10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended
	September 30, 2019
	or
☐	TRANSITION REPORT PURSUANT TO SECTION 13
	OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from __________ to __________

Commission File Number: 001-35797

Zoetis Inc.

(Exact name of registrant as specified in its charter)

Delaware			46-0696167
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
10 Sylvan Way,	Parsippany,	New Jersey	07054
(Address of principal executive offices)			(Zip Code)

(973)-822-7000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	ZTS	New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

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

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

At November 1, 2019, there were 476,299,250 shares of common stock outstanding.

TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION		1
Item 1.	Financial Statements	1
	Condensed Consolidated Statements of Income (Unaudited)	1
	Condensed Consolidated Statements of Comprehensive Income (Unaudited)	2
	Condensed Consolidated Balance Sheets (Unaudited)	3
	Condensed Consolidated Statements of Equity (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows (Unaudited)	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
	Review Report of Independent Registered Public Accounting Firm	29
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	52
Item 4.	Controls and Procedures	52
PART II — OTHER INFORMATION		53
Item 1.	Legal Proceedings	53
Item 1A.	Risk Factors	53
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 3.	Defaults Upon Senior Securities	54
Item 4.	Mine Safety Disclosures	54
Item 5.	Other Information	54
Item 6.	Exhibits	54
SIGNATURES		55

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

ZOETIS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(MILLIONS OF DOLLARS AND SHARES, EXCEPT PER SHARE DATA)	2019			2018			2019			2018
Revenue	$	1,584		$	1,480		$	4,586		$	4,261
Costs and expenses:
Cost of sales	479			473			1,462			1,367
Selling, general and administrative expenses	391			367			1,166			1,064
Research and development expenses	112			108			325			307
Amortization of intangible assets	38			32			115			78
Restructuring charges and certain acquisition-related costs	6			47			33			54
Interest expense, net of capitalized interest	56			54			167			147
Other (income)/deductions—net	(26		)	(19		)	(46		)	(28		)
Income before provision for taxes on income	528			418			1,364			1,272
Provision for taxes on income	95			71			248			193
Net income before allocation to noncontrolling interests	433			347			1,116			1,079
Less: Net loss attributable to noncontrolling interests	—			—			—			(4		)
Net income attributable to Zoetis Inc.	$	433		$	347		$	1,116		$	1,083
Earnings per share attributable to Zoetis Inc. stockholders:
Basic	$	0.91		$	0.72		$	2.33		$	2.24
Diluted	$	0.90		$	0.71		$	2.31		$	2.22
Weighted-average common shares outstanding:
Basic	477.8			482.0			478.7			483.9
Diluted	481.5			485.8			482.3			487.7
Dividends declared per common share	$	—		$	—		$	0.328		$	0.252

See notes to condensed consolidated financial statements.

1 |

ZOETIS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(MILLIONS OF DOLLARS)	2019			2018			2019			2018
Net income before allocation to noncontrolling interests	$	433		$	347		$	1,116		$	1,079
Other comprehensive income, net of taxes and reclassification adjustments:
Unrealized losses on derivatives for cash flow hedges, net	(4		)	(1		)	(3		)	(1		)
Unrealized gains on derivatives for net investment hedges, net	23			—			28			—
Foreign currency translation adjustments, net	(49		)	(75		)	(95		)	(113		)
Total other comprehensive loss, net of tax	(30		)	(76		)	(70		)	(114		)
Comprehensive income before allocation to noncontrolling interests	403			271			1,046			965
Less: Comprehensive loss attributable to noncontrolling interests	—			—			—			(4		)
Comprehensive income attributable to Zoetis Inc.	$	403		$	271		$	1,046		$	969

See notes to condensed consolidated financial statements.

2 |

ZOETIS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	2019			2018
(MILLIONS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)	(Unaudited)
Assets
Cash and cash equivalents(a)	$	1,815		$	1,602
Short term investments	12			99
Accounts receivable, less allowance for doubtful accounts of $25 in 2019 and $24 in 2018	1,030			1,036
Inventories	1,439			1,391
Other current assets	322			271
Total current assets	4,618			4,399
Property, plant and equipment, less accumulated depreciation of $1,725 in 2019 and $1,599 in 2018	1,813			1,658
Operating lease right of use assets	193			—
Goodwill	2,550			2,519
Identifiable intangible assets, less accumulated amortization	1,935			2,046
Noncurrent deferred tax assets	72			61
Other noncurrent assets	91			94
Total assets	$	11,272		$	10,777
Liabilities and Equity
Short-term borrowings	$	—		$	9
Accounts payable	284			313
Dividends payable	—			79
Accrued expenses	451			487
Accrued compensation and related items	217			266
Income taxes payable	52			35
Other current liabilities	48			34
Total current liabilities	1,052			1,223
Long-term debt, net of discount and issuance costs	6,447			6,443
Noncurrent deferred tax liabilities	473			474
Operating lease liabilities	169			—
Other taxes payable	255			265
Other noncurrent liabilities	198			187
Total liabilities	8,594			8,592
Commitments and contingencies (Note 16)
Stockholders' equity:
Preferred stock, $0.01 par value: 1,000,000,000 authorized, none issued	—			—
Common stock, $0.01 par value: 6,000,000,000 authorized; 501,891,243 and 501,891,243 shares issued; 476,745,789 and 479,562,326 shares outstanding at September 30, 2019, and December 31, 2018, respectively	5			5
Treasury stock, at cost, 25,145,454 and 22,328,917 shares of common stock at September 30, 2019, and December 31, 2018, respectively	(1,876		)	(1,487		)
Additional paid-in capital	1,031			1,026
Retained earnings	4,217			3,270
Accumulated other comprehensive loss	(699		)	(629		)
Total equity	2,678			2,185
Total liabilities and equity	$	11,272		$	10,777

^(a)  As of September 30, 2019, and December 31, 2018, includes $4 million and $5 million, respectively, of restricted cash.

See notes to condensed consolidated financial statements.

3 |

ZOETIS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)

Three months ended September 30, 2019
	Zoetis
																Accumulated			Equity
										Additional						Other			Attributable to
		Common Stock			Treasury Stock					Paid-in			Retained			Comprehensive			Noncontrolling			Total
(MILLIONS OF DOLLARS AND SHARES)		Shares (a)	Amount		Shares (a)		Amount			Capital			Earnings			Loss			Interests			Equity
Balance, June 30, 2019		501.9	$	5	24.1		$	(1,732	)	$	1,019		$	3,788		$	(669	)	$	—		$	2,411
Net income		—	—		—		—			—			433			—			—			433
Other comprehensive loss		—	—		—		—			—			—			(30		)	—			(30		)
Share-based compensation awards		—	—		(0.2	)	6			11			(4		)	—			—			13
Treasury stock acquired		—	—		1.2		(150		)	—			—			—			—			(150		)
Employee benefit plan contribution from Pfizer Inc.(b)		—	—		—		—			1			—			—			—			1
Balance, September 30, 2019		501.9	$	5	25.1		$	(1,876	)	$	1,031		$	4,217		$	(699	)	$	—		$	2,678
Three months ended September 30, 2018
	Zoetis
																Accumulated			Equity
										Additional						Other			Attributable to
		Common Stock			Treasury Stock					Paid-in			Retained			Comprehensive			Noncontrolling			Total
(MILLIONS OF DOLLARS AND SHARES)		Shares (a)	Amount		Shares (a)		Amount			Capital			Earnings			Loss			Interests			Equity
Balance, June 30, 2018		501.9	$	5	19.6		$	(1,215	)	$	1,001		$	2,722		$	(543	)	$	12		$	1,982
Net income		—	—		—		—			—			347			—			—			347
Other comprehensive loss		—	—		—		—			—			—			(76		)	—			(76		)
Acquisition of a noncontrolling interest(c)		—	—		—		—			(14		)	—			—			(12		)	(26		)
Share-based compensation awards		—	—		(0.3	)	13			22			(2		)	—			—			33
Treasury stock acquired		—	—		1.6		(143		)	—			—			—			—			(143		)
Employee benefit plan contribution from Pfizer Inc.(b)		—	—		—		—			1			—			—			—			1
Balance, September 30, 2018		501.9	$	5	20.9		$	(1,345	)	$	1,010		$	3,067		$	(619	)	$	—		$	2,118

^(a)  Shares may not add due to rounding.

^(b)  Represents contributed capital from Pfizer Inc. associated with service credit continuation for certain Zoetis Inc. employees in Pfizer Inc.'s U.S. qualified defined benefit and U.S. retiree medical plans.

^(c)  Represents the consolidation of a European livestock monitoring company.

See notes to condensed consolidated financial statements.

4 |

ZOETIS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY - Continued

(UNAUDITED)

Nine months ended September 30, 2019
	Zoetis
																Accumulated			Equity
										Additional						Other			Attributable to
		Common Stock			Treasury Stock					Paid-in			Retained			Comprehensive			Noncontrolling			Total
(MILLIONS OF DOLLARS AND SHARES)		Shares (a)	Amount		Shares (a)		Amount			Capital			Earnings			Loss			Interests			Equity
Balance, December 31, 2018		501.9	$	5	22.3		$	(1,487	)	$	1,026		$	3,270		$	(629	)	$	—		$	2,185
Net income		—	—		—		—			—			1,116			—			—			1,116
Other comprehensive loss		—	—		—		—			—			—			(70		)	—			(70		)
Share-based compensation awards		—	—		(1.6	)	61			3			(12		)	—						52
Treasury stock acquired		—	—		4.4		(450		)	—			—			—			—			(450		)
Employee benefit plan contribution from Pfizer Inc.(b)		—	—		—		—			2			—			—			—			2
Dividends declared		—	—		—		—			—			(157		)	—			—			(157		)
Balance, September 30, 2019		501.9	$	5	25.1		$	(1,876	)	$	1,031		$	4,217		$	(699	)	$	—		$	2,678
Nine months ended September 30, 2018
	Zoetis
																Accumulated			Equity
										Additional						Other			Attributable to
		Common Stock			Treasury Stock					Paid-in			Retained			Comprehensive			Noncontrolling			Total
(MILLIONS OF DOLLARS AND SHARES)		Shares (a)	Amount		Shares (a)		Amount			Capital			Earnings			Loss			Interests			Equity
Balance, December 31, 2017		501.9	$	5	15.8		$	(852	)	$	1,013		$	2,109		$	(505	)	$	16		$	1,786
Net income/(loss)		—	—		—		—			—			1,083			—			(4		)	1,079
Other comprehensive loss		—	—		—		—			—			—			(114		)	—			(114		)
Acquisition of a noncontrolling interest (c)		—	—		—		—			(14		)	—			—			(12		)	(26		)
Share-based compensation awards		—	—		(1.4	)	55			9			(3		)	—			—			61
Treasury stock acquired		—	—		6.6		(548		)	—			—			—			—			(548		)
Employee benefit plan contribution from Pfizer Inc.(b)		—	—		—		—			2			—			—			—			2
Dividends declared		—	—		—		—			—			(122		)	—			—			(122		)
Balance, September 30, 2018		501.9	$	5	20.9		$	(1,345	)	$	1,010		$	3,067		$	(619	)	$	—		$	2,118

^(a)  Shares may not add due to rounding.

^(b)  Represents contributed capital from Pfizer Inc. associated with service credit continuation for certain Zoetis Inc. employees in Pfizer Inc.'s U.S. qualified defined benefit and U.S. retiree medical plans.

^(c)  Represents the consolidation of a European livestock monitoring company.

See notes to condensed consolidated financial statements.

5 |

ZOETIS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended
	September 30,
(MILLIONS OF DOLLARS)	2019			2018
Operating Activities
Net income before allocation to noncontrolling interests	$	1,116		$	1,079
Adjustments to reconcile net income before noncontrolling interests to net cash provided by operating activities:
Depreciation and amortization expense	303			207
Share-based compensation expense	51			36
Asset write-offs and asset impairments	6			4
Net gain on sale of assets	(20		)	—
Provision for losses on inventory	44			37
Deferred taxes(a)	(30		)	(155		)
Employee benefit plan contribution from Pfizer Inc.	2			2
Other non-cash adjustments	(11		)	(17		)
Other changes in assets and liabilities, net of acquisitions and divestitures:
Accounts receivable	(18		)	37
Inventories	(103		)	29
Other assets	(39		)	(77		)
Accounts payable	(28		)	(39		)
Other liabilities	(68		)	(31		)
Other tax accounts, net(a)	8			94
Net cash provided by operating activities	1,213			1,206
Investing Activities
Capital expenditures	(294		)	(200		)
Acquisition of Abaxis, net of cash acquired	—			(1,884		)
Other acquisitions	(137		)	(110		)
Proceeds from maturities and redemptions of investments	89			—
Net proceeds on swaps designated as net investment hedges	37			—
Net proceeds from sale of assets	20			8
Other investing activities	(6		)	1
Net cash used in investing activities	(291		)	(2,185		)
Financing Activities
Decrease in short-term borrowings, net	(9		)	—
Proceeds from issuance of long-term debt—senior notes, net of discount and fees	—			1,485
Payment of contingent consideration related to previously acquired assets	(9		)	(12		)
Acquisition of a noncontrolling interest	—			(26		)
Share-based compensation-related proceeds, net of taxes paid on withholding shares	2			14
Purchases of treasury stock	(450		)	(548		)
Cash dividends paid	(235		)	(183		)
Net cash (used in)/provided by financing activities	(701		)	730
Effect of exchange-rate changes on cash and cash equivalents	(8		)	(29		)
Net increase/(decrease) in cash and cash equivalents	213			(278		)
Cash and cash equivalents at beginning of period	1,602			1,564
Cash and cash equivalents at end of period	$	1,815		$	1,286
Supplemental cash flow information
Cash paid during the period for:
Income taxes	$	293		$	290
Interest, net of capitalized interest	220			166
Non-cash transactions:
Capital expenditures	5			3

^(a)  For 2018, reflects the reclassification of the one-time mandatory deemed repatriation tax from Noncurrent deferred tax liabilities to Income taxes payable and Other taxes payable to properly reflect the liability, which became a fixed obligation in 2018 payable over eight years.

See notes to condensed consolidated financial statements.

6 |

ZOETIS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Organization

Zoetis Inc. (including its subsidiaries, collectively, Zoetis, the company, we, us or our) is a global leader in the discovery, development, manufacture and commercialization of animal health medicines, vaccines and diagnostic products with a focus on both livestock and companion animals. We organize and operate our business in two geographic regions: the United States (U.S.) and International.

We directly market our products in approximately 45 countries across North America, Europe, Africa, Asia, Australia and South America. Our products are sold in more than 100 countries, including developed markets and emerging markets. We have a diversified business, marketing products across eight core species: cattle, swine, poultry, sheep and fish (collectively, livestock) and dogs, cats and horses (collectively, companion animals); and within six major product categories: vaccines, anti-infectives, parasiticides, medicated feed additives, animal health diagnostics and other pharmaceuticals.

2. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements were prepared following the requirements of the Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by accounting principles generally accepted in the United States of America (U.S. GAAP) can be condensed or omitted. Balance sheet amounts and operating results for subsidiaries operating outside the United States are as of and for the nine-month periods ended August 31, 2019, and August 31, 2018.

Revenue, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be representative of those for the full year.

Certain reclassifications of prior year information have been made to conform to the current year's presentation.

We are responsible for the unaudited condensed consolidated financial statements included in this Form 10-Q. The condensed consolidated financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of our financial position and operating results. The information included in this interim report should be read in conjunction with the financial statements and accompanying notes included in our 2018 Annual Report on Form 10-K.

3. Accounting Standards

Recently Adopted Accounting Standards

In February 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-02, Income Statement - Reporting Comprehensive Income, (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02), which permits companies to reclassify from accumulated other comprehensive income to retained earnings stranded tax effects resulting from the new federal corporate income tax rate. In the period of adoption, a company may choose to either apply the amendments retrospectively to each period in which the effect of the change in federal income tax rate is recognized or to apply the amendments in that reporting period. We adopted the new standard as of January 1, 2019, the required effective date. The company has elected to not reclassify the stranded income tax effects from accumulated other comprehensive income to retained earnings as the amount is insignificant.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes FASB Topic 840, Leases (Topic 840) which requires lessees to recognize most leases on the balance sheet with a corresponding right of use asset. Leases will be classified as financing or operating which will drive the expense recognition pattern. For lessees, the income statement presentation and expense recognition pattern for financing and operating leases is similar to the current model for capital and operating leases, respectively. Companies may elect to exclude short-term leases. The update also requires additional disclosures that will better enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. We adopted the new standard as of January 1, 2019, the required effective date, using the effective date transition method. As permitted under the effective date transition method, financial information and disclosure for periods prior to the date of initial application will not be updated. An adjustment to opening retained earnings was not required in conjunction with our adoption. We have elected not to reassess whether expired or existing contracts contain leases, nor did we reassess the classification of existing leases as of the adoption date. We did not use hindsight in our assessment of lease terms as of the effective date. For additional information, see Note 10. Leases.

Recently Issued Accounting Standards

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Topic 350-40), an accounting standards update which expands the scope of costs associated with cloud computing arrangements that must be capitalized. Under the new guidance, costs associated with implementing a cloud computing arrangement that is a service contract must be capitalized and expensed over the term of the hosting arrangement. We will adopt this guidance as of January 1, 2020, the required effective date, and are currently assessing the potential impact that the standard will have on our consolidated financial statements.

7 |

4. Revenue

A. Revenue from Product Sales

We offer a diversified portfolio of products which allows us to capitalize on local and regional customer needs. Generally, our products are promoted to veterinarians and livestock producers by our sales organization which includes sales representatives and technical and veterinary operations specialists, and then sold directly by us or through distributors. The depth of our product portfolio enables us to address the varying needs of customers in different species and geographies. Many of our top selling product lines are distributed across both of our operating segments, leveraging our research and development (R&D) operations and manufacturing and supply chain network.

Over the course of our history, we have focused on developing a diverse portfolio of animal health products, including medicines, vaccines and diagnostics, complemented by biodevices, genetic tests and a range of services. We refer to a single product in all brands, or its dosage forms for all species, as a product line. We have approximately 300 comprehensive product lines, including products for both livestock and companion animals across each of our major product categories.

Our major product categories are:

• vaccines: biological preparations that help prevent diseases of the respiratory, gastrointestinal and reproductive tracts or induce a specific immune response;

• other pharmaceutical products: allergy and dermatology, pain and sedation, antiemetic, reproductive, and oncology products;

• anti-infectives: products that prevent, kill or slow the growth of bacteria, fungi or protozoa;

• parasiticides: products that prevent or eliminate external and internal parasites such as fleas, ticks and worms;

• medicated feed additives: products added to animal feed that provide medicines to livestock; and

• animal health diagnostics: portable blood and urine analysis systems and point-of-care diagnostic products, including instruments and reagents, rapid immunoassay tests, reference laboratory kits and blood glucose monitors.

Our remaining revenue is derived from other non-pharmaceutical product categories, such as nutritionals and agribusiness, as well as products and services in complementary areas, including biodevices and genetic tests.

Our livestock products primarily help prevent or treat diseases and conditions to enable the cost-effective production of safe, high-quality animal protein. Human population growth and increasing standards of living are important long-term growth drivers for our livestock products in three major ways. First, population growth and increasing standards of living drive increased demand for improved nutrition, particularly animal protein. Second, population growth leads to increased natural resource constraints driving a need for enhanced productivity. Finally, as standards of living improve, there is increased focus on food quality and safety.

Our companion animal products help extend and improve the quality of life for pets; increase convenience and compliance for pet owners; and help veterinarians improve the quality of their care and the efficiency of their businesses. Growth in the companion animal medicines, vaccines and diagnostics sector is driven by economic development, related increases in disposable income and increases in pet ownership and spending on pet care. Companion animals are also living longer, receiving increased medical treatment and benefiting from advances in animal health medicines and vaccines.

8 |

The following tables present our revenue disaggregated by geographic area, species, and major product category.

Revenue by geographic area

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(MILLIONS OF DOLLARS)	2019		2018		2019		2018
United States	$	844	$	757	$	2,342	$	2,068
Australia	53		53		150		152
Brazil	72		72		206		210
Canada	47		42		142		138
China	40		46		156		170
France	24		29		83		92
Germany	35		36		111		112
Italy	26		27		82		80
Japan	39		34		118		114
Mexico	29		24		87		74
Spain	29		28		86		83
United Kingdom	46		47		145		135
Other developed markets	98		98		269		266
Other emerging markets	183		173		546		537
	1,565		1,466		4,523		4,231
Contract manufacturing & human health	19		14		63		30
Total Revenue	$	1,584	$	1,480	$	4,586	$	4,261

Revenue by major species

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(MILLIONS OF DOLLARS)	2019		2018		2019		2018
U.S.
Livestock	$	294	$	322	$	847	$	885
Companion animal	550		435		1,495		1,183
	844		757		2,342		2,068
International
Livestock	437		456		1,315		1,397
Companion animal	284		253		866		766
	721		709		2,181		2,163
Contract manufacturing & human health	19		14		63		30
Total Revenue	$	1,584	$	1,480	$	4,586	$	4,261

9 |

Revenue by species

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(MILLIONS OF DOLLARS)	2019		2018		2019		2018
Livestock:
Cattle	$	389	$	417	$	1,148	$	1,229
Swine	142		160		449		500
Poultry	135		130		417		395
Fish	42		46		90		92
Other	23		25		58		66
	731		778		2,162		2,282
Companion Animal:
Dogs and Cats	789		653		2,231		1,832
Horses	45		35		130		117
	834		688		2,361		1,949
Contract manufacturing & human health	19		14		63		30
Total Revenue	$	1,584	$	1,480	$	4,586	$	4,261

Revenue by major product category

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(MILLIONS OF DOLLARS)	2019		2018		2019		2018
Vaccines	$	364	$	382	$	1,092	$	1,109
Other pharmaceuticals	418		361		1,139		1,017
Anti-infectives	312		323		891		906
Parasiticides	243		203		740		639
Medicated feed additives	112		111		339		362
Animal health diagnostics	69		46		194		69
Other non-pharmaceuticals	47		40		128		129
	1,565		1,466		4,523		4,231
Contract manufacturing & human health	19		14		63		30
Total Revenue	$	1,584	$	1,480	$	4,586	$	4,261

B. Revenue from Contracts with Customers

Contract liabilities reflected within Other current liabilities as of December 31, 2018 and December 31, 2017, and subsequently recognized as revenue during the first nine months of 2019 and 2018 were approximately $8 million and $2 million, respectively. Contract liabilities as of September 30, 2019 and December 31, 2018 were approximately $9 million and $9 million, respectively.

Estimated future revenue expected to be generated from long-term contracts with unsatisfied performance obligations as of September 30, 2019 is not material.

5. Acquisitions

Acquisition of Abaxis, Inc.

On July 31, 2018, we completed the acquisition of Abaxis, Inc. (Abaxis), a California corporation and a leader in the development, manufacture and marketing of diagnostic instruments for veterinary point-of-care services. We acquired all of the outstanding common shares of Abaxis for $83.00 per share in cash resulting in Abaxis becoming our wholly owned subsidiary. The acquisition enhances our presence in animal health diagnostics.

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The acquisition date fair value of the consideration transferred was approximately $1,962 million, which consisted of the following:

(MILLIONS OF DOLLARS)	Amounts
Cash paid to Abaxis' shareholders(a)	$	1,898
Cash paid for equity awards attributable to pre-merger services(b)	54
Fair value of Zoetis equity awards issued in exchange for outstanding Abaxis equity awards pertaining to pre-merger service(c)	10
Total consideration	$	1,962

^(a)  Represents cash paid for cancellation and conversion of each outstanding share of Abaxis' common stock at the acquisition date.

^(b)  Represents cash paid for cancellation and settlement of restricted stock awards that fully vested in July 2018 as a result of service or pre-existing change-in-control provisions and termination provisions. Includes certain awards that were settled in cash during the first quarter of 2019.

^(c)  Represents the fair value of replacement awards issued for Abaxis equity awards outstanding immediately before the acquisition and attributable to the service period prior to the acquisition. The previous Abaxis equity awards were converted into the Zoetis equity awards at an exchange ratio based on the closing prices of shares of Zoetis common stock and Abaxis common stock for ten full trading days before the closing of the acquisition.

The acquisition has been accounted for as a business combination with the assets acquired and liabilities assumed measured at fair value as of the acquisition date, primarily using Level 3 inputs, except for investments in debt securities which were valued using Level 2 inputs.

During the first half of 2019, the company recorded additional measurement period adjustments which were made to reflect the facts and circumstances in existence as of the acquisition date. These adjustments include a reduction to Identifiable intangible assets and Noncurrent deferred tax liabilities of $1 million each with a corresponding offset to goodwill. These measurement period adjustments were primarily attributable to changes in preliminary valuation assumptions, including market participant estimates of cash flows as well as other initial estimates and the finalization of legal entity fair values. The valuation was finalized during the second quarter of 2019. The final fair values allocated to Abaxis' assets and liabilities as of the acquisition date, are reflected in the table below.

(MILLIONS OF DOLLARS)	Amounts
Cash and cash equivalents	$	64
Short term investments(a)	107
Accounts receivable(b)	30
Inventories(c)	79
Other current assets	6
Property, plant and equipment(d)	54
Identifiable intangible assets(e)	894
Other noncurrent assets	29
Accounts payable	(21)
Accrued compensation and related items	(10)
Other current liabilities	(22)
Other noncurrent liabilities	(11)
Noncurrent deferred tax liabilities(f)	(214)
Total net assets acquired	985
Goodwill(g)	977
Total consideration	$	1,962

^(a)  Short term investments include investments in debt securities that are classified as available-for-sale and measured at fair value.

^(b)  The fair value approximates the gross contractual amount of accounts receivable. The contractual amount not expected to be collected is immaterial.

^(c)  Acquired inventory is comprised of finished goods, work in process and raw materials. The fair value of finished goods was determined based on net realizable value adjusted for the costs of the selling effort, a reasonable profit allowance for the selling effort, and estimated holding costs. The fair value of work in process was determined based on net realizable value adjusted for costs to complete the manufacturing process, costs of the selling effort, a reasonable profit allowance for the remaining manufacturing and selling effort, and an estimate of holding costs. The fair value of raw materials was determined to approximate book value.

^(d)  Property, plant and equipment is comprised of machinery and equipment, furniture and fixtures, computer equipment, leasehold improvements and construction in progress. The fair value was primarily determined using a reproduction/replacement cost approach which measures the value of an asset by estimating the cost to acquire or construct comparable assets adjusted for age and condition of the asset.

^(e)  Identifiable intangible assets primarily consist of developed technology rights, customer relationships, and trademarks and trade names. The fair value of identifiable intangible assets is determined using the income approach, which includes a forecast of expected future cash flows. For additional information regarding identifiable intangible assets, see Note 12. Goodwill and Other Intangible Assets.

^(f)  The acquisition was structured as a stock purchase and therefore we assumed the historical tax basis of Abaxis' assets and liabilities. The deferred tax effects resulting from the acquisition include the expected federal, state, and foreign tax consequences associated with temporary differences between the fair values of the assets acquired and liabilities assumed and the respective tax basis. The components of the Abaxis net deferred tax liability are included within amounts reported in Note 8. Income Taxes.

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^(g)  Goodwill represents the excess of consideration transferred over the of fair values of the assets acquired and liabilities assumed. It is allocated to our existing reportable segments and is primarily attributable to the future potential of the technology platforms, as well as cost and revenue synergies including market share capture, elimination of cost redundancies and gain of cost efficiencies, and intangible assets such as assembled workforce which are not separately recognizable. The primary strategic purpose of the acquisition was to enhance the company’s existing product portfolio by strengthening Zoetis’ presence in veterinary diagnostics. The goodwill recorded is not deductible for tax purposes.

The company incurred acquisition related costs of approximately $5 million and $32 million for the three and nine months ended September 30, 2019, respectively, which are included within Restructuring charges and certain acquisition-related costs on our condensed consolidated statements of income.

Supplemental Pro Forma Information (Unaudited):

The following table provides unaudited supplemental pro forma financial information as if the acquisition of Abaxis had occurred on January 1, 2017.

	Three Months Ended		Nine Months Ended
(MILLIONS OF DOLLARS)	September 30, 2018
Revenue	$	1,500	$	4,416
Net income attributable to Zoetis Inc.	348		1,024

The supplemental pro forma financial information has been prepared using the acquisition method of accounting and is based on the historical financial information of Zoetis and Abaxis. The supplemental pro forma financial information does not necessarily represent what the combined company’s revenue or results of operations would have been had the acquisition been completed on January 1, 2017, nor do they intend to be a projection of future operating results of the combined company. It also does not reflect any operating efficiencies or potential cost savings that might be achieved from synergies of combining Zoetis and Abaxis.

The unaudited supplemental pro forma financial information reflects primarily the following pro forma adjustments:

• Acquisition related costs incurred by Zoetis and Abaxis of $57 million and $60 million have been removed for each of the three and nine months ended September 30, 2018, respectively.

• Additional amortization expense of $13 million for the three months ended September 30, 2018 and $78 million for the nine months ended September 30, 2018, related to the fair value of identified intangible assets acquired.

• Additional depreciation expense of $1 million for the nine months ended September 30, 2018, related to the fair value adjustments to property, plant and equipment acquired.

• Adjustments related to the preliminary estimate of the non-recurring fair value adjustment to acquisition date inventory estimated to have been sold, resulting in $7 million removed for each of the three and nine months ended September 30, 2018, respectively.

• Additional interest expense and amortization of debt issuance costs for the debt issuance to finance the acquisition, resulting in $8 million added for the three months ended September 30, 2018 and $36 million added for the nine months ended September 30, 2018.

• Adjustment related to the post merger share-based compensation expense of the replacement awards is $7 million for the nine months ended September 30, 2018.

• Applicable tax impact of the above adjustments based on the statutory tax rates in the various jurisdictions where the adjustments are expected to be incurred.

Other Acquisitions

In the third quarter of 2019, we completed the acquisition of Platinum Performance, a nutrition-focused animal health business for companion animals. The transaction did not have a significant impact on our consolidated financial statements.

In the third quarter of 2018, we completed the acquisition of a manufacturing business in Ireland and the noncontrolling interest of a European livestock monitoring company. These transactions did not have a significant impact on our consolidated financial statements.

6. Restructuring Charges and Other Costs Associated with Acquisitions, Cost-Reduction and Productivity Initiatives

In connection with our cost-reduction/productivity initiatives, we typically incur costs and charges associated with site closings and other facility rationalization actions, workforce reductions and the expansion of shared services, including the development of global systems. In connection with our acquisition activity, we typically incur costs and charges associated with executing the transactions, integrating the acquired operations, which may include expenditures for consulting and the integration of systems and processes, product transfers and restructuring the consolidated company, which may include charges related to employees, assets and activities that will not continue in the consolidated company. All operating functions can be impacted by these actions, including sales and marketing, manufacturing and R&D, as well as functions such as information technology, shared services and corporate operations.

During 2015, we launched a comprehensive operational efficiency program and a supply network strategy initiative. These initiatives focused on reducing complexity in our product portfolios, changing our selling approach in certain markets, reducing our presence in certain countries, and selling certain manufacturing sites over a long term period. As part of these initiatives, we reduced certain positions through divestitures, normal attrition and involuntary terminations.

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The components of costs incurred in connection with restructuring initiatives, acquisitions and cost-reduction/productivity initiatives are as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(MILLIONS OF DOLLARS)	2019		2018		2019		2018
Restructuring charges and certain acquisition-related costs:
Transaction costs(a)	$	—	$	21	$	—	$	21
Integration costs(b)	4		9		13		10
Restructuring charges(c)(d):
Employee termination costs	2		17		20		22
Exit costs	—		—		—		1
Total Restructuring charges and certain acquisition-related costs	$	6	$	47	$	33	$	54

^(a)  Transaction costs represent external costs directly related to acquiring businesses and primarily include expenditures for banking, legal, accounting and other similar services.

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

^(c)  The restructuring charges for the three and nine months ended September 30, 2019 primarily relate to the acquisition of Abaxis.

The restructuring charges for the three and nine months ended September 30, 2018 primarily relate to employee termination costs of $8 million and $11 million, respectively, in Europe as a result of initiatives to better align our organizational structure, and employee termination costs of $10 million related to the acquisition of Abaxis.

^(d)  The restructuring charges are associated with the following:

• For the three months ended September 30, 2019, Manufacturing/research/corporate of $2 million.

• For the three months ended September 30, 2018, International of $8 million and Manufacturing/research/corporate of $9 million.

• For the nine months ended September 30, 2019, Manufacturing/research/corporate of $20 million.

• For the nine months ended September 30, 2018, International of $12 million and Manufacturing/research/corporate of $11 million.

The components of, and changes in, our restructuring accruals are as follows:

(MILLIONS OF DOLLARS)	Accrual(a)
Balance, December 31, 2018(b)	$	45
Provision	20
Utilization and other(c)	(28		)
Balance, September 30, 2019(b)	$	37

^(a)   Changes in our restructuring accrual represents employee termination costs.

