# Zoetis Inc.: Form 10-Q for the period ended Jun 30, 2025 - Company: [Zoetis Inc.](/companies/zts.md) (CIK 1555280) - Form: 10-Q - Filed: 2025-08-05 - Accepted by EDGAR: Aug 5, 2025, 13:58 ET - Period: 2025-06-30 - Accession: 0001555280-25-000261 - Inline XBRL: yes - Main document: https://www.sec.gov/Archives/edgar/data/1555280/000155528025000261/zts-20250630.htm - All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1555280/000155528025000261/ ## Figures reported in this filing Standardized XBRL line items for the period ended 2025-06-30. | Line item | Period | Value | XBRL concept | | --- | --- | ---: | --- | | Revenue | 3 months, 2025-04-01 to 2025-06-30 | $2.46bn | us-gaap:Revenues | | Revenue | 6 months, 2025-01-01 to 2025-06-30 | $4.68bn | us-gaap:Revenues | | Cost of revenue | 3 months, 2025-04-01 to 2025-06-30 | $649.0m | us-gaap:CostOfGoodsAndServicesSold | | Cost of revenue | 6 months, 2025-01-01 to 2025-06-30 | $1.27bn | us-gaap:CostOfGoodsAndServicesSold | | Selling, general and administrative | 3 months, 2025-04-01 to 2025-06-30 | $617.0m | us-gaap:SellingGeneralAndAdministrativeExpense | | Selling, general and administrative | 6 months, 2025-01-01 to 2025-06-30 | $1.18bn | us-gaap:SellingGeneralAndAdministrativeExpense | | Interest expense | 3 months, 2025-04-01 to 2025-06-30 | $53.0m | us-gaap:InterestExpense | | Interest expense | 6 months, 2025-01-01 to 2025-06-30 | $107.0m | us-gaap:InterestExpense | | Income tax | 3 months, 2025-04-01 to 2025-06-30 | $184.0m | us-gaap:IncomeTaxExpenseBenefit | | Income tax | 6 months, 2025-01-01 to 2025-06-30 | $363.0m | us-gaap:IncomeTaxExpenseBenefit | | Net income | 3 months, 2025-04-01 to 2025-06-30 | $718.0m | us-gaap:NetIncomeLoss | | Net income | 6 months, 2025-01-01 to 2025-06-30 | $1.35bn | us-gaap:NetIncomeLoss | | Diluted EPS | 3 months, 2025-04-01 to 2025-06-30 | $1.61 | us-gaap:EarningsPerShareDiluted | | Diluted EPS | 6 months, 2025-01-01 to 2025-06-30 | $3.02 | us-gaap:EarningsPerShareDiluted | | Basic EPS | 3 months, 2025-04-01 to 2025-06-30 | $1.61 | us-gaap:EarningsPerShareBasic | | Basic EPS | 6 months, 2025-01-01 to 2025-06-30 | $3.02 | us-gaap:EarningsPerShareBasic | | Diluted shares (weighted) | 3 months, 2025-04-01 to 2025-06-30 | 445,500,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Diluted shares (weighted) | 6 months, 2025-01-01 to 2025-06-30 | 446,700,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Operating cash flow | 6 months, 2025-01-01 to 2025-06-30 | $1.07bn | us-gaap:NetCashProvidedByUsedInOperatingActivities | | Capital expenditure | 6 months, 2025-01-01 to 2025-06-30 | $327.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment | | Share repurchases | 6 months, 2025-01-01 to 2025-06-30 | $781.0m | us-gaap:PaymentsForRepurchaseOfCommonStock | | Cash and equivalents | at 2025-06-30 | $1.44bn | us-gaap:CashAndCashEquivalentsAtCarryingValue | | Current assets | at 2025-06-30 | $5.92bn | us-gaap:AssetsCurrent | | Total assets | at 2025-06-30 | $14.48bn | us-gaap:Assets | | Current liabilities | at 2025-06-30 | $3.37bn | us-gaap:LiabilitiesCurrent | | Total liabilities | at 2025-06-30 | $9.50bn | us-gaap:Liabilities | | Long-term debt | at 2025-06-30 | $5.23bn | us-gaap:LongTermDebtNoncurrent | | Current portion of debt | at 2025-06-30 | $1.35bn | us-gaap:LongTermDebtCurrent | | Short-term borrowings | at 2025-06-30 | $0 | us-gaap:CommercialPaper | | Shareholders' equity | at 2025-06-30 | $4.98bn | us-gaap:StockholdersEquity | ## Management's discussion and analysis As filed, 75,803 characters. ### 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 and services, biodevices, genetic tests and precision animal health. For over 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 veterinarians and pet owners to livestock producers. 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 across North America, Europe, Africa, Asia, Australia and South 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 as Brazil, Chile, China and Mexico, 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. Our companion animal and livestock products are primarily available by prescription through a veterinarian. On a more limited basis, in certain markets, we sell certain products through retail and e-commerce outlets. We also market our products by advertising to veterinarians, pet owners and livestock producers. 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 that they remain relevant for our customers. We have approximately 300 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. A summary of our 2025 performance compared with the comparable 2024 periods follows: | (MILLIONS OF DOLLARS) | Three Months Ended June 30, 2025 | 2024 | % Change Total | Related to Foreign Exchange | Operational(a) | | --- | ---: | ---: | ---: | ---: | ---: | | Revenue | **$2,460** | $2,361 | 4 | (1) | 5 | | Net income attributable to Zoetis | **718** | 624 | 15 | 5 | 10 | | Adjusted net income(a) | **783** | 711 | 10 | 3 | 7 | | (MILLIONS OF DOLLARS) | Six Months Ended June 30, 2025 | 2024 | % Change Total | Related to Foreign Exchange | Operational(a) | | --- | ---: | ---: | ---: | ---: | ---: | | Revenue | **$4,680** | $4,551 | 3 | (2) | 5 | | Net income attributable to Zoetis | **1,349** | 1,223 | 10 | 4 | 6 | | Adjusted net income(a) | **1,445** | 1,345 | 7 | 3 | 4 | (a) Operational results 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 2024 Annual Report on Form 10-K. Set forth below are updates to certain of the factors disclosed in our 2024 Annual Report on Form 10-K. ### Quarterly Variability of Financial Results Our quarterly financial results are subject to variability related to a number of factors including, but not limited to: tariffs and other trade protection measures, the decline in global macroeconomic conditions, competitive dynamics, geopolitical tensions with and economic uncertainty in certain markets, inflation, global supply chain disruption, variability in distributor inventory stocking levels as a result of expected demand and promotional activities, weather patterns, herd management decisions, regulatory actions, disease outbreaks, product and geographic mix, timing of price increases and timing of investment decisions. ### Tariffs and Trade Protection Measures Our business is subject to risks related to, among other factors, tariffs and other trade protection measures put in the place by the United States or other countries, as well as U.S. international trade relations, including those with China, Canada and the European Union. Starting in early 2025, the United States government announced additional tariffs on certain goods imported into the U.S. from numerous countries and multiple nations countered with reciprocal tariffs and other actions in response. While the final tariffs and other measures to be imposed, and their applicability to our business, remain uncertain, such actions may negatively impact demand and result in an increase in some product costs. We will continue to actively monitor the situation and evaluate actions that can be taken to moderate and/or minimize its effects. For further information regarding the impact of potential additional tariffs and trade protection measures on the Company, see *Part II., Item 1A, Risk Factors* in this Quarterly Report on Form 10-Q. ### Disease Outbreaks Sales of our livestock products have in the past, and may in the future be, adversely affected by the outbreak of disease carried by animals. 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 six months ended June 30, 2025, approximately 41% 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 Australian dollar, Brazilian real, British pound, Canadian dollar, Chinese renminbi, euro and other currencies, changes in those currencies relative to the U.S. dollar will impact our revenue, cost of goods and expenses, and consequently, net income. 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 six months ended June 30, 2025, approximately 59% of our total revenue was in U.S. dollars. Our year-over-year total revenue growth was unfavorably impacted by approximately 2% from changes in foreign currency values relative to the U.S. dollar. For operations in highly inflationary economies, we translate monetary items at rates in effect at the balance sheet date, with translation adjustments recorded in *Other (income)/deductions––net*, and we translate non-monetary items at historical rates. ### Non-GAAP financial measures We report information in accordance with U.S. generally accepted accounting principles (GAAP). Management also measures performance using non-GAAP financial measures that may exclude certain amounts from the most directly comparable GAAP measure. Despite the importance of these measures to management in goal setting and performance measurement, non-GAAP financial measures have no standardized meaning prescribed by U.S. GAAP and, therefore, have limits in their usefulness to investors and may not be comparable to the calculation of similar measures of other companies. We present certain identified non-GAAP measures solely to provide investors with useful information to more fully understand how management assesses performance. ### Operational Results We believe that it is important to not only understand overall revenue and earnings results, but also “operational” results. Operational results is a non-GAAP financial measure defined as revenue or earnings results excluding the impact of foreign exchange. This measure provide 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 for U.S. GAAP reported results. ### 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 our U.