address of principal executive offices)		(Zip Code)

(973) 660-7491

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer x	Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). ¨ Yes x No

At May 10, 2013, there were 99,015,000 shares of Class A common stock and 400,985,000 shares of Class B common stock outstanding.

Table of Contents

TABLE OF CONTENTS



		Page
PART I — FINANCIAL INFORMATION		1
Item 1.	Financial Statements	1
	Condensed Consolidated and Combined Statements of Income	1
	Condensed Consolidated and Combined Statements of Comprehensive Income	2
	Condensed Consolidated and Combined Balance Sheets	3
	Condensed Consolidated and Combined Statements of Equity	4
	Condensed Consolidated and Combined Statements of Cash Flows	5
	Notes to Condensed Consolidated and Combined Financial Statements	6
	Review Report of Independent Registered Public Accounting Firm	25
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45
Item 4.	Controls and Procedures	45
PART II — OTHER INFORMATION		46
Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3.	Defaults Upon Senior Securities	46
Item 4.	Mine Safety Disclosures	46
Item 5.	Other Information	46
Item 6.	Exhibits	46
SIGNATURES		47

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PART I – FINANCIAL INFORMATION


Item 1.	Financial Statements

ZOETIS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF INCOME

(UNAUDITED)



	Three Months Ended
	March 31,		April 1,
(MILLIONS OF DOLLARS AND SHARES, EXCEPT PER SHARE DATA)	2013		2012
Revenues	$	1,090	$	1,047
Costs and expenses:
Cost of sales^(a)	402		393
Selling, general and administrative expenses^(a)	357		338
Research and development expenses^(a)	90		102
Amortization of intangible assets^(a)	15		16
Restructuring charges and certain acquisition-related costs	7		25
Interest expense	22		8
Other (income)/deductions—net	5		(6		)
Income before provision for taxes on income	192		171
Provision for taxes on income	52		59
Net income before allocation to noncontrolling interests	140		112
Less: Net income attributable to noncontrolling interests	—		1
Net income attributable to Zoetis Inc.	$	140	$	111
Earnings per share attributable to Zoetis Inc. stockholders:
Basic	$	0.28	$	0.22
Diluted	$	0.28	$	0.22
Weighted-average common shares outstanding:
Basic	500.000		500.000
Diluted	500.111		500.000
Dividends declared per common share	$	0.065	$	—

(a)

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 these intangible assets benefit 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, in the condensed consolidated and combined statements of income.

See notes to condensed consolidated and combined financial statements.

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ZOETIS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)



	Three Months Ended
	March 31,			April 1,
(MILLIONS OF DOLLARS)	2013			2012
Net income before allocation to noncontrolling interests	$	140		$	112
Other comprehensive income, net of taxes and reclassification adjustments^(a):
Foreign currency translation adjustments, net	16			34
Benefit plans: Actuarial losses, net	(2		)	—
Total other comprehensive income, net of tax	14			34
Comprehensive income before allocation to noncontrolling interests	154			146
Less: Comprehensive income attributable to noncontrolling interests	—			1
Comprehensive income attributable to Zoetis Inc.	$	154		$	145

^(a)

Presented net of reclassification adjustments and tax impacts, which are not significant in any period presented. Reclassification adjustments related to benefit plans are generally reclassified, as part of net periodic pension cost, into Cost of sales, Selling, general and administrative expenses, and/or Research and development expenses, as appropriate, in the condensed consolidated and combined statements of income.

See notes to condensed consolidated and combined financial statements.

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ZOETIS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED AND COMBINED BALANCE SHEETS



	March 31,			December 31,
	2013^(a)			2012^(a)
(MILLIONS OF DOLLARS AND SHARES, EXCEPT PER SHARE DATA)	(Unaudited)
Assets
Cash and cash equivalents	$	468		$	317
Accounts receivable, less allowance for doubtful accounts of $36 in 2013 and $49 in 2012	861			900
Receivable from Pfizer Inc.	222			—
Inventories	1,120			1,345
Current deferred tax assets	83			101
Other current assets	188			201
Total current assets	2,942			2,864
Property, plant and equipment, less accumulated depreciation of $929 in 2013 and $1,011 in 2012	1,237			1,241
Goodwill	985			985
Identifiable intangible assets, less accumulated amortization	855			868
Noncurrent deferred tax assets	63			216
Other noncurrent assets	60			88
Total assets	$	6,142		$	6,262

Liabilities and Equity
Short-term borrowings, including current portion of allocated long-term debt in 2012	$	6		$	73
Accounts payable	275			319
Payable to Pfizer Inc.	383			—
Accrued compensation and related items	132			194
Income taxes payable	49			30
Dividends payable	33			—
Other current liabilities	409			507
Total current liabilities	1,287			1,123
Long-term debt	3,640			—
Allocated long-term debt	—			509
Noncurrent deferred tax liabilities	337			323
Other taxes payable	33			159
Other noncurrent liabilities	121			107
Total liabilities	5,418			2,221
Commitments and Contingencies
Business unit equity	—			4,183
Stockholders' equity:
Class A common stock, $0.01 par value: 5,000 authorized, 99.015 issued and outstanding	1			—
Class B common stock, $0.01 par value: 1,000 authorized, 400.985 issued and outstanding	4			—
Additional paid-in capital	812			—
Retained earnings	13			—
Accumulated other comprehensive loss	(121		)	(157		)
Total Zoetis Inc. equity	709			4,026
Equity attributable to noncontrolling interests	15			15
Total equity	724			4,041
Total liabilities and equity	$	6,142		$	6,262

^(a) The condensed consolidated balance sheet as of March 31, 2013 has been prepared under a different basis of presentation than the condensed combined

balance sheet as of December 31, 2012, which significantly impacts comparability. See Note 3. Basis of Presentation.

See notes to condensed consolidated and combined financial statements.

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ZOETIS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY

(UNAUDITED)



	Zoetis
														Accumulated			Equity
	Business			Common		Common		Additional						Other			Attributable to
	Unit			Stock		Stock		Paid-in			Retained			Comprehensive			Noncontrolling			Total
(MILLIONS OF DOLLARS)	Equity^(a)			Class A^(b)		Class B^(b)		Capital			Earnings			Loss			Interests			Equity
Balance, December 31, 2011	$	3,785		$	—	$	—	$	—		$	—		$	(65	)	$	16		$	3,736
Three months ended April 1, 2012
Comprehensive income	111			—		—		—			—			34			1			146
Share-based compensation expense	6			—		—		—						—			—			6
Dividends declared and paid	(52		)	—		—		—			—			—			—			(52		)
Net transfers between Pfizer Inc. and
noncontrolling interests	1			—		—		—			—			—			(1		)	—
Net transfers—Pfizer Inc.	114			—		—		—			—			—			—			114
Balance, April 1, 2012	$	3,965		$	—	$	—	$	—		$	—		$	(31	)	$	16		$	3,950

Balance, December 31, 2012	$	4,183		$	—	$	—	$	—		$	—		$	(157	)	$	15		$	4,041
Three months ended March 31, 2013
Comprehensive income	94			—		—		—			46			14			—			154
Share-based compensation expense	3			—		—		8			—			—			—			11
Net transfers—Pfizer Inc.	(376		)	—		—		—			—			—			—			(376		)
Separation adjustments^(c)	414			—		—		—			—			22			—			436
Reclassification of net liability due to
Pfizer Inc.^(d)	(60		)	—		—		—			—			—			—			(60		)
Consideration paid to Pfizer Inc. in
connection with the Separation^(e)	—			—		—		(3,449		)	—			—			—			(3,449		)
Issuance of common stock to Pfizer Inc.
in connection with the Separation and
reclassification of Business Unit Equity^(e)	(4,258		)	1		4		4,253			—			—			—			—
Dividends declared	—			—		—		—			(33		)	—			—			(33		)
Balance, March 31, 2013	$	—		$	1	$	4	$	812		$	13		$	(121	)	$	15		$	724


^(a)	All amounts associated with Business Unit Equity relate to periods prior to the Separation. See Note 2A. The Separation, Adjustments Associated with the Separation, Senior Notes Offering and Initial Public Offering: The Separation.


^(b)	As of March 31, 2013, there were 99,015,000 outstanding shares of Class A common stock and 400,985,000 outstanding shares of Class B common stock.