^(b)  At September 30, 2019, and December 31, 2018, included in Accrued expenses ($11 million and $27 million, respectively) and Other noncurrent liabilities ($26 million and $18 million, respectively).

^(c)   Includes adjustments for foreign currency translation.

7. Other (Income)/Deductions—Net

The components of Other (income)/deductions—net are as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(MILLIONS OF DOLLARS)	2019			2018			2019			2018
Royalty-related income	$	(4	)	$	(5	)	$	(12	)	$	(18	)
Interest income	(10		)	(6		)	(29		)	(20		)
Net (gain)/loss on sale of assets(a)	(20		)	2			(20		)	2
Foreign currency loss(b)	7			9			14			26
Other, net(c)	1			(19		)	1			(18		)
Other (income)/deductions—net	$	(26	)	$	(19	)	$	(46	)	$	(28	)

^(a)  For the three and nine months ended September 30, 2019, represents income resulting from a contingent payment received pursuant to an agreement related to the 2016 sale of certain U.S. manufacturing sites.

For the three and nine months ended September 30, 2018, represents net losses related to sales of certain manufacturing sites and products as part of our operational efficiency initiative and supply network strategy.

^(b)  Primarily driven by costs related to hedging and exposures to certain emerging market currencies.

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^(c)  For the three and nine months ended September 30, 2018, primarily includes a net gain related to the relocation of a manufacturing site in China.

8. Income Taxes

A. Taxes on Income

Our effective tax rate was 18.0% for the three months ended September 30, 2019, compared with 17.0% for the three months ended September 30, 2018. The higher effective tax rate for the three months ended September 30, 2019, was primarily attributable to:

• a $23 million net discrete tax benefit recorded in the third quarter of 2018, associated with a measurement-period adjustment related to the provisional one-time mandatory deemed repatriation tax on the company's undistributed non-U.S. earnings pursuant to the Tax Cuts and Jobs Act (the Tax Act) enacted on December 22, 2017;

• the impact of the global intangible low taxed income (GILTI) tax, a new provision of the Tax Act, which became effective for the company in the first quarter of 2019;

• changes in the jurisdictional mix of earnings, which includes the impact of the location of earnings from operations and repatriation costs. The jurisdictional mix of earnings can vary as a result of repatriation decisions and operating fluctuations in the normal course of business and the impact of non-deductible items; and

• a $1 million and $3 million discrete tax benefit recorded in the third quarter of 2019 and 2018, respectively, related to the excess tax benefits for share-based payments,

partially offset by:

• a $14 million net discrete deferred tax benefit recorded in the third quarter of 2019, due to a change in tax basis related to purchase accounting.

Our effective tax rate was 18.2% for the nine months ended September 30, 2019, compared with 15.2% for the nine months ended September 30, 2018. The higher effective tax rate for the nine months ended September 30, 2019, was primarily attributable to:

• a $58 million net discrete tax benefit recorded in the nine months ended 2018, associated with a measurement-period adjustment related to the provisional one-time mandatory deemed repatriation tax on the company's undistributed non-U.S. earnings pursuant to the Tax Act enacted on December 22, 2017;

• the impact of the GILTI tax, a new provision of the Tax Act, which became effective for the company in the first quarter of 2019;

• changes in the jurisdictional mix of earnings, which includes the impact of the location of earnings from operations and repatriation costs. The jurisdictional mix of earnings can vary as a result of repatriation decisions and operating fluctuations in the normal course of business and the impact of non-deductible items; and

• a $3 million and $8 million discrete tax benefit recorded in the nine months ended 2019 and 2018, respectively, related to a remeasurement of deferred taxes as a result of a change in non-U.S. statutory tax rates,

partially offset by:

• a $19 million net discrete tax benefit recorded in the nine months ended 2019, related to changes in various other tax items;

• a $14 million net discrete deferred tax benefit recorded in the third quarter of 2019, due to a change in tax basis related to purchase accounting; and

• a $17 million and $12 million discrete tax benefit recorded in the nine months ended 2019 and 2018, respectively, related to the excess tax benefit for share-based payments.

B. Deferred Taxes

As of September 30, 2019, the total net deferred income tax liability of $401 million is included in Noncurrent deferred tax assets ($72 million) and Noncurrent deferred tax liabilities ($473 million).

As of December 31, 2018, the total net deferred income tax liability of $413 million is included in Noncurrent deferred tax assets ($61 million) and Noncurrent deferred tax liabilities ($474 million).

C. Tax Contingencies

As of September 30, 2019, the tax liabilities associated with uncertain tax positions of $181 million (exclusive of interest and penalties related to uncertain tax positions of $12 million) are included in Noncurrent deferred tax assets ($3 million) and Other taxes payable ($178 million).

As of December 31, 2018, the tax liabilities associated with uncertain tax positions of $185 million (exclusive of interest and penalties related to uncertain tax positions of $11 million) are included in Noncurrent deferred tax assets ($3 million) and Other taxes payable ($182 million).

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

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9. Financial Instruments

A. Debt

Credit Facilities

In December 2016, we entered into an amended and restated revolving credit agreement with a syndicate of banks providing for a multi-year $1.0 billion senior unsecured revolving credit facility (the credit facility). In December 2018, the maturity for the amended and restated revolving credit agreement was extended through December 2023. Subject to certain conditions, we have the right to increase the credit facility to up to $1.5 billion. The credit facility contains a financial covenant requiring us to not exceed a maximum total leverage ratio (the ratio of consolidated net debt as of the end of the period to consolidated Earnings Before Interest, Income Taxes, Depreciation and Amortization (EBITDA) for such period) of 3.50:1. Upon entering into a material acquisition, the maximum total leverage ratio increases to 4.00:1, and extends until the fourth full consecutive fiscal quarter ended immediately following the consummation of a material acquisition. The credit facility also contains a clause which adds back to Adjusted Consolidated EBITDA, any operational efficiency restructuring charge (defined as charges recorded by the company during the period commencing on October 1, 2016 and ending December 31, 2019, related to operational efficiency initiatives), provided that for any twelve-month period such charges added back to Adjusted Consolidated EBITDA shall not exceed $100 million in the aggregate.

The credit facility also contains a financial covenant requiring that we maintain a minimum interest coverage ratio (the ratio of EBITDA at the end of the period to interest expense for such period) of 3.50:1. In addition, the credit facility contains other customary covenants.

We were in compliance with all financial covenants as of September 30, 2019, and December 31, 2018. There were no amounts drawn under the credit facility as of September 30, 2019, or December 31, 2018.

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 September 30, 2019, we had access to $76 million of lines of credit which expire at various times through 2020 and are generally renewed annually. There were no borrowings outstanding related to these facilities as of September 30, 2019 and $9 million of borrowings outstanding related to these facilities as of December 31, 2018.

Commercial Paper Program

In February 2013, we entered into a commercial paper program with a capacity of up to $1.0 billion. As of September 30, 2019, and December 31, 2018, there was no commercial paper outstanding under this program.

Senior Notes and Other Long-Term Debt

On August 20, 2018, we issued $1.5 billion aggregate principal amount of our senior notes (2018 senior notes), with an original issue discount of $4 million. These notes are comprised of $300 million aggregate principal amount of floating rate senior notes due 2021 (the "2018 floating rate senior notes"), and $300 million aggregate principal amount of 3.250% senior notes due 2021, $500 million aggregate principal amount of 3.900% senior notes due 2028 and $400 million aggregate principal amount of 4.450% senior notes due 2048 (collectively, the "2018 fixed rate senior notes"). Net proceeds from this offering were partially used to pay down and terminate a revolving credit agreement and repay outstanding commercial paper, which were borrowed to finance a portion of the cash consideration for the acquisition of Abaxis (see Note 5. Acquisitions). The remainder of the net proceeds were used for general corporate purposes.

On September 12, 2017, we issued $1.25 billion aggregate principal amount of our senior notes (2017 senior notes), with an original issue discount of $7 million. These notes are comprised of $750 million aggregate principal amount of 3.000% senior notes due 2027 and $500 million aggregate principal amount of 3.950% senior notes due 2047. Net proceeds from this offering were partially used in October 2017 to repay, prior to maturity, the aggregate principal amount of $750 million, and a make-whole amount and accrued interest of $4 million, of our 1.875% senior notes due 2018. The remainder of the net proceeds were used for general corporate purposes.

On November 13, 2015, we issued $1.25 billion aggregate principal amount of our senior notes (2015 senior notes), with an original issue discount of $2 million. On January 28, 2013, we issued $3.65 billion aggregate principal amount of our senior notes (2013 senior notes) in a private placement, with an original issue discount of $10 million.

The 2013, 2015, 2017 and 2018 senior notes are governed by an indenture and supplemental indenture (collectively, the indenture) between us and Deutsche Bank Trust Company Americas, as trustee. The indenture contains certain covenants, including limitations on our and certain of our subsidiaries' ability to incur liens or engage in sale-leaseback transactions. The indenture also contains restrictions on our ability to consolidate, merge or sell substantially all of our assets. In addition, the indenture contains other customary terms, including certain events of default, upon the occurrence of which the 2013, 2015, 2017 and 2018 senior notes may be declared immediately due and payable.

Pursuant to the indenture, we are able to redeem the 2013, 2015 and 2017 senior notes and the 2018 fixed rate senior notes or any series, in whole or in part, at any time by paying a “make whole” premium, plus accrued and unpaid interest to, but excluding, the date of redemption. The 2018 floating rate senior notes are not redeemable at our option prior to their maturity date. Pursuant to our tax matters agreement with Pfizer, we will not be permitted to redeem the 2013 senior notes due 2023 pursuant to this optional redemption provision, except under limited circumstances. Upon the occurrence of a change of control of us and a downgrade of the 2013, 2015, 2017 and 2018 senior notes below an investment grade rating by each of Moody's Investors Service, Inc. and Standard & Poor's Ratings Services, we are, in certain circumstances, required to make an offer to repurchase all of the outstanding 2013, 2015, 2017 and 2018 senior notes at a price equal to 101% of the aggregate principal amount of the 2013, 2015, 2017 and 2018 senior notes together with accrued and unpaid interest to, but excluding, the date of repurchase.

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The components of our long-term debt are as follows:

	September 30,			December 31,
(MILLIONS OF DOLLARS)	2019			2018
3.450% 2015 senior notes due 2020	$	500		$	500
2018 floating rate (three-month USD LIBOR plus 0.44%) senior notes due 2021	300			300
3.250% 2018 senior notes due 2021	300			300
3.250% 2013 senior notes due 2023	1,350			1,350
4.500% 2015 senior notes due 2025	750			750
3.000% 2017 senior notes due 2027	750			750
3.900% 2018 senior notes due 2028	500			500
4.700% 2013 senior notes due 2043	1,150			1,150
3.950% 2017 senior notes due 2047	500			500
4.450% 2018 senior notes due 2048	400			400
	6,500			6,500
Unamortized debt discount / debt issuance costs	(53		)	(57		)
Long-term debt, net of discount and issuance costs	$	6,447		$	6,443

The fair value of our long-term debt was $7,082 million and $6,474 million as of September 30, 2019, and December 31, 2018, respectively, and has been determined using a third-party matrix-pricing model that uses significant inputs derived from, or corroborated by, observable market data and Zoetis’ credit rating (Level 2 inputs).

The principal amount of long-term debt outstanding, as of September 30, 2019, matures in the following years:

									After
(MILLIONS OF DOLLARS)	2020		2021		2022		2023		2023		Total
Maturities	$	500	$	600	$	—	$	1,350	$	4,050	$	6,500

Interest Expense

Interest expense, net of capitalized interest, was $56 million and $167 million, for the three and nine months ended September 30, 2019, respectively and $54 million and $147 million for the three and nine months ended September 30, 2018, respectively. Capitalized interest expense was $3 million and $9 million for the three and nine months ended September 30, 2019, respectively and $2 million and $6 million for the three and nine months ended September 30, 2018, respectively.

B. Investments

As part of the acquisition of Abaxis, we acquired short and long-term investments in debt securities (see Note 5. Acquisitions). These investments are classified as available-for-sale securities and, therefore, are measured at fair value at each reporting date. The changes in fair value are recognized in Accumulated other comprehensive income/(loss). We utilized Level 2 inputs such as observable quoted prices for similar assets and liabilities in active markets and observable quoted prices for identical or similar assets in markets that are not very active.

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The investment securities portfolio consists of debt securities that are investment grade. Information on investments in the debt securities, including the contractual maturities, or as necessary, the estimated maturities, of the available-for-sale securities is as follows:

	Gross Unrealized
	As of September 30, 2019								As of December 31, 2018
(MILLIONS OF DOLLARS)	Amortized Cost		Gains		Losses		Fair Value		Amortized Cost		Gains		Losses		Fair Value
Available-for-sale debt securities
Municipal Bonds	$	—	$	—	$	—	$	—	$	1	$	—	$	—	$	1
Corporate Bonds	12		—		—		12		100		—		—		100
Total debt securities	$	12	$	—	$	—	$	12	$	101	$	—	$	—	$	101

	Maturities by Period(a)
	As of September 30, 2019								As of December 31, 2018
(MILLIONS OF DOLLARS)	Within 1 year		Over 1 to 5 years		Over 5 years		Total		Within 1 year		Over 1 to 5 years		Over 5 years		Total
Available-for-sale debt securities
Municipal Bonds	$	—	$	—	$	—	$	—	$	1	$	—	$	—	$	1
Corporate Bonds	12		—		—		12		98		2		—		100
Total debt securities	$	12	$	—	$	—	$	12	$	99	$	2	$	—	$	101

^(a) Long term investments are included in Other noncurrent assets.

C. Derivative Financial Instruments

Foreign Exchange Risk

A significant portion of our revenue, earnings and net investment in foreign affiliates is exposed to changes in foreign exchange rates. We seek to manage our foreign exchange risk, in part, through operational means, including managing same-currency revenue in relation to same-currency costs and same-currency assets in relation to same-currency liabilities. Depending on market conditions, foreign exchange risk is also managed through the use of various derivative financial instruments. These derivative financial instruments serve to manage the exposure of our net investment in certain foreign operations to changes in foreign exchange rates and protect net income against the impact of translation into U.S. dollars of certain foreign exchange-denominated transactions.

All derivative financial instruments used to manage foreign currency risk are measured at fair value and are reported as assets or liabilities on the condensed consolidated balance sheet. The derivative financial instruments primarily offset exposures in the Australian dollar, British pound, Canadian dollar, Chinese yuan, euro, and Japanese yen. Changes in fair value are reported in earnings or in Accumulated other comprehensive income/(loss), depending on the nature and purpose of the financial instrument, as follows:

• For foreign exchange contracts not designated as hedging instruments, we recognize the gains and losses on forward-exchange contracts that are used to offset the same foreign currency assets or liabilities immediately into earnings along with the earnings impact of the items they generally offset. These contracts essentially take the opposite currency position of that reflected in the month-end balance sheet to counterbalance the effect of any currency movement. The vast majority of the foreign exchange derivative financial instruments mature within 60 days and all mature within three years.

• For cross-currency interest rate swaps, which are designated as a hedge against our net investment in foreign operations, changes in the fair value are recorded as a component of cumulative translation adjustment within Accumulated other comprehensive income/(loss) and reclassified into earnings when the foreign investment is sold or substantially liquidated. Gains and losses excluded from the assessment of hedge effectiveness are recognized in earnings (Interest expense—net of capitalized interest). The cash flows from these contracts are reflected within the investing section of our Condensed Consolidated Statement of Cash Flows. The cross-currency interest rate swap contracts have varying maturities of up to six years.

Interest Rate Risk

The company may use interest rate swap contracts on certain investing and borrowing transactions to manage its net exposure to interest rates and to reduce its overall cost of borrowing.

• In anticipation of issuing fixed-rate debt, we may use forward-starting interest rate swaps that are designated as cash flow hedges to hedge against changes in interest rates that could impact expected future issuances of debt. Unrealized gains or losses on the forward-starting interest rate swaps are reported in Accumulated other comprehensive income/(loss) and are recognized in earnings over the life of the future fixed-rate notes. When the company discontinues hedge accounting because it is no longer probable that an anticipated transaction will occur within the originally expected period of execution, or within an additional two-month period thereafter, changes to fair value accumulated in other comprehensive income are recognized immediately in earnings. For the nine months ended September 30, 2019, we entered into forward-starting interest rate swaps, having an effective date and mandatory

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termination date in March 2023, to hedge against interest rate exposure related principally to the anticipated future issuance of fixed-rate debt to be used primarily to refinance our 3.250% 2013 senior notes due 2023.

• We may use fixed-to-floating interest rate swaps that are designated as fair value hedges to hedge against changes in the fair value of certain fixed-rate debt attributable to changes in the benchmark LIBOR rate. These derivative instruments effectively convert a portion of the company’s long-term debt from fixed rate to floating rate debt based on three-month LIBOR plus a spread. Gains or losses on the fixed-to-floating interest rate swaps due to changes in LIBOR are recorded in Interest expense, net of capitalized interest. Changes in the fair value of the fixed-to-floating interest rate swaps are offset by changes in the fair value of the underlying fixed rate debt. As of September 30, 2019, we had an outstanding fixed-to-floating interest rate swap which corresponds to a portion of the 3.900% 2018 senior notes due 2028. The amounts recorded during the three and nine months ended September 30, 2019 for changes in the fair value of this hedge are immaterial to our consolidated financial statements.

Outstanding Positions

The aggregate notional amount of derivative instruments are as follows:

	Notional
	September 30,		December 31,
(MILLIONS)	2019		2018
Foreign currency forward-exchange contracts	$	1,150	$	1,330
Cross-currency interest rate swap contracts (in foreign currency):
Euro	575		400
Danish krone	600		—
Swiss franc	25		—
Forward-starting interest rate swaps	$	250	$	—
Fixed-to-floating interest rate swap contracts	$	50	$	—

Fair Value of Derivative Instruments

The classification and fair values of derivative instruments are as follows:

		Fair Value of Derivatives
		September 30,			December 31,
(MILLIONS OF DOLLARS)	Balance Sheet Location	2019			2018
Derivatives Not Designated as Hedging Instruments
Foreign currency forward-exchange contracts	Other current assets	$	9		$	6
Foreign currency forward-exchange contracts	Other current liabilities	(6		)	(7		)
Total derivatives not designated as hedging instruments		$	3		$	(1	)
Derivatives Designated as Hedging Instruments:
Forward starting interest rate swap contracts	Other current liabilities	$	(6	)	$	—
Cross-currency interest rate swap contracts	Other current assets	13			3
Cross-currency interest rate swap contracts	Other noncurrent assets	28			8
Total derivatives designated as hedging instruments		35			11
Total derivatives		$	38		$	10

The company’s cross-currency interest rate swaps are subject to master netting arrangements to mitigate credit risk by permitting net settlement of transactions with the same counterparty. We may also enter into collateral security arrangements with certain of our counterparties to exchange cash collateral when the net fair value of certain derivative instruments fluctuates from contractually established thresholds. At September 30, 2019, there was $16 million of collateral received related to the long-term cross-currency interest rate swaps.

We use a market approach in valuing financial instruments on a recurring basis. Our derivative financial instruments are measured at fair value on a recurring basis using Level 2 inputs in the calculation of fair value.

The amounts of net gains on derivative instruments not designated as hedging instruments, recorded in Other (income)/deductions—net, are as follows:

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	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(MILLIONS OF DOLLARS)	2019		2018		2019		2018
Foreign currency forward-exchange contracts	$	1	$	22	$	5	$	22

These amounts were substantially offset in Other (income)/deductions—net by the effect of changing exchange rates on the underlying foreign currency exposures.

The amounts of unrecognized net gains/(losses) on interest rate swap contracts, recorded, net of tax, in Accumulated other comprehensive income/(loss), are as follows:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(MILLIONS OF DOLLARS)	2019			2018		2019			2018
Forward-starting interest rate swap contracts	$	(4	)	$	—	$	(4	)	$	—
Cross-currency interest rate swap contracts	$	23		$	—	$	28		$	1

Gains on cross-currency interest rate swap contracts, recognized within Interest expense, net of capitalized interest, are as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(MILLIONS OF DOLLARS)	2019		2018		2019		2018
Cross-currency interest rate swap contracts	$	5	$	2	$	13	$	3

The net amount of deferred gains related to derivative instruments designated as cash flow hedges that is expected to be reclassified from Accumulated other comprehensive income/(loss) into earnings over the next 12 months is insignificant.

10. Leases

We have facilities, vehicles and equipment under various non-cancellable operating leases with third parties. These leases generally have remaining terms ranging from one to 15 years, inclusive of renewal options that are reasonably certain of exercise.

Supplemental information for operating leases is as follows:

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(MILLIONS OF DOLLARS, EXCEPT LEASE TERM AND DISCOUNT RATE AMOUNTS)			As of September 30, 2019
Supplemental Balance Sheet information for operating leases
Operating lease right of use assets			$	193
Operating lease liabilities
Operating lease liabilities - current (in Other current liabilities)			$	34
Operating lease liabilities - noncurrent			169
Total operating lease liabilities			$	203
Weighted-average remaining lease term—operating leases (years)			6.91
Weighted-average discount rate—operating leases			3.66		%
	Three Months Ended		Nine Months Ended
(MILLIONS OF DOLLARS)	September 30, 2019
Supplemental Income Statement information for operating leases
Operating lease expense	$	10	$	29
Variable lease payments not included in the measurement of lease liabilities	5		13
Short-term lease payments not included in the measurement of lease liabilities	3		9
Supplemental Cash Flow information for operating leases
Cash paid for amounts included in the measurement of lease liabilities	$	9	$	28
Lease obligations obtained in exchange for right-of-use assets (non-cash)	7		230

Future minimum lease payments under non-cancellable operating lease contracts as of September 30, 2019 are as follows:

													Total		Less:
											After		Lease		Imputed
(MILLIONS OF DOLLARS)	2019(a)		2020		2021		2022		2023		2023		Payments		Interest			Total
Maturities	$	11	$	41	$	35	$	31	$	26	$	88	$	232	$	(29	)	$	203

^(a) 2019 excludes the nine months ended September 30, 2019.

Future minimum lease payments under non-cancellable operating lease contracts as of December 31, 2018, in accordance with the superceded leasing standard, are as follows:

											After
(MILLIONS OF DOLLARS)	2019		2020		2021		2022		2023		2023		Total
Maturities	$	38	$	30	$	24	$	21	$	15	$	45	$	173

Total rent expense, net of sublease rental income, in accordance with the superceded leasing standard, was approximately $45 million in 2018.

Lease Accounting Policy

Below are the significant accounting policies updated as of January 1, 2019, as a result of the adoption of the new lease accounting guidance. For additional information, see Note 3. Accounting Standards.

We determine if a contract contains a lease at inception. Our current portfolio includes only operating leases which are recorded as a right of use asset, as of the lease commencement date, in an amount equal to the present value of future payments over the lease term. We have elected not to recognize right of use assets and lease liabilities for short-term leases of vehicles and equipment with a lease term of twelve months or less.

Options to extend or terminate a lease are considered in the lease term to the extent that the option is reasonably certain of exercise. A corresponding lease liability is recorded within Other current liabilities and Operating lease liabilities. The present value of future payments is discounted using the rate implicit in the lease, when available. When the implicit rate is not available, as is frequently the case with our lease portfolio, the present value is calculated using our incremental borrowing rate, which is determined on the commencement date. The incremental borrowing rate represents the rate of interest that we would expect to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. As we do not borrow on a collateralized basis, our non-collateralized borrowing rate is used as an input in deriving the incremental borrowing rate.

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Fixed lease payments are recognized on straight-line basis over the lease term, while variable payments are recognized in the period incurred. Variable lease payments include real estate taxes and charges for other non-lease services due to lessors that are not dependent on an index or rate and utilization based charges associated with fleet vehicles.

Our real estate and fleet lease contracts may include fixed consideration attributable to both lease and non-lease components, including non-lease services provided by the vendor, which are accounted for as a single fixed minimum payment. For leases of certain classes of machinery and equipment, contract consideration is allocated to lease and non-lease components on the basis of relative standalone price.

11. Inventories

The components of inventory are as follows:

	September 30,		December 31,
(MILLIONS OF DOLLARS)	2019		2018
Finished goods	$	713	$	744
Work-in-process	524		481
Raw materials and supplies	202		166
Inventories	$	1,439	$	1,391

12. Goodwill and Other Intangible Assets

A. Goodwill

The components of, and changes in, the carrying amount of goodwill are as follows:

(MILLIONS OF DOLLARS)	U.S.		International			Total
Balance, December 31, 2018	$	1,265	$	1,254		$	2,519
Additions(a)	58		—			58
Other(b)	—		(27		)	(27		)
Balance, September 30, 2019	$	1,323	$	1,227		$	2,550

^(a) Includes the preliminary purchase price allocation related to the acquisition of Platinum Performance in the third quarter of 2019.

^(b) Includes measurement period adjustments related to the acquisition of Abaxis and adjustments for foreign currency translation.

The gross goodwill balance was $3,086 million and $3,055 million as of September 30, 2019 and December 31, 2018, respectively. Accumulated goodwill impairment losses were $536 million as of September 30, 2019 and December 31, 2018.

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B. Other Intangible Assets

The components of identifiable intangible assets are as follows:

	As of September 30, 2019							As of December 31, 2018
						Identifiable							Identifiable
	Gross					Intangible Assets		Gross					Intangible Assets
	Carrying		Accumulated			Less Accumulated		Carrying		Accumulated			Less Accumulated
(MILLIONS OF DOLLARS)	Amount		Amortization			Amortization		Amount		Amortization			Amortization
Finite-lived intangible assets:
Developed technology rights(a)	$	1,943	$	(621	)	$	1,322	$	1,854	$	(523	)	$	1,331
Brands(a)	258		(163		)	95		212		(154		)	58
Trademarks and trade names	166		(56		)	110		166		(51		)	115
Other(a)	422		(230		)	192		412		(178		)	234
Total finite-lived intangible assets	2,789		(1,070		)	1,719		2,644		(906		)	1,738
Indefinite-lived intangible assets:
In-process research and development	105		—			105		197		—			197
Brands	37		—			37		37		—			37
Trademarks and trade names	67		—			67		67		—			67
Product rights	7		—			7		7		—			7
Total indefinite-lived intangible assets	216		—			216		308		—			308
Identifiable intangible assets	$	3,005	$	(1,070	)	$	1,935	$	2,952	$	(906	)	$	2,046

^(a) Includes additions primarily related to the preliminary fair value of intangible assets acquired in the third quarter of 2019 associated with the acquisition of Platinum Performance.

C. Amortization

Amortization expense related to finite-lived acquired intangible assets that contribute to our ability to sell, manufacture, research, market and distribute products, compounds and intellectual property is included in Amortization of intangible assets as it benefits multiple business functions. Amortization expense related to finite-lived acquired intangible assets that are associated with a single function is included in Cost of sales, Selling, general and administrative expenses or Research and development expenses, as appropriate. Total amortization expense for finite-lived intangible assets was $60 million and $176 million for the three and nine months ended September 30, 2019, respectively, and $45 million and $96 million for the three and nine months ended September 30, 2018, respectively.

13. Share-based Payments

The company may grant a variety of share-based payments under the Zoetis 2013 Equity and Incentive Plan (the Equity Plan) to our employees and non-employee directors. The principal types of share-based awards available under the Equity Plan may include, but are not limited to, stock options, restricted stock and restricted stock units (RSUs), deferred stock units (DSUs), performance-vesting restricted stock units (PSUs) and other equity-based or cash-based awards.

The components of share-based compensation expense are as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(MILLIONS OF DOLLARS)	2019		2018		2019		2018
Stock options / stock appreciation rights	$	3	$	2	$	8	$	7
RSUs / DSUs(a)(b)	10		10		34		23
PSUs	3		2		9		6
Share-based compensation expense—total(c)	$	16	$	14	$	51	$	36

^(a)  For the three and nine months ended September 30, 2019, includes share-based compensation expense of $4 million and $13 million, respectively, related to the acquisition of Abaxis for the post-merger service period. For additional details, see Note 5. Acquisitions.

^(b)  Includes additional share-based compensation expense as a result of accelerated vesting of outstanding RSUs of terminated employees in connection with the acquisition of Abaxis, for the three and nine months ended September 30, 2019, of approximately $1 million and $5 million, respectively, which is included in Restructuring charges and certain acquisition-related costs.      

^(c)  Amounts capitalized to inventory were $1 million for the nine months ended September 30, 2019 and were insignificant for the three months ended September 30, 2019 as well as for the three and nine months ended September 30, 2018.

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During the nine months ended September 30, 2019, the company granted 444,789 stock options with a weighted-average exercise price of $87.77 per stock option and a weighted-average fair value of $21.82 per stock option. The fair-value based method for valuing each Zoetis stock option grant on the grant date uses the Black-Scholes-Merton option-pricing model, which incorporates a number of valuation assumptions. The weighted-average fair value was estimated based on the following assumptions: risk-free interest rate of 2.57%; expected dividend yield of 0.75%; expected stock price volatility of 23.08%; and expected term of 5.7 years. In general, stock options vest after three years of continuous service and the values determined through this fair-value based method generally are amortized on a straight-line basis over the vesting term into Cost of sales, Selling, general and administrative expenses, or Research and development expenses, as appropriate.

During the nine months ended September 30, 2019, the company granted 361,142 RSUs, with a weighted-average grant date fair value of $87.85 per RSU. RSUs are accounted for using a fair-value-based method that utilizes the closing price of Zoetis common stock on the date of grant. In general, RSUs vest after three years of continuous service from the grant date and the values generally are amortized on a straight-line basis over the vesting term into Cost of sales, Selling, general and administrative expenses, or Research and development expenses, as appropriate.

During the nine months ended September 30, 2019, the company granted 190,170 PSUs with a weighted-average grant date fair value of $101.51 per PSU. PSUs are accounted for using a Monte Carlo simulation model. The units underlying the PSUs will be earned and vested over a three-year performance period, based upon the total shareholder return of the company in comparison to the total shareholder return of the companies comprising the S&P 500 stock market index at the start of the performance period, excluding companies that during the performance period are acquired or no longer publicly traded (Relative TSR). The weighted-average fair value was estimated based on volatility assumptions of Zoetis common stock and an average of the S&P 500 companies, which were 20.3% and 25.3%, respectively. Depending on the company’s Relative TSR performance at the end of the performance period, the recipient may earn from 0% to 200% of the target number of units. Vested units are settled in shares of the company’s common stock. PSU values are amortized on a straight-line basis over the vesting term into Cost of sales, Selling, general and administrative expenses, or Research and development expenses, as appropriate.

14. Stockholders' Equity

Zoetis is authorized to issue 6 billion shares of common stock and 1 billion shares of preferred stock.

In December 2016, the company's Board of Directors authorized a $1.5 billion share repurchase program. This program was completed as of September 30, 2019. In December 2018, the company's Board of Directors authorized an additional $2.0 billion share repurchase program. As of September 30, 2019, there was approximately $1.9 billion remaining under this authorization. Purchases of Zoetis shares may be made at the discretion of management, depending on market conditions and business needs.

Accumulated other comprehensive income/(loss)

Changes, net of tax, in accumulated other comprehensive income/(loss), excluding noncontrolling interests, were as follows:

				Currency Translation Adjustments								Accumulated Other
	Cash Flow			Net Investment		Other Currency						Comprehensive
(MILLIONS OF DOLLARS)	Hedges			Hedges		Translation Adj			Benefit Plans			Loss
Balance, December 31, 2017	$	(3	)	$	—	$	(487	)	$	(15	)	$	(505	)
Other comprehensive loss, net of tax	(1		)	—		(113		)	—			(114		)
Balance, September 30, 2018	$	(4	)	$	—	$	(600	)	$	(15	)	$	(619	)
Balance, December 31, 2018	$	(4	)	$	10	$	(621	)	$	(14	)	$	(629	)
Other comprehensive (loss)/income, net of tax	(3		)	28		(95		)	—			(70		)
Balance, September 30, 2019	$	(7	)	$	38	$	(716	)	$	(14	)	$	(699	)

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15. Earnings per Share

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(MILLIONS OF DOLLARS AND SHARES, EXCEPT PER SHARE DATA)	2019		2018		2019		2018
Numerator
Net income before allocation to noncontrolling interests	$	433	$	347	$	1,116	$	1,079
Less: Net loss attributable to noncontrolling interests	—		—		—		(4		)
Net income attributable to Zoetis Inc.	$	433	$	347	$	1,116	$	1,083
Denominator
Weighted-average common shares outstanding	477.8		482.0		478.7		483.9
Common stock equivalents: stock options, RSUs, PSUs and DSUs	3.7		3.8		3.6		3.8
Weighted-average common and potential dilutive shares outstanding	481.5		485.8		482.3		487.7
Earnings per share attributable to Zoetis Inc. stockholders—basic	$	0.91	$	0.72	$	2.33	$	2.24
Earnings per share attributable to Zoetis Inc. stockholders—diluted	$	0.90	$	0.71	$	2.31	$	2.22

The number of stock options outstanding under the company's Equity Plan that were excluded from the computation of diluted earnings per share, as the effect would have been antidilutive, were de minimis for the three months ended September 30, 2019 and September 30, 2018, respectively and de minimis and 1 million for the nine months ended September 30, 2019 and September 30, 2018, respectively.