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 and divestiture-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 provide a view of our operations without including all events during a period, such as the effects of an acquisition, divestiture 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 for U.S. GAAP reported net income attributable to Zoetis 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. | (MILLIONS OF DOLLARS) | Three Months Ended June 30,% 2025 | 2024 | Change | Six Months Ended June 30,% 2025 | 2024 | Change | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Revenue | **$2,460** | $2,361 | 4 | **$4,680** | $4,551 | 3 | | Costs and expenses: | | | | | | | | Cost of sales | **649** | 668 | (3) | **1,271** | 1,311 | (3) | | % of revenue | **26.4%** | 28.3% | | **27.2%** | 28.8% | | | Selling, general and administrative expenses | **617** | 581 | 6 | **1,180** | 1,128 | 5 | | % of revenue | **25%** | 25% | | **25%** | 25% | | | Research and development expenses | **172** | 171 | 1 | **329** | 333 | (1) | | % of revenue | **7%** | 7% | | **7%** | 7% | | | Amortization of intangible assets | **33** | 35 | (6) | **65** | 72 | (10) | | Restructuring charges and certain acquisition and divestiture-related costs | **30** | 42 | (29) | **30** | 46 | (35) | | Interest expense, net of capitalized interest | **53** | 59 | (10) | **107** | 117 | (9) | | Other (income)/deductions—net | **4** | 25 | (84) | **(14)** | 17 | \* | | Income before provision for taxes on income | **902** | 780 | 16 | **1,712** | 1,527 | 12 | | % of revenue | **37%** | 33% | | **37%** | 34% | | | Provision for taxes on income | **184** | 156 | 18 | **363** | 304 | 19 | | Effective tax rate | **20.4%** | 20.0% | | **21.2%** | 19.9% | | | Net income before allocation to noncontrolling interests | **718** | 624 | 15 | **1,349** | 1,223 | 10 | | Less: Net income/(loss) attributable to noncontrolling interests | **—** | — | — | **—** | — | — | | Net income attributable to Zoetis | **$718** | $624 | 15 | **$1,349** | $1,223 | 10 | | % of revenue | **29%** | 26% | | **29%** | 27% | | \*Calculation not meaningful ### Revenue ### Three months ended June 30, 2025 vs. three months ended June 30, 2024 Total revenue increased by $99 million, or 4%, in the three months ended June 30, 2025, compared with the three months ended June 30, 2024, an increase of $113, or 5%, on an operational basis. Operational revenue growth was primarily due to the following: - price growth of approximately 4%; - volume growth from key franchises of approximately 3%; and - volume growth from other in-line products of approximately 2%, partially offset by: - volume decrease related to the impact of the divestiture of our medicated feed additive product portfolio, certain water soluble products and related assets (MFA divestiture) of approximately 4%. Foreign exchange decreased reported revenue growth by approximately 1%. ### Six months ended June 30, 2025 vs. six months ended June 30, 2024 Total revenue increased by $129 million, or 3%, in the six months ended June 30, 2025, compared with the six months ended June 30, 2024, an increase of $216 million, or 5%, on an operational basis. Operational revenue growth was primarily due to the following: - price growth of approximately 4%; - volume growth from key franchises of approximately 3%; and - volume growth from other in-line products of approximately 2%, partially offset by: - volume decrease related to the impact of the MFA divestiture of approximately 4%. Foreign exchange decreased reported revenue growth by approximately 2%. ### Costs and Expenses | Cost of sales (MILLIONS OF DOLLARS) | Three Months Ended June 30,% 2025 | 2024 | Change | Six Months Ended June 30,% 2025 | 2024 | Change | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Cost of sales | **$649** | $668 | (3) | **$1,271** | $1,311 | (3) | | % of revenue | **26.4%** | 28.3% | | **27.2%** | 28.8% | | ### Three months ended June 30, 2025 vs. three months ended June 30, 2024 Cost of sales as a percentage of revenue was 26.4% in the three months ended June 30, 2025, compared with 28.3% in the three months ended June 30, 2024. The decrease was primarily a result of: - favorable impact of the MFA divestiture; - favorable foreign exchange; and - price increases, partially offset by: - unfavorable manufacturing and other costs. ### Six months ended June 30, 2025 vs. six months ended June 30, 2024 Cost of sales as a percentage of revenue was 27.2% in the six months ended June 30, 2025, compared with 28.8% in the six months ended June 30, 2024. The decrease was primarily a result of: - favorable foreign exchange; - favorable impact of the MFA divestiture; and - price increases, partially offset by: - unfavorable manufacturing and other costs. | Selling, general and administrative expenses (MILLIONS OF DOLLARS) | Three Months Ended June 30,% 2025 | 2024 | Change | Six Months Ended June 30,% 2025 | 2024 | Change | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Selling, general and administrative expenses | **$617** | $581 | 6 | **$1,180** | $1,128 | 5 | | % of revenue | **25%** | 25% | | **25%** | 25% | | ### Three months ended June 30, 2025 vs. three months ended June 30, 2024 SG&A expenses increased by $36 million, or 6%, in the three months ended June 30, 2025, compared with the three months ended June 30, 2024, primarily as a result of: - higher advertising and promotion expenses; - an increase in certain significant items; - an increase in certain compensation-related costs; and - higher other general and administrative costs, partially offset by: - favorable foreign exchange; - lower bad debt expense; and - lower logistics and freight costs. ### Six months ended June 30, 2025 vs. six months ended June 30, 2024 SG&A expenses increased by $52 million, or 5%, in the six months ended June 30, 2025, compared with the six months ended June 30, 2024, primarily as a result of: - higher advertising and promotion expenses; - an increase in certain significant items; - an increase in certain compensation-related costs; - higher travel and entertainment costs; and - higher other general and administrative costs, partially offset by: - favorable foreign exchange; - lower logistics and freight costs; and - lower bad debt expense. | Research and development expenses (MILLIONS OF DOLLARS) | Three Months Ended June 30,% 2025 | 2024 | Change | Six Months Ended June 30,% 2025 | 2024 | Change | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Research and development expenses | **$172** | $171 | 1 | **$329** | $333 | (1) | | % of revenue | **7%** | 7% | | **7%** | 7% | | ### Three months ended June 30, 2025 vs. three months ended June 30, 2024 R&D expenses increased by $1 million, or 1%, in the three months ended June 30, 2025, compared with the three months ended June 30, 2024, primarily as a result of: - an increase in certain compensation-related costs to support innovation and portfolio progression; and - higher depreciation expense, partially offset by: - lower expenses due to timing of spend related to projects and other strategic investments. ### Six months ended June 30, 2025 vs. six months ended June 30, 2024 R&D expenses decreased by $4 million, or 1%, in the six months ended June 30, 2025, compared with the six months ended June 30, 2024, primarily as a result of: - lower expenses due to timing of spend related to projects and other strategic investments, partially offset by: - an increase in certain compensation-related costs to support innovation and portfolio progression; and - higher depreciation expense. | Amortization of intangible assets (MILLIONS OF DOLLARS) | Three Months Ended June 30,% 2025 | 2024 | Change | Six Months Ended June 30,% 2025 | 2024 | Change | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Amortization of intangible assets | **$33** | $35 | (6) | **$65** | $72 | (10) | Amortization of intangible assets decreased in the three and six months ended June 30, 2025 and 2024 versus the comparable prior year periods primarily due to assets that became fully amortized in the prior year. | Restructuring charges and certain acquisition and divestiture-related costs (MILLIONS OF DOLLARS) | Three Months Ended June 30,% 2025 | 2024 | Change | Six Months Ended June 30,% 2025 | 2024 | Change | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Restructuring charges and certain acquisition and divestiture-related costs | **$30** | $42 | (29) | **$30** | $46 | (35) | Restructuring charges and certain acquisition and divestiture-related costs in the three and six months ended June 30, 2025 primarily consisted of asset impairment charges and employee termination costs related to a transition from internal to external innovation and manufacturing of certain products and the closure of a related site. Restructuring charges and certain acquisition and divestiture-related costs in the three and six months ended June 30, 2024 primarily consisted of employee termination costs related to organizational structure refinements, as well as costs related to the MFA divestiture. Restructuring charges and certain acquisition and divestiture-related costs for the six months ended June 30, 2024 were partially offset by a reversal of certain employee termination costs as a result of a change in strategy from our 2015 operational efficiency initiative. | Interest expense, net of capitalized interest (MILLIONS OF DOLLARS) | Three Months Ended June 30,% 2025 | 2024 | Change | Six Months Ended June 30,% 2025 | 2024 | Change | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Interest expense, net of capitalized interest | **$53** | $59 | (10) | **$107** | $117 | (9) | Interest expense, net of capitalized interest, decreased