^(c)	For additional information, see Note 2B. The Separation, Adjustments Associated with the Separation, Senior Notes Offering and Initial Public Offering: Adjustments Associated with the Separation.


^(d)	Represents the reclassification of the Receivable from Pfizer Inc. and the Payable to Pfizer Inc. from Business Unit Equity as of the Separation date. See Note 2A. The Separation, Adjustments Associated with the Separation, Senior Notes Offering and Initial Public Offering: The Separation.


^(e)	Reflects the Separation transaction. See Note 2A. The Separation, Adjustments Associated with the Separation, Senior Notes Offering and Initial Public Offering: The Separation.

See notes to condensed consolidated and combined financial statements.

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ZOETIS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

(UNAUDITED)



	Three Months Ended
	March 31,			April 1,
(MILLIONS OF DOLLARS)	2013			2012
Operating Activities
Net income before allocation to noncontrolling interests	$	140		$	112
Adjustments to reconcile net income before noncontrolling interests to net cash
provided by/(used in) operating activities:
Depreciation and amortization expense	51			48
Share-based compensation expense	11			6
Asset write-offs and asset impairments	3			1
Deferred taxes	7			(9		)
Other non-cash adjustments	1			1
Other changes in assets and liabilities, net of transfers with Pfizer Inc.	68			(163		)
Net cash provided by/(used in) operating activities	281			(4		)
Investing Activities
Purchases of property, plant and equipment	(22		)	(31		)
Other investing activities	—			(2		)
Net cash used in investing activities	(22		)	(33		)
Financing Activities
Increase in short-term borrowings, net	6			—
Proceeds from issuance of long-term debt—senior notes, net of discount and fees	2,624			—
Consideration paid to Pfizer Inc. in connection with the Separation^(a)	(2,457		)	—
Cash dividends paid^(b)	—			(52		)
Other net financing activities with Pfizer Inc.	(281		)	123
Net cash (used in)/provided by financing activities	(108		)	71
Effect of exchange-rate changes on cash and cash equivalents	—			—
Net increase in cash and cash equivalents	151			34
Cash and cash equivalents at beginning of period	317			79
Cash and cash equivalents at end of period	$	468		$	113

Supplemental cash flow information
Cash paid during the period for:
Income taxes	$	9		$	68
Interest	$	—		$	9
Non-cash transactions:
Dividends declared, not paid	$	33		$	—
Zoetis Inc. senior notes transferred to Pfizer Inc. in connection with the Separation^(c)	$	992		$	—


^(a)	Reflects the Separation transaction. Amount is net of the non-cash portion. See Note 2A. The Separation, Adjustments Associated with the Separation, Senior Notes Offering and Initial Public Offering: The Separation.


^(b)	Payments to other non-Zoetis Pfizer Inc. entities.


^(c)	Reflects the non-cash portion of the Separation transaction. See Note 2A. The Separation, Adjustments Associated with the Separation, Senior Notes Offering and Initial Public Offering: The Separation.

See notes to condensed consolidated and combined financial statements.

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ZOETIS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

(UNAUDITED)


1.	Organization

Zoetis Inc. (collectively, Zoetis, the company, we, us or our) is a global leader in the discovery, development, manufacture and commercialization of animal health medicines and vaccines, with a focus on both livestock and companion animals. We organize and operate our business in four geographic regions: the United States (U.S.); Europe/Africa/Middle East (EuAfME); Canada/Latin America (CLAR); and Asia/Pacific (APAC).

We market our products in more than 120 countries, including developed markets and emerging markets. Our revenues are mostly generated in the U.S. and EuAfME. We have a diversified business, marketing products across 8 core species: cattle, swine, poultry, sheep and fish (collectively, livestock) and dogs, cats and horses (collectively, companion animals); and within 5 major product categories (anti-infectives, vaccines, parasiticides, medicated feed additives and other pharmaceuticals).


2.	The Separation, Adjustments Associated with the Separation, Senior Notes Offering and Initial Public Offering

Pfizer Inc. (Pfizer) formed Zoetis to ultimately acquire, own, and operate the animal health business of Pfizer.


A.	The Separation

In the first quarter of 2013, through a series of steps (collectively, the Separation), Pfizer transferred to us its subsidiaries holding substantially all of the assets and liabilities of its animal health business. In exchange, we transferred to Pfizer: (i) all of the issued and outstanding shares of our Class A common stock; (ii) all of the issued and outstanding shares of our Class B common stock; (iii) $1.0 billion in senior notes (see “Senior Notes Offering" below); and (iv) an amount of cash equal to substantially all of the net proceeds received in the senior notes offering (approximately $2.5 billion).


B.	Adjustments Associated with the Separation

In connection with the Separation, certain animal health assets and liabilities included in the pre-Separation balance sheet were retained by Pfizer and certain non-animal health assets and liabilities (not included in the pre-Separation balance sheet) were transferred to Zoetis. The adjustments to the historical balance sheet of Zoetis (collectively, the Separation Adjustments) representing approximately $436 million of net liabilities retained by Pfizer, were primarily related to the following:


•	The removal of inventories (approximately $74 million), property, plant and equipment (approximately $28 million) and miscellaneous other net liabilities of approximately $21 million associated with certain non-dedicated manufacturing sites that were retained by Pfizer;


•	The addition of property, plant and equipment (approximately $56 million) associated with a non-dedicated manufacturing site that was transferred to us by Pfizer (and then leased back to Pfizer under operating leases), the removal of the inventory (approximately $46 million) and net other assets (approximately $4 million) at that site as these assets were retained by Pfizer;


•	The addition of net benefit plan liabilities (approximately $25 million);

•

The elimination of (i) noncurrent deferred tax assets (some of which were included within noncurrent deferred tax liabilities due to jurisdictional netting) related to net operating loss and tax credit carryforwards; (ii) net tax liabilities associated with uncertain tax positions; (iii) noncurrent deferred tax liabilities relating to deferred income taxes on unremitted earnings; and (iv) other allocated net tax assets, all of which (approximately $49 million in net tax asset accounts) were retained by Pfizer;

•

The addition of (i) noncurrent deferred tax assets (approximately $8 million, some of which were included within noncurrent deferred tax liabilities due to jurisdictional netting) related to net benefit plan liabilities transferred to us by Pfizer; (ii) noncurrent deferred tax assets (approximately $2 million) related to net operating loss and tax credit carryforwards; and (iii) noncurrent deferred tax liabilities (approximately $2 million) related to property, plant and equipment transferred to us by Pfizer;


•	The elimination of allocated long-term debt (approximately $582 million), allocated accrued interest payable (approximately $16 million) and allocated unamortized deferred debt issuance costs (approximately $2 million) that were retained by Pfizer;


•	Certain net financial assets retained by Pfizer of approximately $45 million;


•	The removal of inventories (approximately $10 million), property plant and equipment (approximately $20 million) and other miscellaneous net assets (approximately $1 million) associated with Pfizer's animal health business in certain non-U.S. jurisdictions that have not transferred to us from Pfizer as of March 31, 2013; and


•	The removal of miscellaneous other liabilities (approximately $52 million) and the addition of miscellaneous other assets (approximately $5 million).

The Separation Adjustment associated with Accumulated Other Comprehensive Income reflects the accumulated currency translation adjustment based on the actual legal entity structure of Zoetis.

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C.	Senior Notes Offering

In connection with the Separation, on January 28, 2013, we issued $3.65 billion aggregate principal amount of our senior notes (the senior notes offering) in a private placement, with an original issue discount of $10 million. For additional information, see Note 9D. Financial Instruments: Senior Notes Offering.


D.	Initial Public Offering (IPO)

After the Separation, on February 6, 2013, an IPO of 99,015,000 shares of our Class A common stock (including the exercise of the underwriters' over-allotment option) at a price of $26.00 per share was completed. We did not receive any of the net proceeds from the IPO.