16. Commitments and Contingencies

We and certain of our subsidiaries are subject to numerous contingencies arising in the ordinary course of business. For a discussion of our tax contingencies, see Note 8. Income Taxes.

A. Legal Proceedings

Our non-tax contingencies include, among others, the following:

• Product liability and other product-related litigation, which can include injury, consumer, off-label promotion, antitrust and breach of contract claims.

• Commercial and other matters, which can include product-pricing claims and environmental claims and proceedings.

• Patent litigation, which typically involves challenges to the coverage and/or validity of our patents or those of third parties on various products or processes.

• Government investigations, which can involve regulation by national, state and local government agencies in the United States and in other countries.

Certain of these contingencies could result in losses, including damages, fines and/or civil penalties, and/or criminal charges, which could be substantial.

We believe that we have strong defenses in these types of matters, but litigation is inherently unpredictable and excessive verdicts do occur. We do not believe that any of these matters will have a material adverse effect on our financial position. However, we could incur judgments, enter into settlements or revise our expectations regarding the outcome of certain matters, and such developments could have a material adverse effect on our results of operations or cash flows in the period in which the amounts are paid.

We have accrued for losses that are both probable and reasonably estimable. Substantially all of these contingencies are subject to significant uncertainties and, therefore, determining the likelihood of a loss and/or the measurement of any loss can be complex. Consequently, we are unable to estimate the range of reasonably possible loss in excess of amounts accrued. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but the assessment process relies on estimates and assumptions that may prove to be incomplete or inaccurate, and unanticipated events and circumstances may occur that might cause us to change those estimates and assumptions.

Amounts recorded for legal and environmental contingencies can result from a complex series of judgments about future events and uncertainties and can rely on estimates and assumptions.

The principal matters to which we are a party are discussed below. In determining whether a pending matter is significant for financial reporting and disclosure purposes, we consider both quantitative and qualitative factors in order to assess materiality, such as, among other things, the amount of damages and the nature of any other relief sought in the proceeding, if such damages and other relief are specified; our view of the merits of the claims and of the strength of our defenses; whether the action purports to be a class action and our view of the likelihood that a class will be certified by the court; the jurisdiction in which the proceeding is pending; any experience that we or, to our

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knowledge, other companies have had in similar proceedings; whether disclosure of the action would be important to a reader of our financial statements, including whether disclosure might change a reader’s judgment about our financial statements in light of all of the information about the company that is available to the reader; the potential impact of the proceeding on our reputation; and the extent of public interest in the matter. In addition, with respect to patent matters, we consider, among other things, the financial significance of the product protected by the patent.

Ulianopolis, Brazil

In February 2012, the Municipality of Ulianopolis (State of Para, Brazil) filed a complaint against Fort Dodge Saúde Animal Ltda. (FDSAL), a Zoetis entity, and five other large companies alleging that waste sent to a local waste incineration facility for destruction, but that was not ultimately destroyed as the facility lost its operating permit, caused environmental impacts requiring cleanup.

The Municipality is seeking recovery of cleanup costs purportedly related to FDSAL's share of all waste accumulated at the incineration facility awaiting destruction, and compensatory damages to be allocated among the six defendants. We believe we have strong arguments against the claim, including defense strategies against any claim of joint and several liability.

At the request of the Municipal prosecutor, in April 2012, the lawsuit was suspended for one year. Since that time, the prosecutor has initiated investigations into the Municipality's actions in the matter as well as the efforts undertaken by the six defendants to remove and dispose of their individual waste from the incineration facility. On October 3, 2014, the Municipal prosecutor announced that the investigation remained ongoing and outlined the terms of a proposed Term of Reference (a document that establishes the minimum elements to be addressed in the preparation of an Environmental Impact Assessment), under which the companies would be liable to withdraw the waste and remediate the area. On March 5, 2015, we presented our response to the prosecutor’s proposed Term of Reference, arguing that the proposed terms were overly general in nature and expressing our interest in discussing alternatives to address the matter. The prosecutor agreed to consider our request to engage a technical consultant to conduct an environmental diagnostic of the contaminated area. On May 29, 2015, we, in conjunction with the other defendant companies, submitted a draft cooperation agreement to the prosecutor, which outlined the proposed terms and conditions for the engagement of a technical consultant to conduct the environmental diagnostic. On August 19, 2016, the parties and the prosecutor agreed to engage the services of a third-party consultant to conduct a limited environmental assessment of the site. The site assessment was conducted during June 2017, and a written report summarizing the results of the assessment was provided to the parties and the prosecutor in November 2017. The report noted that waste is still present on the site and that further (Phase II) environmental assessments are needed before a plan to manage that remaining waste can be prepared. On April 1, 2019, the defendants met with the Prosecutor to discuss the conclusions set forth in the written report. Following that discussion, on April 10, 2019, the Prosecutor issued a procedural order requesting that the defendants prepare and submit a technical proposal outlining the steps needed to conduct the additional Phase II environmental assessments. The defendants presented the technical proposal to the Prosecutor on October 21, 2019.

Lascadoil Contamination in Animal Feed

An investigation by the U.S. Food and Drug Administration (FDA) and the Michigan Department of Agriculture into the alleged contamination of the feed supply of certain turkey and hog feed mills in Michigan led to the recall of certain batches of soy oil (intended for use as an animal feed additive) that had originated with Shur-Green Farms LLC, a producer of soy oil, and that had been contaminated with lascadoil, an industrial by-product of certain Zoetis manufacturing processes. The contaminated feed is believed to have caused the deaths of approximately 50,000 turkeys and the contamination (but not death) of at least 20,000 hogs in August 2014. The investigation posited that Shur-Green inadvertently contaminated soy oil with lascadoil which it purchased from Zoetis for use as a bio-fuel ingredient, and then sold the contaminated soy oil to fat recycling vendors, who in turn unknowingly sold to feed mills for use in animal feed.

During the course of its investigation, the FDA identified the process used to manufacture Zoetis’ Avatec^® (lasalocid sodium) and Bovatec^® (lasalocid sodium) products as the possible source of the lascadoil, since lascadoil contains small amounts of lasalocid, the active ingredient found in both products. Zoetis sold the industrial lascadoil byproduct to Shur-Green, through its broker, Heritage Interactive Services, LLC. Under the terms of the sale agreement, the lascadoil could only be incinerated or resold for use in biofuel and the agreement expressly prohibited the reselling of lascadoil for use as a component in food. The FDA inspected the Zoetis site where Avatec and Bovatec are manufactured, and found no evidence that Zoetis was involved in the contamination of the animal feed.

On March 10, 2015, plaintiffs Restaurant Recycling, LLC (Restaurant Recycling) and Superior Feed Ingredients, LLC (Superior), both of whom are in the fat recycling business, filed a complaint in the Seventeenth Circuit Court for the State of Michigan against Shur-Green Farms alleging negligence and breach of warranty claims arising from their purchase of soy oil allegedly contaminated with lascadoil. Plaintiffs resold the allegedly contaminated soy oil to turkey feed mills for use in feed ingredient. Plaintiffs also named Zoetis as a defendant in the complaint alleging that Zoetis failed to properly manufacture its products and breached an implied warranty that the soy oil was fit for use at turkey and hog mills. Zoetis was served with the complaint on June 3, 2015, and we filed our answer, denying all allegations, on July 15, 2015. On August 10, 2015, several of the turkey feed mills filed a joint complaint against Restaurant Recycling, Superior, Shur-Green Farms and others, alleging claims for negligence, misrepresentation, and breach of warranty, arising out of their alleged purchase and use of the contaminated soy oil. The complaint raises only one count against Zoetis for negligence. We filed an answer to the complaint on November 2, 2015, denying the allegation. On May 16, 2016, two additional turkey producers filed a complaint in the Seventeenth Circuit Court for the State of Michigan against the company, Restaurant Recycling, Superior, Shur-Green Farms and others, alleging claims for negligence and breach of warranties. We filed an answer to the complaint on June 20, 2016, denying the allegations. The Court has consolidated all three cases in Michigan for purposes of discovery and disposition. On July 28, 2017, we filed a motion for summary disposition on the grounds that no genuine issues of material fact exist and that Zoetis is entitled to judgment as a matter of law. On October 19, 2017, the Court granted our motion and dismissed all claims against Zoetis. On October 31, 2017, the plaintiffs filed motions for reconsideration of the Court's decision granting summary disposition. The Court, denied all such motions on December 6, 2017, for the same reasons cited in the Court’s original decision. On December 27, 2017, the plaintiffs filed a request with the Michigan Court of Appeals seeking an interlocutory (or interim) appeal of the lower Court’s

25 |

decision, which we opposed on January 17, 2018. On July 5, 2018, the Court of Appeals denied the plaintiffs’ request for an interlocutory appeal. The case has been remanded back to the lower Court, where it will proceed to trial (unless settled) without Zoetis. The trial began on November 4, 2019. The plaintiffs will have the option to seek an appeal of the lower Court's decision granting Zoetis' motion for summary disposition after the final adjudication of the case.

Other Matters

On February 14, 2019, the General Court of the European Union (General Court) annulled the January 11, 2016 decision of the European Commission (EC) that selective tax advantages granted by Belgium under its "excess profit" tax scheme constitute illegal state aid. On May 8, 2019, the EC filed an appeal to the decision of the General Court. On September 16, 2019, the EC opened separate in-depth investigations to assess whether Belgium excess profit rulings granted to 39 multinational companies, including Zoetis, constituted state aid for those companies. Due to the uncertainty with respect to the outcome of the appeal to be filed by the EC, the company has not reflected any potential benefits associated with the decision of the General Court in its consolidated financial statements as of September 30, 2019. We will continue to monitor the developments of the appeal and its ultimate resolution.

The EC published a decision on alleged competition law infringements by several human health pharmaceutical companies on June 19, 2013. One of the involved legal entities is Alpharma LLC (previously having the name Zoetis Products LLC). Alpharma LLC's involvement is solely related to its human health activities prior to Pfizer's acquisition of King/Alpharma. Zoetis paid a fine in the amount of Euro 11 million (approximately $14 million) and was reimbursed in full by Pfizer in accordance with the Global Separation Agreement between Pfizer and Zoetis, which provides that Pfizer is obligated to indemnify Zoetis for any liabilities arising out of claims not related to its animal health assets. We filed an appeal of the decision on September 6, 2013, to the General Court of the European Union. On September 8, 2016, the General Court upheld the decision of the European Commission. On November 25, 2016, we filed an appeal to the Court of Justice of the European Union. On January 24, 2019, the Court heard oral argument on the merits of the appeal, and we now await the Court’s decision.

B. Guarantees and Indemnifications

In the ordinary course of business and in connection with the sale of assets and businesses, we indemnify our counterparties against certain liabilities that may arise in connection with the transaction or related to activities prior to the transaction. These indemnifications typically pertain to environmental, tax, employee and/or product-related matters and patent-infringement claims. If the indemnified party were to make a successful claim pursuant to the terms of the indemnification, we would be required to reimburse the loss. These indemnifications are generally subject to threshold amounts, specified claim periods and other restrictions and limitations. Historically, we have not paid significant amounts under these provisions and, as of September 30, 2019, recorded amounts for the estimated fair value of these indemnifications were not significant.

17. Segment Information

Operating Segments

We manage our operations through two geographic operating segments: the United States and International. Each operating segment has responsibility for its commercial activities. Within each of these operating segments, we offer a diversified product portfolio, including vaccines, parasiticides, anti-infectives, medicated feed additives, animal health diagnostics and other pharmaceuticals, for both livestock and companion animal customers. Our chief operating decision maker uses the revenue and earnings of the two operating segments, among other factors, for performance evaluation and resource allocation.

Other Costs and Business Activities

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

• Other business activities, includes our Client Supply Services (CSS) contract manufacturing results, our human health business, and expenses associated with our dedicated veterinary medicine research and development organization, research alliances, U.S. regulatory affairs and other operations focused on the development of our products. Other R&D-related costs associated with non-U.S. market and regulatory activities are generally included in the international commercial segment.

• Corporate, includes platform functions such as information technology, facilities, legal, finance, human resources, business development, and communications, among others. These costs also include compensation costs and other miscellaneous operating expenses not charged to our operating segments, as well as interest income and expense.

• Certain transactions and events such as (i) Purchase accounting adjustments, where we incur expenses associated with the amortization of fair value adjustments to inventory, intangible assets and property, plant and equipment; (ii) Acquisition-related activities, where we incur costs associated with acquiring and integrating newly acquired businesses, such as transaction costs and integration costs; and (iii) Certain significant items, which comprise substantive, unusual items that, either as a result of their nature or size, would not be expected to occur as part of our normal business on a regular basis, such as restructuring charges and implementation costs associated with our cost-reduction/productivity initiatives that are not associated with an acquisition, certain asset impairment charges, certain legal and commercial settlements and the impact of divestiture-related gains and losses.

• Other unallocated includes (i) certain overhead expenses associated with our global manufacturing operations not charged to our operating segments; (ii) certain costs associated with information technology and finance that specifically support our global manufacturing operations; (iii) certain supply chain and global logistics costs; and (iv) procurement costs.

26 |

Segment Assets

We manage our assets on a total company basis, not by operating segment. Therefore, our chief operating decision maker does not regularly review any asset information by operating segment and, accordingly, we do not report asset information by operating segment.

	Earnings						Depreciation and Amortization(a)
	Three Months Ended						Three Months Ended
	September 30,						September 30,
(MILLIONS OF DOLLARS)	2019			2018			2019		2018
U.S.
Revenue	$	844		$	757
Cost of sales	163			151
Gross profit	681			606
Gross margin	80.7		%	80.1		%
Operating expenses	130			116
Other (income)/deductions	—			—
U.S. Earnings	551			490			$	12	$	9
International
Revenue(b)	721			709
Cost of sales	234			226
Gross profit	487			483
Gross margin	67.5		%	68.1		%
Operating expenses	134			131
Other (income)/deductions	—			(1		)
International Earnings	353			353			13		11
Total operating segments	904			843			25		20
Other business activities	(87		)	(84		)	7		6
Reconciling Items:
Corporate	(172		)	(178		)	19		15
Purchase accounting adjustments	(55		)	(49		)	55		43
Acquisition-related costs	(6		)	(40		)	—		—
Certain significant items(c)	17			8			—		—
Other unallocated	(73		)	(82		)	1		—
Total Earnings(d)	$	528		$	418		$	107	$	84

^(a)  Certain production facilities are shared. Depreciation and amortization is allocated to the reportable operating segments based on estimates of where the benefits of the related assets are realized.

^(b)  Revenue denominated in euros was $176 million and $180 million for the three months ended September 30, 2019 and September 30, 2018, respectively.

^(c)  For the three months ended September 30, 2019, primarily includes income of $20 million resulting from a contingent payment received pursuant to an agreement related to the 2016 sale of certain U.S. manufacturing sites.

For the three months ended September 30, 2018 primarily represents: (i) employee termination costs of $8 million, (ii) a net gain of $18 million related to the relocation of a manufacturing site in China, and (iii) a loss of $2 million related to sales of certain manufacturing sites and products as a result of our supply network strategy.

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

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	Earnings						Depreciation and Amortization(a)
	Nine Months Ended						Nine Months Ended
	September 30,						September 30,
(MILLIONS OF DOLLARS)	2019			2018			2019		2018
U.S.
Revenue	$	2,342		$	2,068
Cost of sales	468			431
Gross profit	1,874			1,637
Gross margin	80.0		%	79.2		%
Operating expenses	367			328
Other (income)/deductions	—			—
U.S. Earnings	1,507			1,309			$	31	$	25
International
Revenue(b)	2,181			2,163
Cost of sales	662			689
Gross profit	1,519			1,474
Gross margin	69.6		%	68.1		%
Operating expenses	412			411
Other (income)/deductions	—			2
International Earnings	1,107			1,061			38		34
Total operating segments	2,614			2,370			69		59
Other business activities	(246		)	(247		)	18		17
Reconciling Items:
Corporate	(512		)	(470		)	49		42
Purchase accounting adjustments	(179		)	(95		)	165		88
Acquisition-related costs	(33		)	(41		)	—		—
Certain significant items(c)	(56		)	(2		)	—		—
Other unallocated	(224		)	(243		)	2		1
Total Earnings(d)	$	1,364		$	1,272		$	303	$	207

^(a)  Certain production facilities are shared. Depreciation and amortization is allocated to the reportable operating segments based on estimates of where the benefits of the related assets are realized.

^(b)  Revenue denominated in euros was $541 million and $555 million for the nine months ended September 30, 2019 and September 30, 2018, respectively.

^(c)  For the nine months ended September 30, 2019, primarily represents (i) a change in estimate related to inventory costing of $68 million, (ii) income of $20 million resulting from a contingent payment received pursuant to an agreement related to the 2016 sale of certain U.S. manufacturing sites, and (iii) product transfer costs and consulting fees of $7 million related to our supply network strategy.

For the nine months ended September 30, 2018, primarily represents: (i) charges related to our operational efficiency initiative and supply network strategy of $8 million which includes consulting fees, product transfer costs, employee termination costs, and a loss related to sales of certain manufacturing sites and products, (ii) employee termination costs of $11 million in Europe as a result of initiatives to better align our organizational structure, and (iii) a net gain of $18 million related to the relocation of a manufacturing site in China.

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

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Zoetis Inc.:

Results of Review of Interim Financial Information

We have reviewed the condensed consolidated balance sheet of Zoetis Inc. and subsidiaries (the Company) as of September 30, 2019, the related condensed consolidated statements of income, comprehensive income, equity for the three-month and nine-month periods ended September 30, 2019 and September 30, 2018, the related condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2019 and September 30, 2018 and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2018, and the related consolidated statements of income, comprehensive income, equity, and cash flows for the year then ended (not presented herein); and in our report dated February 14, 2019, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2018, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

This consolidated interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our reviews in accordance with the standards of the PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ KPMG LLP

Short Hills, New Jersey

November 7, 2019

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview of our business

We are a global leader in the discovery, development, manufacture and commercialization of animal health medicines, vaccines, and diagnostic products with a focus on both livestock and companion animals. For more than 65 years, we have been committed to enhancing the health of animals and bringing solutions to our customers who raise and care for them.

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 livestock and companion animal customers in order to capitalize on local and regional trends and customer needs. See Notes to Condensed Consolidated Financial Statements — Note 17. Segment Information.

We directly market our products to veterinarians and livestock producers located in approximately 45 countries in developed and emerging markets 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. In markets where we do not have a direct commercial presence, we generally contract with distributors that provide logistics and sales and marketing support for our products.

We believe our investments in one of the industry’s largest sales organizations, including our extensive network of technical and veterinary operations specialists, our high-quality manufacturing and reliability of supply, and our long track record of developing products that meet customer needs, has led to enduring and valued relationships with our customers. Our research and development (R&D) efforts enable us to deliver innovative products to address unmet needs and evolve our product lines so they remain relevant for our customers.

A summary of our 2019 performance compared with the comparable 2018 period follows:

					% Change
	Three Months Ended					Related to
	September 30,					Foreign
(MILLIONS OF DOLLARS)	2019		2018		Total	Exchange		Operational(a)
Revenue	$	1,584	$	1,480	7	(2	)	9
Net income attributable to Zoetis	433		347		25	4		21
Adjusted net income(a)	455		403		13	3		10

					% Change
	Nine Months Ended					Related to
	September 30,					Foreign
(MILLIONS OF DOLLARS)	2019		2018		Total	Exchange		Operational(a)
Revenue	$	4,586	$	4,261	8	(3	)	11
Net income attributable to Zoetis	1,116		1,083		3	—		3
Adjusted net income(a)	1,315		1,143		15	—		15

^(a)  Operational growth and adjusted net income are non-GAAP financial measures. See the Non-GAAP financial measures section of this Management's Discussion and Analysis (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 2018 Annual Report on Form 10-K. Set forth below are updates to certain of the factors disclosed in our 2018 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: weather patterns, herd management decisions, economic conditions, regulatory actions, competitive dynamics, disease outbreaks, product and geographic mix, timing of price increases and timing of investment decisions.

Disease Outbreaks

Sales of our livestock products could be adversely affected by the outbreak of disease carried by animals. Outbreaks of disease may reduce regional or global sales of particular animal-derived food products or result in reduced exports of such products, either due to heightened export restrictions or import prohibitions, which may reduce demand for our products. For example, recent outbreaks of African Swine Fever have seriously impacted swine herds primarily in China and certain Southeast Asian countries, and as a result sales of our swine products there have been negatively impacted.

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.

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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 nine months ended September 30, 2019, approximately 44% of our revenue was denominated in foreign currencies. We seek to manage our foreign exchange risk, in part, through operational means, including managing same-currency revenue in relation to same-currency costs and same-currency assets in relation to same-currency liabilities. As we operate in multiple foreign currencies, including the euro, Brazilian real, Chinese renminbi, Canadian dollar, Australian dollar, U.K. pound 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 nine months ended September 30, 2019, approximately 56% of our total revenue was in U.S. dollars. Our year-over-year total revenue growth was unfavorably impacted by approximately 3% from changes in foreign currency values relative to the U.S. dollar.

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 Growth

We believe that it is important to not only understand overall revenue and earnings growth, but also “operational growth.” Operational growth is a non-GAAP financial measure defined as revenue or earnings growth excluding the impact of foreign exchange. This measure provides information on the change in revenue and earnings as if foreign currency exchange rates had not changed between the current and prior periods to facilitate a period-to-period comparison. We believe this non-GAAP measure provides a useful comparison to previous periods for the company and investors, but should not be viewed as a substitute for U.S. GAAP reported growth.

Adjusted Net Income and Adjusted Earnings Per Share

Adjusted net income and the corresponding adjusted earnings per share (EPS) are non-GAAP financial measures of performance used by management. We believe these financial measures are useful supplemental information to investors when considered together with 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-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 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.

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Analysis of the condensed consolidated statements of income

The following discussion and analysis of our statements of income should be read along with our condensed consolidated financial statements and the notes thereto included elsewhere in Part I— Item 1 of this Quarterly Report on Form 10-Q.

	Three Months Ended								Nine Months Ended
	September 30,						%		September 30,						%
(MILLIONS OF DOLLARS)	2019			2018			Change		2019			2018			Change
Revenue	$	1,584		$	1,480		7		$	4,586		$	4,261		8
Costs and expenses:
Cost of sales	479			473			1		1,462			1,367			7
% of revenue	30.2		%	32.0		%			31.9		%	32.1		%
Selling, general and administrative expenses	391			367			7		1,166			1,064			10
% of revenue	25		%	25		%			25		%	25		%
Research and development expenses	112			108			4		325			307			6
% of revenue	7		%	7		%			7		%	7		%
Amortization of intangible assets	38			32			19		115			78			47
Restructuring charges and certain acquisition-related costs	6			47			(87	)	33			54			(39	)
Interest expense, net of capitalized interest	56			54			4		167			147			14
Other (income)/deductions—net	(26		)	(19		)	37		(46		)	(28		)	64
Income before provision for taxes on income	528			418			26		1,364			1,272			7
% of revenue	33		%	28		%			30		%	30		%
Provision for taxes on income	95			71			34		248			193			28
Effective tax rate	18.0		%	17.0		%			18.2		%	15.2		%
Net income before allocation to noncontrolling interests	433			347			25		1,116			1,079			3
Less: Net loss attributable to noncontrolling interests	—			—			—		—			(4		)	(100	)
Net income attributable to Zoetis	$	433		$	347		25		$	1,116		$	1,083		3
% of revenue	27		%	23		%			24		%	25		%

Certain amounts and percentages may reflect rounding adjustments.

Revenue

Three months ended September 30, 2019 vs. three months ended September 30, 2018

Total revenue increased by $104 million, or 7%, in the three months ended September 30, 2019, compared with the three months ended September 30, 2018, an increase of $128 million, or 9%, on an operational basis. Operational revenue growth was comprised primarily of the following:

•increased volume from in-line products of approximately 4%, primarily driven by our key dermatology products of approximately 3%;

• volume growth from new products of approximately 2%;

• the acquisition of Abaxis which contributed approximately 2%; and

• price growth of approximately 1%.

Foreign exchange decreased reported revenue growth by approximately 2%.

Nine months ended September 30, 2019 vs. nine months ended September 30, 2018

Total revenue increased by $325 million, or 8%, in the nine months ended September 30, 2019, compared with the nine months ended September 30, 2018, an increase of $466 million, or 11%, on an operational basis. Operational revenue growth was comprised primarily of the following:

• the acquisition of Abaxis which contributed approximately 4%;

• price growth of approximately 3%;

• increased volume from in-line products of approximately 3%, primarily driven by our key dermatology products; and

• volume growth from new products of approximately 1%.

Foreign exchange decreased reported revenue growth by approximately 3%.

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Costs and Expenses

Cost of sales
	Three Months Ended							Nine Months Ended
	September 30,						%	September 30,						%
(MILLIONS OF DOLLARS)	2019			2018			Change	2019			2018			Change
Cost of sales	$	479		$	473		1	$	1,462		$	1,367		7
% of revenue	30.2		%	32.0		%		31.9		%	32.1		%

Certain amounts and percentages may reflect rounding adjustments.

Three months ended September 30, 2019 vs. three months ended September 30, 2018

Cost of sales as a percentage of revenue decreased from 32.0% to 30.2% in the three months ended September 30, 2019, compared with the three months ended September 30, 2018, primarily as a result of:

• favorable foreign exchange;

• favorable product mix; and

• price increases,

partially offset by:

• tariffs on certain products; and

• the inclusion of Abaxis.

Nine months ended September 30, 2019 vs. nine months ended September 30, 2018

Cost of sales as a percentage of revenue decreased from 32.1% to 31.9% in the nine months ended September 30, 2019, compared with the nine months ended September 30, 2018, primarily as a result of:

• favorable foreign exchange;

• price increases;

• favorable product mix; and

• continued cost improvements and efficiencies in our manufacturing network,

partially offset by:

• the inclusion of Abaxis;

• tariffs on certain products; and

• a change in estimate related to inventory costing.

Selling, general and administrative expenses
	Three Months Ended							Nine Months Ended
	September 30,						%	September 30,						%
(MILLIONS OF DOLLARS)	2019			2018			Change	2019			2018			Change
Selling, general and administrative expenses	$	391		$	367		7	$	1,166		$	1,064		10
% of revenue	25		%	25		%		25		%	25		%

Certain amounts and percentages may reflect rounding adjustments.

Three months ended September 30, 2019 vs. three months ended September 30, 2018

Selling, general & administrative (SG&A) expenses increased by $24 million, or 7%, in the three months ended September 30, 2019, compared with the three months ended September 30, 2018, primarily as a result of:

• the inclusion of Abaxis;

• an increase in certain compensation-related expenses; and

• expenses related to the acquisition of Platinum Performance,

partially offset by:

• favorable foreign exchange.

Nine months ended September 30, 2019 vs. nine months ended September 30, 2018

SG&A expenses increased by $102 million, or 10%, in the nine months ended September 30, 2019, compared with the nine months ended September 30, 2018, primarily as a result of:

• the inclusion of Abaxis;

33 |

• an increase in certain compensation-related expenses; and

• expenses related to the acquisition of Platinum Performance,

partially offset by:

• favorable foreign exchange.

Research and development expenses
	Three Months Ended							Nine Months Ended
	September 30,						%	September 30,						%
(MILLIONS OF DOLLARS)	2019			2018			Change	2019			2018			Change
Research and development expenses	$	112		$	108		4	$	325		$	307		6
% of revenue	7		%	7		%		7		%	7		%

Certain amounts and percentages may reflect rounding adjustments.

Three months ended September 30, 2019 vs. three months ended September 30, 2018

R&D expenses increased by $4 million, or 4%, in the three months ended September 30, 2019, compared with the three months ended September 30, 2018, primarily as a result of:

• increased spending driven by project investments;

• an increase in certain compensation-related expenses; and

• the inclusion of Abaxis,

partially offset by:

• favorable foreign exchange.

Nine months ended September 30, 2019 vs. nine months ended September 30, 2018

R&D expenses increased by $18 million, or 6%, in the nine months ended September 30, 2019, compared with the nine months ended September 30, 2018, primarily as a result of:

• increased spending driven by project investments;

• the inclusion of Abaxis; and

• an increase in certain compensation-related expenses,

partially offset by:

• favorable foreign exchange.

Amortization of intangible assets
	Three Months Ended					Nine Months Ended
	September 30,				%	September 30,				%
(MILLIONS OF DOLLARS)	2019		2018		Change	2019		2018		Change
Amortization of intangible assets	$	38	$	32	19	$	115	$	78	47

Certain amounts and percentages may reflect rounding adjustments.

Three months ended September 30, 2019 vs. three months ended September 30, 2018

Amortization of intangible assets increased by $6 million, or 19%, in the three months ended September 30, 2019, compared with the three months ended September 30, 2018 primarily as a result of certain intangible assets acquired in the third quarter of 2018 as part of the acquisition of Abaxis.

Nine months ended September 30, 2019 vs. nine months ended September 30, 2018

Amortization of intangible assets increased by $37 million, or 47%, in the nine months ended September 30, 2019, compared with the nine months ended September 30, 2018 primarily as a result of certain intangible assets acquired in the third quarter of 2018 as part of the acquisition of Abaxis.

34 |

Restructuring charges and certain acquisition-related costs
	Three Months Ended						Nine Months Ended
	September 30,				%		September 30,				%
(MILLIONS OF DOLLARS)	2019		2018		Change		2019		2018		Change
Restructuring charges and certain acquisition-related costs	$	6	$	47	(87	)	$	33	$	54	(39	)

Certain amounts and percentages may reflect rounding adjustments.

Our acquisition-related costs primarily relate to restructuring charges for employees, assets and activities that will not continue in the future, as well as integration costs. The majority of these net restructuring charges are related to termination costs, but we also exited a number of distributor and other contracts and performed certain facility rationalization efforts. Our integration costs are generally comprised of consulting costs related to the integration of systems and processes, as well as product transfer costs.

For additional information regarding restructuring charges and acquisition-related costs, see Notes to Condensed Consolidated Financial Statements— Note 6. Restructuring Charges and Other Costs Associated with Acquisitions, Cost-Reduction and Productivity Initiatives.

Three months ended September 30, 2019 vs. three months ended September 30, 2018

Restructuring charges and certain acquisition-related costs decreased by $41 million, or 87%, in the three months ended September 30, 2019 compared with the three months ended September 30, 2018, primarily due to a reduction in the integration costs and employee termination costs incurred as a result of the acquisition of Abaxis in the third quarter of 2018.

Nine months ended September 30, 2019 vs. nine months ended September 30, 2018

Restructuring charges and certain acquisition-related costs decreased by $21 million, or 39%, in the nine months ended September 30, 2019 compared with the nine months ended September 30, 2018, primarily due to a reduction in the integration costs and employee termination costs incurred as a result of the acquisition of Abaxis in the third quarter of 2018.

Interest expense, net of capitalized interest
	Three Months Ended					Nine Months Ended
	September 30,				%	September 30,				%
(MILLIONS OF DOLLARS)	2019		2018		Change	2019		2018		Change
Interest expense, net of capitalized interest	$	56	$	54	4	$	167	$	147	14

Certain amounts and percentages may reflect rounding adjustments.

Three months ended September 30, 2019 vs. three months ended September 30, 2018

Interest expense, net of capitalized interest, increased by $2 million, or 4% in the three months ended September 30, 2019, compared with the three months ended September 30, 2018, as a result of the issuance of $1.5 billion aggregate principal amount of our senior notes in August 2018.

Nine months ended September 30, 2019 vs. nine months ended September 30, 2018

Interest expense, net of capitalized interest, increased by $20 million, or 14% in the nine months ended September 30, 2019, compared with the nine months ended September 30, 2018, as a result of the issuance of $1.5 billion aggregate principal amount of our senior notes in August 2018.

Other (income)/deductions—net
	Three Months Ended							Nine Months Ended
	September 30,						%	September 30,						%
(MILLIONS OF DOLLARS)	2019			2018			Change	2019			2018			Change
Other (income)/deductions—net	$	(26	)	$	(19	)	37	$	(46	)	$	(28	)	64

Certain amounts and percentages may reflect rounding adjustments.

Three months ended September 30, 2019 vs. three months ended September 30, 2018

The change in Other (income)/deductions—net from income of $19 million in the three months ended September 30, 2018, to income of $26 million in the three months ended September 30, 2019, is primarily a result of higher interest income due to higher cash balances and higher short-term interest rates for the three months ended September 30, 2019. Additionally, the three months ended September 30, 2019, includes $20 million of income resulting from a contingent payment received pursuant to an agreement related to the 2016 sale of certain U.S. manufacturing sites, and the three months ended September 30, 2018 includes a net gain of $18 million related to the relocation of a manufacturing site in China.