in the three and six months ended June 30, 2025 versus the comparable prior year periods primarily as a result of higher capitalized interest in the current periods associated with capital projects to support our future growth. | Other (income)/deductions—net (MILLIONS OF DOLLARS) | Three Months Ended June 30,% 2025 | 2024 | Change | Six Months Ended June 30,% 2025 | 2024 | Change | | --- | ---: | ---: | ---: | ---: | ---: | --- | | Other (income)/deductions—net | **$4** | $25 | (84) | **$(14)** | $17 | \* | \* Calculation not meaningful The change in *Other (income)/deductions—net* in the three and six months ended June 30, 2025 versus the comparable prior year periods was primarily as a result of the net loss on the sale of our medicated feed additive product portfolio, certain water soluble products and related assets sold in 2024 and lower foreign currency losses in the current periods, partially offset by lower interest income in the current periods. | Provision for taxes on income (MILLIONS OF DOLLARS) | Three Months Ended June 30,% 2025 | 2024 | Change | Six Months Ended June 30,% 2025 | 2024 | Change | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Provision for taxes on income | **$184** | $156 | 18 | **$363** | $304 | 19 | | Effective tax rate | **20.4%** | 20.0% | | **21.2%** | 19.9% | | Our effective tax rate was 20.4% and 20.0% for the three months ended June 30, 2025 and 2024, respectively, and 21.2% and 19.9% for the six months ended June 30, 2025 and 2024, respectively. The higher effective tax rate for the three and six months ended June 30, 2025, compared with the three and six months ended June 30, 2024, was primarily attributable to a lower benefit in the U.S. related to foreign-derived intangible income, higher net discrete tax expenses, partially offset by a more favorable jurisdictional mix of earnings (which includes the impact of the location of pre-tax earnings, tax impact of permanent differences and repatriation decisions). ### Operating Segment Results On a global basis, the mix of revenue between companion animal and livestock products was as follows: | (MILLIONS OF DOLLARS) U.S. | Three Months Ended June 30, 2025 2024 | % Change Total | Related to Foreign Exchange Operational | | --- | ---: | ---: | ---: | | Companion animal | **$1,176** $1,080 | 9 | — 9 | | Livestock | **180** 228 | (21) | — (21) | | | **1,356** 1,308 | 4 | — 4 | | International | | | | | Companion animal | **612** 569 | 8 | — 8 | | Livestock | **458** 466 | (2) | (3) 1 | | | **1,070** 1,035 | 3 | (2) 5 | | Total | | | | | Companion animal | **1,788** 1,649 | 8 | — 8 | | Livestock | **638** 694 | (8) | (2) (6) | | Contract manufacturing & human health | **34** 18 | 89 | (2) 91 | | | **$2,460** $2,361 | 4 | (1) 5 | | | | % Change | | | | Six Months Ended | | Related to | | | **June 30,** | | Foreign | | (MILLIONS OF DOLLARS) | **2025** 2024 | Total | Exchange Operational | | U.S. | | | | | Companion animal | **$2,149** $1,978 | 9 | — 9 | | Livestock | **390** 493 | (21) | — (21) | | | **2,539** 2,471 | 3 | — 3 | | International | | | | | Companion animal | **1,185** 1,121 | 6 | (3) 9 | | Livestock | **893** 921 | (3) | (5) 2 | | | **2,078** 2,042 | 2 | (4) 6 | | Total | | | | | Companion animal | **3,334** 3,099 | 8 | (1) 9 | | Livestock | **1,283** 1,414 | (9) | (3) (6) | | Contract manufacturing & human health | **63** 38 | 66 | (4) 70 | | | **$4,680** $4,551 | 3 | (2) 5 | 27 \| Earnings by segment and the operational and foreign exchange changes versus the comparable prior year period were as follows: | (MILLIONS OF DOLLARS) U.S. | Three Months Ended June 30, 2025 | 2024 | % Change Total | Related to Foreign Exchange | Operational | | --- | ---: | ---: | ---: | ---: | ---: | | Revenue | **$1,356** | $1,308 | 4 | — | 4 | | Cost of Sales | **208** | 232 | (10) | — | (10) | | Gross Profit | **1,148** | 1,076 | 7 | — | 7 | | Gross Margin | **84.7%** | 82.3% | | | | | Operating Expenses | **218** | 204 | 7 | — | 7 | | Other (income)/deductions-net | **—** | — | \* | \* | \* | | U.S. Earnings | **930** | 872 | 7 | — | 7 | | **International** | | | | | | | Revenue | **1,070** | 1,035 | 3 | (2) | 5 | | Cost of Sales | **314** | 342 | (8) | (9) | 1 | | Gross Profit | **756** | 693 | 9 | 2 | 7 | | Gross Margin | **70.7%** | 67.0% | | | | | Operating Expenses | **173** | 175 | (1) | (3) | 2 | | Other (income)/deductions-net | **—** | — | \* | \* | \* | | International Earnings | **583** | 518 | 13 | 5 | 8 | | **Total operating segments** | **1,513** | 1,390 | 9 | 2 | 7 | | Other business activities | **(134)** | (142) | (6) | | | | Reconciling Items: | | | | | | | Corporate | **(321)** | (299) | 7 | | | | Purchase accounting adjustments | **(33)** | (35) | (6) | | | | Acquisition and divestiture-related costs | **(1)** | (5) | (80) | | | | Certain significant items | **(47)** | (70) | (33) | | | | Other unallocated | **(75)** | (59) | 27 | | | | Total Earnings | **$902** | $780 | 16 | | | \* Calculation not meaningful | (MILLIONS OF DOLLARS) U.S. | Six Months Ended June 30, 2025 | 2024 | % Change Total | Related to Foreign Exchange | Operational | | --- | ---: | ---: | ---: | ---: | ---: | | Revenue | **$2,539** | $2,471 | 3 | — | 3 | | Cost of Sales | **407** | 449 | (9) | — | (9) | | Gross Profit | **2,132** | 2,022 | 5 | — | 5 | | Gross Margin | **84.0%** | 81.8% | | | | | Operating Expenses | **423** | 394 | 7 | — | 7 | | Other (income)/deductions-net | **—** | — | \* | \* | \* | | U.S. Earnings | **1,709** | 1,628 | 5 | — | 5 | | **International** | | | | | | | Revenue | **2,078** | 2,042 | 2 | (4) | 6 | | Cost of Sales | **616** | 655 | (6) | (11) | 5 | | Gross Profit | **1,462** | 1,387 | 5 | (1) | 6 | | Gross Margin | **70.4%** | 67.9% | | | | | Operating Expenses | **327** | 334 | (2) | (5) | 3 | | Other (income)/deductions-net | **1** | — | \* | \* | \* | | International Earnings | **1,134** | 1,053 | 8 | 1 | 7 | | **Total operating segments** | **2,843** | 2,681 | 6 | — | 6 | | Other business activities | **(263)** | (274) | (4) | | | | Reconciling Items: | | | | | | | Corporate | **(592)** | (587) | 1 | | | | Purchase accounting adjustments | **(65)** | (72) | (10) | | | | Acquisition and divestiture-related costs | **(1)** | (5) | (80) | | | | Certain significant items | **(53)** | (76) | (30) | | | | Other unallocated | **(157)** | (140) | 12 | | | | Total Earnings | **$1,712** | $1,527 | 12 | | | \* Calculation not meaningful ### Three months ended June 30, 2025 vs. three months ended June 30, 2024 ### U.S. operating segment U.S. segment revenue increased by $48 million, or 4%, in the three months ended June 30, 2025, compared with the three months ended June 30, 2024, reflecting an increase of $96 million in companion animal products, partially offset by a $48 million reduction in livestock products. - Companion animal revenue increased primarily due to increased sales of Simparica Trio®, key dermatology products and small animal vaccines, partially offset by lower sales of our mAb products for OA pain, Librela® and Solensia®. - Livestock revenue decreased primarily due to the impact of the MFA divestiture across cattle, poultry and swine products. U.S. segment earnings increased by $58 million, or 7%, in the three months ended June 30, 2025, compared with the three months ended June 30, 2024, primarily due to higher revenue and lower cost of sales, partially offset by higher operating expenses, as well as the impact of the MFA divestiture. ### International operating segment International segment revenue increased by $35 million in the three months ended June 30, 2025 compared with the three months ended June 30, 2024. Operational revenue increased by $49 million, or 5%, driven by growth of $44 million in companion animal products and $5 million in livestock products. - Companion animal operational revenue growth was driven primarily by increased sales of our key dermatology products and our Simparica® franchise products. - Livestock operational revenue growth was due to increased sales in our fish and swine products, partially offset by lower sales of poultry products. Excluding the impact of the MFA divestiture, livestock revenue increased across all species. Sales of swine products increased due to timing of the expected impact of macroenvironment conditions, primarily in China. Sales of our fish products grew due to increased vaccine sales in Norway and Chile. Sales of poultry products grew due to higher demand for vaccines in key poultry markets, as well as price, and sales of cattle products grew largely due to price. - Additionally, International segment revenue was unfavorably impacted by foreign exchange which decreased revenue by $14 million, or 2%, primarily driven by the Brazilian real, Mexican peso, Argentinian peso and Turkish lira. International segment earnings increased by $65 million, or 13%, in the three months ended June 30, 2025, compared with the three months ended June 30, 2024. Operational earnings growth was $41 million, or 8%, primarily due to higher revenue, partially offset by higher cost of sales and operating expenses, as well as the impact of the MFA divestiture. ### Six months ended June 30, 2025 vs. six months ended June 30, 2024 ### U.S. operating segment U.S. segment revenue increased by $68 million, or 3%, in the six months ended June 30, 2025, compared with the six months ended June 30, 2024, reflecting an increase of $171 million in companion animal products, partially offset by a $103 million reduction in livestock products. - Companion animal revenue growth was primarily due to increased sales of Simparica Trio, key dermatology products and small animal diagnostics, partially