Immediately following the IPO, there were 99,015,000 outstanding shares of Class A common stock and 400,985,000 outstanding shares of Class B common stock. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion rights. The holders of Class A common stock and Class B common stock are each entitled to one vote per share for all matters submitted to a vote of stockholders other than with respect to the election of the Board of Directors. With respect to the election of directors, the holders of Class B common stock are entitled to ten votes per share, and the holders of Class A common stock are entitled to one vote per share. Each share of Class B common stock held by Pfizer or one of its subsidiaries is convertible into one share of Class A common stock at any time, but will not be convertible if held by any other holder. Currently, Pfizer owns 100% of our outstanding Class B common stock and no shares of our Class A common stock, giving Pfizer 80.2% of the economic interest and the combined voting power in shares of our outstanding common stock other than with respect to the election of Directors and 97.6% of the combined voting power of our outstanding common stock with respect to the election of Directors.

Pfizer has informed us that it may make a tax-free distribution to its shareholders of all or a portion of its remaining equity interest in us, which may include one or more distributions effected as a dividend to all Pfizer shareholders, one or more distributions in exchange for Pfizer shares or other securities, or any combination thereof. We refer to any such potential distribution as the Distribution. Pfizer has no obligation to pursue or consummate any further dispositions of its ownership interest in us, including through the Distribution, by any specified date or at all.

In connection with the IPO, we entered into certain agreements that provide a framework for an ongoing relationship with Pfizer. For additional information, see Note 17B. Related Party Transactions: Agreements with Pfizer.


3.	Basis of Presentation

The accompanying unaudited condensed consolidated and combined financial statements were prepared following the requirements of the Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by accounting principles generally accepted in the United States of America (U.S. GAAP) can be condensed or omitted. Balance sheet amounts and operating results for subsidiaries operating outside the U.S. are as of and for the three-month periods ended February 24, 2013 and February 26, 2012.

Revenues, 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 and combined financial statements included in this Form 10-Q. The condensed consolidated and combined 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 combined financial statements and accompanying notes included in the Company’s 2012 Annual Report on Form 10-K.


A.	Basis of Presentation Prior to the Separation

Prior to the Separation, the combined financial statements were derived from the consolidated financial statements and accounting records of Pfizer and included allocations for direct costs and indirect costs attributable to the operations of the animal health business of Pfizer. The pre-Separation financial statements and activities do not purport to reflect what the results of operations, comprehensive income/(loss), financial position, equity or cash flows would have been had we operated as a standalone public company during the period presented.

•

The condensed combined statements of income for the three months ended April 1, 2012 and the pre-Separation period in the condensed consolidated statement of income for the three months ended March 31, 2013 include allocations from certain support functions (Enabling Functions) that are provided on a centralized basis within Pfizer, such as expenses for business technology, facilities, legal, finance, human resources, and, to a lesser extent, business development, public affairs and procurement, among others, as Pfizer does not routinely allocate these costs to any of its business units. These allocations are based on either a specific identification basis or, when specific identification is not practicable, proportional allocation methods (e.g., using third-party sales, headcount, etc.), depending on the nature of the services.

We allocated the costs associated with business technology, facilities and human resources primarily using proportional allocation methods and for legal and finance, primarily using specific identification. In all cases, for support function costs where proportional allocation methods were used, we determined whether the costs are primarily influenced by headcount (such as a significant majority of facilities and human resources costs) or by the size of the business (such as most business technology costs), and we also determined whether the associated scope of those services provided are global, regional or local. Based on those analyses, we then allocated the costs based on our share of worldwide revenues, domestic revenues, international revenues, regional revenues, country revenues, worldwide headcount, country headcount or site headcount, as appropriate.

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As a result, costs associated with business technology and legal that were not specifically identified were mostly allocated based on revenue drivers and, to a lesser extent, based on headcount drivers; costs associated with finance that were not specifically identified were all allocated based on revenue drivers; and costs associated with facilities and human resources that were not specifically identified were predominantly allocated based on headcount drivers.

•

The condensed combined statement of income for the three months ended April 1, 2012 and the pre-Separation period in the condensed consolidated statement of income for the three months ended March 31, 2013 include allocations of certain manufacturing and supply costs incurred by manufacturing plants that are shared with other Pfizer business units, Pfizer’s global external supply group and Pfizer’s global logistics and support group (collectively, Pfizer Global Supply, or PGS). These costs may include manufacturing variances and changes in the standard costs of inventory, among others, as Pfizer does not routinely allocate these costs to any of its business units. These allocations are based on either a specific identification basis or, when specific identification is not practicable, proportional allocation methods, such as animal health identified manufacturing costs, depending on the nature of the costs.

•

The condensed combined statement of income for the three months ended April 1, 2012 and the pre-Separation period in the condensed consolidated statement of income for the three months ended March 31, 2013 also include allocations from the Enabling Functions and PGS for restructuring charges, integration costs, additional depreciation associated with asset restructuring and implementation costs, as Pfizer does not routinely allocate these costs to any of its business units. For additional information about allocations of restructuring charges and other costs associated with acquisitions and cost-reduction/productivity initiatives, see Note 5. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives.

•

The condensed combined statement of income for the three months ended April 1, 2012 and the pre-Separation period in the condensed consolidated statement of income for the three months ended March 31, 2013 include an allocation of share-based compensation expense and certain other compensation expense items, such as certain fringe benefit expenses, maintained on a centralized basis within Pfizer, as Pfizer does not routinely allocate these costs to any of its business units. For additional information about allocations of share-based payments, see Note 13. Share-Based Payments.


•	The condensed combined balance sheet as of December 31, 2012 reflects all of the assets and liabilities of Pfizer that are either specifically identifiable or are directly attributable to Zoetis and its operations. For benefit plans, the combined balance sheets only include the assets and liabilities of benefit plans dedicated to animal health employees. For debt, see below.

•

The condensed combined balance sheet as of December 31, 2012 includes an allocation of long-term debt from Pfizer that was issued to partially finance the acquisition of Wyeth (including Fort Dodge Animal Health (FDAH)). The debt and associated interest-related expenses, including the effect of hedging activities, have been allocated on a pro-rata basis using the deemed acquisition cost of FDAH as a percentage of the total acquisition cost of Wyeth. No other allocations of debt have been made as none are specifically related to our operations.

The allocated expenses from Pfizer include the items noted below for the pre-Separation period in 2013 and the first quarter of 2012.


•	Enabling Functions operating expenses––$11 million in 2013 and $79 million in 2012 ($1 million in Cost of sales in 2012; $11 million and $63 million in Selling, general and administrative expenses in 2013 and 2012, respectively; and $15 million in Research and development expenses in 2012).


•	PGS manufacturing costs—approximately $2 million in 2013 and $7 million in 2012 (in Cost of sales).


•	Restructuring charges and certain acquisition-related costs—$18 million in 2012 (in Restructuring charges and certain acquisition-related costs).


•	Other costs associated with cost reduction/productivity initiatives—additional depreciation associated with asset restructuring—$2 million in 2013 (in Selling, general and administrative expenses) and $9 million in 2012 (in Research and development expenses).


•	Other costs associated with cost reduction/productivity initiatives—implementation costs—$1 million in 2013 and $1 million in 2012 (in Selling, general and administrative expenses).


•	Share-based compensation expense—approximately $3 million in 2013 and $8 million in 2012 ($1 million and $2 million in Cost of sales in 2013 and 2012, respectively; $2 million and $5 million in Selling, general and administrative expenses in 2013 and 2012, respectively; and $1 million in Research and development expenses in 2012).


•	Compensation-related expenses—approximately $1 million in 2013 and $14 million in 2012 ($5 million in Cost of sales in 2012; $1 million and $6 million in Selling, general and administrative expenses in 2013 and 2012, respectively; and $3 million in Research and development expenses in 2012).


•	Interest expense—approximately $2 million in 2013 and $8 million in 2012.

The income tax provision in the condensed combined statement of income was calculated as if Zoetis filed a separate return.

Management believes that the allocations are a reasonable reflection of the services received or the costs incurred on behalf of Zoetis and its operations and that the condensed combined statement of income for the three months ended April 1, 2012 and the pre-Separation period in the condensed consolidated statement of income for the three months ended March 31, 2013.

Prior to the Separation, we participated in Pfizer's centralized cash management system and generally all excess cash was transferred to Pfizer on a daily basis. Cash disbursements for operations and/or investing activities were funded as needed by Pfizer. We had also participated in

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Pfizer's centralized hedging and offsetting programs. As such, in the combined statement of income for the three months ended April 1, 2012, we include the impact of Pfizer's derivative financial instruments used for offsetting changes in foreign currency rates, net of the related foreign exchange gains and losses for the portion that is deemed to be associated with the animal health operations. Such gains and losses were not material to the combined financial statement for the period presented.