35 |

Nine months ended September 30, 2019 vs. nine months ended September 30, 2018

The change in Other (income)/deductions—net from income of $28 million in the nine months ended September 30, 2018, to income of $46 million in the nine months ended September 30, 2019, is primarily a result of higher interest income due to higher short-term interest rates and higher cash balances for the nine months ended September 30, 2019, as well as higher foreign currency losses for the nine months ended September 30, 2018. Additionally, the nine months ended September 30, 2019, includes $20 million of income resulting from a contingent payment received pursuant to an agreement related to the 2016 sale of certain U.S. manufacturing sites, and the nine months ended September 30, 2018 includes a net gain of $18 million related to the relocation of a manufacturing site in China.

Provision for taxes on income
	Three Months Ended							Nine Months Ended
	September 30,						%	September 30,						%
(MILLIONS OF DOLLARS)	2019			2018			Change	2019			2018			Change
Provision for taxes on income	$	95		$	71		34	$	248		$	193		28
Effective tax rate	18.0		%	17.0		%		18.2		%	15.2		%

Certain amounts and percentages may reflect rounding adjustments.

Three months ended September 30, 2019 vs. three months ended September 30, 2018

Our effective tax rate was 18.0% for the three months ended September 30, 2019, compared with 17.0% for the three months ended September 30, 2018. The higher effective tax rate for the three months ended September 30, 2019, was primarily attributable to:

• a $23 million net discrete tax benefit recorded in the third quarter of 2018, associated with a measurement-period adjustment related to the provisional one-time mandatory deemed repatriation tax on the company's undistributed non-U.S. earnings pursuant to the Tax Act enacted on December 22, 2017;

• the impact of the GILTI tax, a new provision of the Tax Act, which became effective for the company in the first quarter of 2019;

• changes in the jurisdictional mix of earnings, which includes the impact of the location of earnings from operations and repatriation costs. The jurisdictional mix of earnings can vary as a result of repatriation decisions and operating fluctuations in the normal course of business and the impact of non-deductible items; and

• a $1 million and $3 million discrete tax benefit recorded in the third quarter of 2019 and 2018, respectively, related to the excess tax benefits for share-based payments,

partially offset by:

• a $14 million net discrete deferred tax benefit recorded in the third quarter of 2019, due to a change in tax basis related to purchase accounting.

Nine months ended September 30, 2019 vs. nine months ended September 30, 2018

Our effective tax rate was 18.2% for the nine months ended September 30, 2019, compared with 15.2% for the nine months ended September 30, 2018. The higher effective tax rate for the nine months ended September 30, 2019, was primarily attributable to:

• a $58 million net discrete tax benefit recorded in the nine months ended 2018, associated with a measurement-period adjustment related to the provisional one-time mandatory deemed repatriation tax on the company's undistributed non-U.S. earnings pursuant to the Tax Act enacted on December 22, 2017;

• the impact of the GILTI tax, a new provision of the Tax Act, which became effective for the company in the first quarter of 2019;

• changes in the jurisdictional mix of earnings, which includes the impact of the location of earnings from operations and repatriation costs. The jurisdictional mix of earnings can vary as a result of repatriation decisions and operating fluctuations in the normal course of business and the impact of non-deductible items; and

• a $3 million and $8 million discrete tax benefit recorded in the nine months ended 2019 and 2018, respectively, related to a remeasurement of deferred taxes as a result of a change in non-U.S. statutory tax rates,

partially offset by:

• a $19 million net discrete tax benefit recorded in the nine months ended 2019, related to changes in various other tax items;

• a $14 million net discrete deferred tax benefit recorded in the third quarter of 2019, due to a change in tax basis related to purchase accounting; and

• a $17 million and $12 million discrete tax benefit recorded in the nine months ended 2019 and 2018, respectively, related to the excess tax benefits for share-based payments.

36 |

Operating Segment Results

On a global basis, the mix of revenue between livestock and companion animal products was as follows:

					% Change
	Three Months Ended						Related to
	September 30,						Foreign
(MILLIONS OF DOLLARS)	2019		2018		Total		Exchange		Operational
U.S.
Livestock	$	294	$	322	(9	)	—		(9	)
Companion animal	550		435		26		—		26
	844		757		11		—		11
International
Livestock	437		456		(4	)	(3	)	(1	)
Companion animal	284		253		12		(4	)	16
	721		709		2		(3	)	5
Total
Livestock	731		778		(6	)	(2	)	(4	)
Companion animal	834		688		21		(2	)	23
Contract manufacturing & human health	19		14		36		*		*
	$	1,584	$	1,480	7		(2	)	9

* Calculation not meaningful.

Certain amounts and percentages may reflect rounding adjustments.

					% Change
	Nine Months Ended						Related to
	September 30,						Foreign
(MILLIONS OF DOLLARS)	2019		2018		Total		Exchange		Operational
U.S.
Livestock	$	847	$	885	(4	)	—		(4	)
Companion animal	1,495		1,183		26		—		26
	2,342		2,068		13		—		13
International
Livestock	1,315		1,397		(6	)	(6	)	—
Companion animal	866		766		13		(7	)	20
	2,181		2,163		1		(6	)	7
Total
Livestock	2,162		2,282		(5	)	(4	)	(1	)
Companion animal	2,361		1,949		21		(3	)	24
Contract manufacturing & human health	63		30		*		*		*
	$	4,586	$	4,261	8		(3	)	11

* Calculation not meaningful.

Certain amounts and percentages may reflect rounding adjustments.

37 |

Earnings by segment and the operational and foreign exchange changes versus the comparable prior year period were as follows:

							% Change
	Three Months Ended								Related to
	September 30,								Foreign
(MILLIONS OF DOLLARS)	2019			2018			Total		Exchange		Operational
U.S.
Revenue	$	844		$	757		11		—		11
Cost of Sales	163			151			8		—		8
Gross Profit	681			606			12		—		12
Gross Margin	80.7		%	80.1		%
Operating Expenses	130			116			12		—		12
Other (income)/deductions	—			—			—		—		—
U.S. Earnings	551			490			12		—		12
International
Revenue	721			709			2		(3	)	5
Cost of Sales	234			226			4		(7	)	11
Gross Profit	487			483			1		(1	)	2
Gross Margin	67.5		%	68.1		%
Operating Expenses	134			131			2		(4	)	6
Other (income)/deductions	—			(1		)	(100	)	*		*
International Earnings	353			353			—		(1	)	1
Total operating segments	904			843			7		(1	)	8
Other business activities	(87		)	(84		)	4
Reconciling Items:
Corporate	(172		)	(178		)	(3	)
Purchase accounting adjustments	(55		)	(49		)	12
Acquisition-related costs	(6		)	(40		)	(85	)
Certain significant items	17			8			*
Other unallocated	(73		)	(82		)	(11	)
Income before provision for taxes on income	$	528		$	418		26

* Calculation not meaningful.

Certain amounts and percentages may reflect rounding adjustments.

38 |

							% Change
	Nine Months Ended								Related to
	September 30,								Foreign
(MILLIONS OF DOLLARS)	2019			2018			Total		Exchange		Operational
U.S.
Revenue	$	2,342		$	2,068		13		—		13
Cost of Sales	468			431			9		—		9
Gross Profit	1,874			1,637			14		—		14
Gross Margin	80.0		%	79.2		%
Operating Expenses	367			328			12		—		12
Other (income)/deductions	—			—			—		—		—
U.S. Earnings	1,507			1,309			15		—		15
International
Revenue	2,181			2,163			1		(6	)	7
Cost of Sales	662			689			(4	)	(10	)	6
Gross Profit	1,519			1,474			3		(5	)	8
Gross Margin	69.6		%	68.1		%
Operating Expenses	412			411			—		(7	)	7
Other (income)/deductions	—			2			(100	)	*		*
International Earnings	1,107			1,061			4		(5	)	9
Total operating segments	2,614			2,370			10		(2	)	12
Other business activities	(246		)	(247		)	—
Reconciling Items:
Corporate	(512		)	(470		)	9
Purchase accounting adjustments	(179		)	(95		)	88
Acquisition-related costs	(33		)	(41		)	(20	)
Certain significant items	(56		)	(2		)	*
Other unallocated	(224		)	(243		)	(8	)
Income before provision for taxes on income	$	1,364		$	1,272		7

* Calculation not meaningful.

Certain amounts and percentages may reflect rounding adjustments.

Three months ended September 30, 2019 vs. three months ended September 30, 2018

U.S. operating segment

U.S. segment revenue increased by $87 million, or 11%, in the three months ended September 30, 2019, compared with the three months ended September 30, 2018, reflecting growth of approximately $115 million in companion animal products and declines of approximately $28 million in livestock products.

• Companion animal revenue growth was driven primarily by our parasiticides portfolio across the ProHeart^®, Revolution^® and Simparica^® franchises, including new product introductions, notably Revolution Plus for cats and ProHeart 12 for dogs. Increased sales across our key dermatology portfolio and revenue from the acquisition of Abaxis significantly contributed to growth as well.

• Livestock revenue decreased primarily due to continued weakness across both the beef and dairy cattle sectors, as well as the timing of promotional activities in swine. Growth in poultry products was driven primarily by increased sales of alternatives to antibiotic medicated feed additive products.

U.S. segment earnings increased by $61 million, or 12%, in the three months ended September 30, 2019, compared with the three months ended September 30, 2018, primarily due to revenue growth and improved gross margins, partially offset by higher operating expenses.

International operating segment

International segment revenue increased by $12 million, or 2%, in the three months ended September 30, 2019, compared with the three months ended September 30, 2018. Operational revenue increased by $36 million, or 5%, driven by growth of approximately $41 million in companion animal products and declines of approximately $5 million in livestock products.

39 |

• Companion animal operational revenue growth resulted primarily from increased sales across our key dermatology portfolio, the acquisition of Abaxis, and certain parasiticides including Simparica and Stronghold^® Plus.

• Livestock operational revenue decreased, driven by the ongoing impact of African Swine Fever in China and, to a lesser extent, other markets in Asia, which more than offset growth in our cattle and poultry portfolios. Growth in our cattle portfolio was driven by favorable market conditions in key markets including Mexico, the U.K. and Canada. Growth in cattle was negatively impacted by an unfavorable comparison to the prior year which benefited from the end of a national trucking strike in Brazil. Growth in our poultry portfolio was the result of increased sales in key markets including China, Australia and Brazil.

Additionally, International segment revenue was unfavorably impacted by foreign exchange, which decreased revenue by approximately $24 million, or 3%, primarily driven by the depreciation of the euro, Argentine peso, Australian dollar, U.K. pound and Chinese renminbi.

International segment earnings was flat in the three months ended September 30, 2019, compared with the three months ended September 30, 2018. Operational earnings growth was 1%, primarily due to higher revenue, partially offset by cost of sales and operating expenses.

Nine months ended September 30, 2019 vs. nine months ended September 30, 2018

U.S. operating segment

U.S. segment revenue increased by $274 million, or 13%, in the nine months ended September 30, 2019, compared with the nine months ended September 30, 2018, reflecting growth of approximately $312 million in companion animal products and declines of approximately $38 million in livestock products.

• Companion animal revenue growth was driven primarily by the inclusion of Abaxis, increased sales of the key dermatology portfolio, and increased sales of the parasiticides portfolio across the Revolution, ProHeart, and Simparica franchises, including new product introductions Revolution Plus for cats and ProHeart 12 for dogs.

• Livestock revenue decreased primarily due to continued weakness across both the beef and dairy cattle sectors, as well as the timing of distributor purchasing patterns for medicated feed additive products impacting both cattle and swine. For poultry, growth was driven by increased sales of alternatives to antibiotic medicated feed additive products.

U.S. segment earnings increased by $198 million, or 15%, in the nine months ended September 30, 2019, compared with the nine months ended September 30, 2018, primarily due to revenue growth and improved gross margins, partially offset by higher operating expenses.

International operating segment

International segment revenue increased by $18 million, or 1%, in the nine months ended September 30, 2019, compared with the nine months ended September 30, 2018. Operational revenue increased by $158 million, or 7%, driven by growth of approximately $152 million in companion animal products and growth of approximately $6 million in livestock products.

• Companion animal operational revenue growth resulted primarily from increased sales of our key dermatology portfolio across multiple international markets, growth of parasiticide products, including Simparica and Stronghold Plus, and the inclusion of Abaxis.

• Livestock operational revenue growth was driven by increased sales in poultry and cattle. Poultry products increased due to sales of vaccines and medicated feed additives. Cattle products also contributed to growth driven by anti-infectives and vaccines. Swine products declined due to the negative impact of African Swine Fever in China.

Additionally, International segment revenue was unfavorably impacted by foreign exchange, which decreased revenue by approximately $140 million, or 6%, primarily driven by the depreciation of the euro, Brazilian real, Argentine peso, Australian dollar, Turkish lira and U.K. pound.

International segment earnings increased by $46 million, or 4%, in the nine months ended September 30, 2019, compared with the nine months ended September 30, 2018. Operational earnings growth was $90 million, or 9%, primarily due to higher revenue and improved gross margin, partially offset by higher operating expenses.

Other business activities

Other business activities includes our Client Supply Services (CSS) contract manufacturing results, our human health business and expenses associated with our dedicated veterinary medicine research and development organization, research alliances, U.S. regulatory affairs and other operations focused on the development of our products. Other R&D-related costs associated with non-U.S. market and regulatory activities are generally included in the International segment.

Three months ended September 30, 2019 vs. three months ended September 30, 2018

Other business activities net loss increased by $3 million, or 4%, in the three months ended September 30, 2019, compared with the three months ended September 30, 2018, reflecting an increase in R&D costs due to an increase in project investments and compensation-related costs, partially offset by revenue from the acquired Abaxis human health business.

40 |

Nine months ended September 30, 2019 vs. nine months ended September 30, 2018

Other business activities net loss decreased by $1 million, in the nine months ended September 30, 2019, compared with the nine months ended September 30, 2018, reflecting revenue from the acquired Abaxis human health business, partially offset by an increase in R&D costs due to an increase in project investments, the inclusion of Abaxis expenses and compensation-related costs.

Reconciling items

Reconciling items include certain costs that are not allocated to our operating segments results, such as costs associated with the following:

• Corporate, which includes certain costs associated with information technology, facilities, legal, finance, human resources, business development and communications, among others. These costs also include certain compensation costs, certain procurement costs, and other miscellaneous operating expenses that are not charged to our operating segments, as well as interest income and expense;

• Certain transactions and events such as (i) Purchase accounting adjustments, which includes expenses associated with the amortization of fair value adjustments to inventory, intangible assets, and property, plant and equipment; (ii) Acquisition-related activities, which includes costs for acquisition and integration; and (iii) Certain significant items, which includes non-acquisition-related restructuring charges, certain asset impairment charges, certain legal and commercial settlements, and costs associated with cost reduction/productivity initiatives; and

• Other unallocated, which includes (i) certain overhead expenses associated with our global manufacturing operations not charged to our operating segments; (ii) certain costs associated with information technology and finance that specifically support our global manufacturing operations; (iii) certain supply chain and global logistics costs; and (iv) certain procurement costs.

Three months ended September 30, 2019 vs. three months ended September 30, 2018

Corporate expenses decreased by $6 million, or 3%, in the three months ended September 30, 2019, compared with the three months ended September 30, 2018, primarily due to favorable foreign exchange, partially offset by higher depreciation and certain compensation-related costs.

Other unallocated expenses decreased by $9 million, or 11%, in the three months ended September 30, 2019, compared with the three months ended September 30, 2018, primarily due to the favorable impact of foreign exchange, and continued cost improvements and efficiencies in our manufacturing network, partially offset by tariffs on certain products and higher inventory charges.

Nine months ended September 30, 2019 vs. nine months ended September 30, 2018

Corporate expenses increased by $42 million, or 9%, in the nine months ended September 30, 2019, compared with the nine months ended September 30, 2018, primarily due to higher interest expense, net of capitalized interest, associated with the additional debt issued in August 2018, an increase in certain compensation costs not allocated to our operating segments and consulting charges, partially offset by favorable foreign exchange.

Other unallocated expenses decreased by $19 million, or 8%, in the nine months ended September 30, 2019, compared with the nine months ended September 30, 2018, primarily due to the favorable impact of foreign exchange and continued cost improvements and efficiencies in our manufacturing network, partially offset by higher inventory charges, tariffs on certain products, and the inclusion of Abaxis expenses.

See Notes to Condensed Consolidated Financial Statements—Note 17. 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 the acquisition of Abaxis (acquired in July 2018), the Pharmaq business (acquired in November 2015), certain assets of Abbott Animal Health (acquired in February 2015), King Animal Health (KAH) (acquired in 2011), Fort Dodge Animal Health (FDAH) (acquired in 2009), and Pharmacia Animal Health business (acquired in 2003), include amortization related to the increase in fair value of the acquired finite-lived intangible assets and depreciation related to the increase/decrease to fair value of the acquired fixed assets. Therefore, the adjusted net income measure includes the revenue earned upon the sale of the acquired products without considering the aforementioned significant charges.

41 |

While certain purchase accounting adjustments can occur through 20 or more years, this presentation provides an alternative view of our performance that is used by management to internally assess business performance. We believe the elimination of amortization attributable to acquired intangible assets provides management and investors an alternative view of our business results by providing a degree of parity to internally developed intangible assets for which R&D costs previously have been expensed.

A completely accurate comparison of internally developed intangible assets and acquired intangible assets cannot be achieved through adjusted net income. These components of adjusted net income are derived solely from the impact of the items listed above. We have not factored in the impact of any other differences in experience that might have occurred if we had discovered and developed those intangible assets on our own, and this approach does not intend to be representative of the results that would have occurred in those circumstances. For example, our R&D costs in total, and in the periods presented, may have been different; our speed to commercialization and resulting revenue, if any, may have been different; or our costs to manufacture may have been different. In addition, our marketing efforts may have been received differently by our customers. As such, in total, there can be no assurance that our adjusted net income amounts would have been the same as presented had we discovered and developed the acquired intangible assets.

Acquisition-related costs

Adjusted net income is calculated prior to considering transaction and integration costs associated with significant business combinations or net asset acquisitions because these costs are unique to each transaction and represent costs that were incurred to acquire and integrate certain businesses as a result of the acquisition decision. We have made no adjustments for the resulting synergies.

We believe that viewing income prior to considering these charges provides investors with a useful additional perspective because the significant costs incurred in a business combination result primarily from the need to eliminate duplicate assets, activities or employees––a natural result of acquiring a fully integrated set of activities. For this reason, we believe that the costs incurred to convert disparate systems, to close duplicative facilities or to eliminate duplicate positions (for example, in the context of a business combination) can be viewed differently from those costs incurred in the ordinary course of business.

The integration costs associated with a business combination may occur over several years, with the more significant impacts generally ending within three years of the transaction. Because of the need for certain external approvals for some actions, the span of time needed to achieve certain restructuring and integration activities can be lengthy. For example, due to the regulated nature of the animal health medicines, vaccines and diagnostics business, the closure of excess facilities can take several years, as all manufacturing changes are subject to extensive validation and testing and must be approved by the U.S. Food and Drug Administration and/or other regulatory authorities.

Certain significant items

Adjusted net income is calculated excluding certain significant items. Certain significant items represent substantive, unusual items that are evaluated on an individual basis. Such evaluation considers both the quantitative and the qualitative aspect of their unusual nature. Unusual, in this context, may represent items that are not part of our ongoing business; items that, either as a result of their nature or size, we would not expect to occur as part of our normal business on a regular basis; items that would be nonrecurring; or items that relate to products that we no longer sell. While not all-inclusive, examples of items that could be included as certain significant items would be costs related to a major non-acquisition-related restructuring charge and associated implementation costs for a program that is specific in nature with a defined term, such as those related to our non-acquisition-related cost-reduction and productivity initiatives; amounts related to disposals of products or facilities that do not qualify as discontinued operations as defined by U.S. GAAP; certain intangible asset impairments; adjustments related to the resolution of certain tax positions; significant currency devaluation; the impact of adopting certain significant, event-driven tax legislation; or charges related to legal matters. See Notes to Condensed Consolidated Financial Statements— Note 16. 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:  

	Three Months Ended								Nine Months Ended
	September 30,						%		September 30,					%
(MILLIONS OF DOLLARS)	2019			2018			Change		2019		2018			Change
GAAP reported net income attributable to Zoetis	$	433		$	347		25		$	1,116	$	1,083		3
Purchase accounting adjustments—net of tax	29			37			(22	)	120		68			76
Acquisition-related costs—net of tax	5			31			(84	)	27		32			(16	)
Certain significant items—net of tax	(12		)	(12		)	—		52		(40		)	*
Non-GAAP adjusted net income(a)	$	455		$	403		13		$	1,315	$	1,143		15

*Calculation not meaningful.

Certain amounts and percentages may reflect rounding adjustments.

^(a)  The effective tax rate on adjusted pretax income is 20.5% and 19.2% for the three months ended September 30, 2019, and September 30, 2018, respectively. The higher effective tax rate for the three months ended September 30, 2019, compared with the three months ended September 30, 2018, was primarily attributable to (i) the impact of the GILTI tax, a new provision to the Tax Act, which became effective for the company in the first quarter of 2019, and (ii) changes in the jurisdictional mix of earnings, which includes the impact of the location of earnings as well as repatriation costs, partially

42 |

offset by (i) $3 million related to changes in various other tax items, and (ii) a $1 million and $3 million discrete tax benefit recorded in the third quarter of 2019 and 2018, respectively, related to the excess tax benefits for share-based payments.

The effective tax rate on adjusted pretax income is 19.4% and 19.2% for the nine months ended September 30, 2019, and September 30, 2018, respectively. The higher effective tax rate for the nine months ended September 30, 2019, compared with the nine months ended September 30, 2018, was primarily attributable to (i) the impact of the GILTI tax, a new provision to the Tax Act, which became effective for the company in the first quarter of 2019, (ii) changes in the jurisdictional mix of earnings, which includes the impact of the location of earnings as well as repatriation costs, partially offset by (i) an $11 million net discrete tax benefit recorded in the nine months ended 2019, related to changes in various other tax items, and (ii) a $17 million and $12 million discrete tax benefit recorded in the nine months ended 2019 and 2018, respectively, related to the excess tax benefits for share-based payments.

A reconciliation of reported diluted earnings per share (EPS), as reported under U.S. GAAP, to non-GAAP adjusted diluted EPS follows:

	Three Months Ended								Nine Months Ended
	September 30,						%		September 30,					%
	2019			2018			Change		2019		2018			Change
Earnings per share—diluted(a):
GAAP reported EPS attributable to Zoetis—diluted	$	0.90		$	0.71		27		$	2.31	$	2.22		4
Purchase accounting adjustments—net of tax	0.06			0.08			(25	)	0.25		0.14			79
Acquisition-related costs—net of tax	0.01			0.06			(83	)	0.06		0.06			—
Certain significant items—net of tax	(0.03		)	(0.02		)	50		0.11		(0.08		)	*
Non-GAAP adjusted EPS—diluted	$	0.94		$	0.83		13		$	2.73	$	2.34		17

* Calculation not meaningful.

Certain amounts and percentages may reflect rounding adjustments.

^(a)  Diluted earnings per share was computed using the weighted-average common shares outstanding during the period plus the common stock equivalents related to stock options, restricted stock units, performance-vesting restricted stock units and deferred stock units.

Adjusted net income includes the following charges for each of the periods presented:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(MILLIONS OF DOLLARS)	2019		2018		2019		2018
Interest expense, net of capitalized interest	$	56	$	54	$	167	$	147
Interest income	10		6		29		20
Income taxes	117		96		317		271
Depreciation	45		36		120		106
Amortization	7		5		18		13

Certain amounts may reflect rounding adjustments.

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Adjusted net income, as shown above, excludes the following items:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(MILLIONS OF DOLLARS)	2019			2018			2019			2018
Purchase accounting adjustments:
Amortization and depreciation(a)	$	52		$	29		$	157		$	67
Cost of sales(b)	3			9			22			13
Other	—			11			—			15
Total purchase accounting adjustments—pre-tax	55			49			179			95
Income taxes(c)	26			12			59			27
Total purchase accounting adjustments—net of tax	29			37			120			68
Acquisition-related costs:
Transaction costs	—			21			—			21
Integration costs	4			9			13			10
Restructuring costs	2			10			20			10
Total acquisition-related costs—pre-tax	6			40			33			41
Income taxes	1			9			6			9
Total acquisition-related costs—net of tax	5			31			27			32
Certain significant items:
Operational efficiency initiative(d)	(20		)	(1		)	(20		)	—
Supply network strategy(e)	2			3			7			8
Other restructuring charges and cost-reduction/productivity initiatives(f)	—			8			—			11
Other(g)	1			(18		)	69			(17		)
Total certain significant items—pre-tax	(17		)	(8		)	56			2
Income taxes(c)	(5		)	4			4			42
Total certain significant items—net of tax	(12		)	(12		)	52			(40		)
Total purchase accounting adjustments, acquisition-related costs, and certain significant items—net of tax	$	22		$	56		$	199		$	60

Certain amounts may reflect rounding adjustments.

^(a)   Amortization and depreciation expenses related to Purchase accounting adjustments with respect to identifiable intangible assets and property, plant and equipment.

^(b)  Amortization and depreciation expense, as well as fair value adjustments to acquired inventory.

^(c)   Income taxes include the tax effect of the associated pre-tax amounts, calculated by determining the jurisdictional location of the pre-tax amounts and applying that jurisdiction's applicable tax rate.

Income taxes in Purchase accounting adjustments also includes a tax benefit related to a remeasurement of deferred taxes as a result of a change in non-U.S. statutory tax rates, for the three and nine months ended September 30, 2019 and September 30, 2018, in addition to a change in tax basis for the three and nine months ended September 30, 2019.

Income taxes in Acquisition-related costs also includes a tax charge related to the non-deductibility of certain costs associated with the acquisition of Abaxis for the three and nine months ended September 30, 2018.

Income taxes in Certain significant items also includes a net tax benefit related to a measurement-period adjustment to the provisional one-time mandatory deemed repatriation tax on the company's undistributed non-U.S. earnings, pursuant to the Tax Act, for the three and nine months ended September 30, 2018.

^(d) For the three and nine months ended September 30, 2019, represents income resulting from a contingent payment received pursuant to an agreement related to the 2016 sale of certain U.S. manufacturing sites.

^(e)  Represents consulting fees and product transfer costs, included in Cost of sales, and employee termination costs and exit costs, included in Restructuring charges and certain acquisition-related costs, related to cost-reduction and productivity initiatives.

^(f) For the three and nine months ended September 30, 2018, represents employee termination costs in Europe as a result of initiatives to better align our organizational structure.

^(g)  For the nine months ended September 30, 2019, primarily represents a change in estimate related to inventory costing. For the three and nine months ended September 30, 2018, primarily represents a net gain related to the relocation of a manufacturing site in China.

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The classification of the above items excluded from adjusted net income are as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(MILLIONS OF DOLLARS)	2019			2018			2019			2018
Cost of sales:
Purchase accounting adjustments	$	3		$	9		$	22		$	13
Consulting fees	2			1			7			4
Other	1			—			69			—
Total Cost of sales	6			10			98			17
Selling, general & administrative expenses:
Purchase accounting adjustments	18			11			54			14
Other	—			—			—			1
Total Selling, general & administrative expenses	18			11			54			15
Research & development expenses:
Purchase accounting adjustments	—			—			1			1
Total Research & development expenses	—			—			1			1
Amortization of intangible assets:
Purchase accounting adjustments	34			29			102			67
Total Amortization of intangible assets	34			29			102			67
Restructuring charges/(reversals) and certain acquisition-related costs:
Transaction costs	—			21			—			21
Integration costs	4			9			13			10
Employee termination costs	2			17			20			22
Exit costs	—			—			—			1
Total Restructuring charges/(reversals) and certain acquisition-related costs	6			47			33			54
Other (income)/deductions—net:
Net (gain)/loss on sale of assets	(20		)	2			(20		)	2
Other	—			(18		)	—			(18		)
Total Other (income)/deductions—net	(20		)	(16		)	(20		)	(16		)
Provision for taxes on income	22			25			69			78
Total purchase accounting adjustments, acquisition-related costs, and certain significant items—net of tax	$	22		$	56		$	199		$	60

Certain amounts may reflect rounding adjustments.

Analysis of the condensed consolidated statements of comprehensive income

Substantially all changes in other comprehensive income for the periods presented are related to foreign currency translation adjustments. These changes result from the strengthening or weakening of the U.S. dollar as compared to the currencies in the countries in which we do business. The gains and losses associated with these changes are deferred on the balance sheet in Accumulated other comprehensive loss until realized.

Analysis of the condensed consolidated balance sheets

September 30, 2019 vs. December 31, 2018

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.

Short-term investments decreased as a result of maturities of debt securities.

Other current assets increased primarily as a result of the timing of income tax payments, an increase in fair value of cross-currency interest rate swap contracts, and higher receivables due to value-added tax for our international markets.

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Property, plant and equipment, less accumulated, increased primarily as a result of capital spending, partially offset by depreciation and the impact of foreign exchange.

The net change in Operating lease right of use assets, and Operating lease liabilities relates to the adoption of the new lease accounting standard, which became effective January 1, 2019. See Notes to Condensed Consolidated Financial Statements—Note 3. Accounting Standards and Note 10. Leases.

Identifiable intangible assets, less accumulated amortization decreased due to amortization expense and the impact of foreign exchange.

Accounts payable decreased as a result of the timing of payments.

Accrued expenses decreased primarily as a result of a decrease in accrued interest expense as well as payment of employee termination costs primarily associated with the acquisition of Abaxis.

Accrued compensation and related items decreased primarily due to payment of 2018 annual bonuses to eligible employees and 2018 employee savings plan contributions, partially offset by the pro rata accrual of similar items for 2019.

The net changes in Noncurrent deferred tax assets, Noncurrent deferred tax liabilities, Income taxes payable and Other taxes payable primarily reflect adjustments to the accrual for the income tax provision, the tax impacts of the acquisition of Platinum Performance, and the impact of the remeasurement of deferred taxes as a result of a change in tax rates.

Other current liabilities increased primarily due to short-term lease liabilities as a result of the adoption of the new lease accounting standard, which became effective January 1, 2019, partially offset by the payments of contingent consideration related to the 2016 acquisition of certain intangible assets related to our livestock product portfolio and the 2018 acquisition of a manufacturing business in Ireland. See Notes to Condensed Consolidated Financial Statements—Note 3. Accounting Standards and Note 10. Leases.

For an analysis of the changes in Total Equity, see the Condensed Consolidated Statements of Equity and Notes to Condensed Consolidated Financial Statements— Note 14. Stockholders' Equity.

Analysis of the condensed consolidated statements of cash flows

	Nine Months Ended
	September 30,						%
(MILLIONS OF DOLLARS)	2019			2018			Change
Net cash provided by (used in):
Operating activities	$	1,213		$	1,206		1
Investing activities	(291		)	(2,185		)	(87	)
Financing activities	(701		)	730			*
Effect of exchange-rate changes on cash and cash equivalents	(8		)	(29		)	(72	)
Net increase (decrease) in cash and cash equivalents	$	213		$	(278	)	*

*Calculation not meaningful.

Certain amounts and percentages may reflect rounding adjustments.

Operating activities

Nine months ended September 30, 2019 vs. nine months ended September 30, 2018

Net cash provided by operating activities was $1,213 million for the nine months ended September 30, 2019, and $1,206 million for the nine months ended September 30, 2018. The increase in net income after non-cash adjustments was partially offset by timing of payments in the ordinary course of business.

Investing activities

Nine months ended September 30, 2019 vs. nine months ended September 30, 2018

Our net cash used in investing activities was $291 million for the nine months ended September 30, 2019, compared with net cash used in investing activities of $2,185 million for the nine months ended September 30, 2018. The net cash used in investing activities for 2019 was primarily due to capital expenditures, and the acquisition of Platinum Performance in the third quarter of 2019, partially offset by proceeds from maturities of debt securities, proceeds from cross-currency interest rate swaps and proceeds resulting from a contingent payment received pursuant to an agreement related to the 2016 sale of certain U.S. manufacturing sites. The net cash used in investing activities for 2018 was primarily due to the acquisitions of Abaxis and a manufacturing business in Ireland, and capital expenditures.

Financing activities

Nine months ended September 30, 2019 vs. nine months ended September 30, 2018

Our net cash used in financing activities was $701 million for the nine months ended September 30, 2019, compared with net cash provided by financing activities of $730 million for the nine months ended September 30, 2018. The net cash used in financing activities for 2019 was primarily attributable to the purchase of treasury shares, the payment of dividends, the payment of short-term borrowings, and the payments of contingent consideration related to the 2016 acquisition of certain intangible assets related to our livestock product portfolio and the 2018

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acquisition of a manufacturing business in Ireland. The net cash provided by financing activities for 2018 was primarily attributable to the issuance of senior notes in August 2018, partially offset by the purchase of treasury shares.