offset by lower sales of our small animal vaccines. - Livestock revenue declined primarily due to the impact of the MFA divestiture across cattle, poultry and swine products. U.S. segment earnings increased by $81 million, or 5%, in the six months ended June 30, 2025, compared with the six months ended June 30, 2024, primarily due to higher revenue and lower cost of sales, partially offset by higher operating expenses, as well as the impact of the MFA divestiture. ### International operating segment International segment revenue increased by $36 million in the six months ended June 30, 2025 compared with the six months ended June 30, 2024. Operational revenue increased by $122 million, or 6%, driven by growth of $100 million in companion animal products and $22 million in livestock products. - Companion animal operational revenue growth was driven primarily by increased sales of our Simparica franchise products, key dermatology products and our mAb products for OA pain, Librela and Solensia. - Livestock operational revenue growth was due to increased sales in our cattle and fish products, partially offset by lower sales of poultry products. Excluding the impact of the MFA divestiture, livestock revenue increased across all species. Sales of cattle products grew largely due to price and sales of poultry products grew due to higher demand for vaccines in key poultry markets and price. Sales of our fish products grew due to increased vaccine sales in Norway and Chile. Sales of swine products increased due to timing of the expected impact of macroenvironment conditions, primarily in China. - Additionally, International segment revenue was unfavorably impacted by foreign exchange which decreased revenue by $86 million, or 4%, primarily driven by the Brazilian real, Mexican peso, Argentinian peso, Turkish lira, Australian dollar and Canadian dollar. International segment earnings increased by $81 million, or 8%, in the six months ended June 30, 2025, compared with the six months ended June 30, 2024. Operational earnings growth was $76 million, or 7%, primarily due to higher revenue, partially offset by higher cost of sales and operating expenses, as well as the impact of the MFA divestiture. ### Other business activities Other business activities includes our Client Supply Services contract manufacturing results, our human health business and expenses associated with our dedicated veterinary medicine research and development organization, research alliances, U.S. regulatory affairs and other operations focused on the development of our products. Other R&D-related costs associated with non-U.S. market and regulatory activities are generally included in the International segment. ### Three months ended June 30, 2025 vs. three months ended June 30, 2024 Other business activities net loss decreased by $8 million in the three months ended June 30, 2025, compared with the three months ended June 30, 2024, reflecting a decrease in R&D costs primarily due to timing of spend related to projects and other strategic investments, partially offset by an increase in certain compensation-related costs and depreciation expense. ### Six months ended June 30, 2025 vs. six months ended June 30, 2024 Other business activities net loss decreased by $11 million in the six months ended June 30, 2025, compared with the six months ended June 30, 2024, reflecting a decrease in R&D costs primarily due to timing of spend related to projects and other strategic investments, partially offset by an increase in certain compensation-related costs and depreciation expense. ### Reconciling items Reconciling items include certain costs that are not allocated to our operating segments results, such as costs associated with the following: - ***Corporate,*** which includes certain costs associated with information technology, facilities, legal, finance, human resources, business development, certain diagnostic costs 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 ***Purchase accounting adjustments, Acquisition and divestiture-related costs*** and ***Certain significant items***, which are defined below; and - ***Other unallocated***, which includes (i) certain overhead expenses associated with our global manufacturing operations not charged to our operating segments; (ii) certain costs associated with finance that specifically support our global manufacturing operations; (iii) certain supply chain and global logistics costs; and (iv) certain procurement costs. ### Three months ended June 30, 2025 vs. three months ended June 30, 2024 Corporate expenses increased by $22 million, or 7%, in the three months ended June 30, 2025, compared with the three months ended June 30, 2024, primarily due to increased investments in information technology and higher compensation related costs, partially offset by favorable foreign exchange. Other unallocated expenses increased by $16 million, or 27%, in the three months ended June 30, 2025, compared with the three months ended June 30, 2024, primarily due to higher manufacturing costs and other charges, partially offset by lower inventory obsolescence, freight charges and favorable foreign exchange. ### Six months ended June 30, 2025 vs. six months ended June 30, 2024 Corporate expenses increased by $5 million, or 1%, in the six months ended June 30, 2025, compared with the six months ended June 30, 2024, primarily due to increased investments in information technology. Other unallocated expenses increased by $17 million, or 12%, in the six months ended June 30, 2025, compared with the six months ended June 30, 2024, primarily due to higher manufacturing costs and other charges, partially offset by lower inventory obsolescence, freight charges and favorable foreign exchange. See Notes to Condensed Consolidated Financial Statements—*Note 16. Segment Information* for further information. ### 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 certain acquisitions, include amortization related to the increase in fair value of the acquired finite-lived intangible assets and depreciation related to the increase/decrease to fair value of the acquired fixed assets. Therefore, the adjusted net income measure includes the revenue earned upon the sale of the acquired products without considering the aforementioned significant charges. 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 and divestiture-related costs Adjusted net income is calculated prior to considering transaction, integration and disintegration costs associated with significant business combinations, net asset acquisitions and divestitures. These incremental costs are excluded as they are incurred to acquire and integrate, or dispose and disintegrate, certain businesses as a result of the acquisition or disposal decision and are unique to each transaction. We have made no adjustments for the resulting synergies from these transactions. 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, net asset acquisition or divestiture result primarily from the need to eliminate duplicate assets, activities or employees––a natural result of acquiring or disposing of 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 and disintegration costs associated with a business combination, asset acquisition or divestiture 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, integration or disintegration activities can be lengthy. For example, due to the regulated nature of the animal health medicines, vaccines and diagnostic 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 or divestiture-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 or divestiture-related cost-reduction and productivity initiatives; costs related to our business process transformation program; amounts related to disposals of products or facilities that do not qualify as discontinued operations as defined by U.S. GAAP; certain asset impairment charges; adjustments related to the resolution of certain tax positions; significant currency devaluation; the impact of adopting certain significant, event-driven tax legislation; or charges related to legal matters. See Notes to 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. ### Reconciliation A reconciliation of net income attributable to Zoetis, as reported under U.S. GAAP, to adjusted net income follows: | (MILLIONS OF DOLLARS) | Three Months Ended June 30,% 2025 | 2024 | Change | Six Months Ended June 30,% 2025 | 2024 | Change | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | GAAP reported net income attributable to Zoetis | **$718** | $624 | 15 | **$1,349** | $1,223 | 10 | | Purchase accounting adjustments—net of tax | **26** | 27 | (4) | **51** | 56 | (9) | | Acquisition and divestiture-related costs—net of tax | **1** | 4 | (75) | **1** | 4 | (75) | | Certain significant items—net of tax | **38** | 56 | (32) | **44** | 62 | (29) | | Non-GAAP adjusted net income(a) | **$783** | $711 | 10 | **$1,445** | $1,345 | 7 | (a) The effective tax rate on adjusted pre-tax income was 20.3% and 20.1% for the three months ended June 30, 2025 and 2024, respectively, and 21.1% and 19.9% for the six months ended June 30, 2025 and 2024, respectively. The higher effective tax rate for the three and six months ended June 30, 2025, compared with the three and six months ended June 30, 2024, was primarily attributable to a lower benefit in the U.S related to foreign-derived intangible income, higher net discrete tax expenses, partially offset by a more favorable jurisdictional mix of earnings (which includes the impact of the location of pre-tax earnings, tax impact of permanent differences and repatriation decisions). A reconciliation of reported diluted earnings per share (EPS), as reported under U.S. GAAP, to non-GAAP adjusted diluted EPS follows: | Earnings per share—diluted(a): | Three Months Ended June 30,% 2025 | 2024 | Change | Six Months Ended June 30,% 2025 | 2024 | Change | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | GAAP reported EPS attributable to Zoetis—diluted | **$1.61** | $1.37 | 18 | **$3.02** | $2.67 | 13 | | Purchase accounting adjustments—net of tax | **0.06** | 0.06 | — | **0.11** | 0.12 | (8) | | Acquisition and divestiture-related costs—net of tax | **—** | 0.01 | \* | **—** | 0.01 | \* | | Certain significant items—net of tax | **0.09** | 0.12 | (25) | **0.10** | 0.14 | (29) | | Non-GAAP adjusted EPS—diluted | **$1.76** | $1.56 | 13 | **$3.23** | $2.94 | 10 | \* 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: | (MILLIONS OF DOLLARS) | Three Months Ended June 30, 2025 | 2024 | Six Months Ended June 30, 2025 | 2024 | | --- | ---: | ---: | ---: | ---: | | Interest expense, net of capitalized interest | **$53** | $59 | **$107** | $117 | | Interest income | **19** | 24 | **42** | 56 | | Income taxes | **200** | 179 | **386** | 335 | | Depreciation | **81** | 82 | **160** | 163 | | Amortization | **9** | 10 | **17** | 18 | 32 \| Adjusted net income, as shown above, excludes the following items: | (MILLIONS OF DOLLARS) Purchase accounting adjustments: | Three Months Ended June 30, 2025 | 2024 | Six Months Ended June 30, 2025 | 2024 | | --- | ---: | ---: | ---: | ---: | | Amortization and depreciation | **$33** | $35 | **$65** | $72 | | Total purchase accounting adjustments—pre-tax | **33** | 35 | **65** | 72 | | Income taxes(a) | **7** | 8 | **14** | 16 | | Total purchase accounting adjustments—net of tax | **26** | 27 | **51** | 56 | | **Acquisition and divestiture-related costs:** | | | | | | Acquisition-related costs | **1** | 1 | **1** | 1 | | Divestiture-related costs | **—** | 4 | **—** | 4 | | Total acquisition and divestiture-related costs—pre-tax | **1** | 5 | **1** | 5 | | Income taxes(a) | **—** | 1 | **—** | 1 | | Total acquisition and divestiture-related costs—net of tax | **1** | 4 | **1** | 4 | | **Certain significant items:** | | | | | | Other restructuring charges and cost-reduction/productivity initiatives(b) | **7** | 37 | **7** | 41 | | Business process transformation program(c) | **11** | — | **18** | — | | Certain asset impairment charges(d) | **27** | 11 | **27** | 11 | | Net loss on sale of business(e) | **3** | 22 | **3** | 22 | | Other | **(1)** | — | **(2)** | 2 | | Total certain significant items—pre-tax | **47** | 70 | **53** | 76 | | Income taxes(a) | **9** | 14 | **9** | 14 | | Total certain significant items—net of tax | **38** | 56 | **44** | 62 | | **Total purchase accounting adjustments, acquisition and divestiture-related costs, and certain significant items—net of tax** | **$65** | $87 | **$96** | $122 | (a) Income taxes include the tax effect of the associated pre-tax amounts, calculated by determining the jurisdictional location of the pre-tax amounts and applying that jurisdiction’s applicable tax rate. (b) For the three and six months ended June 30, 2025, primarily consisted of employee termination costs related to a transition from internal to external innovation and manufacturing of certain products and the closure of a related site. For the three and six months ended June 30, 2024, primarily consisted of employee termination costs related to organizational structure refinements. For the six months ended June 30, 2024, charges were partially offset by a reversal of certain employee termination costs as a result of a change in strategy from our 2015 operational efficiency initiative. (c) Represents costs related to our multi-year business process transformation program, which includes the implementation of a new enterprise resource planning (ERP) system, related digital technology solutions and other related costs. This comprehensive program is a major global and cross-functional company-wide effort that we believe will transform how we work across our business and contribute to all of our strategic priorities. Due to the nature, scope and magnitude of this investment, these costs are incremental transformational costs that are far in excess of the historical normal level of spending to support operations and are not expected to recur in the foreseeable future. (d) For the three and six months ended June 30, 2025, represents certain asset impairment charges related to a transition from internal to external innovation and manufacturing of certain products and the closure of a related site, as well as charges related to our aquaculture product portfolio. For the three and six months ended June 30, 2024, represents certain asset impairment charges related to our aquaculture product portfolio. (e) Represents a net loss related to the sale of our medicated feed additive product portfolio, certain water soluble products and related assets sold in 2024. The classification of the above items excluded from adjusted net income are as follows: | (MILLIONS OF DOLLARS) Cost of sales: | Three Months Ended June 30, 2025 | 2024 | Six Months Ended June 30, 2025 | 2024 | | --- | ---: | ---: | ---: | ---: | | Purchase accounting adjustments | **$1** | $1 | **$2** | $2 | | Business process transformation program | **2** | — | **3** | — | | Other | **(1)** | — | **(1)** | — | | Total Cost of sales | **2** | 1 | **4** | 2 | | **Selling, general & administrative expenses:** | | | | | | Purchase accounting adjustments | **3** | 3 | **6** | 6 | | Business process transformation program | **9** | — | **15** | — | | Total Selling, general & administrative expenses | **12** | 3 | **21** | 6 | | **Research & development expenses:** | | | | | | Purchase accounting adjustments | **1** | — | **1** | 1 | | Total Research & development expenses | **1** | — | **1** | 1 | | **Amortization of intangible assets:** | | | | | | Purchase accounting adjustments | **28** | 31 | **56** | 63 | | Total Amortization of intangible assets | **28** | 31 | **56** | 63 | | **Restructuring charges and certain acquisition and divestiture-related costs:** | | | | | | Acquisition-related costs | **1** | 1 | **1** | 1 | | Divestiture-related costs | **—** | 4 | **—** | 4 | | Employee termination costs | **5** | 37 | **5** | 41 | | Asset impairments | **22** | — | **22** | — | | Exit costs | **2** | — | **2** | — | | Total Restructuring charges and certain acquisition and divestiture-related costs | **30** | 42 | **30** | 46 | | **Other (income)/deductions—net:** | | | | | | Net loss on sale of business | **3** | 22 | **3** | 22 | | Asset impairment charges | **5** | 11 | **5** | 11 | | Other | **—** | — | **(1)** | 2 | | Total Other (income)/deductions—net | **8** | 33 | **7** | 35 | | **Provision for taxes on income** | **16** | 23 | **23** | 31 | | **Total purchase accounting adjustments, acquisition and divestiture-related costs, and certain significant items—net of tax** | **$65** | $87 | **$96** | $122 | ### Analysis of the condensed consolidated statements of comprehensive income Changes in other comprehensive income for the periods presented are primarily related to foreign currency translation adjustments and unrealized gains/(losses) on derivative instruments. The foreign currency translation adjustment changes result from the strengthening or weakening of the U.S. dollar as compared to the currencies in the countries in which we do business. Unrealized gains/(losses) on the changes in the fair value of derivative instruments are recorded within *Accumulated other comprehensive income/(loss)* and reclassified into earnings depending on the nature and purpose of the financial instrument, as described in *Note 9. Financial Instruments* of the Notes to Condensed Consolidated Financial Statements. ### Analysis of the condensed consolidated balance sheets ### June 30, 2025 vs. December 31, 2024 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 primarily as a result of higher net sales in the period. *Inventories* increased as a result of inventory build-up to support production for the forecasted demand of certain products. *Other current assets* increased primarily due to the timing of income taxes paid and the jurisdictional netting of income taxes receivable and income taxes payable, as well as an increase in collateral posted related to derivative contracts, partially offset by the mark-to-market adjustments of derivative instruments. The increase in *Operating lease right-of-use assets* reflects assets acquired through new and amended lease agreements, partially offset by lease amortization, while the increase in *Operating lease liabilities* primaril*y* reflects an amended lease obligation in the current period, partially offset by lease payments. The net changes in *Noncurrent deferred tax assets, Noncurrent deferred tax liabilities, Income taxes payable* and *Other taxes payabl*e primarily reflect adjustments to the accrual for the income tax provision, the timing of income tax payments and the tax impact of various acquisitions. *Other noncurrent assets* increased primarily due to capitalized cloud computing arrangements implementation costs, partially offset by the mark-to-market adjustments of derivative instruments. *Accounts payable* increased as a result of the timing of vendor and value-added tax payments. *Accrued compensation and related items* decreased primarily due to the payments of 2024 annual incentive bonuses, savings plan contributions to eligible employees and payments for sales incentive bonuses, partially offset by the accrual of 2025 annual incentive bonuses, sales incentive bonuses and savings plan contributions to eligible employees. *Other noncurrent liabilities* increased primarily due to the mark-to-market adjustments of derivative instruments. 