All balances and transactions among Zoetis and Pfizer and its subsidiaries, which can include dividends as well as intercompany activities, are shown in Business unit equity in the combined balance sheet as of December 31, 2012. As the books and records of Zoetis were not kept on a separate company basis, the determination of the average net balance due to or from Pfizer is not practicable.


B.	Basis of Presentation After the Separation

The unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2013 comprise the following: (i) the results of operations, comprehensive income, and cash flow amounts for the period prior to the Separation (see above), which includes allocations for direct costs and indirect costs attributable to the operations of the animal health business and (ii) the amounts for the period after the Separation, which reflect the results of operations, comprehensive income, financial position, equity and cash flows resulting from our operation as a standalone public company.

The income tax provision prepared after the Separation is based on the actual legal entity structure of Zoetis, with certain accommodations pursuant to a tax matters agreement. For additional information, see Note 17B. Related Party Transactions: Agreements with Pfizer.


4.	Significant Accounting Policies


A.	New Accounting Standards

There were no new accounting standards adopted during the first quarter of 2013.


B.	Fair Value

Our fair value methodologies depend on the following types of inputs:


•	Quoted prices for identical assets or liabilities in active markets (Level 1 inputs).


•	Quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in markets that are not active or are directly or indirectly observable (Level 2 inputs).


•	Unobservable inputs that reflect estimates and assumptions (Level 3 inputs).

A single estimate of fair value can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions.


5.	Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives

We incurred significant costs in connection with Pfizer’s cost-reduction initiatives (several programs initiated since 2005), and the acquisitions of Fort Dodge Animal Health (FDAH) on October 15, 2009 and King Animal Health (KAH) on January 31, 2011.

For example:


•	in connection with the cost-reduction/productivity initiatives, we typically incur costs and charges associated with site closings and other facility rationalization actions, workforce reductions and the expansion of shared services, including the development of global systems; and

•

in connection with our acquisition activity, we typically incur costs and charges associated with executing the transactions, integrating the acquired operations, which may include expenditures for consulting and the integration of systems and processes, and restructuring the consolidated company, which may include charges related to employees, assets and activities that will not continue in the consolidated company.

All operating functions can be impacted by these actions, including sales and marketing, manufacturing and research and development, as well as functions such as business technology, shared services and corporate operations.

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The components of costs incurred in connection with our acquisitions and cost-reduction/productivity initiatives follow:



	Three Months Ended
	March 31,		April 1,
(MILLIONS OF DOLLARS)	2013		2012
Restructuring charges and certain acquisition-related costs:
Integration costs^(a)	$	4	$	4
Restructuring charges^(b)	3		3
Total direct^(c)	7		7
Integration costs^(a)	—		5
Restructuring charges^(b)	—		13
Total allocated	—		18
Total Restructuring charges and certain acquisition-related costs	7		25

Other costs associated with cost-reduction/productivity initiatives:
Additional depreciation associated with asset restructuring––direct^(d)	—		3
Additional depreciation associated with asset restructuring––allocated^(d)	2		9
Implementation costs––allocated^(e)	1		1
Total costs associated with acquisitions and cost-reduction/productivity initiatives	$	10	$	38


^(a)	Integration costs represent external, incremental costs directly related to integrating acquired businesses and primarily include expenditures for consulting and the integration of systems and processes.


^(b)	Restructuring charges for the three months ended March 31, 2013 and April 1, 2012 are primarily related to the integration of FDAH and KAH.


^(c)	The direct charges are associated with the following:


•	First quarter of 2013––manufacturing/research/corporate ($7 million).


•	First quarter of 2012––EuAfME ($2 million income), CLAR ($1 million), and manufacturing/research/corporate ($4 million).


^(d)	Additional depreciation associated with asset restructuring represents the impact of changes in the estimated lives of assets involved in restructuring actions. In the first quarter of 2013, included in Selling, general and administrative expenses ($2 million). In the first quarter of 2012, included in Cost of sales ($3 million), and Research and development expenses ($9 million).


^(e)	Implementation costs—allocated represent external, incremental costs directly related to implementing cost reduction/productivity initiatives, and primarily include expenditures related to system and process standardization and the expansion of shared services. In 2013 and 2012, included in Selling, general and administrative expenses ($1 million and $1 million).

The components of and changes in our direct restructuring accruals follow:



	Employee
	Termination			Exit
(MILLIONS OF DOLLARS)	Costs			Costs			Accrual
Balance, December 31, 2012^(a)	$	68		$	6		$	74
Provision	—			3			3
Utilization and other^(b)	(2		)	(7		)	(9		)
Separation adjustment^(c)	(14		)	—			(14		)
Balance, March 31, 2013^(a)	$	52		$	2		$	54


^(a)	At March 31, 2013 and December 31, 2012, included in Other current liabilities ($45 million and $63 million, respectively) and Other noncurrent liabilities ($9 million and $11 million, respectively).


^(b)	Includes adjustments for foreign currency translation.


^(c)	See Note 2B. The Separation, Adjustments Associated with the Separation, Senior Notes Offering and Initial Public Offering: Adjustments Associated with the Separation.


6.	Other (Income)/Deductions—Net

The components of Other (income)/deductions—net follow:



	Three Months Ended
	March 31,			April 1,
(MILLIONS OF DOLLARS)	2013			2012
Royalty-related income	$	(8	)	$	(6	)
Identifiable intangible asset impairment charges	1			—
Foreign currency loss^(a)	10			—
Other, net	2			—
Other (income)/deductions—net	$	5		$	(6	)


^(a)	Virtually all related to the Venezuela currency devaluation in February 2013.

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7.	Income Taxes


A.	Taxes on Income

For the three months ended March 31, 2013, the effective tax rate decreased to 27.1% from 34.5% for the three months ended April 1, 2012. The lower rate was primarily attributable to:


•	incentive tax rulings in Belgium, effective December 1, 2012, and Singapore, effective October 29, 2012;


•	changes in the jurisdictional mix of earnings, which includes the impact of the location of earnings as well as repatriation costs; and


•	a $2 million discrete income tax benefit during the first quarter of 2013 related to the 2012 U.S. research and development tax credit, which was retroactively extended on January 3, 2013.

As of the Separation date, we operate under a new standalone legal entity structure. In connection with the Separation, adjustments have been made to the income tax accounts. See Note 2B. The Separation, Adjustments Associated with the Separation, Senior Notes Offering and Initial Public Offering: Adjustments Associated with the Separation.


B.	Tax Matters Agreement

In connection with the Separation, we entered into a tax matters agreement with Pfizer that governs the parties' respective rights, responsibilities and obligations with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and other matters regarding taxes. For additional information, see below and Note 17B. Related Party Transactions: Agreements with Pfizer.

In connection with this agreement and the Separation, the activity in our income tax accounts reflects Separation Adjustments, including significant adjustments to the deferred income tax asset and liability accounts and the tax liabilities associated with uncertain tax positions. For additional information, see below and Note 2B. The Separation, Adjustments Associated with the Separation, Senior Notes Offering and Initial Public Offering: Adjustments Associated with the Separation.

In general, under the agreement:

•

Pfizer will be responsible for any U.S. federal, state, local or foreign income taxes and any U.S. state or local non-income taxes (and any related interest, penalties or audit adjustments and including those taxes attributable to our business) reportable on a consolidated, combined or unitary return that includes Pfizer or any of its subsidiaries (and us and/or any of our subsidiaries) for any periods or portions thereof ending on or prior to December 31, 2012. We will be responsible for the portion of any such taxes for periods or portions thereof beginning on or after January 1, 2013, as would be applicable to us if we filed the relevant tax returns on a standalone basis.


•	We will be responsible for any U.S. federal, state, local or foreign income taxes and any U.S. state or local non-income taxes (and any related interest, penalties or audit adjustments) that are reportable on returns that include only us and/or any of our subsidiaries, for all tax periods whether before or after the completion of the Separation.


•	Pfizer will be responsible for certain specified foreign taxes directly resulting from certain aspects of the Separation.