Analysis of financial condition, liquidity and capital resources

While we believe our cash and cash equivalents on hand, our operating cash flows and our existing financing arrangements will be sufficient to support our future cash needs, this may be subject to the environment in which we operate. Risks to our ability to meet future funding requirements include global economic conditions described in the following paragraph.

Global financial markets may be impacted by macroeconomic, business and financial volatility. As markets change, we will continue to monitor our liquidity position, but there can be no assurance that a challenging economic environment or an economic downturn will not impact our liquidity or our ability to obtain future financing.

Selected measures of liquidity and capital resources

Certain relevant measures of our liquidity and capital resources follow:

	September 30,		December 31,
(MILLIONS OF DOLLARS)	2019		2018
Cash and cash equivalents	$	1,815	$	1,602
Accounts receivable, net(a)	1,030		1,036
Long-term debt, net of discount and issuance costs	6,447		6,443
Working capital	3,566		3,176
Ratio of current assets to current liabilities	4.39:1		3.60:1

^(a)  Accounts receivable are usually collected over a period of 45 to 75 days. For the nine months ended September 30, 2019, compared with December 31, 2018, the number of days that accounts receivables are outstanding remained approximately the same. 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 2016, we entered into an amended and restated revolving credit agreement with a syndicate of banks providing for a multi-year $1.0 billion senior unsecured revolving credit facility (the credit facility). In December 2018, the maturity for the amended and restated credit facility was extended through December 2023. Subject to certain conditions, we have the right to increase the credit facility to up to $1.5 billion. The credit facility contains a financial covenant requiring us to not exceed a maximum total leverage ratio (the ratio of consolidated net debt as of the end of the period to consolidated Earnings Before Interest, Income Taxes, Depreciation and Amortization (EBITDA) for such period) of 3.50:1. Upon entering into a material acquisition, the maximum total leverage ratio increases to 4.00:1, and extends until the fourth full consecutive fiscal quarter ended immediately following the consummation of a material acquisition. The credit facility also contains a clause which adds back to Adjusted Consolidated EBITDA, any operational efficiency restructuring charge (defined as charges recorded by the company during the period commencing on October 1, 2016 and ending December 31, 2019, related to operational efficiency initiatives), provided that for any twelve-month period such charges added back to Adjusted Consolidated EBITDA shall not exceed $100 million in the aggregate.

The credit facility also contains a financial covenant requiring that we maintain a minimum interest coverage ratio (the ratio of EBITDA at the end of the period to interest expense for such period) of 3.50:1. In addition, the credit facility contains other customary covenants.

We were in compliance with all financial covenants as of September 30, 2019 and December 31, 2018. There were no amounts drawn under the credit facility as of September 30, 2019 or December 31, 2018.

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 September 30, 2019, we had access to $76 million of lines of credit which expire at various times through 2020, and are generally renewed annually. There were no borrowings outstanding related to these facilities as of September 30, 2019 and $9 million of borrowings outstanding related to these facilities as of December 31, 2018.

Domestic and international short-term funds

Many of our operations are conducted outside the United States. The amount of funds held in the United States 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.

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Global economic conditions

Challenging economic conditions in recent years have not had, nor do we anticipate that it will have, a significant impact on our liquidity. Due to our operating cash flows, financial assets, access to capital markets and available lines of credit and revolving credit agreements, we continue to believe that we have the ability to meet our liquidity needs for the foreseeable future. As markets change, we continue to monitor our liquidity position. There can be no assurance that a challenging economic environment or an economic downturn would not impact our ability to obtain financing in the future.

Debt

On August 20, 2018, we issued $1.5 billion aggregate principal amount of our senior notes (2018 senior notes), with an original issue discount of $4 million. These notes are comprised of $300 million aggregate principal amount of floating rate senior notes due 2021 (the "2018 floating rate senior notes"), and $300 million aggregate principal amount of 3.250% senior notes due 2021, $500 million aggregate principal amount of 3.900% senior notes due 2028 and $400 million aggregate principal amount of 4.450% senior notes due 2048 (collectively, the "2018 fixed rate senior notes"). Net proceeds from this offering were partially used to pay down and terminate a revolving credit agreement and repay outstanding commercial paper, which were borrowed to finance a portion of the cash consideration for the acquisition of Abaxis (see Notes to Condensed Consolidated Financial Statements— Note 5. Acquisitions). The remainder of the net proceeds were used for general corporate purposes.

On September 12, 2017, we issued $1.25 billion aggregate principal amount of our senior notes (2017 senior notes), with an original issue discount of $7 million. These notes are comprised of $750 million aggregate principal amount of 3.000% senior notes due 2027 and $500 million aggregate principal amount of 3.950% senior notes due 2047. Net proceeds from this offering were partially used in October 2017 to repay, prior to maturity, the aggregate principal amount of $750 million, and a make-whole amount and accrued interest of $4 million, of our 1.875% senior notes due 2018. The remainder of the net proceeds were used for general corporate purposes.

On November 13, 2015, we issued $1.25 billion aggregate principal amount of our senior notes (2015 senior notes), with an original issue discount of $2 million. On January 28, 2013, we issued $3.65 billion aggregate principal amount of our senior notes (2013 senior notes) in a private placement, with an original issue discount of $10 million.

The 2013, 2015, 2017 and 2018 senior notes are governed by an indenture and supplemental indenture (collectively, the indenture) between us and Deutsche Bank Trust Company Americas, as trustee. The indenture contains certain covenants, including limitations on our and certain of our subsidiaries' ability to incur liens or engage in sale lease-back transactions. The indenture also contains restrictions on our ability to consolidate, merge or sell substantially all of our assets. In addition, the indenture contains other customary terms, including certain events of default, upon the occurrence of which (if not cured or waived), the 2013, 2015, 2017 and 2018 senior notes may be declared immediately due and payable.

Pursuant to the indenture, we are able to redeem the 2013, 2015 and 2017 senior notes and the 2018 fixed rate senior notes of any series, in whole or in part, at any time by paying a “make whole” premium, plus accrued and unpaid interest to, but excluding, the date of redemption. The 2018 floating rate senior notes are not redeemable at our option prior to their maturity date. Pursuant to our tax matters agreement with Pfizer, we will not be permitted to redeem the 2013 senior notes due 2023 pursuant to this optional redemption provision, except under limited circumstances. Upon the occurrence of a change of control of us and a downgrade of the 2013, 2015, 2017 and 2018 senior notes below an investment grade rating by each of Moody's Investors Service, Inc. and Standard & Poor's Ratings Services, we are, in certain circumstances, required to make an offer to repurchase all of the outstanding 2013, 2015, 2017 and 2018 senior notes at a price equal to 101% of the aggregate principal amount of the 2013, 2015, 2017 and 2018 senior notes together with accrued and unpaid interest to, but excluding, the date of repurchase.

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The components of our long-term debt follow:

Description	Principal Amount	Interest Rate	Terms
2015 Senior Notes due 2020	$500 million	3.450%	Interest due semi annually, not subject to amortization, aggregate principal due on November 13, 2020
2018 Floating Rate Senior Notes due 2021	$300 million	Three-month USD LIBOR plus 0.44%	Interest due quarterly, not subject to amortization, aggregate principal due on August 20, 2021
2018 Senior Notes due 2021	$300 million	3.250%	Interest due semi annually, not subject to amortization, aggregate principal due on August 20, 2021
2013 Senior Notes due 2023	$1,350 million	3.250%	Interest due semi annually, not subject to amortization, aggregate principal due on February 1, 2023
2015 Senior Notes due 2025	$750 million	4.500%	Interest due semi annually, not subject to amortization, aggregate principal due on November 13, 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
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

Credit Ratings

Two major corporate debt-rating organizations, Moody's and S&P, assign ratings to our short-term and long-term debt. A security rating is not a recommendation to buy, sell or hold securities and the rating is subject to revision or withdrawal at any time by the rating organization. Each rating should be evaluated independently of any other rating.

The following table provides the current ratings assigned by these rating agencies to our commercial paper and senior unsecured non-credit-enhanced long-term debt:

	Commercial
	Paper	Long-term Debt		Date of
Name of Rating Agency	Rating	Rating	Outlook	Last Action
Moody’s	P-2	Baa1	Stable	August 2017
S&P	A-2	BBB	Stable	December 2016

Share Repurchase Program

In December 2016, the company's Board of Directors authorized a $1.5 billion share repurchase program. This program was completed as of September 30, 2019. In December 2018, the company's Board of Directors authorized an additional $2.0 billion share repurchase program. As of September 30, 2019, there was approximately $1.9 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 nine months of 2019, approximately 4 million shares were repurchased.

Off-balance sheet arrangements

In the ordinary course of business and in connection with the sale of assets and businesses, we may indemnify our counterparties against certain liabilities that may arise in connection with a transaction or that are related to activities prior to a transaction. These indemnifications typically pertain to environmental, tax, employee and/or product-related matters, and patent-infringement claims. If the indemnified party were to make a successful claim pursuant to the terms of the indemnification, we would be required to reimburse the loss. These indemnifications are generally subject to threshold amounts, specified claim periods and other restrictions and limitations. Historically, we have not paid significant amounts under these provisions and, as of September 30, 2019, or December 31, 2018, recorded amounts for the estimated fair value of these indemnifications are not significant.

New accounting standards

Recently Issued Accounting Standards Not Adopted as of September 30, 2019

A description of recently issued accounting standards is contained in Note 3. Accounting Standards of the Notes to Condensed Consolidated Financial Statements.

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Forward-looking statements and factors that may affect future results

This report contains “forward-looking” statements. We generally identify forward-looking statements by using words such as “anticipate,” “estimate,” “could,” “expect,” “intend,” “project,” “plan,” “predict,” “believe,” “seek,” “continue,” “outlook,” “objective,” “target,” “may,” “might,” “will,” “should,” “can have,” “likely” or the negative version of these words or comparable words or by using future dates in connection with any discussion of future performance, actions or events.

In particular, forward-looking statements include statements relating to our 2019 financial guidance, future actions, business plans or prospects, prospective products, product approvals or products under development, product supply disruptions, R&D costs, timing and likelihood of success, future operating or financial performance, future results of current and anticipated products and services, strategies, sales efforts, expenses, production efficiencies, production margins, anticipated timing of generic market entries, integration of acquired businesses, interest rates, tax rates, changes in tax regimes and laws, foreign exchange rates, growth in emerging markets, the outcome of contingencies, such as legal proceedings, plans related to share repurchases and dividends, government regulation and financial results. These statements are not guarantees of future performance, actions or events. Forward-looking statements are subject to risks and uncertainties, many of which are beyond our control, and are based on assumptions that could prove to be inaccurate. Among the factors that could cause actual results to differ materially from past results and future plans and projected future results are the following:

• unanticipated safety, quality or efficacy concerns about our products;

• issues with any of our top products;

• failure of our R&D, acquisition and licensing efforts to generate new products and product lifecycle innovations;

• the possible impact and timing of competing products, including generic alternatives, on our products and our ability to compete against such products;

• disruptive innovations and advances in medical practices and technologies;

• consolidation of our customers and distributors;

• changes in the distribution channel for companion animal products;

• failure to successfully acquire businesses, license rights or products, integrate businesses, form and manage alliances or divest businesses;

• restrictions and bans on the use of and consumer preferences regarding antibacterials in food-producing animals;

• perceived adverse effects on human health linked to the consumption of food derived from animals that utilize our products;

• adverse global economic conditions;

• increased regulation or decreased governmental support relating to the raising, processing or consumption of food-producing animals;

• fluctuations in foreign exchange rates and potential currency controls;

• changes in tax laws and regulations;

• legal factors, including product liability claims, antitrust litigation and governmental investigations, including tax disputes, environmental concerns, commercial disputes and patent disputes with branded and generic competitors, any of which could preclude commercialization of products or negatively affect the profitability of existing products;

• failure to protect our intellectual property rights or to operate our business without infringing the intellectual property rights of others;

• product launch delays, inventory shortages, recalls or unanticipated costs caused by manufacturing problems and capacity imbalances;

• an outbreak of infectious disease carried by animals;

• adverse weather conditions and the availability of natural resources;

• the economic, political, legal and business environment of the foreign jurisdictions in which we do business;

• a cyber-attack, information security breach or other misappropriation of our data;

• quarterly fluctuations in demand and costs;

• governmental laws and regulations affecting domestic and foreign operations, including without limitation, tax obligations and changes affecting the tax treatment by the United States of income earned outside the United States that may result from pending and possible future proposals; and

• governmental laws and regulations affecting our interactions with veterinary healthcare providers.

However, there may also be other risks that we are unable to predict at this time. These risks or uncertainties may cause actual results to differ materially from those contemplated by a forward-looking statement. 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

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the SEC. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider the above to be a complete discussion of all potential risks or uncertainties.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

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 minimize 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.

Foreign exchange risk

Our primary net foreign currency translation exposures are the Australian dollar, Brazilian real, Canadian dollar, Chinese yuan, euro, and U.K. pound. We seek to manage our foreign exchange risk, in part, through operational means, including managing same-currency revenue in relation to same-currency costs and same-currency assets in relation to same-currency liabilities.

Foreign exchange risk is also managed through the use of foreign currency forward-exchange contracts. These contracts are used to offset the potential earnings effects from mostly intercompany short-term foreign currency assets and liabilities that arise from operations.

Our financial instrument holdings at September 30, 2019, were analyzed to determine their sensitivity to foreign exchange rate changes. The fair values of these instruments were determined using Level 2 inputs. The sensitivity analysis of changes in the fair value of all foreign currency forward-exchange contracts at September 30, 2019, indicates that if the U.S. dollar were to appreciate against all other currencies by 10%, the fair value of these contracts would increase by $15 million, and if the U.S. dollar were to weaken against all other currencies by 10%, the fair value of these contracts would decrease by $18 million. For additional details, see Notes to Condensed Consolidated Financial Statements— Note 9C. Financial Instruments: Derivative Financial Instruments.

Interest rate risk

Our outstanding debt balances are predominantly fixed rate debt. While changes in interest rates will have no impact on the interest we pay on our fixed rate debt, interest on our $300 million aggregate principal amount of 2018 Floating Rate Senior Notes due 2021, as well as interest on our commercial paper and revolving credit facility will be exposed to interest rate fluctuations. Additionally, as of September 30, 2019, we held certain interest rate swap agreements that have the economic effect of modifying the fixed-interest obligations associated with our 3.900% 2018 senior notes due 2028, so that a portion of the fixed-rate interest payable on these senior notes effectively became variable based on LIBOR. At September 30, 2019, there were no commercial paper borrowings outstanding and no outstanding principal balance under our revolving credit facility. See Notes to Condensed Consolidated Financial Statements— Note 9. Financial Instruments.

Item 4. Controls and Procedures

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 September 30, 2019, 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

On July 31, 2018, the company completed the acquisition of Abaxis, Inc. (Abaxis). In our 2018 Annual Report on Form 10-K, we excluded Abaxis from our evaluation of internal control over financial reporting. Since the acquisition, Zoetis has extended its oversight and monitoring processes that support our internal control over financial reporting, as well as its disclosure controls and procedures, and we continue to integrate the acquired operations of Abaxis. Except for changes in internal control over financial reporting relating to the integration of Abaxis, 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.

52 |

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

The information required by this Item is incorporated herein by reference to Notes to Condensed Consolidated Financial Statements—Note 16. Commitments and Contingencies in Part I— Item 1, of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

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 2018 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 2018 Annual Report on Form 10-K.

Risks related to our business and industry

An outbreak of infectious disease carried by animals could negatively affect the sale and production of our products.

Sales of our livestock products could be materially adversely affected by the outbreak of disease carried by animals, which could lead to the widespread death or precautionary destruction of animals as well as the reduced consumption and demand for animal protein. In addition, outbreaks of disease carried by animals 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 due to reduced herd or flock sizes. In recent years, outbreaks of various diseases, including African Swine Fever, avian influenza, foot-and-mouth disease, bovine spongiform encephalopathy (otherwise known as BSE or mad cow disease) and porcine epidemic diarrhea virus (otherwise known as PEDv), have impacted the animal health business. For example, recent outbreaks of African Swine Fever have seriously impacted swine herds primarily in China and certain Southeast Asian countries, and as a result sales of our swine products there have been negatively impacted.  The further spread of African Swine Fever within China, and its continued expansion to other countries, could further impact the size of swine herds globally and therefore the demand for our swine products, and if widespread, could have a material impact on our financial results.  The discovery of additional cases of any of these, or new, diseases may result in additional restrictions on animal proteins, reduced herd sizes, or reduced demand for, animal protein, which may have a material adverse effect on our operating results and financial condition. 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.

Risks related to tax matters

The Company could be subject to changes in its tax rates, the adoption of new U.S. or foreign tax legislation or exposure to additional tax

liabilities.

The multinational nature of our business subjects us to taxation in the United States and numerous foreign jurisdictions. Due to economic and political conditions, tax rates in various jurisdictions may be subject to significant change. The company’s future effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws or their interpretation.

For example, on October 9, 2019, the Organisation for Economic Co-operation and Development (OECD) published the Secretariat Proposal for a “Unified Approach” under Pillar One (Pillar 1 Unified Approach). The Pillar 1 Unified Approach represents an effort by the OECD to address the tax challenges of the digital economy. The proposal does not ringfence the so-called “digital economy” and instead it seeks to allocate a greater share of taxing rights to the countries where consumers are located regardless of the physical presence of the business. In addition, a further proposal is expected later this year on a global minimum tax (Pillar 2 Unified Approach). These two proposals combined may represent a significant change in the international tax regime. The high-level proposal, which requires unanimous consent, is in its early stages and specific details have yet not been developed. The potential impact to our effective tax rate is unknown at this time.

On March 29, 2017, the United Kingdom (U.K.) formally notified the European Council of the U.K.’s intention to withdraw from the European Union, commonly referred to as “Brexit”, under Article 50 of the Treaty of Lisbon. The notice began the negotiation period to establish the withdrawal terms. No agreement has yet been reached, and at this time, the impact of Brexit to our effective tax rate remains uncertain.

In addition, our effective tax rate is subject to potential risks that various taxing authorities may challenge the pricing of our cross-border arrangements and subject us to additional tax, adversely impacting our effective tax rate and our tax liability. The company is also subject to the examination of its tax returns and other tax matters by the Internal Revenue Service and other tax authorities and governmental bodies. The company regularly assesses the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of its provision for taxes. There can be no assurance as to the outcome of these examinations. If the company’s effective tax rates were to increase, particularly in the United States or other material foreign jurisdictions, or if the ultimate determination of the company’s taxes owed is for an amount in excess of amounts previously accrued, the company’s operating results, cash flows and financial condition could be adversely affected.

53 |

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information with respect to the shares of the company’s common stock repurchased during the quarter ended

September 30, 2019:

	Issuer Purchases of Equity Securities
	Total Number of Shares Purchased(a)	Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly Announced Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under Plans or Programs
July 1 - July 31, 2019	340,345	$113.09	306,400	$1,965,649,259
August 1 - August 31, 2019	468,159	$120.68	459,400	$1,910,205,362
September 1 - September 30, 2019	481,821	$124.16	478,798	$1,850,674,161
	1,290,325	$119.98	1,244,598	$1,850,674,161

^(a) The company repurchased 45,727 shares during the three-month period ended September 30, 2019, that were not part of the publicly announced share repurchase authorization. These shares were reacquired from employees to satisfy tax withholding requirements on the vesting of restricted shares from equity-based awards.

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

None

Item 5. Other Information

None

Item 6. Exhibits

Exhibit 3.1	Restated Certificate of Incorporation of the Registrant, effective as of May 13, 2014 (incorporated by reference to
	Exhibit 3.1 to Zoetis Inc.'s Quarterly Report on Form 10-Q filed on November 10, 2014 (File No. 001-35797))
Exhibit 3.2	By-laws of the Registrant, amended and restated as of February 19, 2016 (incorporated by reference to Exhibit 3.2
	to Zoetis Inc.'s 2015 Annual Report on Form 10-K filed on February 24, 2016 (File No. 001-35797))
Exhibit 10.1	Letter Agreement dated as of October 2, 2019, by and between Juan Ramón Alaix and Zoetis Inc. (incorporated by
	reference to Exhibit 10.1 to Zoetis Inc.'s Current Report on Form 8-K filed on October 3, 2019 (File No. 001-35797))
Exhibit 15	Accountants' Acknowledgment
Exhibit 31.1	Chief Executive Officer–Certification pursuant to Sarbanes-Oxley Act of 2002 Section 302
Exhibit 31.2	Chief Financial Officer–Certification pursuant to Sarbanes-Oxley Act of 2002 Section 302
Exhibit 32.1	Chief Executive Officer–Certification pursuant to Sarbanes-Oxley Act of 2002 Section 906
Exhibit 32.2	Chief Financial Officer–Certification pursuant to Sarbanes-Oxley Act of 2002 Section 906
EX-101.INS	Inline XBRL INSTANCE DOCUMENT
EX-101.SCH	Inline XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT
EX-101.CAL	Inline XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT
EX-101.LAB	Inline XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT
EX-101.PRE	Inline XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT
EX-101.DEF	Inline XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT
EX-104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

54 |

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Zoetis Inc.
November 7, 2019	By:	/S/ JUAN RAMÓN ALAIX
		Juan Ramón Alaix
		Chief Executive Officer and Director
November 7, 2019	By:	/S/ GLENN DAVID
		Glenn David
		Executive Vice President and
		Chief Financial Officer

55 |

EX-15

Exhibit 15

ACCOUNTANTS’ ACKNOWLEDGEMENT

November 7, 2019

Zoetis Inc.

Parsippany, New Jersey

Re: Registration Statements (Nos. 333-186367, 333-189573, 333-200073, and 333-226481) on Form S-8 and (No. 333-226450) on Form S-3

With respect to the subject registration statements, we acknowledge our awareness of the use therein of our report dated November 7, 2019 related to our review of consolidated interim financial information.

Pursuant to Rule 436 under the Securities Act of 1933 (“the Act”), such report is not considered part of a registration statement prepared or certified by an independent registered public accounting firm, or a report prepared or certified by an independent registered public accounting firm within the meaning of Sections 7 and 11 of the Act.

/s/ KPMG LLP

Short Hills, New Jersey

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Juan Ramón Alaix, certify that:

1. I have reviewed this Quarterly Report of Zoetis Inc. on Form 10-Q for the period ending September 30, 2019 as filed with the Securities and Exchange Commission on the date hereof;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

November 7, 2019	By:	/s/ JUAN RAMÓN ALAIX
		Juan Ramón Alaix
		Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Glenn David, certify that:

1. I have reviewed this Quarterly Report of Zoetis Inc. on Form 10-Q for the period ending September 30, 2019 as filed with the Securities and Exchange Commission on the date hereof;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

November 7, 2019	By:	/s/ GLENN DAVID
		Glenn David
		Executive Vice President and
		Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICERPURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. §1350, I, Juan Ramón Alaix, Chief Executive Officer, hereby certify that, to the best of my knowledge, the Quarterly Report on Form 10-Q of Zoetis Inc. for the period ended September 30, 2019 (the "Report") (1) fully complies with Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Zoetis Inc.

November 7, 2019	By:	/s/ JUAN RAMÓN ALAIX
		Juan Ramón Alaix
		Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. §1350, I, Glenn David, Executive Vice President and Chief Financial Officer, hereby certify that, to the best of my knowledge, the Quarterly Report on Form 10-Q of Zoetis Inc. for the period ended September 30, 2019 (the “Report”) (1) fully complies with Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Zoetis Inc.

November 7, 2019	By:	/s/ GLENN DAVID
		Glenn David
		Executive Vice President and
		Chief Financial Officer

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($) $ in Millions		9 Months Ended
		Sep. 30, 2019		Sep. 30, 2018
Operating Activities
Net income before allocation to noncontrolling interests		$ 1,116		$ 1,079
Adjustments to reconcile net income before noncontrolling interests to net cash provided by operating activities:
Depreciation and amortization expense		303		207	[1],[2]
Share-based compensation expense		51		36
Asset write-offs and asset impairments		6		4
Net gain on sale of assets		20		0
Provision for losses on inventory		44		37
Deferred taxes	[3]	(30)		(155)
Employee benefit plan contribution from Pfizer Inc.		2		2
Other non-cash adjustments		(11)		(17)
Other changes in assets and liabilities, net of acquisitions and divestitures:
Accounts receivable		(18)		37
Inventories		(103)		29
Other assets		(39)		(77)
Accounts payable		(28)		(39)
Other liabilities		(68)		(31)
Other tax accounts, net	[3]	8		94
Net cash provided by operating activities		1,213		1,206
Investing Activities
Purchases of property, plant and equipment		(294)		(200)
Acquisition of Abaxis, net of cash acquired		0		(1,884)
Other acquisitions		(137)		(110)
Proceeds from maturities and redemptions of investments		89		0
Net proceeds on swaps designated as net investment hedges		37		0
Net proceeds from sale of assets		20		8
Other investing activities		(6)		1
Net cash used in investing activities		(291)		(2,185)
Financing Activities
Decrease in short-term borrowings, net		(9)		0
Proceeds from issuance of long-term debt—senior notes, net of discount and fees		0		1,485
Payment of contingent consideration related to previously acquired assets		(9)		(12)
Acquisition of a noncontrolling interest		0		(26)
Share-based compensation-related proceeds, net of taxes paid on withholding shares		2		14
Purchases of treasury stock		(450)		(548)
Cash dividends paid		(235)		(183)
Net cash (used in)/provided by financing activities		(701)		730
Effect of exchange-rate changes on cash and cash equivalents		(8)		(29)
Net increase/(decrease) in cash and cash equivalents		213		(278)
Cash and cash equivalents at beginning of period		1,602	[4]	1,564
Cash and cash equivalents at end of period		1,815	[4]	1,286
Cash paid during the period for:
Income taxes		293		290
Interest, net of capitalized interest		220		166
Non-cash transactions:
Capital expenditures		$ 5		$ 3

[1] Certain production facilities are shared. Depreciation and amortization is allocated to the reportable operating segments based on estimates of where the benefits of the related assets are realized.

[2] Defined as income before provision for taxes on income.

[3] eflects the reclassification of the one-time mandatory deemed repatriation tax from Noncurrent deferred tax liabilities to Income taxes payable and Other taxes payable to properly reflect the liability, which became a fixed obligation in 2018 payable over eight years.

[4] As of September 30, 2019, and December 31, 2018, includes $4 million and $5 million, respectively, of restricted cash.

XML

Inventories (Details) - USD ($) $ in Millions	Sep. 30, 2019	Dec. 31, 2018
Inventory Disclosure [Abstract]
Finished goods	$ 713	$ 744
Work-in-process	524	481
Raw materials and supplies	202	166
Inventories	$ 1,439	$ 1,391

XML

Financial Instruments - Interest Rate Risk (Details) € in Millions, kr in Millions, SFr in Millions, $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2019 CHF (SFr)	Sep. 30, 2019 DKK (kr)	Sep. 30, 2019 EUR (€)	Dec. 31, 2018 USD ($) swap	Dec. 31, 2018 CHF (SFr) swap	Dec. 31, 2018 DKK (kr) swap	Dec. 31, 2018 EUR (€) swap	Jan. 28, 2013
Cross-currency interest rate swap contracts
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Derivative notional amount	$ 50		$ 50		SFr 25	kr 600	€ 575	$ 0	SFr 0	kr 0	€ 400
Derivatives Not Designated as Hedging Instruments | Foreign currency forward-exchange contracts
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Derivative notional amount	1,150		1,150					$ 1,330
Foreign currency forward-exchange contracts	1	$ 22	5	$ 22
Derivatives Designated as Hedging Instruments: | Cross-currency interest rate swap contracts
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Unrecognized net gains/(losses) on cross-currency interest rate swap contracts, recorded, net of tax	$ 23	$ 0	$ 28	$ 1
Derivatives Designated as Hedging Instruments: | Interest rate swaps
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Derivative, Number of Instruments Held	250		250					0	0	0	0
Senior Notes | Senior notes due 2018
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Interest rate percentage												1.875%

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Net income before allocation to noncontrolling interests	$ 433	$ 347	$ 1,116	$ 1,079
Other comprehensive income, net of taxes and reclassification adjustments:
Unrealized losses on derivatives for cash flow hedges, net	(4)	(1)	(3)	(1)
Unrealized gains on derivatives for net investment hedges, net	23	0	28	0
Foreign currency translation adjustments, net	(49)	(75)	(95)	(113)
Total other comprehensive loss, net of tax	(30)	(76)	(70)	(114)
Comprehensive income before allocation to noncontrolling interest	403	271	1,046	965
Less: Comprehensive loss attributable to noncontrolling interest	0	0	0	(4)
Comprehensive income attributable to Zoetis Inc.	$ 403	$ 271	$ 1,046	$ 969

XML

Revenue - Revenue by Major Species (Details) - USD ($) $ in Millions		3 Months Ended		9 Months Ended
		Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Revenue from External Customer [Line Items]
Revenue		$ 1,584	$ 1,480	$ 4,586	$ 4,261
Livestock
Revenue from External Customer [Line Items]
Revenue		731	778	2,162	2,282
Livestock | U.S.
Revenue from External Customer [Line Items]
Revenue		294	322	847	885
Livestock | International
Revenue from External Customer [Line Items]
Revenue		437	456	1,315	1,397
Companion animal
Revenue from External Customer [Line Items]
Revenue		834	688	2,361	1,949
Companion animal | U.S.
Revenue from External Customer [Line Items]
Revenue		550	435	1,495	1,183
Companion animal | International
Revenue from External Customer [Line Items]
Revenue		284	253	866	766
Operating Segments | U.S.
Revenue from External Customer [Line Items]
Revenue		844	757	2,342	2,068
Operating Segments | International
Revenue from External Customer [Line Items]
Revenue	[1]	$ 721	$ 709	$ 2,181	$ 2,163

[1] Revenue denominated in euros was $541 million and $555 million for the nine months ended September 30, 2019 and September 30, 2018, respectively.

XML

Acquisitions and Divestitures - Consideration Transferred (Details) - Abaxis Inc $ in Millions	Jul. 31, 2018 USD ($)
Business Acquisition [Line Items]
Payments to Acquire Businesses, Gross	$ 1,898	[1]
CashPaidForEqutyAwardsVestedAtAcquisition	54	[2]
Business Combination, Consideration Transferred	1,962
BusinessCombinationPreMergerService [Member]
Business Acquisition [Line Items]
Equity Issued in Business Combination, Fair Value Disclosure	$ 10	[3]

[1] Represents cash paid for cancellation and conversion of each outstanding share of Abaxis' common stock at the acquisition date.

[2] Represents cash paid for cancellation and settlement of restricted stock awards that fully vested in July 2018 as a result of service or pre-existing change-in-control provisions and termination provisions.

[3] Represents the fair value of replacement awards issued for Abaxis equity awards outstanding immediately before the acquisition and attributable to the service period prior to the acquisition. The previous Abaxis equity awards were converted into the Zoetis equity awards at an exchange ratio based on the closing prices of shares of Zoetis common stock and Abaxis common stock for ten full trading days before the closing of the acquisition.

XML

Other (Income)/Deductions - Net (Details) - USD ($) $ in Millions		3 Months Ended		9 Months Ended
		Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Royalty-related income		$ (4)	$ (5)	$ (12)	$ (18)
Interest income		(10)	(6)	(29)	(20)
Foreign currency loss	[1]	7	9	14	26
Other, net	[2]	1	(19)	1	(18)
Other (income)/deductions—net		(26)	(19)	(46)	(28)
Reconciling Items | Zoetis Initiatives
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Net (gain)/loss on sale of assets	[3]	$ (20)	$ 2	$ (20)	$ 2

[1] Primarily driven by costs related to hedging and exposures to certain emerging market currencies.

[2] For the three and nine months ended September 30, 2018, primarily includes a net gain related to the relocation of a manufacturing site in China.

[3] For the three and nine months ended September 30, 2019, represents income resulting from a contingent payment received pursuant to an agreement related to the 2016 sale of certain U.S. manufacturing sites. For the three and nine months ended September 30, 2018, represents net losses related to sales of certain manufacturing sites and products as part of our operational efficiency initiative and supply network strategy.

XML

Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives (Tables)

9 Months Ended

Sep. 30, 2019

Restructuring and Related Activities [Abstract]

Restructuring and Related Costs

The components of, and changes in, our restructuring accruals are as follows:

(MILLIONS OF DOLLARS)	Accrual(a)
Balance, December 31, 2018(b)	$	45
Provision	20
Utilization and other(c)	(28		)
Balance, September 30, 2019(b)	$	37

^(a)   Changes in our restructuring accrual represents employee termination costs.

^(b)  At September 30, 2019, and December 31, 2018, included in Accrued expenses ($11 million and $27 million, respectively) and Other noncurrent liabilities ($26 million and $18 million, respectively).

^(c)  

Includes adjustments for foreign currency translation.