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.* ### Analysis of the condensed consolidated statements of cash flows | (MILLIONS OF DOLLARS) Net cash provided by (used in): | Six Months Ended June 30, 2025 | 2024 | $ Change | | --- | ---: | ---: | ---: | | Operating activities | **$1,073** | $1,097 | $(24) | | Investing activities | **(422)** | (263) | (159) | | Financing activities | **(1,241)** | (1,287) | 46 | | Effect of exchange-rate changes on cash and cash equivalents | **38** | (14) | 52 | | Net decrease in cash and cash equivalents | **$(552)** | $(467) | $(85) | ### Operating activities ### Six months ended June 30, 2025 vs. six months ended June 30, 2024 Net cash provided by operating activities was $1,073 million for the six months ended June 30, 2025, compared with $1,097 million for the six months ended June 30, 2024. The decrease in operating cash flows was primarily attributable to the timing of income taxes paid, the timing of receipts and payments in the ordinary course of business and higher inventory build-up of certain products due to increased demand, partially offset by higher net income adjusted by non-cash items. ### Investing activities ### Six months ended June 30, 2025 vs. six months ended June 30, 2024 Our net cash used in investing activities was $422 million for the six months ended June 30, 2025, compared with net cash used in investing activities of $263 million for the six months ended June 30, 2024. The net cash used in investing activities for the six months ended June 30, 2025 was primarily due to capital expenditures and net payments of derivative instrument activity. The net cash used in investing activities for the six months ended June 30, 2024 was primarily due to capital expenditures, partially offset by net proceeds from derivative instrument activity. ### Financing activities ### Six months ended June 30, 2025 vs. six months ended June 30, 2024 Our net cash used in financing activities was $1,241 million for the six months ended June 30, 2025, compared with net cash used in financing activities of $1,287 million for the six months ended June 30, 2024. The net cash used in financing activities for the six months ended June 30, 2025 and 2024 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. ### 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 cash needs for the next twelve months and beyond, this may be subject to the environment in which we operate. Risks to our meeting future funding requirements are described in *Global economic conditions* below. ### Selected measures of liquidity and capital resources Certain relevant measures of our liquidity and capital resources follow: | (MILLIONS OF DOLLARS) | June 30, 2025 | December 31, 2024 | | --- | ---: | ---: | | Cash and cash equivalents | **$1,435** | $1,987 | | Accounts receivable, net(a) | **1,540** | 1,316 | | Current portion of long-term debt | **1,350** | 1,350 | | Long-term debt | **5,231** | 5,220 | | Working capital | **2,557** | 2,574 | | Ratio of current assets to current liabilities | **1.76:1** | 1.75:1 | (a) Accounts receivable are usually collected over a period of 45 to 75 days. For the six months ended June 30, 2025 and December 31, 2024, the number of days that accounts receivables were 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. ### Credit facility and other lines of credit In December 2022, we entered into an amended and restated revolving credit agreement with a syndicate of banks providing for a multi-year $1.0 billion senior unsecured revolving credit facility (the credit facility), which expires in December 2027. 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. In addition, the credit facility contains other customary covenants. We were in compliance with all financial covenants as of June 30, 2025 and December 31, 2024. There were no amounts drawn under the credit facility as of June 30, 2025 or December 31, 2024. We have additional lines of credit and other credit arrangements with a group of banks and other financial intermediaries for general corporate purposes. We maintain cash and cash equivalent balances in excess of our outstanding short-term borrowings. As of June 30, 2025, we had access to $53 million of lines of credit which expire at various times and are generally renewed annually. There were no borrowings outstanding related to these facilities as of June 30, 2025 and December 31, 2024. ### Domestic and international short-term funds Many of our operations are conducted outside the U.S. The amount of funds held in the U.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 of U.S. and international cash flows (both inflows and outflows). Actual repatriation of overseas funds can result in additional U.S. and local income taxes, such as U.S. state income taxes, local withholding taxes, and taxes on currency gains and losses. ### Global economic conditions Global financial markets may be impacted by macroeconomic, business and financial volatility. 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 will not impact our liquidity or our ability to obtain financing in the future. ### Debt securities Our senior notes are governed by an indenture and supplemental indentures (collectively, the indenture) between us and Deutsche Bank Trust Company Americas, as trustee. The indenture contains certain covenants, including limitations on our and certain of our subsidiaries’ ability to incur liens or engage in sale 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, the senior notes may be declared immediately due and payable. Pursuant to the indenture, we are able to redeem the senior notes of any series, in whole or in part, at any time by paying a “make whole” premium, plus accrued and unpaid interest to, but excluding, the date of redemption. Upon the occurrence of a change of control of us and a downgrade of the senior notes below an investment grade rating by each of Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services, we are, in certain circumstances, required to make an offer to repurchase all of the outstanding senior notes at a price equal to 101% of the aggregate principal amount of the senior notes together with accrued and unpaid interest to, but excluding, the date of repurchase. Our outstanding debt securities are as follows: | Description | Principal Amount | Interest Rate | Terms | | --- | --- | ---: | --- | | 2015 Senior Notes due 2025 | $750 million | 4.500% | Interest due semi annually, not subject to amortization, aggregate principal due on November 13, 2025 | | 2022 Senior Notes due 2025 | $600 million | 5.400% | Interest due semi annually, not subject to amortization, aggregate principal due on November 14, 2025 | | 2017 Senior Notes due 2027 | $750 million | 3.000% | Interest due semi annually, not subject to amortization, aggregate principal due on September 12, 2027 | | 2018 Senior Notes due 2028 | $500 million | 3.900% | Interest due semi annually, not subject to amortization, aggregate principal due on August 20, 2028 | | 2020 Senior Notes due 2030 | $750 million | 2.000% | Interest due semi annually, not subject to amortization, aggregate principal due on May 15, 2030 | | 2022 Senior Notes due 2032 | $750 million | 5.600% | Interest due semi annually, not subject to amortization, aggregate principal due on November 16, 2032 | | 2013 Senior Notes due 2043 | $1,150 million | 4.700% | Interest due semi annually, not subject to amortization, aggregate principal due on February 1, 2043 | | 2017 Senior Notes due 2047 | $500 million | 3.950% | Interest due semi annually, not subject to amortization, aggregate principal due on September 12, 2047 | | 2018 Senior Notes due 2048 | $400 million | 4.450% | Interest due semi annually, not subject to amortization, aggregate principal due on August 20, 2048 | | 2020 Senior Notes due 2050 | $500 million | 3.000% | Interest due semi annually, not subject to amortization, aggregate principal due on May 15, 2050 | ### Credit ratings Two major corporate debt-rating organizations, Moody’s and S&P, assign ratings to our short-term and long-term debt. 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 Last Action | | Name of Rating Agency | Rating | Rating Outlook | | | Moody’s | P-2 | A3 Stable | January 2025 | | S&P | A-2 | BBB+ Stable | April 2025 | ### Share repurchase program In August 2024, our Board of Directors authorized a multi-year share repurchase program of up to $6 billion of our outstanding common stock. As of June 30, 2025, there was $4.9 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. During the first six months of 2025, 4.8 million shares were repurchased for $781 million, which excludes a $7 million accrual for excise tax on net share repurchases. ### 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 June 30, 2025 and December 31, 2024, recorded amounts for the estimated fair value of these indemnifications are not material. ### New accounting standards See *Note 3. Significant Accounting Policies* in the Notes to Condensed Consolidated Financial Statements for discussion of recent accounting pronouncements, including the respective dates of adoption or expected adoption and effects or expected effects on our consolidated financial position, results of operations and cash flows. ### Forward-looking statements and factors that may affect future results This report contains “forward-looking” statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We generally identify forward-looking statements by using words such as “anticipate,” “estimate,” “could,” “expect,” “intend,” “project,” “plan,” “predict,” “believe,” “seek,” “continue,” “outlook,” "forecast,” “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 our future actions, business plans or prospects, prospective products, product approvals or products under development, product and supply chain disruption, R&D costs, timing and likelihood of success, future operating or financial performance, future results of current and anticipated products and services, product strategies, sales efforts, expenses, production efficiencies, production margins, anticipated timing of generic market entries, integration of acquired businesses, anticipated impact of timing of divestitures, interest rates, tax rates, tariffs, 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, taxes 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 possible impact and timing of competing products, including generic alternatives, on our products and our ability to compete against such products; - unanticipated safety, quality or efficacy concerns or issues about our products; - the economic, political, legal and business environment of the foreign jurisdictions in which we do business; - the decline in global economic conditions, economic weakness in China and inflation; - consolidation of our customers and distributors; - changes in the distribution channel for companion animal products; - an outbreak of infectious disease carried by animals; - disruptive innovations and advances in medical practices and technologies; - failure to successfully acquire businesses, license rights or products, integrate businesses, form and manage alliances or divest businesses; - restrictions and bans on the use of and consumer preferences regarding antibacterials in food-producing animals; - perceived adverse effects linked to the consumption of food derived from animals that utilize our products or animals generally; - increased regulation or decreased governmental support relating to the raising, processing or consumption of food-producing animals; - modification of foreign trade policy by the U.S. or other countries, including the imposition of increased tariffs on imported or exported goods; - adverse weather conditions and the availability of natural resources; - the impact of climate change on our activities and the activities of our customers and suppliers; - an inability to hire and retain executive officers and other key personnel; - product launch delays, inventory shortages, recalls or unanticipated costs caused by manufacturing problems and capacity imbalances; - availability constraints and price volatility caused by changes in supply conditions, government regulations, tariffs, economic climate and other factors, including with products, materials and services provided to us by third parties; - failure of our R&D, acquisition and licensing efforts to generate new products and product lifecycle innovations; - difficulties or delays in the development or commercialization of new products; - illegal distribution and/or sale of our products or the misuse or off-label use of our products; - legal factors, including product liability claims, antitrust litigation and governmental investigations, including tax disputes, environmental concerns, laws and regulations regarding data privacy, commercial disputes and patent disputes with branded and generic competitors, any of which could preclude commercialization of products or negatively affect the profitability of existing products; - fluctuations in foreign exchange rates and potential currency controls; - a cyberattack, information security breach or other misappropriation of our data; - governmental laws and regulations affecting domestic and foreign operations, including without limitation, delays in the United States resulting from federal workforce reductions or hiring freezes, federal agency reorganizations or deregulatory efforts, or existing, new and proposed tax laws and regulations affecting the U.S. or foreign taxation of our business activities, including the imposition of, or increase in, taxes based on gross revenues; - failure to protect our intellectual property rights or to operate our business without infringing the intellectual property rights of others; - failure to generate sufficient cash to service our substantial indebtedness; and - the other factors set forth under “Risk Factors” in Item 1A. of Part I of our 2024 Annual Report on Form 10-K and Item 1A. of Part II in this Form 10-Q. 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. 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. ## Market risk As filed, 871 characters. A significant portion of our revenue and costs are exposed to changes in foreign exchange rates. In addition, our outstanding borrowings may be subject to risk from changes in interest rates and foreign exchange rates. The overall objective of our financial risk management program is to seek to manage the impact of foreign exchange rate movements and interest rate movements on our earnings. We manage these financial exposures through operational means and by using certain financial instruments. These practices may change as economic conditions change. For a complete discussion of our exposure to interest rate and foreign exchange risk, refer to *Item 7A. Quantitative and Qualitative Disclosures About Market Risk* in our Annual Report on Form 10-K for the year ended December 31, 2024. There have been no material changes from the information discussed therein. ## Controls and procedures As filed, 1,147 characters. ### Disclosure Controls and Procedures An evaluation was carried out under the supervision and with the participation of the company’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation as of June 30, 2025, the company’s Chief Executive Officer and Chief Financial Officer concluded that the company’s disclosure controls and procedures are effective at a reasonable level of assurance in alerting them in a timely manner to material information required to be disclosed in our periodic reports filed with the SEC. ### Changes in Internal Control over Financial Reporting During our most recent fiscal quarter, there has not been any change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. ## Risk factors As filed, 12,987 characters. In addition to the other information set forth in this Form 10-Q, you should carefully consider the factors discussed in the "Our operating environment" and "Forward-looking statements and factors that may affect future results" sections of the MD&A and in Part I, Item 1A. "Risk Factors," of our 2024 Annual Report on Form 10-K, which could materially affect our business, financial condition, or future results and which are incorporated by reference herein. Set forth below are updates to certain of the risk factors disclosed in our 2024 Annual Report on Form 10-K. ### Risks related to our business and the animal health industry ***Modification of foreign trade policy by the U.S. or other countries or the imposition of tariffs on imported goods may harm our business.*** The U.S. and other countries in which our products are sourced or sold, or we or our customers do business, may from time to time modify existing or impose new quotas, duties (including antidumping or countervailing duties), tariffs or other restrictions in a manner that adversely affects us. For example, the recent announcements of substantial new tariffs and other restrictive trade policies have created a dynamic and unpredictable trade landscape. Current or future tariffs or other restrictive trade measures may raise the costs of raw materials, components or finished goods, which may adversely impact both our product offerings and our operational expenses. Our manufacturers, suppliers and distribution channels are also affected by the current trade environment, and we may experience supply chain disruptions as a result of increased costs and uncertainty. Tariff and other trade-related cost pressures and supply chain disruptions may lead to reputational harm if we are unable to deliver products or services on expected timelines or if any price increases are poorly received by customers or business partners. Additional tariffs on imports could result in a negative perception and/or an increased cost of goods and higher prices which may reduce customer demand for products, or extended sales cycles as customers assess the impact of evolving trade policies on their operations and face increased costs or decreased revenue due to tariffs and trade restrictions. Additionally, a number of our customers, particularly U.S.-based livestock producers, benefit from free trade agreements, the loss of which could impact their operating results and spending power. In addition, retaliatory trade policies or anti-U.S. sentiment in certain regions whether driven by trade tensions, political disagreements or regulatory concerns may make customers, governments and investors more hesitant to engage with, purchase from or invest in U.S. companies. This may lead to increased preference for local competitors, changes to government procurement policies or heightened regulatory scrutiny, which may result in heightened operational risks and difficulties for us in attracting and retaining non-U.S. customers, suppliers, partners and investors. While the scope and duration of any tariffs remains uncertain, tariffs imposed by the U.S. or other governments on our products or the active pharmaceutical ingredients or other components thereof could negatively impact our financial condition and results of operations. ### Risks related to manufacturing and supply ***We rely on third parties to provide us with products, materials and services, and are subject to increased labor and material costs and potential disruptions in supply.