We will not generally be entitled to receive payment from Pfizer in respect of any of our tax attributes or tax benefits or any reduction of taxes of Pfizer. Neither party's obligations under the agreement will be limited in amount or subject to any cap. The agreement also assigns responsibilities for administrative matters, such as the filing of returns, payment of taxes due, retention of records and conduct of audits, examinations or similar proceedings. In addition, the agreement provides for cooperation and information sharing with respect to tax matters.

Pfizer will be primarily responsible for preparing and filing any tax return with respect to the Pfizer affiliated group for U.S. federal income tax purposes and with respect to any consolidated, combined, unitary or similar group for U.S. state or local or foreign income tax purposes or U.S. state or local non-income tax purposes that includes Pfizer or any of its subsidiaries, including those that also include us and/or any of our subsidiaries. We will generally be responsible for preparing and filing any tax returns that include only us and/or any of our subsidiaries.

The party responsible for preparing and filing a given tax return will generally have exclusive authority to control tax contests related to any such tax return.


C.	Deferred Taxes

As of March 31, 2013, the total net deferred income tax liability of $192 million is included in Current deferred tax assets ($83 million), Noncurrent deferred tax assets ($63 million), Other current liabilities ($1 million) and Noncurrent deferred tax liabilities ($337 million).

As of December 31, 2012, the total net deferred income tax liability of $8 million is included in Current deferred tax assets ($101 million), Noncurrent deferred tax assets ($216 million), Other current liabilities ($2 million) and Noncurrent deferred tax liabilities ($323 million).

The significant increase in the total net deferred tax liability from December 31, 2012 to March 31, 2013 is primarily attributable to the Separation Adjustments, predominantly related to deferred tax assets associated with net operating loss/credit carry forwards and deferred tax liabilities associated with unremitted earnings that were retained by Pfizer. See Note 2B. The Separation, Adjustments Associated with the Separation, Senior Notes Offering and Initial Public Offering: Adjustments Associated with the Separation.

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D.	Tax Contingencies

As of March 31, 2013, the tax liabilities associated with uncertain tax positions of $32 million (exclusive of interest related to uncertain tax positions of $8 million) were included in Noncurrent deferred tax assets ($6 million) and Other taxes payable ($26 million).

As of December 31, 2012, the tax liabilities associated with uncertain tax positions of $144 million (exclusive of interest related to uncertain tax positions of $17 million) were included in Noncurrent deferred tax assets ($6 million) and Other taxes payable ($138 million).

The significant decrease in the tax liabilities associated with uncertain tax positions from December 31, 2012 to March 31, 2013 is primarily attributable to the Separation Adjustments predominantly related to liabilities retained by Pfizer. See Note 2B. The Separation, Adjustments Associated with the Separation, Senior Notes Offering and Initial Public Offering: Adjustments Associated with the Separation.

Our tax liabilities for uncertain tax positions relate primarily to issues common among multinational corporations. Any settlements or statute of limitations expirations could result in a significant decrease in our uncertain tax positions. Substantially all of these unrecognized tax benefits, if recognized, would impact our effective income tax rate. We do not expect that within the next twelve months any of our uncertain tax positions could significantly decrease as a result of settlements with taxing authorities or the expiration of the statutes of limitations. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but our estimates of uncertain tax positions and potential tax benefits may not be representative of actual outcomes, and any variation from such estimates could materially affect our financial statements in the period of settlement or when the statutes of limitations expire, as we treat these events as discrete items in the period of resolution. Finalizing audits with the relevant taxing authorities can include formal administrative and legal proceedings, and, as a result, it is difficult to estimate the timing and range of possible changes related to our uncertain tax positions, and such changes could be significant.


8.	Accumulated Other Comprehensive Loss

Changes, net of tax, in accumulated other comprehensive loss follow:



	Currency Translation						Accumulated
	Adjustment			Benefit Plans			Other
	Net Unrealized			Actuarial			Comprehensive
(MILLIONS OF DOLLARS)	Gains/(Losses)			Losses^(a)			Income/(Loss)
Balance, December 31, 2012	$	(152	)	$	(5	)	$	(157	)
Other comprehensive income/(loss), net of tax	16			(2		)	14
Separation adjustments^(b)	22			—			22
Balance, March 31, 2013	$	(114	)	$	(7	)	$	(121	)


^(a)	Actuarial losses for the three months ended March 31, 2013 include adjustments for net pension obligations reflected in the historical financial statements of Zoetis, but not transferred by Pfizer to Zoetis as of March 31, 2013. See Note 12. Benefit Plans.


^(b)	See Note 2B. The Separation, Adjustments Associated with the Separation, Senior Notes Offering and Initial Public Offering: Adjustments Associated with the Separation.


9.	Financial Instruments


A.	Credit Facility

In December 2012, we entered into a revolving credit agreement with a syndicate of banks providing for a five-year $1.0 billion senior unsecured revolving credit facility (the credit facility), which became effective in February 2013 upon the completion of the IPO and expires in December 2017. 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 4.35:1 for fiscal year 2013, 3.95:1 for fiscal year 2014, 3.50:1 for fiscal year 2015 and 3.00:1 thereafter. 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. Subject to certain conditions, we have the right to increase the credit facility to up to $1.5 billion. There are currently no borrowings outstanding.


B.	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, 2013, no commercial paper has been issued under this program.


C.	Short-Term Borrowings

There were short-term borrowings of $6 million as of March 31, 2013. As of December 31, 2012 the current portion of allocated debt from Pfizer was $73 million. The weighted-average interest rate on short-term borrowings outstanding, including the current portion of allocated debt, was 3.0% and 3.7% as of March 31, 2013 and December 31, 2012, respectively.


D.	Senior Notes Offering

On January 28, 2013, we issued $3.65 billion aggregate principal amount of our senior notes (the senior notes offering) in a private placement, with an original issue discount of $10 million. The senior notes are comprised of $400 million aggregate principal amount of our 1.150% senior notes due 2016, $750 million aggregate principal amount of our 1.875% Senior Notes due 2018, $1.35 billion aggregate principal amount of our 3.250% senior notes due 2023 and $1.15 billion aggregate principal amount of our 4.700% senior notes due 2043.

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We sold $2.65 billion aggregate principal amount of our senior notes through the initial purchasers in the senior notes offering and Pfizer transferred $1.0 billion aggregate principal amount of our senior notes to certain of the initial purchasers, who sold such senior notes in the senior notes offering.

The senior notes are governed by an indenture and supplemental indenture (collectively, the indenture) between us and Deutsche Bank Trust Company Americas, as trustee. The indenture contains certain covenants, including limitations on our and certain of our subsidiaries' ability to incur liens or engage in sale-leaseback transactions. The indenture also contains restrictions on our ability to consolidate, merge or sell substantially all of our assets. In addition, the indenture contains other customary terms, including certain events of default, upon the occurrence of which the senior notes may be declared immediately due and payable.

Pursuant to the indenture, we are able to redeem the senior notes, in whole or in part, at any time by paying a “make whole” premium, plus accrued and unpaid interest to, but excluding, the date of redemption. Pursuant to our tax matters agreement with Pfizer, we will not be permitted to redeem the 2023 notes 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 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 purchase each of the 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 follow:



	March 31,			December 31,
(MILLIONS OF DOLLARS)	2013			2012
Allocated long-term debt	$	—		$	509
1.150% Senior Notes due 2016	400			—
1.875% Senior Notes due 2018	750			—
3.250% Senior Notes due 2023	1,350			—
4.700% Senior Notes due 2043	1,150			—
	3,650			509
Unamortized debt discount	(10		)	—
Long-term debt / Allocated long-term debt	$	3,640		$	509

As of March 31, 2013, the fair value of our senior notes was $3,604 million and has been determined using a third-party matrix-pricing model that uses significant inputs derived from or corroborated by observable market data and Zoetis’s credit rating (Level 2 inputs). At December 31, 2012, the fair value of our allocated long-term debt was $732 million, and has been determined using a third-party matrix-pricing model that uses significant inputs derived from or corroborated by observable market data and Pfizer’s credit rating (Level 2 inputs). See Note 4B. Significant Accounting Policies: Fair Value. The fair value of the allocated long-term debt as of December 31, 2012 does not purport to reflect the fair value that might have been determined if Zoetis had operated as a standalone public company for the periods presented or if we had used Zoetis’s credit rating in the calculation.