The components of costs incurred in connection with restructuring initiatives, acquisitions and cost-reduction/productivity initiatives are as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(MILLIONS OF DOLLARS)	2019		2018		2019		2018
Restructuring charges and certain acquisition-related costs:
Transaction costs(a)	$	—	$	21	$	—	$	21
Integration costs(b)	4		9		13		10
Restructuring charges(c)(d):
Employee termination costs	2		17		20		22
Exit costs	—		—		—		1
Total Restructuring charges and certain acquisition-related costs	$	6	$	47	$	33	$	54

^(a)  Transaction costs represent external costs directly related to acquiring businesses and primarily include expenditures for banking, legal, accounting and other similar services.

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

^(c)  The restructuring charges for the three and nine months ended September 30, 2019 primarily relate to the acquisition of Abaxis.

The restructuring charges for the three and nine months ended September 30, 2018 primarily relate to employee termination costs of $8 million and $11 million, respectively, in Europe as a result of initiatives to better align our organizational structure, and employee termination costs of $10 million related to the acquisition of Abaxis.

^(d)  The restructuring charges are associated with the following:

• For the three months ended September 30, 2019, Manufacturing/research/corporate of $2 million.

• For the three months ended September 30, 2018, International of $8 million and Manufacturing/research/corporate of $9 million.

• For the nine months ended September 30, 2019, Manufacturing/research/corporate of $20 million.

•

For the nine months ended September 30, 2018, International of $12 million and Manufacturing/research/corporate of $11 million.

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Segment Information

9 Months Ended

Sep. 30, 2019

Segment Reporting [Abstract]

Segment Information

rating Segments

We manage our operations through two geographic operating segments: the United States and International. Each operating segment has responsibility for its commercial activities. Within each of these operating segments, we offer a diversified product portfolio, including vaccines, parasiticides, anti-infectives, medicated feed additives, animal health diagnostics and other pharmaceuticals, for both livestock and companion animal customers. Our chief operating decision maker uses the revenue and earnings of the two operating segments, among other factors, for performance evaluation and resource allocation.

Other Costs and Business Activities

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

• Other business activities, includes our Client Supply Services (CSS) contract manufacturing results, our human health business, and expenses associated with our dedicated veterinary medicine research and development organization, research alliances, U.S. regulatory affairs and other operations focused on the development of our products. Other R&D-related costs associated with non-U.S. market and regulatory activities are generally included in the international commercial segment.

• Corporate, includes platform functions such as information technology, facilities, legal, finance, human resources, business development, and communications, among others. These costs also include compensation costs and other miscellaneous operating expenses not charged to our operating segments, as well as interest income and expense.

• Certain transactions and events such as (i) Purchase accounting adjustments, where we incur expenses associated with the amortization of fair value adjustments to inventory, intangible assets and property, plant and equipment; (ii) Acquisition-related activities, where we incur costs associated with acquiring and integrating newly acquired businesses, such as transaction costs and integration costs; and (iii) Certain significant items, which comprise substantive, unusual items that, either as a result of their nature or size, would not be expected to occur as part of our normal business on a regular basis, such as restructuring charges and implementation costs associated with our cost-reduction/productivity initiatives that are not associated with an acquisition, certain asset impairment charges, certain legal and commercial settlements and the impact of divestiture-related gains and losses.

• Other unallocated includes (i) certain overhead expenses associated with our global manufacturing operations not charged to our operating segments; (ii) certain costs associated with information technology and finance that specifically support our global manufacturing operations; (iii) certain supply chain and global logistics costs; and (iv) procurement costs.

Segment Assets

We manage our assets on a total company basis, not by operating segment. Therefore, our chief operating decision maker does not regularly review any asset information by operating segment and, accordingly, we do not report asset information by operating segment.

	Earnings						Depreciation and Amortization(a)
	Three Months Ended						Three Months Ended
	September 30,						September 30,
(MILLIONS OF DOLLARS)	2019			2018			2019		2018
U.S.
Revenue	$	844		$	757
Cost of sales	163			151
Gross profit	681			606
Gross margin	80.7		%	80.1		%
Operating expenses	130			116
Other (income)/deductions	—			—
U.S. Earnings	551			490			$	12	$	9
International
Revenue(b)	721			709
Cost of sales	234			226
Gross profit	487			483
Gross margin	67.5		%	68.1		%
Operating expenses	134			131
Other (income)/deductions	—			(1		)
International Earnings	353			353			13		11
Total operating segments	904			843			25		20
Other business activities	(87		)	(84		)	7		6
Reconciling Items:
Corporate	(172		)	(178		)	19		15
Purchase accounting adjustments	(55		)	(49		)	55		43
Acquisition-related costs	(6		)	(40		)	—		—
Certain significant items(c)	17			8			—		—
Other unallocated	(73		)	(82		)	1		—
Total Earnings(d)	$	528		$	418		$	107	$	84

^(a)  Certain production facilities are shared. Depreciation and amortization is allocated to the reportable operating segments based on estimates of where the benefits of the related assets are realized.

^(b)  Revenue denominated in euros was $176 million and $180 million for the three months ended September 30, 2019 and September 30, 2018, respectively.

^(c)  For the three months ended September 30, 2019, primarily includes income of $20 million resulting from a contingent payment received pursuant to an agreement related to the 2016 sale of certain U.S. manufacturing sites.

For the three months ended September 30, 2018 primarily represents: (i) employee termination costs of $8 million, (ii) a net gain of $18 million related to the relocation of a manufacturing site in China, and (iii) a loss of $2 million related to sales of certain manufacturing sites and products as a result of our supply network strategy.

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

	Earnings						Depreciation and Amortization(a)
	Nine Months Ended						Nine Months Ended
	September 30,						September 30,
(MILLIONS OF DOLLARS)	2019			2018			2019		2018
U.S.
Revenue	$	2,342		$	2,068
Cost of sales	468			431
Gross profit	1,874			1,637
Gross margin	80.0		%	79.2		%
Operating expenses	367			328
Other (income)/deductions	—			—
U.S. Earnings	1,507			1,309			$	31	$	25
International
Revenue(b)	2,181			2,163
Cost of sales	662			689
Gross profit	1,519			1,474
Gross margin	69.6		%	68.1		%
Operating expenses	412			411
Other (income)/deductions	—			2
International Earnings	1,107			1,061			38		34
Total operating segments	2,614			2,370			69		59
Other business activities	(246		)	(247		)	18		17
Reconciling Items:
Corporate	(512		)	(470		)	49		42
Purchase accounting adjustments	(179		)	(95		)	165		88
Acquisition-related costs	(33		)	(41		)	—		—
Certain significant items(c)	(56		)	(2		)	—		—
Other unallocated	(224		)	(243		)	2		1
Total Earnings(d)	$	1,364		$	1,272		$	303	$	207

^(a)  Certain production facilities are shared. Depreciation and amortization is allocated to the reportable operating segments based on estimates of where the benefits of the related assets are realized.

^(b)  Revenue denominated in euros was $541 million and $555 million for the nine months ended September 30, 2019 and September 30, 2018, respectively.

^(c)  For the nine months ended September 30, 2019, primarily represents (i) a change in estimate related to inventory costing of $68 million, (ii) income of $20 million resulting from a contingent payment received pursuant to an agreement related to the 2016 sale of certain U.S. manufacturing sites, and (iii) product transfer costs and consulting fees of $7 million related to our supply network strategy.

For the nine months ended September 30, 2018, primarily represents: (i) charges related to our operational efficiency initiative and supply network strategy of $8 million which includes consulting fees, product transfer costs, employee termination costs, and a loss related to sales of certain manufacturing sites and products, (ii) employee termination costs of $11 million in Europe as a result of initiatives to better align our organizational structure, and (iii) a net gain of $18 million related to the relocation of a manufacturing site in China.

^(d) 

Defined as income before provision for taxes on income.

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Share-Based Payments

9 Months Ended

Sep. 30, 2019

Share-based Payment Arrangement [Abstract]

Share-Based Payments

company may grant a variety of share-based payments under the Zoetis 2013 Equity and Incentive Plan (the Equity Plan) to our employees and non-employee directors. The principal types of share-based awards available under the Equity Plan may include, but are not limited to, stock options, restricted stock and restricted stock units (RSUs), deferred stock units (DSUs), performance-vesting restricted stock units (PSUs) and other equity-based or cash-based awards.

The components of share-based compensation expense are as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(MILLIONS OF DOLLARS)	2019		2018		2019		2018
Stock options / stock appreciation rights	$	3	$	2	$	8	$	7
RSUs / DSUs(a)(b)	10		10		34		23
PSUs	3		2		9		6
Share-based compensation expense—total(c)	$	16	$	14	$	51	$	36

^(a)  For the three and nine months ended September 30, 2019, includes share-based compensation expense of $4 million and $13 million, respectively, related to the acquisition of Abaxis for the post-merger service period. For additional details, see Note 5. Acquisitions.

^(b)  Includes additional share-based compensation expense as a result of accelerated vesting of outstanding RSUs of terminated employees in connection with the acquisition of Abaxis, for the three and nine months ended September 30, 2019, of approximately $1 million and $5 million, respectively, which is included in Restructuring charges and certain acquisition-related costs.      

^(c)  Amounts capitalized to inventory were $1 million for the nine months ended September 30, 2019 and were insignificant for the three months ended September 30, 2019 as well as for the three and nine months ended September 30, 2018.

During the nine months ended September 30, 2019, the company granted 444,789 stock options with a weighted-average exercise price of $87.77 per stock option and a weighted-average fair value of $21.82 per stock option. The fair-value based method for valuing each Zoetis stock option grant on the grant date uses the Black-Scholes-Merton option-pricing model, which incorporates a number of valuation assumptions. The weighted-average fair value was estimated based on the following assumptions: risk-free interest rate of 2.57%; expected dividend yield of 0.75%; expected stock price volatility of 23.08%; and expected term of 5.7 years. In general, stock options vest after three years of continuous service and the values determined through this fair-value based method generally are amortized on a straight-line basis over the vesting term into Cost of sales, Selling, general and administrative expenses, or Research and development expenses, as appropriate.

During the nine months ended September 30, 2019, the company granted 361,142 RSUs, with a weighted-average grant date fair value of $87.85 per RSU. RSUs are accounted for using a fair-value-based method that utilizes the closing price of Zoetis common stock on the date of grant. In general, RSUs vest after three years of continuous service from the grant date and the values generally are amortized on a straight-line basis over the vesting term into Cost of sales, Selling, general and administrative expenses, or Research and development expenses, as appropriate.

During the nine months ended September 30, 2019, the company granted 190,170 PSUs with a weighted-average grant date fair value of $101.51 per PSU. PSUs are accounted for using a Monte Carlo simulation model. The units underlying the PSUs will be earned and vested over a three-year performance period, based upon the total shareholder return of the company in comparison to the total shareholder return of the companies comprising the S&P 500 stock market index at the start of the performance period, excluding companies that during the performance period are acquired or no longer publicly traded (Relative TSR). The weighted-average fair value was estimated based on volatility assumptions of Zoetis common stock and an average of the S&P 500 companies, which were 20.3% and 25.3%, respectively. Depending on the company’s Relative TSR performance at the end of the performance period, the recipient may earn from 0% to 200% of the target number of units. Vested units are settled in shares of the company’s common stock. PSU values are amortized on a straight-line basis over the vesting term into Cost of sales, Selling, general and administrative expenses, or Research and development expenses, as appropriate.

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Leases (Tables)

9 Months Ended

Sep. 30, 2019

Leases [Abstract]

Lease, Cost [Table Text Block]

Supplemental information for operating leases is as follows:

(MILLIONS OF DOLLARS, EXCEPT LEASE TERM AND DISCOUNT RATE AMOUNTS)			As of September 30, 2019
Supplemental Balance Sheet information for operating leases
Operating lease right of use assets			$	193
Operating lease liabilities
Operating lease liabilities - current (in Other current liabilities)			$	34
Operating lease liabilities - noncurrent			169
Total operating lease liabilities			$	203
Weighted-average remaining lease term—operating leases (years)			6.91
Weighted-average discount rate—operating leases			3.66		%
	Three Months Ended		Nine Months Ended
(MILLIONS OF DOLLARS)	September 30, 2019
Supplemental Income Statement information for operating leases
Operating lease expense	$	10	$	29
Variable lease payments not included in the measurement of lease liabilities	5		13
Short-term lease payments not included in the measurement of lease liabilities	3		9
Supplemental Cash Flow information for operating leases
Cash paid for amounts included in the measurement of lease liabilities	$	9	$	28
Lease obligations obtained in exchange for right-of-use assets (non-cash)	7		230

Lessee, Operating Lease, Liability, Maturity [Table Text Block]

Future minimum lease payments under non-cancellable operating lease contracts as of September 30, 2019 are as follows:

													Total		Less:
											After		Lease		Imputed
(MILLIONS OF DOLLARS)	2019(a)		2020		2021		2022		2023		2023		Payments		Interest			Total
Maturities	$	11	$	41	$	35	$	31	$	26	$	88	$	232	$	(29	)	$	203

^(a) 2019 excludes the nine months ended

Lessee, Operating Lease, Disclosure [Table Text Block]

Future minimum lease payments under non-cancellable operating lease contracts as of December 31, 2018, in accordance with the superceded leasing standard, are as follows:

											After
(MILLIONS OF DOLLARS)	2019		2020		2021		2022		2023		2023		Total
Maturities	$	38	$	30	$	24	$	21	$	15	$	45	$	173

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Stockholders' Equity (Tables)

9 Months Ended

Sep. 30, 2019

Equity [Abstract]

Changes, Net of Tax, in Accumulated Other Comprehensive Loss

Changes, net of tax, in accumulated other comprehensive income/(loss), excluding noncontrolling interests, were as follows:

				Currency Translation Adjustments								Accumulated Other
	Cash Flow			Net Investment		Other Currency						Comprehensive
(MILLIONS OF DOLLARS)	Hedges			Hedges		Translation Adj			Benefit Plans			Loss
Balance, December 31, 2017	$	(3	)	$	—	$	(487	)	$	(15	)	$	(505	)
Other comprehensive loss, net of tax	(1		)	—		(113		)	—			(114		)
Balance, September 30, 2018	$	(4	)	$	—	$	(600	)	$	(15	)	$	(619	)
Balance, December 31, 2018	$	(4	)	$	10	$	(621	)	$	(14	)	$	(629	)
Other comprehensive (loss)/income, net of tax	(3		)	28		(95		)	—			(70		)
Balance, September 30, 2019	$	(7	)	$	38	$	(716	)	$	(14	)	$	(699	)

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Revenue - Narrative (Details) $ in Millions	Sep. 30, 2019 USD ($)	Sep. 30, 2019 category	Sep. 30, 2019 product_category	Sep. 30, 2018 USD ($)
Revenue Recognition and Deferred Revenue [Abstract]
Number of major product categories		6	300
Other current liabilities	$ 8			$ 2
Contract liabilities	$ 9			$ 9

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Financial Instruments

9 Months Ended

Sep. 30, 2019

Financial Instruments [Abstract]

Financial Instruments

A. Debt

Credit Facilities

In December 2016, we entered into an amended and restated revolving credit agreement with a syndicate of banks providing for a multi-year $1.0 billion senior unsecured revolving credit facility (the credit facility). In December 2018, the maturity for the amended and restated revolving credit agreement was extended through December 2023. Subject to certain conditions, we have the right to increase the credit facility to up to $1.5 billion. The credit facility contains a financial covenant requiring us to not exceed a maximum total leverage ratio (the ratio of consolidated net debt as of the end of the period to consolidated Earnings Before Interest, Income Taxes, Depreciation and Amortization (EBITDA) for such period) of 3.50:1. Upon entering into a material acquisition, the maximum total leverage ratio increases to 4.00:1, and extends until the fourth full consecutive fiscal quarter ended immediately following the consummation of a material acquisition. The credit facility also contains a clause which adds back to Adjusted Consolidated EBITDA, any operational efficiency restructuring charge (defined as charges recorded by the company during the period commencing on October 1, 2016 and ending December 31, 2019, related to operational efficiency initiatives), provided that for any twelve-month period such charges added back to Adjusted Consolidated EBITDA shall not exceed $100 million in the aggregate.

The credit facility also contains a financial covenant requiring that we maintain a minimum interest coverage ratio (the ratio of EBITDA at the end of the period to interest expense for such period) of 3.50:1. In addition, the credit facility contains other customary covenants.

We were in compliance with all financial covenants as of September 30, 2019, and December 31, 2018. There were no amounts drawn under the credit facility as of September 30, 2019, or December 31, 2018.

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 September 30, 2019, we had access to $76 million of lines of credit which expire at various times through 2020 and are generally renewed annually. There were no borrowings outstanding related to these facilities as of September 30, 2019 and $9 million of borrowings outstanding related to these facilities as of December 31, 2018.

Commercial Paper Program

In February 2013, we entered into a commercial paper program with a capacity of up to $1.0 billion. As of September 30, 2019, and December 31, 2018, there was no commercial paper outstanding under this program.

Senior Notes and Other Long-Term Debt

On August 20, 2018, we issued $1.5 billion aggregate principal amount of our senior notes (2018 senior notes), with an original issue discount of $4 million. These notes are comprised of $300 million aggregate principal amount of floating rate senior notes due 2021 (the "2018 floating rate senior notes"), and $300 million aggregate principal amount of 3.250% senior notes due 2021, $500 million aggregate principal amount of 3.900% senior notes due 2028 and $400 million aggregate principal amount of 4.450% senior notes due 2048 (collectively, the "2018 fixed rate senior notes"). Net proceeds from this offering were partially used to pay down and terminate a revolving credit agreement and repay outstanding commercial paper, which were borrowed to finance a portion of the cash consideration for the acquisition of Abaxis (see Note 5. Acquisitions). The remainder of the net proceeds were used for general corporate purposes.

On September 12, 2017, we issued $1.25 billion aggregate principal amount of our senior notes (2017 senior notes), with an original issue discount of $7 million. These notes are comprised of $750 million aggregate principal amount of 3.000% senior notes due 2027 and $500 million aggregate principal amount of 3.950% senior notes due 2047. Net proceeds from this offering were partially used in October 2017 to repay, prior to maturity, the aggregate principal amount of $750 million, and a make-whole amount and accrued interest of $4 million, of our 1.875% senior notes due 2018. The remainder of the net proceeds were used for general corporate purposes.

On November 13, 2015, we issued $1.25 billion aggregate principal amount of our senior notes (2015 senior notes), with an original issue discount of $2 million. On January 28, 2013, we issued $3.65 billion aggregate principal amount of our senior notes (2013 senior notes) in a private placement, with an original issue discount of $10 million.

The 2013, 2015, 2017 and 2018 senior notes are governed by an indenture and supplemental indenture (collectively, the indenture) between us and Deutsche Bank Trust Company Americas, as trustee. The indenture contains certain covenants, including limitations on our and certain of our subsidiaries' ability to incur liens or engage in sale-leaseback transactions. The indenture also contains restrictions on our ability to consolidate, merge or sell substantially all of our assets. In addition, the indenture contains other customary terms, including certain events of default, upon the occurrence of which the 2013, 2015, 2017 and 2018 senior notes may be declared immediately due and payable.

Pursuant to the indenture, we are able to redeem the 2013, 2015 and 2017 senior notes and the 2018 fixed rate senior notes or any series, in whole or in part, at any time by paying a “make whole” premium, plus accrued and unpaid interest to, but excluding, the date of redemption. The 2018 floating rate senior notes are not redeemable at our option prior to their maturity date. Pursuant to our tax matters agreement with Pfizer, we will not be permitted to redeem the 2013 senior notes due 2023 pursuant to this optional redemption provision, except under limited circumstances. Upon the occurrence of a change of control of us and a downgrade of the 2013, 2015, 2017 and 2018 senior notes below an investment grade rating by each of Moody's Investors Service, Inc. and Standard & Poor's Ratings Services, we are, in certain circumstances, required to make an offer to repurchase all of the outstanding 2013, 2015, 2017 and 2018 senior notes at a price equal to 101% of the aggregate principal amount of the 2013, 2015, 2017 and 2018 senior notes together with accrued and unpaid interest to, but excluding, the date of repurchase.

The components of our long-term debt are as follows:

	September 30,			December 31,
(MILLIONS OF DOLLARS)	2019			2018
3.450% 2015 senior notes due 2020	$	500		$	500
2018 floating rate (three-month USD LIBOR plus 0.44%) senior notes due 2021	300			300
3.250% 2018 senior notes due 2021	300			300
3.250% 2013 senior notes due 2023	1,350			1,350
4.500% 2015 senior notes due 2025	750			750
3.000% 2017 senior notes due 2027	750			750
3.900% 2018 senior notes due 2028	500			500
4.700% 2013 senior notes due 2043	1,150			1,150
3.950% 2017 senior notes due 2047	500			500
4.450% 2018 senior notes due 2048	400			400
	6,500			6,500
Unamortized debt discount / debt issuance costs	(53		)	(57		)
Long-term debt, net of discount and issuance costs	$	6,447		$	6,443

The fair value of our long-term debt was $7,082 million and $6,474 million as of September 30, 2019, and December 31, 2018, respectively, and has been determined using a third-party matrix-pricing model that uses significant inputs derived from, or corroborated by, observable market data and Zoetis’ credit rating (Level 2 inputs).

The principal amount of long-term debt outstanding, as of September 30, 2019, matures in the following years:

									After
(MILLIONS OF DOLLARS)	2020		2021		2022		2023		2023		Total
Maturities	$	500	$	600	$	—	$	1,350	$	4,050	$	6,500

Interest Expense

Interest expense, net of capitalized interest, was $56 million and $167 million, for the three and nine months ended September 30, 2019, respectively and $54 million and $147 million for the three and nine months ended September 30, 2018, respectively. Capitalized interest expense was $3 million and $9 million for the three and nine months ended September 30, 2019, respectively and $2 million and $6 million for the three and nine months ended September 30, 2018, respectively.

B. Investments

As part of the acquisition of Abaxis, we acquired short and long-term investments in debt securities (see Note 5. Acquisitions). These investments are classified as available-for-sale securities and, therefore, are measured at fair value at each reporting date. The changes in fair value are recognized in Accumulated other comprehensive income/(loss). We utilized Level 2 inputs such as observable quoted prices for similar assets and liabilities in active markets and observable quoted prices for identical or similar assets in markets that are not very active.

The investment securities portfolio consists of debt securities that are investment grade. Information on investments in the debt securities, including the contractual maturities, or as necessary, the estimated maturities, of the available-for-sale securities is as follows:

	Gross Unrealized
	As of September 30, 2019								As of December 31, 2018
(MILLIONS OF DOLLARS)	Amortized Cost		Gains		Losses		Fair Value		Amortized Cost		Gains		Losses		Fair Value
Available-for-sale debt securities
Municipal Bonds	$	—	$	—	$	—	$	—	$	1	$	—	$	—	$	1
Corporate Bonds	12		—		—		12		100		—		—		100
Total debt securities	$	12	$	—	$	—	$	12	$	101	$	—	$	—	$	101

	Maturities by Period(a)
	As of September 30, 2019								As of December 31, 2018
(MILLIONS OF DOLLARS)	Within 1 year		Over 1 to 5 years		Over 5 years		Total		Within 1 year		Over 1 to 5 years		Over 5 years		Total
Available-for-sale debt securities
Municipal Bonds	$	—	$	—	$	—	$	—	$	1	$	—	$	—	$	1
Corporate Bonds	12		—		—		12		98		2		—		100
Total debt securities	$	12	$	—	$	—	$	12	$	99	$	2	$	—	$	101

^(a) Long term investments are included in Other noncurrent assets.

C. Derivative Financial Instruments

Foreign Exchange Risk

A significant portion of our revenue, earnings and net investment in foreign affiliates is exposed to changes in foreign exchange rates. We seek to manage our foreign exchange risk, in part, through operational means, including managing same-currency revenue in relation to same-currency costs and same-currency assets in relation to same-currency liabilities. Depending on market conditions, foreign exchange risk is also managed through the use of various derivative financial instruments. These derivative financial instruments serve to manage the exposure of our net investment in certain foreign operations to changes in foreign exchange rates and protect net income against the impact of translation into U.S. dollars of certain foreign exchange-denominated transactions.

All derivative financial instruments used to manage foreign currency risk are measured at fair value and are reported as assets or liabilities on the condensed consolidated balance sheet. The derivative financial instruments primarily offset exposures in the Australian dollar, British pound, Canadian dollar, Chinese yuan, euro, and Japanese yen. Changes in fair value are reported in earnings or in Accumulated other comprehensive income/(loss), depending on the nature and purpose of the financial instrument, as follows:

• For foreign exchange contracts not designated as hedging instruments, we recognize the gains and losses on forward-exchange contracts that are used to offset the same foreign currency assets or liabilities immediately into earnings along with the earnings impact of the items they generally offset. These contracts essentially take the opposite currency position of that reflected in the month-end balance sheet to counterbalance the effect of any currency movement. The vast majority of the foreign exchange derivative financial instruments mature within 60 days and all mature within three years.

• For cross-currency interest rate swaps, which are designated as a hedge against our net investment in foreign operations, changes in the fair value are recorded as a component of cumulative translation adjustment within Accumulated other comprehensive income/(loss) and reclassified into earnings when the foreign investment is sold or substantially liquidated. Gains and losses excluded from the assessment of hedge effectiveness are recognized in earnings (Interest expense—net of capitalized interest). The cash flows from these contracts are reflected within the investing section of our Condensed Consolidated Statement of Cash Flows. The cross-currency interest rate swap contracts have varying maturities of up to six years.

Interest Rate Risk

The company may use interest rate swap contracts on certain investing and borrowing transactions to manage its net exposure to interest rates and to reduce its overall cost of borrowing.

• In anticipation of issuing fixed-rate debt, we may use forward-starting interest rate swaps that are designated as cash flow hedges to hedge against changes in interest rates that could impact expected future issuances of debt. Unrealized gains or losses on the forward-starting interest rate swaps are reported in Accumulated other comprehensive income/(loss) and are recognized in earnings over the life of the future fixed-rate notes. When the company discontinues hedge accounting because it is no longer probable that an anticipated transaction will occur within the originally expected period of execution, or within an additional two-month period thereafter, changes to fair value accumulated in other comprehensive income are recognized immediately in earnings. For the nine months ended September 30, 2019, we entered into forward-starting interest rate swaps, having an effective date and mandatory

termination date in March 2023, to hedge against interest rate exposure related principally to the anticipated future issuance of fixed-rate debt to be used primarily to refinance our 3.250% 2013 senior notes due 2023.

• We may use fixed-to-floating interest rate swaps that are designated as fair value hedges to hedge against changes in the fair value of certain fixed-rate debt attributable to changes in the benchmark LIBOR rate. These derivative instruments effectively convert a portion of the company’s long-term debt from fixed rate to floating rate debt based on three-month LIBOR plus a spread. Gains or losses on the fixed-to-floating interest rate swaps due to changes in LIBOR are recorded in Interest expense, net of capitalized interest. Changes in the fair value of the fixed-to-floating interest rate swaps are offset by changes in the fair value of the underlying fixed rate debt. As of September 30, 2019, we had an outstanding fixed-to-floating interest rate swap which corresponds to a portion of the 3.900% 2018 senior notes due 2028. The amounts recorded during the three and nine months ended September 30, 2019 for changes in the fair value of this hedge are immaterial to our consolidated financial statements.

Outstanding Positions

The aggregate notional amount of derivative instruments are as follows:

	Notional
	September 30,		December 31,
(MILLIONS)	2019		2018
Foreign currency forward-exchange contracts	$	1,150	$	1,330
Cross-currency interest rate swap contracts (in foreign currency):
Euro	575		400
Danish krone	600		—
Swiss franc	25		—
Forward-starting interest rate swaps	$	250	$	—
Fixed-to-floating interest rate swap contracts	$	50	$	—

Fair Value of Derivative Instruments

The classification and fair values of derivative instruments are as follows:

		Fair Value of Derivatives
		September 30,			December 31,
(MILLIONS OF DOLLARS)	Balance Sheet Location	2019			2018
Derivatives Not Designated as Hedging Instruments
Foreign currency forward-exchange contracts	Other current assets	$	9		$	6
Foreign currency forward-exchange contracts	Other current liabilities	(6		)	(7		)
Total derivatives not designated as hedging instruments		$	3		$	(1	)
Derivatives Designated as Hedging Instruments:
Forward starting interest rate swap contracts	Other current liabilities	$	(6	)	$	—
Cross-currency interest rate swap contracts	Other current assets	13			3
Cross-currency interest rate swap contracts	Other noncurrent assets	28			8
Total derivatives designated as hedging instruments		35			11
Total derivatives		$	38		$	10

The company’s cross-currency interest rate swaps are subject to master netting arrangements to mitigate credit risk by permitting net settlement of transactions with the same counterparty. We may also enter into collateral security arrangements with certain of our counterparties to exchange cash collateral when the net fair value of certain derivative instruments fluctuates from contractually established thresholds. At September 30, 2019, there was $16 million of collateral received related to the long-term cross-currency interest rate swaps.

We use a market approach in valuing financial instruments on a recurring basis. Our derivative financial instruments are measured at fair value on a recurring basis using Level 2 inputs in the calculation of fair value.

The amounts of net gains on derivative instruments not designated as hedging instruments, recorded in Other (income)/deductions—net, are as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(MILLIONS OF DOLLARS)	2019		2018		2019		2018
Foreign currency forward-exchange contracts	$	1	$	22	$	5	$	22

These amounts were substantially offset in Other (income)/deductions—net by the effect of changing exchange rates on the underlying foreign currency exposures.

The amounts of unrecognized net gains/(losses) on interest rate swap contracts, recorded, net of tax, in Accumulated other comprehensive income/(loss), are as follows:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(MILLIONS OF DOLLARS)	2019			2018		2019			2018
Forward-starting interest rate swap contracts	$	(4	)	$	—	$	(4	)	$	—
Cross-currency interest rate swap contracts	$	23		$	—	$	28		$	1

Gains on cross-currency interest rate swap contracts, recognized within Interest expense, net of capitalized interest, are as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(MILLIONS OF DOLLARS)	2019		2018		2019		2018
Cross-currency interest rate swap contracts	$	5	$	2	$	13	$	3

The net amount of deferred gains related to derivative instruments designated as cash flow hedges that is expected to be reclassified from Accumulated other comprehensive income/(loss) into earnings over the next 12 months is insignificant.

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Acquisitions and Divestitures

9 Months Ended

Sep. 30, 2019

Business Combinations [Abstract]

Acquisitions and Divestitures

we completed the acquisition of Abaxis, Inc. (Abaxis), a California corporation and a leader in the development, manufacture and marketing of diagnostic instruments for veterinary point-of-care services. We acquired all of the outstanding common shares of Abaxis for $83.00 per share in cash resulting in Abaxis becoming our wholly owned subsidiary. The acquisition enhances our presence in animal health diagnostics.

The acquisition date fair value of the consideration transferred was approximately $1,962 million, which consisted of the following:

(MILLIONS OF DOLLARS)	Amounts
Cash paid to Abaxis' shareholders(a)	$	1,898
Cash paid for equity awards attributable to pre-merger services(b)	54
Fair value of Zoetis equity awards issued in exchange for outstanding Abaxis equity awards pertaining to pre-merger service(c)	10
Total consideration	$	1,962

^(a)  Represents cash paid for cancellation and conversion of each outstanding share of Abaxis' common stock at the acquisition date.

^(b)  Represents cash paid for cancellation and settlement of restricted stock awards that fully vested in July 2018 as a result of service or pre-existing change-in-control provisions and termination provisions. Includes certain awards that were settled in cash during the first quarter of 2019.

^(c)  Represents the fair value of replacement awards issued for Abaxis equity awards outstanding immediately before the acquisition and attributable to the service period prior to the acquisition. The previous Abaxis equity awards were converted into the Zoetis equity awards at an exchange ratio based on the closing prices of shares of Zoetis common stock and Abaxis common stock for ten full trading days before the closing of the acquisition.

The acquisition has been accounted for as a business combination with the assets acquired and liabilities assumed measured at fair value as of the acquisition date, primarily using Level 3 inputs, except for investments in debt securities which were valued using Level 2 inputs.

During the first half of 2019, the company recorded additional measurement period adjustments which were made to reflect the facts and circumstances in existence as of the acquisition date. These adjustments include a reduction to Identifiable intangible assets and Noncurrent deferred tax liabilities of $1 million each with a corresponding offset to goodwill. These measurement period adjustments were primarily attributable to changes in preliminary valuation assumptions, including market participant estimates of cash flows as well as other initial estimates and the finalization of legal entity fair values. The valuation was finalized during the second quarter of 2019. The final fair values allocated to Abaxis' assets and liabilities as of the acquisition date, are reflected in the table below.