*** The materials used to manufacture our products may be subject to availability constraints and price volatility caused by changes in demand, weather conditions, supply conditions, government regulations, tariffs, economic climate and other factors. In addition, labor costs may be subject to volatility caused by the supply of labor, governmental regulations, tariffs, economic climate and other factors. Increases in the demand for, availability or the price of, materials used to manufacture our products and increases in labor costs could increase the costs to manufacture our products, result in product delivery delays or shortages, and impact our ability to launch new products on a timely basis or at all. We may not be able to pass all or a material portion of any higher product, material, transportation or labor costs on to our customers, which could materially adversely affect our operating results and financial condition. Certain third-party suppliers are the sole or exclusive source of certain products, materials and services necessary for production of our products. We may be unable to meet demand for certain of our products if any of our third-party suppliers cease or interrupt operations due to, among other things, escalating tensions or trade disputes in their region, restrictions on the import/export of goods or services, contract manufacturing or supply chain disruptions due to contract manufacturer or supplier financial distress, our failure to mutually renew contract terms, or some other failure of a contractor or supplier to meet their obligations to us. In such a case, we may be required to renegotiate the terms of our agreement or pursue a strategic transaction or other alternative arrangement with that supplier or others. ### Risks related to legal matters and regulation ### Our business is subject to substantial regulation. As a global company, we are subject to various state, federal and international laws and regulations, including regulations relating to the research, development, quality assurance, manufacturing, importation, exportation, distribution, marketing and sale of our products, including our *in vitro* diagnostic products used in human health. In addition, our manufacturing facilities are subject to periodic inspections by regulatory agencies, such as the FDA, the USDA and foreign equivalents. Our failure, or the failure of third parties we rely on, including CMOs, to comply with these regulatory requirements, allegations of such non-compliance or the discovery of previously unknown problems with a product or manufacturer could result in, among other things, inspectional observation notices, label changes, untitled or warning letters or other public regulatory communications or correspondence, fines, a partial or total shutdown of production in one or more of our facilities while an alleged violation is remediated, withdrawals or suspensions of current products from the market, product seizures, injunctions and civil or criminal prosecution, as well as decreased sales as a result of negative publicity and product liability claims. Any one of these consequences could materially adversely affect our operating results and financial condition. In addition, we will not be able to market new products unless and until we have obtained all required regulatory approvals in each jurisdiction where we propose to market those products. Even after a product reaches market, it may be subject to re-review and may lose its approvals. We have changed, and may in the future change, the locations of where certain of our products are manufactured and, because of these changes, we may be required to obtain new regulatory approvals. Our failure to obtain approvals, delays in the approval process, including any delays in the United States resulting from federal workforce reductions or hiring freezes, federal agency reorganizations or deregulatory efforts, or any prolonged shutdown of the U.S. government, or our failure to maintain approvals in any jurisdiction, may prevent us from selling products in that jurisdiction until approval or reapproval is obtained, if ever. The OFAC at the U.S. Treasury Department and the Bureau of Industry and Security at the U.S. Department of Commerce (BIS), and similar agencies in other countries and territories outside the U.S., administer certain laws and regulations that restrict its persons and, in some instances, extraterritorial persons, in conducting activities, transacting business with or making investments in certain countries, governments, entities and individuals subject to economic sanctions. Our international operations subject us to these laws and regulations, which are complex, restrict our business dealings with certain countries, governments, entities, and individuals, and are constantly changing. For example, we sell limited humanitarian animal health products, including medicines, diagnostics and vaccines, to Russia and Iran, in compliance with economic sanctions affecting these countries. Violations of sanctions regulations may be punishable by civil penalties, including fines, denial of export privileges, injunctions, asset seizures, debarment from government contracts and revocations or restrictions of licenses, as well as criminal fines and imprisonment, which could adversely affect our reputation, business, financial condition, results of operations and cash flows. In addition, our internal control policies and procedures may not protect us from reckless or criminal acts committed by our employees and agents. For example, in December 2020, we submitted a final voluntary disclosure to OFAC and the U.S. Department of Justice regarding certain transactions involving sales of food, medicine or devices to individuals or entities who may have been resident in or had ties to Iran potentially in violation of the ITSR administered by OFAC. The sales were made by our Platinum Performance business, which we acquired in August 2019. In July 2023, OFAC provided a No Action letter confirming a final determination that no further action would be taken in the matter. We do not anticipate further communication from the Department of Justice as the statutory response period has lapsed without a response. A failure to comply with the environmental, health and safety laws and regulations to which we are subject, including any permits issued thereunder, may result in environmental remediation costs, loss of permits, public regulatory communications or announcements, fines, penalties or other adverse governmental or private actions, including regulatory or judicial orders enjoining or curtailing operations or requiring corrective measures, installation of pollution control equipment or remedial measures. We cannot assure you that our costs of complying with current and future environmental, health and safety laws, and our liabilities arising from past or future releases of, or exposure to, hazardous materials will not materially adversely affect our business, results of operations or financial condition. There has been a broad range of proposed and promulgated state, national and international regulation aimed at reducing the effects of climate change. Such regulations apply or could apply in countries where we have interests or could have interests in the future. The EU adopted the European Sustainability Reporting Standards (ESRS) and the Corporate Sustainability Reporting Directive (CSRD) that will require disclosure by EU entities, including certain EU subsidiaries of non-EU entities, regarding the risks and opportunities arising from environmental, social and corporate governance issues, and on the impact of companies' activities on people and the environment. Similarly, the State of California passed the Climate Corporate Data Accountability Act and the Climate-Related Financial Risk Act that imposes broad climate-related disclosure obligations on certain companies doing business in California, including us. Any new regulation could take several forms that could result in additional costs in the form of investments of capital to maintain compliance with laws and regulations and taxes. Climate change regulation continues to evolve, and it is not possible to accurately estimate either a timetable for implementation or our future compliance costs relating to implementation. We are also subject to chemical regulation in the United States and internationally. For example, governmental authorities in the EU and the United States are increasingly focused on preventing environmental contamination from per- and polyfluoroalkyl substances (PFAS), which may be contained in certain of our products or product packaging. Federal and state governments and regulatory agencies, like the European Chemicals Agency, are in various stages of considering and/or implementing laws and regulations requiring the reporting, restriction and/or phase-out of PFAS-containing products (subject to applicable product exceptions). Furthermore, we cannot predict the nature of future laws, regulations, or changes in tax laws and tariffs, nor can we determine the effect that additional laws or regulations or changes in existing laws or regulations could have on our business when and if promulgated. Changes in applicable federal, state, local and foreign laws and regulations could have a material adverse effect on our operating results and financial condition. Filed Aug 5, 2025. Source: SEC EDGAR, the filing index for accession 0001555280-25-000261. Last ingested by Listed: Nov 5, 2026, 13:23 ET. No prices; not investment advice.