The principal amount of long-term debt outstanding as of March 31, 2013 matures in the following years:



									After
(MILLIONS OF DOLLARS)	2014		2015		2016		2017		2017		Total
Maturities	$	—	$	—	$	400	$	—	$	3,250	$	3,650


E.	Derivative Financial Instruments

Foreign Exchange Risk

A significant portion of our revenues, earnings and net investment in foreign affiliates is exposed to changes in foreign exchange rates. Prior to the IPO, as a business unit of Pfizer and under Pfizer's global cash management system, our foreign exchange risk was managed through Pfizer. Following the Separation, we seek to manage our foreign exchange risk, in part, through operational means, including managing same-currency revenues 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 derivative financial instruments. These financial instruments serve to protect net income against the impact of the translation into U.S. dollars of certain foreign exchange-denominated transactions. As of March 31, 2013, the aggregate notional amount of foreign exchange derivative financial instruments offsetting foreign currency exposures was $936 million. The derivative financial instruments primarily offset exposures in the euro, the Brazilian real and the Australian dollar. The vast majority of the foreign exchange derivative financial instruments mature within 60 days and all mature within 180 days.

All derivative contracts used to manage foreign currency risk are measured at fair value and are reported as assets or liabilities on the condensed consolidated balance sheet. The company has not designated the foreign currency forward-exchange contracts as hedging instruments. We recognize the gains and losses on forward-exchange contracts that are used to offset the same foreign currency assets or liabilities immediately into earnings along with the earnings impact of the items they generally offset. These contracts essentially take the opposite currency position of that reflected in the month-end balance sheet to counterbalance the effect of any currency movement.

Fair Value of Derivative Instruments

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The location and fair values of derivative instruments not designated as hedging instruments at March 31, 2013 are as follows:



(MILLIONS OF DOLLARS)	Balance Sheet Location	Fair Value of Derivatives
Foreign currency forward-exchange contracts	Other current assets	$	2
Foreign currency forward-exchange contracts	Other current liabilities	(1		)
Total foreign currency forward-exchange contracts		$	1

We use a market approach in valuing financial instruments on a recurring basis. Our derivative financial instruments measured at fair value on a recurring basis use Level 2 inputs in the calculation of fair value. See Note 4B. Significant Accounting Policies: Fair Value.

The net gains incurred on foreign currency forward-exchange contracts not designated as hedging instruments were $6 million for the three months ended March 31, 2013 and are recorded in Other (income)/deductions—net.


10.	Inventories

The components of inventory follow:



	March 31,		December 31,
(MILLIONS OF DOLLARS)	2013		2012
Finished goods	$	699	$	799
Work-in-process	205		332
Raw materials and supplies	216		214
Inventories^(a)	$	1,120	$	1,345


^(a)	Inventory levels decreased in 2013 as a result of $136 million of Separation Adjustments (see Note 2B. The Separation, Adjustments Associated with the Separation, Senior Notes Offering and Initial Public Offering: Adjustments Associated with the Separation), as well as operational reductions.


11.	Goodwill and Other Intangible Assets


A.	Goodwill

The components of and changes in the carrying amount of goodwill follow:



(MILLIONS OF DOLLARS)	U.S.		EuAfME		CLAR		APAC		Total
Balance, December 31, 2012	$	502	$	157	$	163	$	163	$	985
Balance, March 31, 2013^(a)	$	502	$	157	$	163	$	163	$	985


^(a)	There were no changes in goodwill during the three months ended March 31, 2013.

The gross goodwill balance was $1,521 million as of March 31, 2013 and December 31, 2012. Accumulated goodwill impairment losses (generated entirely in fiscal 2002) were $536 million as of March 31, 2013 and December 31, 2012.

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B.	Other Intangible Assets

The components of identifiable intangible assets follow:



	As of March 31, 2013							As of December 31, 2012
						Identifiable							Identifiable
						Intangible							Intangible
	Gross					Assets, Less		Gross					Assets, Less
	Carrying		Accumulated			Accumulated		Carrying		Accumulated			Accumulated
(MILLIONS OF DOLLARS)	Amount		Amortization			Amortization		Amount		Amortization			Amortization
Finite-lived intangible assets:
Developed technology rights	$	771	$	(186	)	$	585	$	762	$	(173	)	$	589
Brands	216		(91		)	125		216		(88		)	128
Trademarks and trade names	53		(36		)	17		54		(36		)	18
Other	122		(115		)	7		122		(115		)	7
Total finite-lived intangible assets	1,162		(428		)	734		1,154		(412		)	742
Indefinite-lived intangible assets:
Brands	39		—			39		39		—			39
Trademarks and trade names	67		—			67		67		—			67
In-process research and development	15		—			15		20		—			20
Total indefinite-lived intangible assets	121		—			121		126		—			126
Identifiable intangible assets	$	1,283	$	(428	)	$	855	$	1,280	$	(412	)	$	868


C.	Amortization

Amortization expense related to 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 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 $16 million for both the first quarter of 2013 and 2012.


12.	Benefit Plans

Prior to the Separation from Pfizer, employees who met certain eligibility requirements participated in various defined benefit pension plans and postretirement plans administered and sponsored by Pfizer. Effective December 31, 2012, our employees ceased to participate in the Pfizer U.S. qualified defined benefit and U.S. retiree medical plans, and liabilities associated with our employees under these plans were retained by Pfizer. Pfizer will continue crediting certain employees' service with us generally through December 31, 2017 (or termination of employment from us, if earlier) for certain early retirement benefits with respect to the defined benefit pension plan and the retiree medical plan. Pension and postretirement benefit expense associated with the extended service for certain employees in the U.S. plans, totaled approximately $2 million for the three months ended March 31, 2013.

As part of the Separation, certain Separation Adjustments (see Note 2B. The Separation, Adjustments Associated with the Separation, Senior Notes Offering and Initial Public Offering: Adjustments Associated with the Separation) were made to transfer the assets and liabilities of certain international defined benefit pension plans including Austria, France, Germany, Greece, Italy, Mexico, South Africa, Taiwan and Thailand, to Zoetis in the first quarter of 2013, and we assumed the liabilities allocable to employees transferring to us. Prior to the Separation, these benefit plans were accounted for as multi-employer plans. Also, as part of the Separation Adjustments, a benefit plan in Germany was retained by Pfizer. The net obligation of the transferred plans totaled $25 million. At March 31, 2013, the projected benefit obligation and fair value of plan assets of the dedicated international pension plans in the Netherlands, Germany, India and Korea, as well as those plans transferred in the 2013 first quarter, were $72 million and $43 million, respectively. Estimated net pension obligations, of approximately $23 million, associated with additional defined benefit pension plans in certain international locations, are expected to be transferred to us later in 2013, in accordance with the applicable local separation agreements.

Pension expense associated with dedicated international pension plans was approximately $0.5 million for the three months ended March 31, 2013. Pension expense associated with international benefit plans accounted for as multi-employer plans was approximately $3 million for the three months ended March 31, 2013.

For the three months ended March 31, 2013, contributions to the dedicated international benefits plans and the international plans accounted for as multi-employer plans were $0.1 million and $2 million, respectively. We expect to contribute approximately $7 million to these plans in 2013.

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13.	Share-Based Payments


A.	Zoetis 2013 Equity and Incentive Plan

In January 2013, the Zoetis 2013 Equity and Incentive Plan (Equity Plan) became effective. Awards under the Equity Plan may be in the form of stock options, or other stock-based awards, including awards of restricted stock, restricted stock units and performance share awards. The Equity Plan also provides for the grant of cash-based awards. The principal types of stock-based awards available under the Equity Plan may include, but are not limited to, the following:

•

Stock Options. Stock options represent the right to purchase shares of our common stock within a specified period of time at a specified price. The exercise price for a stock option will be not less than 100% of the fair market value of the common stock on the date of grant. Stock options will have a contractual maximum term of ten years from the date of grant. Stock options granted may include those intended to be “incentive stock options” within the meaning of Section 422 of the Code.

•

Restricted Stock and Restricted Stock Units (RSUs). Restricted stock is a share of our common stock that is subject to a risk of forfeiture or other restrictions that will lapse subject to the recipient's continued employment, the attainment of performance goals, or both. Restricted stock units represent the right to receive shares of our common stock in the future (or cash determined by reference to the value of our common stock), subject to the recipient's continued employment, the attainment of performance goals, or both.