(MILLIONS OF DOLLARS)	Amounts
Cash and cash equivalents	$	64
Short term investments(a)	107
Accounts receivable(b)	30
Inventories(c)	79
Other current assets	6
Property, plant and equipment(d)	54
Identifiable intangible assets(e)	894
Other noncurrent assets	29
Accounts payable	(21)
Accrued compensation and related items	(10)
Other current liabilities	(22)
Other noncurrent liabilities	(11)
Noncurrent deferred tax liabilities(f)	(214)
Total net assets acquired	985
Goodwill(g)	977
Total consideration	$	1,962

^(a)  Short term investments include investments in debt securities that are classified as available-for-sale and measured at fair value.

^(b)  The fair value approximates the gross contractual amount of accounts receivable. The contractual amount not expected to be collected is immaterial.

^(c)  Acquired inventory is comprised of finished goods, work in process and raw materials. The fair value of finished goods was determined based on net realizable value adjusted for the costs of the selling effort, a reasonable profit allowance for the selling effort, and estimated holding costs. The fair value of work in process was determined based on net realizable value adjusted for costs to complete the manufacturing process, costs of the selling effort, a reasonable profit allowance for the remaining manufacturing and selling effort, and an estimate of holding costs. The fair value of raw materials was determined to approximate book value.

^(d)  Property, plant and equipment is comprised of machinery and equipment, furniture and fixtures, computer equipment, leasehold improvements and construction in progress. The fair value was primarily determined using a reproduction/replacement cost approach which measures the value of an asset by estimating the cost to acquire or construct comparable assets adjusted for age and condition of the asset.

^(e)  Identifiable intangible assets primarily consist of developed technology rights, customer relationships, and trademarks and trade names. The fair value of identifiable intangible assets is determined using the income approach, which includes a forecast of expected future cash flows. For additional information regarding identifiable intangible assets, see Note 12. Goodwill and Other Intangible Assets.

^(f)  The acquisition was structured as a stock purchase and therefore we assumed the historical tax basis of Abaxis' assets and liabilities. The deferred tax effects resulting from the acquisition include the expected federal, state, and foreign tax consequences associated with temporary differences between the fair values of the assets acquired and liabilities assumed and the respective tax basis. The components of the Abaxis net deferred tax liability are included within amounts reported in Note 8. Income Taxes.

^(g)  Goodwill represents the excess of consideration transferred over the of fair values of the assets acquired and liabilities assumed. It is allocated to our existing reportable segments and is primarily attributable to the future potential of the technology platforms, as well as cost and revenue synergies including market share capture, elimination of cost redundancies and gain of cost efficiencies, and intangible assets such as assembled workforce which are not separately recognizable. The primary strategic purpose of the acquisition was to enhance the company’s existing product portfolio by strengthening Zoetis’ presence in veterinary diagnostics. The goodwill recorded is not deductible for tax purposes.

The company incurred acquisition related costs of approximately $5 million and $32 million for the three and nine months ended September 30, 2019, respectively, which are included within Restructuring charges and certain acquisition-related costs on our condensed consolidated statements of income.

Supplemental Pro Forma Information (Unaudited):

The following table provides unaudited supplemental pro forma financial information as if the acquisition of Abaxis had occurred on January 1, 2017.

	Three Months Ended		Nine Months Ended
(MILLIONS OF DOLLARS)	September 30, 2018
Revenue	$	1,500	$	4,416
Net income attributable to Zoetis Inc.	348		1,024

The supplemental pro forma financial information has been prepared using the acquisition method of accounting and is based on the historical financial information of Zoetis and Abaxis. The supplemental pro forma financial information does not necessarily represent what the combined company’s revenue or results of operations would have been had the acquisition been completed on January 1, 2017, nor do they intend to be a projection of future operating results of the combined company. It also does not reflect any operating efficiencies or potential cost savings that might be achieved from synergies of combining Zoetis and Abaxis.

The unaudited supplemental pro forma financial information reflects primarily the following pro forma adjustments:

• Acquisition related costs incurred by Zoetis and Abaxis of $57 million and $60 million have been removed for each of the three and nine months ended September 30, 2018, respectively.

• Additional amortization expense of $13 million for the three months ended September 30, 2018 and $78 million for the nine months ended September 30, 2018, related to the fair value of identified intangible assets acquired.

• Additional depreciation expense of $1 million for the nine months ended September 30, 2018, related to the fair value adjustments to property, plant and equipment acquired.

• Adjustments related to the preliminary estimate of the non-recurring fair value adjustment to acquisition date inventory estimated to have been sold, resulting in $7 million removed for each of the three and nine months ended September 30, 2018, respectively.

• Additional interest expense and amortization of debt issuance costs for the debt issuance to finance the acquisition, resulting in $8 million added for the three months ended September 30, 2018 and $36 million added for the nine months ended September 30, 2018.

• Adjustment related to the post merger share-based compensation expense of the replacement awards is $7 million for the nine months ended September 30, 2018.

• Applicable tax impact of the above adjustments based on the statutory tax rates in the various jurisdictions where the adjustments are expected to be incurred.

Other Acquisitions

In the third quarter of 2019, we completed the acquisition of Platinum Performance, a nutrition-focused animal health business for companion animals. The transaction did not have a significant impact on our consolidated financial statements.

In the third quarter of 2018, we completed the acquisition of a manufacturing business in Ireland and the noncontrolling interest of a European livestock monitoring company. These transactions did not have a significant impact on our consolidated financial statements.

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Stockholders' Equity - Changes in Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Beginning balance	$ 2,411	$ 1,982	$ 2,185	$ 1,786
Other comprehensive (loss)/income, net of tax	(30)	(76)	(70)	(114)
Ending balance	2,678	2,118	2,678	2,118
Accumulated Other Comprehensive Loss
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Beginning balance	(669)	(543)	(629)	(505)
Other comprehensive (loss)/income, net of tax	(30)	(76)	(70)	(114)
Ending balance	(699)	(619)	(699)	(619)
Derivatives Net Unrealized Gains/ (Losses)
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Beginning balance			(4)	(3)
Other comprehensive (loss)/income, net of tax			(3)	(1)
Ending balance	(7)	(4)	(7)	(4)
Net Investment Hedges
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Beginning balance			10	0
Other comprehensive (loss)/income, net of tax			28	0
Ending balance	38	0	38	0
Currency Translation Adjustment Net Unrealized Gain/(Losses)
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Beginning balance			(621)	(487)
Other comprehensive (loss)/income, net of tax			(95)	(113)
Ending balance	(716)	(600)	(716)	(600)
Benefit Plans Actuarial Gains/(Losses)
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Beginning balance			(14)	(15)
Other comprehensive (loss)/income, net of tax			0	0
Ending balance	$ (14)	$ (15)	$ (14)	$ (15)

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Segment Information Selected Statement of Income (Details) - USD ($) $ in Millions		3 Months Ended				9 Months Ended
		Sep. 30, 2019		Sep. 30, 2018		Sep. 30, 2019	Sep. 30, 2018
Segment Reporting Information [Line Items]
Revenue		$ 1,584		$ 1,480		$ 4,586	$ 4,261
Cost of Sales		479		473		1,462	1,367
Other (income)/deductions—net		(26)		(19)		(46)	(28)
Income before provision for taxes on income	[1]	528		418		1,364	1,272
Depreciation and amortization		107	[1],[2]	84	[1],[2]	303	207	[1],[2]
Acquisition-related costs				57			60
Other business activities
Segment Reporting Information [Line Items]
Income before provision for taxes on income		(87)		(84)		(246)	(247)
Depreciation and amortization	[2]	7		6		18	17
Acquisition-related Costs [Member]
Segment Reporting Information [Line Items]
Depreciation and amortization	[2]	0		0
Operating Segments
Segment Reporting Information [Line Items]
Income before provision for taxes on income		904		843		2,614	2,370
Depreciation and amortization	[2]	25		20		69	59
Operating Segments | U.S.
Segment Reporting Information [Line Items]
Revenue		844		757		2,342	2,068
Cost of Sales		163		151		468	431
Gross Profit		$ 681		$ 606		$ 1,874	$ 1,637
Gross margin, percentage		80.70%		80.10%		80.00%	79.20%
Operating Expenses		$ 130		$ 116		$ 367	$ 328
Other (income)/deductions—net		0		0		0	0
Income before provision for taxes on income		551		490		1,507	1,309
Depreciation and amortization	[2]	12		9		31	25
Operating Segments | International
Segment Reporting Information [Line Items]
Revenue	[3]	721		709		2,181	2,163
Cost of Sales		234		226		662	689
Gross Profit		$ 487		$ 483		$ 1,519	$ 1,474
Gross margin, percentage		67.50%		68.10%		69.60%	68.10%
Operating Expenses		$ 134		$ 131		$ 412	$ 411
Other (income)/deductions—net		0		(1)		0	2
Income before provision for taxes on income		353		353		1,107	1,061
Depreciation and amortization	[2]	13		11		38	34
Corporate
Segment Reporting Information [Line Items]
Income before provision for taxes on income		(172)		(178)		(512)	(470)
Depreciation and amortization	[2]	19		15		49	42
Reconciling Items
Segment Reporting Information [Line Items]
Depreciation and amortization	[2]					0	0
Purchase accounting adjustments, Earnings		(55)		(49)		(179)	(95)
Purchase accounting adjustments, Depreciation and Amortization	[2]	55		43		165	88
Acquisition-related costs		(6)		(40)		(33)	(41)
Certain significant items, Earnings	[4]	17		8		(56)	(2)
Certain significant items, Depreciation and Amortization	[2],[4]	0		0		0	0
Other unallocated, Earnings		(73)		(82)		(224)	(243)
Other Unallocated, Depreciation and Amortization	[2]	$ 1		$ 0		$ 2	$ 1

[1] Defined as income before provision for taxes on income.

[2] Certain production facilities are shared. Depreciation and amortization is allocated to the reportable operating segments based on estimates of where the benefits of the related assets are realized.

[3] Revenue denominated in euros was $541 million and $555 million for the nine months ended September 30, 2019 and September 30, 2018, respectively.

[4] For the nine months ended September 30, 2019, primarily represents (i) a change in estimate related to inventory costing of $68 million, (ii) income of $20 million resulting from a contingent payment received pursuant to an agreement related to the 2016 sale of certain U.S. manufacturing sites, and (iii) product transfer costs and consulting fees of $7 million related to our supply network strategy. For the nine months ended September 30, 2018, primarily represents: (i) charges related to our operational efficiency initiative and supply network strategy of $8 million which includes consulting fees, product transfer costs, employee termination costs, and a loss related to sales of certain manufacturing sites and products, (ii) employee termination costs of $11 million in Europe as a result of initiatives to better align our organizational structure, and (iii) a net gain of $18 million related to the relocation of a manufacturing site in China.

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Financial Instruments - Long-term Debt Maturity (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018	Aug. 20, 2018	Oct. 31, 2017	Sep. 12, 2017	Nov. 13, 2015	Jan. 28, 2013
Debt Instrument [Line Items]
2019	$ 500		$ 500
2020	600		600
2021	0		0
2022	1,350		1,350
After 2022	4,050		4,050
Total long-term debt	6,500		6,500		$ 6,500
Interest expense, net of capitalized interest	56	$ 54	167	$ 147
Capitalized interest	$ 3	$ 2	$ 9	$ 6
Senior Notes
Debt Instrument [Line Items]
Total long-term debt						$ 1,500		$ 1,250	$ 1,250	$ 3,650
Senior Notes | Senior notes due 2018
Debt Instrument [Line Items]
Long-term debt current portion							$ 750

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Financial Instruments - Commercial Paper Program (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018	Feb. 28, 2013
Short-term Debt [Line Items]
Interest expense, net of capitalized interest	$ 56,000,000	$ 54,000,000	$ 167,000,000	$ 147,000,000
Short-term Debt, Fair Value					$ 9,000,000
Line of credit facility	0		0		0
Commercial Paper	$ 0		$ 0		$ 0
Commercial Paper
Short-term Debt [Line Items]
Capacity of commercial paper program						$ 1,000,000,000.0

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Income Taxes - Taxes on Income (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Income Tax Contingency [Line Items]
Effective tax rate for income from continuing operations	18.00%	17.00%	18.20%	15.20%
Income Tax Expense (Benefit), Continuing Operations, Adjustment of Deferred Tax (Asset) Liability		$ 23	$ 19	$ 58
Share-based Payments
Income Tax Contingency [Line Items]
Income Tax Expense (Benefit), Continuing Operations, Adjustment of Deferred Tax (Asset) Liability	$ 1	$ 3	17	12
Change in Non-U.S. Statutory Tax Rates
Income Tax Contingency [Line Items]
Income Tax Expense (Benefit), Continuing Operations, Adjustment of Deferred Tax (Asset) Liability			$ 3	$ 8

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Organization (Details) - Sep. 30, 2019	species	country	region	category	product_category
Product Information [Line Items]
Number of regional segments | region			2
Number of countries in which entity markets products		45
Number of core animal species | species	8
Number of major product categories				6	300
Product
Product Information [Line Items]
Number of countries in which entity markets products		100

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Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2019

Financial Instruments [Abstract]

Available-for-sale Securities

he investment securities portfolio consists of debt securities that are investment grade. Information on investments in the debt securities, including the contractual maturities, or as necessary, the estimated maturities, of the available-for-sale securities is as follows:

	Gross Unrealized
	As of September 30, 2019								As of December 31, 2018
(MILLIONS OF DOLLARS)	Amortized Cost		Gains		Losses		Fair Value		Amortized Cost		Gains		Losses		Fair Value
Available-for-sale debt securities
Municipal Bonds	$	—	$	—	$	—	$	—	$	1	$	—	$	—	$	1
Corporate Bonds	12		—		—		12		100		—		—		100
Total debt securities	$	12	$	—	$	—	$	12	$	101	$	—	$	—	$	101

	Maturities by Period(a)
	As of September 30, 2019								As of December 31, 2018
(MILLIONS OF DOLLARS)	Within 1 year		Over 1 to 5 years		Over 5 years		Total		Within 1 year		Over 1 to 5 years		Over 5 years		Total
Available-for-sale debt securities
Municipal Bonds	$	—	$	—	$	—	$	—	$	1	$	—	$	—	$	1
Corporate Bonds	12		—		—		12		98		2		—		100
Total debt securities	$	12	$	—	$	—	$	12	$	99	$	2	$	—	$	101

^(a) Long term investments are included in Other noncurrent assets.

Schedule of Long-term Debt Instruments

The components of our long-term debt are as follows:

	September 30,			December 31,
(MILLIONS OF DOLLARS)	2019			2018
3.450% 2015 senior notes due 2020	$	500		$	500
2018 floating rate (three-month USD LIBOR plus 0.44%) senior notes due 2021	300			300
3.250% 2018 senior notes due 2021	300			300
3.250% 2013 senior notes due 2023	1,350			1,350
4.500% 2015 senior notes due 2025	750			750
3.000% 2017 senior notes due 2027	750			750
3.900% 2018 senior notes due 2028	500			500
4.700% 2013 senior notes due 2043	1,150			1,150
3.950% 2017 senior notes due 2047	500			500
4.450% 2018 senior notes due 2048	400			400
	6,500			6,500
Unamortized debt discount / debt issuance costs	(53		)	(57		)
Long-term debt, net of discount and issuance costs	$	6,447		$	6,443

Schedule of Maturities of Long-term Debt

The principal amount of long-term debt outstanding, as of September 30, 2019, matures in the following years:

									After
(MILLIONS OF DOLLARS)	2020		2021		2022		2023		2023		Total
Maturities	$	500	$	600	$	—	$	1,350	$	4,050	$	6,500

Schedule of Derivative Instruments in Statement of Financial Position, Fair Value

The classification and fair values of derivative instruments are as follows:

		Fair Value of Derivatives
		September 30,			December 31,
(MILLIONS OF DOLLARS)	Balance Sheet Location	2019			2018
Derivatives Not Designated as Hedging Instruments
Foreign currency forward-exchange contracts	Other current assets	$	9		$	6
Foreign currency forward-exchange contracts	Other current liabilities	(6		)	(7		)
Total derivatives not designated as hedging instruments		$	3		$	(1	)
Derivatives Designated as Hedging Instruments:
Forward starting interest rate swap contracts	Other current liabilities	$	(6	)	$	—
Cross-currency interest rate swap contracts	Other current assets	13			3
Cross-currency interest rate swap contracts	Other noncurrent assets	28			8
Total derivatives designated as hedging instruments		35			11
Total derivatives		$	38		$	10

Schedule of Other Derivatives Not Designated as Hedging Instruments, Statements of Financial Performance and Financial Position, Location

The amounts of net gains on derivative instruments not designated as hedging instruments, recorded in Other (income)/deductions—net, are as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(MILLIONS OF DOLLARS)	2019		2018		2019		2018
Foreign currency forward-exchange contracts	$	1	$	22	$	5	$	22

Schedule of Net Investment Hedges in Accumulated Other Comprehensive Income (Loss)

The amounts of unrecognized net gains/(losses) on interest rate swap contracts, recorded, net of tax, in Accumulated other comprehensive income/(loss), are as follows:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(MILLIONS OF DOLLARS)	2019			2018		2019			2018
Forward-starting interest rate swap contracts	$	(4	)	$	—	$	(4	)	$	—
Cross-currency interest rate swap contracts	$	23		$	—	$	28		$	1

Schedule of Net Investment Hedges, Statements of Financial Performance and Financial Position, Location

Gains on cross-currency interest rate swap contracts, recognized within Interest expense, net of capitalized interest, are as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(MILLIONS OF DOLLARS)	2019		2018		2019		2018
Cross-currency interest rate swap contracts	$	5	$	2	$	13	$	3

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Share-Based Payments (Tables)

9 Months Ended

Sep. 30, 2019

Share-based Payment Arrangement [Abstract]

Components of Share-based Compensation Expense

The components of share-based compensation expense are as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(MILLIONS OF DOLLARS)	2019		2018		2019		2018
Stock options / stock appreciation rights	$	3	$	2	$	8	$	7
RSUs / DSUs(a)(b)	10		10		34		23
PSUs	3		2		9		6
Share-based compensation expense—total(c)	$	16	$	14	$	51	$	36

^(a)  For the three and nine months ended September 30, 2019, includes share-based compensation expense of $4 million and $13 million, respectively, related to the acquisition of Abaxis for the post-merger service period. For additional details, see Note 5. Acquisitions.

^(b)  Includes additional share-based compensation expense as a result of accelerated vesting of outstanding RSUs of terminated employees in connection with the acquisition of Abaxis, for the three and nine months ended September 30, 2019, of approximately $1 million and $5 million, respectively, which is included in Restructuring charges and certain acquisition-related costs.      

^(c)  Amounts capitalized to inventory were $1 million for the nine months ended September 30, 2019 and were insignificant for the three months ended September 30, 2019 as well as for the three and nine months ended September 30, 2018.

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Leases

9 Months Ended

Sep. 30, 2019

Leases [Abstract]

Leases

We have facilities, vehicles and equipment under various non-cancellable operating leases with third parties. These leases generally have remaining terms ranging from one to 15 years, inclusive of renewal options that are reasonably certain of exercise.

Supplemental information for operating leases is as follows:

(MILLIONS OF DOLLARS, EXCEPT LEASE TERM AND DISCOUNT RATE AMOUNTS)			As of September 30, 2019
Supplemental Balance Sheet information for operating leases
Operating lease right of use assets			$	193
Operating lease liabilities
Operating lease liabilities - current (in Other current liabilities)			$	34
Operating lease liabilities - noncurrent			169
Total operating lease liabilities			$	203
Weighted-average remaining lease term—operating leases (years)			6.91
Weighted-average discount rate—operating leases			3.66		%
	Three Months Ended		Nine Months Ended
(MILLIONS OF DOLLARS)	September 30, 2019
Supplemental Income Statement information for operating leases
Operating lease expense	$	10	$	29
Variable lease payments not included in the measurement of lease liabilities	5		13
Short-term lease payments not included in the measurement of lease liabilities	3		9
Supplemental Cash Flow information for operating leases
Cash paid for amounts included in the measurement of lease liabilities	$	9	$	28
Lease obligations obtained in exchange for right-of-use assets (non-cash)	7		230

Future minimum lease payments under non-cancellable operating lease contracts as of September 30, 2019 are as follows:

													Total		Less:
											After		Lease		Imputed
(MILLIONS OF DOLLARS)	2019(a)		2020		2021		2022		2023		2023		Payments		Interest			Total
Maturities	$	11	$	41	$	35	$	31	$	26	$	88	$	232	$	(29	)	$	203

^(a) 2019 excludes the nine months ended September 30, 2019.

Future minimum lease payments under non-cancellable operating lease contracts as of December 31, 2018, in accordance with the superceded leasing standard, are as follows:

											After
(MILLIONS OF DOLLARS)	2019		2020		2021		2022		2023		2023		Total
Maturities	$	38	$	30	$	24	$	21	$	15	$	45	$	173

Total rent expense, net of sublease rental income, in accordance with the superceded leasing standard, was approximately $45 million in 2018.

Lease Accounting Policy

Below are the significant accounting policies updated as of January 1, 2019, as a result of the adoption of the new lease accounting guidance. For additional information, see Note 3. Accounting Standards.

We determine if a contract contains a lease at inception. Our current portfolio includes only operating leases which are recorded as a right of use asset, as of the lease commencement date, in an amount equal to the present value of future payments over the lease term. We have elected not to recognize right of use assets and lease liabilities for short-term leases of vehicles and equipment with a lease term of twelve months or less.

Options to extend or terminate a lease are considered in the lease term to the extent that the option is reasonably certain of exercise. A corresponding lease liability is recorded within Other current liabilities and Operating lease liabilities. The present value of future payments is discounted using the rate implicit in the lease, when available. When the implicit rate is not available, as is frequently the case with our lease portfolio, the present value is calculated using our incremental borrowing rate, which is determined on the commencement date. The incremental borrowing rate represents the rate of interest that we would expect to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. As we do not borrow on a collateralized basis, our non-collateralized borrowing rate is used as an input in deriving the incremental borrowing rate.

Fixed lease payments are recognized on straight-line basis over the lease term, while variable payments are recognized in the period incurred. Variable lease payments include real estate taxes and charges for other non-lease services due to lessors that are not dependent on an index or rate and utilization based charges associated with fleet vehicles.

Our real estate and fleet lease contracts may include fixed consideration attributable to both lease and non-lease components, including non-lease services provided by the vendor, which are accounted for as a single fixed minimum payment. For leases of certain classes of machinery and equipment, contract consideration is allocated to lease and non-lease components on the basis of relative standalone price.

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

9 Months Ended

Sep. 30, 2019

Restructuring and Related Activities [Abstract]

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

connection with our cost-reduction/productivity initiatives, we typically incur costs and charges associated with site closings and other facility rationalization actions, workforce reductions and the expansion of shared services, including the development of global systems. In connection with our acquisition activity, we typically incur costs and charges associated with executing the transactions, integrating the acquired operations, which may include expenditures for consulting and the integration of systems and processes, product transfers and restructuring the consolidated company, which may include charges related to employees, assets and activities that will not continue in the consolidated company. All operating functions can be impacted by these actions, including sales and marketing, manufacturing and R&D, as well as functions such as information technology, shared services and corporate operations.

During 2015, we launched a comprehensive operational efficiency program and a supply network strategy initiative. These initiatives focused on reducing complexity in our product portfolios, changing our selling approach in certain markets, reducing our presence in certain countries, and selling certain manufacturing sites over a long term period. As part of these initiatives, we reduced certain positions through divestitures, normal attrition and involuntary terminations.

The components of costs incurred in connection with restructuring initiatives, acquisitions and cost-reduction/productivity initiatives are as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(MILLIONS OF DOLLARS)	2019		2018		2019		2018
Restructuring charges and certain acquisition-related costs:
Transaction costs(a)	$	—	$	21	$	—	$	21
Integration costs(b)	4		9		13		10
Restructuring charges(c)(d):
Employee termination costs	2		17		20		22
Exit costs	—		—		—		1
Total Restructuring charges and certain acquisition-related costs	$	6	$	47	$	33	$	54

^(a)  Transaction costs represent external costs directly related to acquiring businesses and primarily include expenditures for banking, legal, accounting and other similar services.

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

^(c)  The restructuring charges for the three and nine months ended September 30, 2019 primarily relate to the acquisition of Abaxis.

The restructuring charges for the three and nine months ended September 30, 2018 primarily relate to employee termination costs of $8 million and $11 million, respectively, in Europe as a result of initiatives to better align our organizational structure, and employee termination costs of $10 million related to the acquisition of Abaxis.

^(d)  The restructuring charges are associated with the following:

• For the three months ended September 30, 2019, Manufacturing/research/corporate of $2 million.

• For the three months ended September 30, 2018, International of $8 million and Manufacturing/research/corporate of $9 million.

• For the nine months ended September 30, 2019, Manufacturing/research/corporate of $20 million.

• For the nine months ended September 30, 2018, International of $12 million and Manufacturing/research/corporate of $11 million.

The components of, and changes in, our restructuring accruals are as follows:

(MILLIONS OF DOLLARS)	Accrual(a)
Balance, December 31, 2018(b)	$	45
Provision	20
Utilization and other(c)	(28		)
Balance, September 30, 2019(b)	$	37

^(a)   Changes in our restructuring accrual represents employee termination costs.

^(b)  At September 30, 2019, and December 31, 2018, included in Accrued expenses ($11 million and $27 million, respectively) and Other noncurrent liabilities ($26 million and $18 million, respectively).

^(c)  

Includes adjustments for foreign currency translation.

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Stockholders' Equity - Changes in Common Shares and Treasury Stock (Details) - USD ($) $ in Billions		3 Months Ended			9 Months Ended
		Sep. 30, 2019	Sep. 30, 2018		Sep. 30, 2019	Sep. 30, 2018		Dec. 31, 2018	Dec. 31, 2017
Class of Stock [Line Items]
Common stock, shares authorized		6,000,000,000			6,000,000,000			6,000,000,000
Preferred stock, shares authorized		1,000,000,000			1,000,000,000			1,000,000,000
Stock repurchase program, remaining authorized repurchase amount		$ 1.9			$ 1.9
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Common stock issued, shares		501,900,000	501,900,000		501,891,243	501,900,000
Treasury stock, shares					22,328,917	15,800,000	[1]
Treasury stock acquired, shares	[1]					(6,600,000)
Common stock issued, shares		501,891,243	501,900,000		501,891,243	501,900,000
Treasury stock, shares		25,145,454	20,900,000	[1]	25,145,454	20,900,000	[1]
Share Repurchase Program
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Treasury stock acquired, shares	[1]					(1,400,000)
December 2016 Share Repurchase Program
Class of Stock [Line Items]
Stock repurchase program, authorized amount									$ 1.5
December 2018 Share Repurchase Program [Member]
Class of Stock [Line Items]
Stock repurchase program, authorized amount								$ 2.0

[1] Shares may not add due to rounding.

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Segment Information (Details)	9 Months Ended
	Sep. 30, 2019 segment
Segment Reporting [Abstract]
Number of operating segments	2

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Financial Instruments - Senior Notes Offering and Other Long-Term Debt (Details) - USD ($)	Sep. 30, 2019	Dec. 31, 2018	Aug. 20, 2018	Oct. 31, 2017	Sep. 12, 2017	Nov. 13, 2015	Jan. 28, 2013
Debt Instrument [Line Items]
Commercial Paper	$ 0	$ 0
Debt, principal amount	6,500,000,000	6,500,000,000
Senior Notes
Debt Instrument [Line Items]
Debt, principal amount			$ 1,500,000,000		$ 1,250,000,000	$ 1,250,000,000	$ 3,650,000,000
Debt, unamortized discount			4,000,000		$ 7,000,000	$ 2,000,000	$ 10,000,000
Debt, purchase price percent due to downgrade of investment grade							101.00%
Senior Notes | 2018 floating senior notes due 2021
Debt Instrument [Line Items]
Debt, principal amount	300,000,000	300,000,000	300,000,000
Senior Notes | 3.250% 2018 senior notes due 2021
Debt Instrument [Line Items]
Debt, principal amount	300,000,000	300,000,000	$ 300,000,000
Interest rate percentage			3.25%
Senior Notes | 3.000% 2017 senior notes due 2027
Debt Instrument [Line Items]
Debt, principal amount	750,000,000	750,000,000
Interest rate percentage					3.00%
Senior Notes | 3.900% 2018 senior notes due 2028
Debt Instrument [Line Items]
Debt, principal amount	500,000,000	500,000,000	$ 500,000,000
Interest rate percentage			3.90%
Senior Notes | 3.950% 2017 senior notes due 2047
Debt Instrument [Line Items]
Debt, principal amount	500,000,000	500,000,000
Interest rate percentage					3.95%
Senior Notes | 4.450% 2018 senior notes due 2048
Debt Instrument [Line Items]
Debt, principal amount	$ 400,000,000	$ 400,000,000	$ 400,000,000
Interest rate percentage			4.45%
Senior Notes | Senior notes due 2018
Debt Instrument [Line Items]
Interest rate percentage							1.875%
Long-term debt current portion				$ 750,000,000
Make whole premium and accrued interest				$ 4,000,000

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Income Taxes - Deferred Taxes (Details) - USD ($) $ in Millions	Sep. 30, 2019	Dec. 31, 2018
Income Tax Disclosure [Abstract]
Net deferred income tax liability	$ 401	$ 413
Noncurrent deferred tax assets	72	61
Noncurrent deferred tax liabilities	$ 473	$ 474

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Financial Instruments - Investments (Details) - USD ($) $ in Millions		Sep. 30, 2019	Dec. 31, 2018
Debt Securities, Available-for-sale [Line Items]
Debt Securities		$ 12	$ 101
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Gain, before Tax		0	0
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Loss, before Tax		0	0
Debt Securities, Available-for-sale		12	101
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, within One Year, Fair Value	[1]	12	99
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, after One Through Five Years, Fair Value	[1]	0	2
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, after Five Years, Fair Value	[1]	0	0
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, Fair Value	[1]	12	101
Municipal Bonds
Debt Securities, Available-for-sale [Line Items]
Debt Securities		0	1
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Gain, before Tax		0	0
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Loss, before Tax		0	0
Debt Securities, Available-for-sale		0	1
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, within One Year, Fair Value	[1]	0	1
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, after One Through Five Years, Fair Value	[1]	0	0
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, after Five Years, Fair Value	[1]	0	0
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, Fair Value	[1]	0	1
Corporate Bonds
Debt Securities, Available-for-sale [Line Items]
Debt Securities		12	100
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Gain, before Tax		0	0
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Loss, before Tax		0	0
Debt Securities, Available-for-sale		12	100
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, within One Year, Fair Value	[1]	12	98
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, after One Through Five Years, Fair Value	[1]	0	2
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, after Five Years, Fair Value	[1]	0	0
Debt Securities, Available-for-sale, Maturity, Allocated and Single Maturity Date, Fair Value	[1]	$ 12	$ 100

[1] Long term investments are included in Other noncurrent assets.

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CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED) - USD ($) $ in Millions		Total		Common Stock	Treasury Stock		Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive Loss	Equity Attributable to Noncontrolling Interests	Share Repurchase Program	Share Repurchase Program Treasury Stock
Common Stock, Shares, Issued		501,900,000
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Treasury stock, shares	[1]	15,800,000
Beginning balance at Dec. 31, 2017		$ 1,786		$ 5	$ (852)		$ 1,013	$ 2,109	$ (505)	$ 16
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income/(loss)		1,079						1,083		(4)
Other comprehensive loss		(114)							(114)
The fair value of our noncontrolling interest in a VIE	[2]	(26)					(14)			(12)
Share-based compensation awards		$ 61			55		9	(3)
Treasury stock acquired, shares	[1]	(6,600,000)									(1,400,000)
Treasury stock acquired		$ (548)			(548)
Employee benefit plan contribution from Pfizer Inc.	[3]	2					2
Dividends declared		(122)						(122)
Ending balance at Sep. 30, 2018		$ 2,118		5	$ (1,345)		1,010	3,067	(619)	0
Common Stock, Shares, Issued		501,900,000
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Treasury stock, shares					19,600,000
Beginning balance at Jun. 30, 2018		$ 1,982		5	$ (1,215)		1,001	2,722	(543)	12
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income/(loss)		347						347		0
Other comprehensive loss		(76)							(76)
The fair value of our noncontrolling interest in a VIE	[2]	(26)					(14)			(12)
Stock-based compensation awards (in shares)	[2]											(300,000)
Share-based compensation awards	[2]	33			$ 13		22	(2)
Treasury stock acquired, shares					(1,600,000)
Treasury stock acquired		(143)			$ (143)		0
Employee benefit plan contribution from Pfizer Inc.	[3]	1					1
Ending balance at Sep. 30, 2018		$ 2,118		5	$ (1,345)		1,010	3,067	(619)	0
Common Stock, Shares, Issued		501,900,000
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Treasury stock, shares		20,900,000	[1]		20,900,000
Common Stock, Shares, Issued		501,891,243
Treasury stock, shares		22,328,917			22,300,000	[1]
Beginning balance at Dec. 31, 2018		$ 2,185		5	$ (1,487)		1,026	3,270	(629)	0
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income/(loss)		1,116						1,116		0
Other comprehensive loss		(70)							(70)	0
Share-based compensation awards		52			$ 61		3	(12)
Treasury stock acquired, shares	[1]				(4,400,000)							(1,600,000)
Treasury stock acquired		(450)			$ (450)
Employee benefit plan contribution from Pfizer Inc.	[3]	2					2
Dividends declared		(157)						(157)
Ending balance at Sep. 30, 2019		$ 2,678		5	$ (1,876)		1,031	4,217	(699)	0
Common Stock, Shares, Issued		501,900,000
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Treasury stock, shares	[1]				24,100,000
Beginning balance at Jun. 30, 2019		$ 2,411		5	$ (1,732)		1,019	3,788	(669)	0
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income/(loss)		433						433		0
Other comprehensive loss		(30)							(30)
Share-based compensation awards		13			$ 6		11	(4)
Treasury stock acquired, shares	[1]				(1,200,000)							(200,000)
Treasury stock acquired		(150)			$ (150)
Employee benefit plan contribution from Pfizer Inc.	[3]	1					1
Ending balance at Sep. 30, 2019		$ 2,678		$ 5	$ (1,876)		$ 1,031	$ 4,217	$ (699)	$ 0
Common Stock, Shares, Issued		501,891,243
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Treasury stock, shares		25,145,454			25,100,000	[1]

[1] Shares may not add due to rounding.