•	Performance-Based Awards. Performance awards will require satisfaction of pre-established performance goals, consisting of one or more business criteria and a targeted performance level with respect to such criteria as a condition of awards vesting or being settled. Performance may be measured over a period of any length specified.

•

Other Equity-Based or Cash-Based Awards. Our Compensation Committee is authorized to grant awards in the form of other equity-based awards or other cash-based awards, as deemed to be consistent with the purposes of the Equity Plan. The maximum value of the aggregate payment to be paid to any participant with respect to cash-based awards under the Equity Plan in respect of an annual performance period will be $10 million.

In order to provide long-term incentives to, and facilitate the retention of, our employees, we granted stock options (or other awards as appropriate with respect to our employees in non-U.S. jurisdictions) and restricted stock units under the Equity Plan on January 31, 2013 and February 1, 2013, respectively, to 1,700 of our employees. These awards will vest on the third anniversary of the IPO.


B.	Share-Based Compensation Expense

The components of share-based compensation expense follow:



	Three Months Ended
	March 31,		April 1,
(MILLIONS OF DOLLARS)	2013		2012
Stock option expense	$	2	$	—
RSU expense	1		—
Pfizer stock benefit plans—direct	8		6
Share-based compensation expense—direct	11		6
Share-based compensation expense—indirect	—		2
Share-based compensation expense—total	11		8


C.	Stock Options

Stock options are accounted for using a fair-value-based method at the date of grant in the consolidated statement of income. 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.

All eligible employees may receive Zoetis stock option grants. Zoetis stock options granted vest after three years of continuous service from the grant date and have a contractual term of 10 years. In most cases, Zoetis stock options must be held for at least one year from the grant date before any vesting may occur. In the event of a divestiture or restructuring, Zoetis stock options held by impacted employees are immediately vested and are exercisable for a period from three months to their remaining term, depending on various conditions.

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 noted in the following table, shown at their weighted-average values:

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	Three Months
	Ended
	March 31, 2013
Expected dividend yield^(a)	1.0	%
Risk-free interest rate^(b)	1.29	%
Expected stock price volatility^(c)	28.2	%
Expected term^(d) (years)	6.5


^(a)	Determined using a constant dividend yield during the expected term of the Zoetis stock option.


^(b)	Determined using the interpolated yield on U.S. Treasury zero-coupon issues.


^(c)	Determined using implied volatility.


^(d)	Determined using expected exercise and post-vesting termination patterns.

The following table provides an analysis of stock option activity for the three months ended March 31, 2013:



					Weighted-Average
			Weighted-Average		Remaining	Aggregate
			Exercise Price		Contractual Term	Intrinsic Value^(a)
	Shares		Per Share		(Years)	(MILLIONS)
Outstanding, December 31, 2012	—		$	—
Granted	2,928,422		26.00
Forfeited	(13,491	)	26.00
Outstanding, March 31, 2013	2,914,931		$	26.00	9.8	$	22
Exercisable, March 31, 2013	—		—		—	—


^(a)	Market price of underlying Zoetis common stock less exercise price.

The following table summarizes data related to stock option activity:



	Three Months
	Ended/As of
(MILLIONS OF DOLLARS, EXCEPT PER STOCK OPTION AMOUNTS)	March 31, 2013
Weighted-average grant date fair value per stock option	$	7.01
Total compensation cost related to nonvested stock options not yet recognized, pre-tax	$	19
Weighted-average period over which stock option compensation is expected to be recognized (years)	2.2


D.	Restricted Stock Units (RSUs)

RSUs are accounted for using a fair-value-based method that utilizes the closing price of Zoetis common stock on the date of grant. In virtually all instances, the units vest after three years of continuous service from the grant date and the values determined using the fair-value-based method 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.



			Weighted-Average
			Grant Date
			Fair Value
	Shares		Per Share
Nonvested, December 31, 2012	—		$	—
Granted	793,456		26.00
Forfeited	(3,072	)	26.00
Nonvested, March 31, 2013	790,384		$	26.00

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The follow table provides data related to RSU activity:



	Three Months
	Ended/As of
(MILLIONS OF DOLLARS)	March 31, 2013
Total compensation cost related to nonvested RSU awards not yet recognized, pre-tax	$	19
Weighted-average period over which RSU cost is expected to be recognized (years)	2.8


E.	Treatment of Outstanding Pfizer Equity Awards

Following the IPO, the equity awards previously granted to our employees by Pfizer will continue to relate to Pfizer equity, as service with Zoetis will be counted as service with Pfizer for all purposes. Upon the Distribution, if any, assuming that Pfizer no longer owns a controlling interest in the company, it is intended that each outstanding, unvested Pfizer stock option will vest and, in general, Pfizer stock options will be exercisable for Pfizer common stock until the earliest to occur of (i) the three year anniversary of the Distribution, (ii) the option holder’s termination of employment from Zoetis or (iii) the expiration of the stock option grant. Upon the Distribution, if any, assuming that Pfizer no longer owns a controlling interest in the company, Pfizer will also accelerate the vesting and, in some cases, the settlement of certain other equity awards, subject, in each case, to the requirements of Section 409A of the U.S. Internal Revenue Code, the terms of the Pfizer Stock Plan and the applicable award agreements and any outstanding deferral elections. The accelerated vesting of the outstanding Pfizer equity awards will result in the recognition of additional expense. As of March 31, 2013, total unrecognized compensation costs related to these nonvested stock options, restricted stock units and performance awards under the Pfizer plans was approximately $28 million and the weighted-average period over which such awards are expected to be recognized is 1.8 years. The remaining period over which such awards will be recognized as expense may accelerate, depending on the timing or occurrence of a Distribution.


14.	Earnings per Share

The following table presents the calculation of basic and diluted earnings per share:



	Three Months Ended
	March 31,		April 1,
(IN MILLIONS, EXCEPT PER SHARE DATA)	2013		2012
Numerator
Net income before allocation to noncontrolling interests	$	140	$	112
Less: net income attributable to noncontrolling interests	—		1
Net income attributable to Zoetis Inc.	$	140	$	111
Denominator
Weighted-average common shares outstanding	500.000		500.000
Common stock equivalents: stock options and RSUs	0.111		—
Weighted-average common and potential dilutive shares outstanding	500.111		500.000
Earnings per share attributable to Zoetis Inc. stockholders—basic	$	0.28	$	0.22
Earnings per share attributable to Zoetis Inc. stockholders—diluted	$	0.28	$	0.22


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 7. 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.

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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 heavily 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 heavily 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.

Roxarsone^®(3-Nitro)

We are defendants in nine actions involving approximately 140 plaintiffs that allege that the distribution of the medicated feed additive Roxarsone allegedly caused various diseases in the plaintiffs, including cancers and neurological diseases. Other defendants, including various poultry companies, are also named in these lawsuits. Compensatory and punitive damages are sought in unspecified amounts.

In September 2006, the Circuit Court of Washington County returned a defense verdict in one of the lawsuits, Mary Green, et al. v. Alpharma, Inc. et al. In 2008, this verdict was appealed and affirmed by the Arkansas Supreme Court. Certain summary judgments favoring the poultry company co-defendants in Mary Green, et al. v. Alpharma, Inc. et al. were reversed by the Arkansas Supreme Court in 2008. These claims were retried in 2009 and that trial also resulted in a defense verdict, which was affirmed by the Arkansas Supreme Court in April 2011. In October 2012, we entered into an agreement to resolve these cases. The resolution is subject to the execution of full releases or dismissals with prejudice by all of the claimants or our waiver of these requirements. The trial schedule has been suspended pending the outcome of the proposed settlement.

In June 2011, we announced that we would suspend sales in the U.S. of Roxarsone (3-Nitro) in response to a request by the U.S. FDA and subsequently stopped sales in several international markets.

Following our decision to suspend sales of Roxarsone (3-Nitro) in June 2011, Zhejiang Rongyao Chemical Co., Ltd., the supplier of certain materials used in the production of Roxarsone (3-Nitro), filed a lawsuit in the U.S. District Court for the District of New Jersey alleging that we are liable for damages it suffered as a result of the decision to suspend sales.

In September 2012, we were named as defendants in a purported class action in the Circuit Court of Arkansas County, Arkansas. The lawsuit alleges that the distribution of medicated feed additives, including Roxarsone, caused chickens to produce manure that contains an arsenical compound, which, when used as agricultural fertilizer by rice farmers, degrades into inorganic arsenic and allegedly caused contamination of rice produced by Arkansas farmers. Other defendants, including various poultry companies, are also named in these lawsuits. Compensatory damages, punitive damages, and attorney fees are sought in an unspecified amount. On March 4, 2013, plaintiffs filed a motion to dismiss the class action without prejudice. On March 7, 2013, the Court granted plaintiffs' motion and entered an order dismissing the case without prejudice.

PregSure^®

We have received in total approximately 80 claims in Europe and New Zealand seeking damages related to calves claimed to have died of Bovine Neonatal Pancytopenia (BNP) on farms where PregSure BVD, a vaccine against Bovine Virus Diarrhea (BVD) was used. BNP is a rare syndrome that first emerged in cattle in Europe in 2006. Studies of BNP suggest a potential association between the administration of PregSure and the development of BNP, although no causal connection has been established. The cause of BNP is not known.

In 2010, we voluntarily stopped sales of PregSure BVD in Europe, and recalled the product at wholesalers while investigations into possible causes of BNP continue. In 2011, after incidences of BNP were reported in New Zealand, we voluntarily withdrew the marketing authorization for PregSure throughout the world.

We have settled approximately 20 of these claims for amounts that are not material individually or in the aggregate. Investigations into possible causes of BNP continue and these settlements may not be representative of any future claims resolutions.

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Advocin

On January 30, 2012, Bayer filed a complaint against Pfizer alleging infringement and inducement of infringement of Bayer patent US 5,756,506 covering, among other things, a process for treating bovine respiratory disease (BRD) by administering a single high dose of fluoroquinolone. The complaint was filed after Pfizer's product Advocin^® was approved as a single dose treatment of BRD, in addition to its previous approval as a multi-dose treatment of BRD. Bayer seeks a permanent injunction, damages and a recovery of attorney's fees, and has demanded a jury trial. Discovery has now concluded. We have filed motions for summary judgment of non-infringement and invalidity of the Bayer patent, which are currently pending before the Court.

Ulianopolis, Brazil

In February 2012, the Municipality of Ulianopolis (State of Para, Brazil) filed a complaint against Fort Dodge Saúde Animal Ltda. (FDSAL) and five other large companies alleging that waste sent to a local waste incinerator 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 waste 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 local incineration facility.


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, 2013, recorded amounts for the estimated fair value of these indemnifications are not significant.


16.	Segment and Other Revenue Information


A.	Segment Information

The animal health medicines and vaccines industry is characterized by meaningful differences in customer needs across different regions. As a result of these differences, among other things, we manage our operations through four geographic regions. Each operating segment has responsibility for its commercial activities. Within each of these regional operating segments, we offer a diversified product portfolio, including vaccines, parasiticides, anti-infectives, medicated feed additives and other pharmaceuticals, for both livestock and companion animal customers.

Operating Segments


•	The United States (U.S.).


•	Europe/Africa/Middle East (EuAfME)—Includes, among others, the United Kingdom, Germany, France, Italy, Spain, Northern Europe and Central Europe as well as Russia, Turkey and South Africa.


•	Canada/Latin America (CLAR)––Includes Canada, Brazil, Mexico, Central America and Other South America.


•	Asia/Pacific (APAC)––Includes Australia, Japan, New Zealand, South Korea, India, China/Hong Kong, Northeast Asia, Southeast Asia and South Asia.

Our chief operating decision maker uses the revenues and earnings of the four operating segments, among other factors, for performance evaluation and resource allocation.

Other Costs and Business Activities

Certain costs are not allocated to our operating segment results, such as costs associated with the following:


•	R&D, which is generally responsible for research projects.


•	Corporate, which is responsible for platform functions such as business technology, facilities, legal, finance, human resources, business development, public affairs and procurement, among others. These costs also include compensation costs and other miscellaneous operating expenses not charged to our operating segments, as well as interest income and expense.

•

Certain transactions and events such as (i) purchase accounting adjustments, where we incur expenses associated with the amortization of fair value adjustments to inventory, intangible assets and property, plant and equipment; (ii) acquisition-related activities, where we incur costs for restructuring and integration; and (iii) certain significant items, which include non-acquisition-related restructuring charges, certain asset impairment charges and costs associated with cost reduction/productivity initiatives.

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Segment Assets

We manage our assets on a total company basis, not by operating segment. Therefore, our chief operating decision maker does not regularly review any asset information by operating segment and, accordingly, we do not report asset information by operating segment. As of March 31, 2013 and December 31, 2012, total assets were approximately $6.1 billion and $6.3 billion, respectively.

Selected Statement of Income Information



											Depreciation and
	Revenues^(a)				Earnings^(b)						Amortization^(c)
	March 31,		April 1,		March 31,			April 1,			March 31,		April 1,
(MILLIONS OF DOLLARS)	2013		2012		2013			2012			2013		2012
Three months ended
U.S.	$	454	$	425	$	234		$	217		$	14	$	7
EuAfME	290		275		117			104			6		6
CLAR	171		173		52			54			5		6
APAC	175		174		75			71			4		4
Total reportable segments	1,090		1,047		478			446			29		23
Other business activities^(d)	—		—		(74		)	(65		)	7		3
Reconciling Items:
Corporate^(e)	—		—		(116		)	(129		)	2		6
Purchase accounting adjustments^(f)	—		—		(12		)	(13		)	12		13
Acquisition-related costs^(g)	—		—		(6		)	(14		)	—		3
Certain significant items^(h)	—		—		(42		)	(31		)	—		—
Other unallocated⁽ⁱ⁾	—		—		(36		)	(23		)	1		—
	$	1,090	$	1,047	$	192		$	171		$	51	$	48


^(a)	Revenues denominated in euros were $168 million in the first quarter of 2013 and $164 million in the first quarter of 2012.


^(b)	Defined as income before provision for taxes on income.


^(c)	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.


^(d)	Other business activities reflect the research and development costs managed by our Research and Development organization.


^(e)	Corporate includes, among other things, administration expenses, interest expense, certain compensation and other costs not charged to our operating segments.


^(f)	Purchase accounting adjustments include certain charges related to the fair value adjustments to inventory, intangible assets and property, plant and equipment not charged to our operating segments.

^(g)

Acquisition-related costs can include costs associated with acquiring, integrating and restructuring acquired businesses, such as allocated transaction costs, integration costs, restructuring charges and additional depreciation associated with asset restructuring (see Note 5. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives, for additional information).

^(h)

Certain significant items are 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 items primarily include restructuring charges and implementation costs associated with our cost-reduction/productivity initiatives that are not associated with an acquisition and the impact of divestiture-related gains and losses (see Note 5. Restructuring Charges and Other Costs Associated with Acquisition and Cost-Reduction/Productivity Initiatives, for additional information).

•

In the first quarter of 2013, certain significant items includes: (i) restructuring charges and implementation costs associated with our cost-reduction/productivity initiatives that are not associated with an acquisition of $3 million; (ii) certain asset impairment charges of $1 million; (iii) charges related to transitional master manufacturing and supply agreements associated with divestitures of $4 million; and (iv) Zoetis stand-up costs of $34 million. Stand-up costs include certain nonrecurring costs related to becoming a standalone public company, such as new branding (including changes to the manufacturing process for required new packaging), the creation of standalone systems and infrastructure, site separation and certain legal registration and patent assignment costs.

•

In the first quarter of 2012, certain significant items includes: (i) restructuring charges and implementation costs associated with our cost-reduction/productivity initiatives that are not associated with an acquisition of $24 million; (ii) charges related to transitional master manufacturing and supply agreements associated with divestitures of $1 million; and (iii) Zoetis stand-up costs of $6 million.


⁽ⁱ⁾	Includes overhead expenses associated with our manufacturing operations.

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B.	Other Revenue Information

Revenues by Species

Significant species revenues are as follows:



	Three Months Ended
	March 31,		April 1,
(MILLIONS OF DOLLARS)	2013		2012
Livestock:
Cattle	$	390	$	400
Swine	158		143
Poultry	133		121
Other	25		27
	706		691
Companion Animal:
Horses	42		45
Dogs and Cats	342		311
	384		356
Total revenues	$	1,090	$	1,047