[2] Represents the consolidation of a European livestock monitoring company.

[3] Represents contributed capital from Pfizer Inc. associated with service credit continuation for certain Zoetis Inc. employees in Pfizer Inc.'s U.S. qualified defined benefit and U.S. retiree medical plans.

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Goodwill and Other Intangible Assets - Goodwill (Details) - USD ($) $ in Millions			9 Months Ended
		Jul. 31, 2018	Sep. 30, 2019
Goodwill [Roll Forward]
Beginning Balance			$ 2,519
Goodwill, Acquired During Period	[1]		58
Other	[2]		(27)
Ending Balance			2,550
United States (U.S.)
Goodwill [Roll Forward]
Beginning Balance			1,265
Goodwill, Acquired During Period	[1]		58
Other	[2]		0
Ending Balance			1,323
International
Goodwill [Roll Forward]
Beginning Balance			1,254
Goodwill, Acquired During Period	[1]		0
Other	[2]		(27)
Ending Balance			$ 1,227
Abaxis Inc
Goodwill [Roll Forward]
Goodwill, Acquired During Period	[3]	$ 977

[1] Includes the preliminary purchase price allocation related to the acquisition of Platinum Performance in the third quarter of 2019.

[2] Includes measurement period adjustments related to the acquisition of Abaxis and adjustments for foreign currency translation.

[3] Goodwill represents the excess of consideration transferred over the of fair values of the assets acquired and liabilities assumed. It is allocated to our existing reportable segments and is primarily attributable to the future potential of the technology platforms, as well as cost and revenue synergies including market share capture, elimination of cost redundancies and gain of cost efficiencies, and intangible assets such as assembled workforce which are not separately recognizable. The primary strategic purpose of the acquisition was to enhance the company’s existing product portfolio by strengthening Zoetis’ presence in veterinary diagnostics. The goodwill recorded is not deductible for tax purposes.

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Financial Instruments Cross-currency interest rate swap contracts (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Cross-currency interest rate swap contracts | Derivatives Designated as Hedging Instruments:
Foreign Currency Fair Value Hedge Derivative [Line Items]
Gain (Loss) on Components Excluded from Assessment of Interest Rate Fair Value Hedge Effectiveness	$ 5	$ 2	$ 13	$ 3

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($) shares in Millions, $ in Millions		3 Months Ended		9 Months Ended
		Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Income Statement [Abstract]
Revenue		$ 1,584	$ 1,480	$ 4,586	$ 4,261
Costs and expenses:
Cost of sales		479	473	1,462	1,367
Selling, general and administrative expenses		391	367	1,166	1,064
Research and development expenses		112	108	325	307
Amortization of intangible assets		38	32	115	78
Restructuring charges and certain acquisition-related costs		6	47	33	54
Interest expense, net of capitalized interest		56	54	167	147
Other (income)/deductions—net		(26)	(19)	(46)	(28)
Income before provision for taxes on income	[1]	528	418	1,364	1,272
Provision for taxes on income		95	71	248	193
Net income before allocation to noncontrolling interests		433	347	1,116	1,079
Less: Net loss attributable to noncontrolling interests		0	0	0	(4)
Net income attributable to Zoetis Inc.		$ 433	$ 347	$ 1,116	$ 1,083
Earnings per share attributable to Zoetis Inc. stockholders:
Basic (in dollars per share)		$ 0.91	$ 0.72	$ 2.33	$ 2.24
Diluted (in dollars per share)		$ 0.90	$ 0.71	$ 2.31	$ 2.22
Weighted-average common shares outstanding:
Basic (in shares)		477.8	482.0	478.7	483.9
Diluted (in shares)		481.5	485.8	482.3	487.7
Dividends paid per common share (in dollars per share)		$ 0	$ 0	$ 0.328	$ 0.252

[1] Defined as income before provision for taxes on income.

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Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives (Details) - USD ($) $ in Millions		3 Months Ended		9 Months Ended
		Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Restructuring Cost and Reserve [Line Items]
Business Acquisition, Transaction Costs	[1]	$ 0	$ 21	$ 0	$ 21
Exit costs	[2],[3]	0	0	0	1
Total Restructuring charges and certain acquisition-related costs		6	47	33	54
Restructuring charges (reversals)				20
Restructuring Reserve [Roll Forward]
Restructuring accrual balance	[4]			45
Provision				20
Utilization and other	[5]			(28)
Restructuring accrual balance	[4]	37		37
Other current liabilities
Restructuring Reserve [Roll Forward]
Accrued expenses		11		11		$ 27
Other Noncurrent Liabilities
Restructuring Reserve [Roll Forward]
Other noncurrent liabilities		26		26		$ 18
Employee Termination Costs
Restructuring Cost and Reserve [Line Items]
Employee termination costs	[2],[3]	2	17	20	22
Restructuring charges (reversals)		8		11
Restructuring Reserve [Roll Forward]
Provision		8		11
International
Restructuring Cost and Reserve [Line Items]
Restructuring charges (reversals)			8		12
Restructuring Reserve [Roll Forward]
Provision			8		12
Manufacturing, Research, Corporate
Restructuring Cost and Reserve [Line Items]
Restructuring charges (reversals)		2	9	20	11
Restructuring Reserve [Roll Forward]
Provision		2	9	20	11
Direct Cost
Restructuring Cost and Reserve [Line Items]
Integration costs	[6]	4	9	13	$ 10
Reconciling Items
Restructuring Cost and Reserve [Line Items]
Employee termination costs			$ (8)
Zoetis Initiatives | Reconciling Items
Restructuring Cost and Reserve [Line Items]
Restructuring and Other Cost Productivity Charges		7
Abaxis Inc
Restructuring Cost and Reserve [Line Items]
Total Restructuring charges and certain acquisition-related costs		$ 5		32
Abaxis Inc | Employee Termination Costs
Restructuring Cost and Reserve [Line Items]
Restructuring charges (reversals)				10
Restructuring Reserve [Roll Forward]
Provision				$ 10

[1] Transaction costs represent external costs directly related to acquiring businesses and primarily include expenditures for banking, legal, accounting and other similar services.

[2] The restructuring charges are associated with the following: • For the three months ended September 30, 2019, Manufacturing/research/corporate of $2 million. • For the three months ended September 30, 2018, International of $8 million and Manufacturing/research/corporate of $9 million. • For the nine months ended September 30, 2019, Manufacturing/research/corporate of $20 million. • For the nine months ended September 30, 2018, International of $12 million and Manufacturing/research/corporate of $11 million.

[3] The restructuring charges for the three and nine months ended September 30, 2019 primarily relate to the acquisition of Abaxis. The restructuring charges for the three and nine months ended September 30, 2018 primarily relate to employee termination costs of $8 million and $11 million, respectively, in Europe as a result of initiatives to better align our organizational structure, and employee termination costs of $10 million related to the acquisition of Abaxis.

[4] At September 30, 2019, and December 31, 2018, included in Accrued expenses ($11 million and $27 million, respectively) and Other noncurrent liabilities ($26 million and $18 million, respectively).

[5] Includes adjustments for foreign currency translation.

[6] Integration costs represent external, incremental costs directly related to integrating acquired businesses and primarily include expenditures for consulting and the integration of systems and processes, as well as product transfer costs.

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Revenue - Revenue by Geographic Area (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Revenue from External Customer [Line Items]
Revenue	$ 1,584	$ 1,480	$ 4,586	$ 4,261
Contract Manufacturing and Human Health Diagnostics [Member]
Revenue from External Customer [Line Items]
Revenue	19	14	63	30
UNITED STATES
Revenue from External Customer [Line Items]
Revenue	844	757	2,342	2,068
Australia
Revenue from External Customer [Line Items]
Revenue	53	53	150	152
Brazil
Revenue from External Customer [Line Items]
Revenue	72	72	206	210
Canada
Revenue from External Customer [Line Items]
Revenue	47	42	142	138
China
Revenue from External Customer [Line Items]
Revenue	40	46	156	170
France
Revenue from External Customer [Line Items]
Revenue	24	29	83	92
Germany
Revenue from External Customer [Line Items]
Revenue	35	36	111	112
Italy
Revenue from External Customer [Line Items]
Revenue	26	27	82	80
Japan
Revenue from External Customer [Line Items]
Revenue	39	34	118	114
Mexico
Revenue from External Customer [Line Items]
Revenue	29	24	87	74
Spain
Revenue from External Customer [Line Items]
Revenue	29	28	86	83
United Kingdom
Revenue from External Customer [Line Items]
Revenue	46	47	145	135
Other developed markets
Revenue from External Customer [Line Items]
Revenue	98	98	269	266
Other emerging markets
Revenue from External Customer [Line Items]
Revenue	183	173	546	537
Total geographical area
Revenue from External Customer [Line Items]
Revenue	$ 1,565	$ 1,466	$ 4,523	$ 4,231

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Acquisitions and Divestitures (Details) - USD ($) $ / shares in Units, $ in Millions			3 Months Ended		9 Months Ended
		Jul. 31, 2018	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Business Acquisition [Line Items]
Total Restructuring charges and certain acquisition-related costs			$ 6	$ 47	$ 33	$ 54
Business Acquisition, Name of Acquired Entity		Abaxis, Inc. (Abaxis), a California corporation and a leader in the development, manufacture and marketing of diagnostic instruments for veterinary point-of-care services.
Acquisition-related costs				57		60
Amortization of intangible assets			60	45	176	96
Interest expense, net of capitalized interest			56	54	167	147
Share-based compensation expense					51	36
Goodwill, Acquired During Period	[1]				58
Abaxis Inc
Business Acquisition [Line Items]
Total Restructuring charges and certain acquisition-related costs			$ 5		$ 32
Share price (in dollars per share)		$ 83.00
Payments to Acquire Businesses, Gross		$ 1,962
Amortization of intangible assets				13		78
Depreciation						1
Interest expense, net of capitalized interest				$ 8		36
Share-based compensation expense						$ 7
Property, plant and equipment	[2]	54
Identifiable intangible assets	[3]	894
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Current Liabilities, Other		22
Goodwill, Acquired During Period	[4]	977
Measurement period adjustment [Member] | Abaxis Inc
Business Acquisition [Line Items]
Identifiable intangible assets		$ (1)

[1] Includes the preliminary purchase price allocation related to the acquisition of Platinum Performance in the third quarter of 2019.

[2] Property, plant and equipment is comprised of machinery and equipment, furniture and fixtures, computer equipment, leasehold improvements and construction in progress. The fair value was primarily determined using a reproduction/replacement cost approach which measures the value of an asset by estimating the cost to acquire or construct comparable assets adjusted for age and condition of the asset.

[3] Identifiable intangible assets primarily consist of developed technology rights, customer relationships, and trademarks and trade names. The fair value of identifiable intangible assets is determined using the income approach, which includes a forecast of expected future cash flows. For additional information regarding identifiable intangible assets, see Note 12. Goodwill and Other Intangible Assets.

[4] Goodwill represents the excess of consideration transferred over the of fair values of the assets acquired and liabilities assumed. It is allocated to our existing reportable segments and is primarily attributable to the future potential of the technology platforms, as well as cost and revenue synergies including market share capture, elimination of cost redundancies and gain of cost efficiencies, and intangible assets such as assembled workforce which are not separately recognizable. The primary strategic purpose of the acquisition was to enhance the company’s existing product portfolio by strengthening Zoetis’ presence in veterinary diagnostics. The goodwill recorded is not deductible for tax purposes.

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Accounting Standards (Policies)

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements were prepared following the requirements of the Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by accounting principles generally accepted in the United States of America (U.S. GAAP) can be condensed or omitted. Balance sheet amounts and operating results for subsidiaries operating outside the United States are as of and for the nine-month periods ended August 31, 2019, and August 31, 2018.

Recently Adopted Accounting Standards and Recently Issued Accounting Standards

In February 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-02, Income Statement - Reporting Comprehensive Income, (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02), which permits companies to reclassify from accumulated other comprehensive income to retained earnings stranded tax effects resulting from the new federal corporate income tax rate. In the period of adoption, a company may choose to either apply the amendments retrospectively to each period in which the effect of the change in federal income tax rate is recognized or to apply the amendments in that reporting period. We adopted the new standard as of January 1, 2019, the required effective date. The company has elected to not reclassify the stranded income tax effects from accumulated other comprehensive income to retained earnings as the amount is insignificant.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes FASB Topic 840, Leases (Topic 840) which requires lessees to recognize most leases on the balance sheet with a corresponding right of use asset. Leases will be classified as financing or operating which will drive the expense recognition pattern. For lessees, the income statement presentation and expense recognition pattern for financing and operating leases is similar to the current model for capital and operating leases, respectively. Companies may elect to exclude short-term leases. The update also requires additional disclosures that will better enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. We adopted the new standard as of January 1, 2019, the required effective date, using the effective date transition method. As permitted under the effective date transition method, financial information and disclosure for periods prior to the date of initial application will not be updated. An adjustment to opening retained earnings was not required in conjunction with our adoption. We have elected not to reassess whether expired or existing contracts contain leases, nor did we reassess the classification of existing leases as of the adoption date. We did not use hindsight in our assessment of lease terms as of the effective date. For additional information, see Note 10. Leases.

Recently Issued Accounting Standards

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Topic 350-40), an accounting standards update which expands the scope of costs associated with cloud computing arrangements that must be capitalized. Under the new guidance, costs associated with implementing a cloud computing arrangement that is a service contract must be capitalized and expensed over the term of the hosting arrangement. We will adopt this guidance as of January 1, 2020, the required effective date, and are currently assessing the potential impact that the standard will have on our consolidated financial statements.

Tax Contingencies

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

Foreign Exchange and Interest Rate Risk

Foreign Exchange Risk

A significant portion of our revenue, earnings and net investment in foreign affiliates is exposed to changes in foreign exchange rates. We seek to manage our foreign exchange risk, in part, through operational means, including managing same-currency revenue in relation to same-currency costs and same-currency assets in relation to same-currency liabilities. Depending on market conditions, foreign exchange risk is also managed through the use of various derivative financial instruments. These derivative financial instruments serve to manage the exposure of our net investment in certain foreign operations to changes in foreign exchange rates and protect net income against the impact of translation into U.S. dollars of certain foreign exchange-denominated transactions.

All derivative financial instruments used to manage foreign currency risk are measured at fair value and are reported as assets or liabilities on the condensed consolidated balance sheet. The derivative financial instruments primarily offset exposures in the Australian dollar, British pound, Canadian dollar, Chinese yuan, euro, and Japanese yen. Changes in fair value are reported in earnings or in Accumulated other comprehensive income/(loss), depending on the nature and purpose of the financial instrument, as follows:

• For foreign exchange contracts not designated as hedging instruments, we recognize the gains and losses on forward-exchange contracts that are used to offset the same foreign currency assets or liabilities immediately into earnings along with the earnings impact of the items they generally offset. These contracts essentially take the opposite currency position of that reflected in the month-end balance sheet to counterbalance the effect of any currency movement. The vast majority of the foreign exchange derivative financial instruments mature within 60 days and all mature within three years.

• For cross-currency interest rate swaps, which are designated as a hedge against our net investment in foreign operations, changes in the fair value are recorded as a component of cumulative translation adjustment within Accumulated other comprehensive income/(loss) and reclassified into earnings when the foreign investment is sold or substantially liquidated. Gains and losses excluded from the assessment of hedge effectiveness are recognized in earnings (Interest expense—net of capitalized interest). The cash flows from these contracts are reflected within the investing section of our Condensed Consolidated Statement of Cash Flows. The cross-currency interest rate swap contracts have varying maturities of up to six years.

Interest Rate Risk

The company may use interest rate swap contracts on certain investing and borrowing transactions to manage its net exposure to interest rates and to reduce its overall cost of borrowing.

•

In anticipation of issuing fixed-rate debt, we may use forward-starting interest rate swaps that are designated as cash flow hedges to hedge against changes in interest rates that could impact expected future issuances of debt. Unrealized gains or losses on the forward-starting interest rate swaps are reported in Accumulated other comprehensive income/(loss) and are recognized in earnings over the life of the future fixed-rate notes. When the company discontinues hedge accounting because it is no longer probable that an anticipated transaction will occur within the originally expected period of execution, or within an additional two-month period thereafter, changes to fair value accumulated in other comprehensive income are recognized immediately in earnings.

Legal Proceedings

Our non-tax contingencies include, among others, the following:

• Product liability and other product-related litigation, which can include injury, consumer, off-label promotion, antitrust and breach of contract claims.

• Commercial and other matters, which can include product-pricing claims and environmental claims and proceedings.

• Patent litigation, which typically involves challenges to the coverage and/or validity of our patents or those of third parties on various products or processes.

• Government investigations, which can involve regulation by national, state and local government agencies in the United States and in other countries.

Certain of these contingencies could result in losses, including damages, fines and/or civil penalties, and/or criminal charges, which could be substantial.

We believe that we have strong defenses in these types of matters, but litigation is inherently unpredictable and excessive verdicts do occur. We do not believe that any of these matters will have a material adverse effect on our financial position. However, we could incur judgments, enter into settlements or revise our expectations regarding the outcome of certain matters, and such developments could have a material adverse effect on our results of operations or cash flows in the period in which the amounts are paid.

We have accrued for losses that are both probable and reasonably estimable. Substantially all of these contingencies are subject to significant uncertainties and, therefore, determining the likelihood of a loss and/or the measurement of any loss can be complex. Consequently, we are unable to estimate the range of reasonably possible loss in excess of amounts accrued. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but the assessment process relies on estimates and assumptions that may prove to be incomplete or inaccurate, and unanticipated events and circumstances may occur that might cause us to change those estimates and assumptions.

Amounts recorded for legal and environmental contingencies can result from a complex series of judgments about future events and uncertainties and can rely on estimates and assumptions.

The principal matters to which we are a party are discussed below. In determining whether a pending matter is significant for financial reporting and disclosure purposes, we consider both quantitative and qualitative factors in order to assess materiality, such as, among other things, the amount of damages and the nature of any other relief sought in the proceeding, if such damages and other relief are specified; our view of the merits of the claims and of the strength of our defenses; whether the action purports to be a class action and our view of the likelihood that a class will be certified by the court; the jurisdiction in which the proceeding is pending; any experience that we or, to our

knowledge, other companies have had in similar proceedings; whether disclosure of the action would be important to a reader of our financial statements, including whether disclosure might change a reader’s judgment about our financial statements in light of all of the information about the company that is available to the reader; the potential impact of the proceeding on our reputation; and the extent of public interest in the matter. In addition, with respect to patent matters, we consider, among other things, the financial significance of the product protected by the patent.

Guarantees and Indemnifications

the ordinary course of business and in connection with the sale of assets and businesses, we indemnify our counterparties against certain liabilities that may arise in connection with the transaction or related to activities prior to the transaction. These indemnifications typically pertain to environmental, tax, employee and/or product-related matters and patent-infringement claims. If the indemnified party were to make a successful claim pursuant to the terms of the indemnification, we would be required to reimburse the loss. These indemnifications are generally subject to threshold amounts, specified claim periods and other restrictions and limitations. Historically, we have not paid significant amounts under these provisions and, as of September 30, 2019, recorded amounts for the estimated fair value of these indemnifications were not significant.

Segment Information

Operating Segments

We manage our operations through two geographic operating segments: the United States and International. Each operating segment has responsibility for its commercial activities. Within each of these operating segments, we offer a diversified product portfolio, including vaccines, parasiticides, anti-infectives, medicated feed additives, animal health diagnostics and other pharmaceuticals, for both livestock and companion animal customers. Our chief operating decision maker uses the revenue and earnings of the two operating segments, among other factors, for performance evaluation and resource allocation.

Other Costs and Business Activities

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

• Other business activities, includes our Client Supply Services (CSS) contract manufacturing results, our human health business, and expenses associated with our dedicated veterinary medicine research and development organization, research alliances, U.S. regulatory affairs and other operations focused on the development of our products. Other R&D-related costs associated with non-U.S. market and regulatory activities are generally included in the international commercial segment.

• Corporate, includes platform functions such as information technology, facilities, legal, finance, human resources, business development, and communications, among others. These costs also include compensation costs and other miscellaneous operating expenses not charged to our operating segments, as well as interest income and expense.

• Certain transactions and events such as (i) Purchase accounting adjustments, where we incur expenses associated with the amortization of fair value adjustments to inventory, intangible assets and property, plant and equipment; (ii) Acquisition-related activities, where we incur costs associated with acquiring and integrating newly acquired businesses, such as transaction costs and integration costs; and (iii) Certain significant items, which comprise substantive, unusual items that, either as a result of their nature or size, would not be expected to occur as part of our normal business on a regular basis, such as restructuring charges and implementation costs associated with our cost-reduction/productivity initiatives that are not associated with an acquisition, certain asset impairment charges, certain legal and commercial settlements and the impact of divestiture-related gains and losses.

• Other unallocated includes (i) certain overhead expenses associated with our global manufacturing operations not charged to our operating segments; (ii) certain costs associated with information technology and finance that specifically support our global manufacturing operations; (iii) certain supply chain and global logistics costs; and (iv) procurement costs.

Segment Assets

We manage our assets on a total company basis, not by operating segment. Therefore, our chief operating decision maker does not regularly review any asset information by operating segment and, accordingly, we do not report asset information by operating segment.

Lease Accounting Policy

Lease Accounting Policy

Below are the significant accounting policies updated as of January 1, 2019, as a result of the adoption of the new lease accounting guidance. For additional information, see Note 3. Accounting Standards.

We determine if a contract contains a lease at inception. Our current portfolio includes only operating leases which are recorded as a right of use asset, as of the lease commencement date, in an amount equal to the present value of future payments over the lease term. We have elected not to recognize right of use assets and lease liabilities for short-term leases of vehicles and equipment with a lease term of twelve months or less.

Options to extend or terminate a lease are considered in the lease term to the extent that the option is reasonably certain of exercise. A corresponding lease liability is recorded within Other current liabilities and Operating lease liabilities. The present value of future payments is discounted using the rate implicit in the lease, when available. When the implicit rate is not available, as is frequently the case with our lease portfolio, the present value is calculated using our incremental borrowing rate, which is determined on the commencement date. The incremental borrowing rate represents the rate of interest that we would expect to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. As we do not borrow on a collateralized basis, our non-collateralized borrowing rate is used as an input in deriving the incremental borrowing rate.

Fixed lease payments are recognized on straight-line basis over the lease term, while variable payments are recognized in the period incurred. Variable lease payments include real estate taxes and charges for other non-lease services due to lessors that are not dependent on an index or rate and utilization based charges associated with fleet vehicles.

Our real estate and fleet lease contracts may include fixed consideration attributable to both lease and non-lease components, including non-lease services provided by the vendor, which are accounted for as a single fixed minimum payment. For leases of certain classes of machinery and equipment, contract consideration is allocated to lease and non-lease components on the basis of relative standalone price.

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Stockholders' Equity

9 Months Ended

Sep. 30, 2019

Equity [Abstract]

Stockholders' Equity

tis is authorized to issue 6 billion shares of common stock and 1 billion shares of preferred stock.

In December 2016, the company's Board of Directors authorized a $1.5 billion share repurchase program. This program was completed as of September 30, 2019. In December 2018, the company's Board of Directors authorized an additional $2.0 billion share repurchase program. As of September 30, 2019, there was approximately $1.9 billion remaining under this authorization. Purchases of Zoetis shares may be made at the discretion of management, depending on market conditions and business needs.

Accumulated other comprehensive income/(loss)

Changes, net of tax, in accumulated other comprehensive income/(loss), excluding noncontrolling interests, were as follows:

				Currency Translation Adjustments								Accumulated Other
	Cash Flow			Net Investment		Other Currency						Comprehensive
(MILLIONS OF DOLLARS)	Hedges			Hedges		Translation Adj			Benefit Plans			Loss
Balance, December 31, 2017	$	(3	)	$	—	$	(487	)	$	(15	)	$	(505	)
Other comprehensive loss, net of tax	(1		)	—		(113		)	—			(114		)
Balance, September 30, 2018	$	(4	)	$	—	$	(600	)	$	(15	)	$	(619	)
Balance, December 31, 2018	$	(4	)	$	10	$	(621	)	$	(14	)	$	(629	)
Other comprehensive (loss)/income, net of tax	(3		)	28		(95		)	—			(70		)
Balance, September 30, 2019	$	(7	)	$	38	$	(716	)	$	(14	)	$	(699	)

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Other (Income)/Deductions - Net (Tables)

9 Months Ended

Sep. 30, 2019

Other Income and Expenses [Abstract]

Components of Other (Income)/Deductions—Net

The components of Other (income)/deductions—net are as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(MILLIONS OF DOLLARS)	2019			2018			2019			2018
Royalty-related income	$	(4	)	$	(5	)	$	(12	)	$	(18	)
Interest income	(10		)	(6		)	(29		)	(20		)
Net (gain)/loss on sale of assets(a)	(20		)	2			(20		)	2
Foreign currency loss(b)	7			9			14			26
Other, net(c)	1			(19		)	1			(18		)
Other (income)/deductions—net	$	(26	)	$	(19	)	$	(46	)	$	(28	)

^(a)  For the three and nine months ended September 30, 2019, represents income resulting from a contingent payment received pursuant to an agreement related to the 2016 sale of certain U.S. manufacturing sites.

For the three and nine months ended September 30, 2018, represents net losses related to sales of certain manufacturing sites and products as part of our operational efficiency initiative and supply network strategy.

^(b)  Primarily driven by costs related to hedging and exposures to certain emerging market currencies.

^(c) 

For the three and nine months ended September 30, 2018, primarily includes a net gain related to the relocation of a manufacturing site in China.

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Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangible Assets

e components of, and changes in, the carrying amount of goodwill are as follows:

(MILLIONS OF DOLLARS)	U.S.		International			Total
Balance, December 31, 2018	$	1,265	$	1,254		$	2,519
Additions(a)	58		—			58
Other(b)	—		(27		)	(27		)
Balance, September 30, 2019	$	1,323	$	1,227		$	2,550

^(a) Includes the preliminary purchase price allocation related to the acquisition of Platinum Performance in the third quarter of 2019.

^(b) Includes measurement period adjustments related to the acquisition of Abaxis and adjustments for foreign currency translation.

The gross goodwill balance was $3,086 million and $3,055 million as of September 30, 2019 and December 31, 2018, respectively. Accumulated goodwill impairment losses were $536 million as of September 30, 2019 and December 31, 2018.

B. Other Intangible Assets

The components of identifiable intangible assets are as follows:

	As of September 30, 2019							As of December 31, 2018
						Identifiable							Identifiable
	Gross					Intangible Assets		Gross					Intangible Assets
	Carrying		Accumulated			Less Accumulated		Carrying		Accumulated			Less Accumulated
(MILLIONS OF DOLLARS)	Amount		Amortization			Amortization		Amount		Amortization			Amortization
Finite-lived intangible assets:
Developed technology rights(a)	$	1,943	$	(621	)	$	1,322	$	1,854	$	(523	)	$	1,331
Brands(a)	258		(163		)	95		212		(154		)	58
Trademarks and trade names	166		(56		)	110		166		(51		)	115
Other(a)	422		(230		)	192		412		(178		)	234
Total finite-lived intangible assets	2,789		(1,070		)	1,719		2,644		(906		)	1,738
Indefinite-lived intangible assets:
In-process research and development	105		—			105		197		—			197
Brands	37		—			37		37		—			37
Trademarks and trade names	67		—			67		67		—			67
Product rights	7		—			7		7		—			7
Total indefinite-lived intangible assets	216		—			216		308		—			308
Identifiable intangible assets	$	3,005	$	(1,070	)	$	1,935	$	2,952	$	(906	)	$	2,046

^(a) Includes additions primarily related to the preliminary fair value of intangible assets acquired in the third quarter of 2019 associated with the acquisition of Platinum Performance.

C. Amortization

Amortization expense related to finite-lived acquired intangible assets that contribute to our ability to sell, manufacture, research, market and distribute products, compounds and intellectual property is included in Amortization of intangible assets as it benefits multiple business functions. Amortization expense related to finite-lived acquired intangible assets that are associated with a single function is included in Cost of sales, Selling, general and administrative expenses or Research and development expenses, as appropriate. Total amortization expense for finite-lived intangible assets was $60 million and $176 million for the three and nine months ended September 30, 2019, respectively, and $45 million and $96 million for the three and nine months ended September 30, 2018, respectively.

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Income Taxes

9 Months Ended

Sep. 30, 2019

Income Tax Disclosure [Abstract]

Income Taxes

ffective tax rate was 18.2% for the nine months ended September 30, 2019, compared with 15.2% for the nine months ended September 30, 2018. The higher effective tax rate for the nine months ended September 30, 2019, was primarily attributable to:

• a $58 million net discrete tax benefit recorded in the nine months ended 2018, associated with a measurement-period adjustment related to the provisional one-time mandatory deemed repatriation tax on the company's undistributed non-U.S. earnings pursuant to the Tax Act enacted on December 22, 2017;

• the impact of the GILTI tax, a new provision of the Tax Act, which became effective for the company in the first quarter of 2019;

• changes in the jurisdictional mix of earnings, which includes the impact of the location of earnings from operations and repatriation costs. The jurisdictional mix of earnings can vary as a result of repatriation decisions and operating fluctuations in the normal course of business and the impact of non-deductible items; and

• a $3 million and $8 million discrete tax benefit recorded in the nine months ended 2019 and 2018, respectively, related to a remeasurement of deferred taxes as a result of a change in non-U.S. statutory tax rates,

partially offset by:

• a $19 million net discrete tax benefit recorded in the nine months ended 2019, related to changes in various other tax items;

• a $14 million net discrete deferred tax benefit recorded in the third quarter of 2019, due to a change in tax basis related to purchase accounting; and

• a $17 million and $12 million discrete tax benefit recorded in the nine months ended 2019 and 2018, respectively, related to the excess tax benefit for share-based payments.

B. Deferred Taxes

As of September 30, 2019, the total net deferred income tax liability of $401 million is included in Noncurrent deferred tax assets ($72 million) and Noncurrent deferred tax liabilities ($473 million).

As of December 31, 2018, the total net deferred income tax liability of $413 million is included in Noncurrent deferred tax assets ($61 million) and Noncurrent deferred tax liabilities ($474 million).

C. Tax Contingencies

As of September 30, 2019, the tax liabilities associated with uncertain tax positions of $181 million (exclusive of interest and penalties related to uncertain tax positions of $12 million) are included in Noncurrent deferred tax assets ($3 million) and Other taxes payable ($178 million).

As of December 31, 2018, the tax liabilities associated with uncertain tax positions of $185 million (exclusive of interest and penalties related to uncertain tax positions of $11 million) are included in Noncurrent deferred tax assets ($3 million) and Other taxes payable ($182 million).

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

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Revenue

9 Months Ended

Sep. 30, 2019

Revenue Recognition and Deferred Revenue [Abstract]

Revenue

e offer a diversified portfolio of products which allows us to capitalize on local and regional customer needs. Generally, our products are promoted to veterinarians and livestock producers by our sales organization which includes sales representatives and technical and veterinary operations specialists, and then sold directly by us or through distributors. The depth of our product portfolio enables us to address the varying needs of customers in different species and geographies. Many of our top selling product lines are distributed across both of our operating segments, leveraging our research and development (R&D) operations and manufacturing and supply chain network.

Over the course of our history, we have focused on developing a diverse portfolio of animal health products, including medicines, vaccines and diagnostics, complemented by biodevices, genetic tests and a range of services. We refer to a single product in all brands, or its dosage forms for all species, as a product line. We have approximately 300 comprehensive product lines, including products for both livestock and companion animals across each of our major product categories.

Our major product categories are:

• vaccines: biological preparations that help prevent diseases of the respiratory, gastrointestinal and reproductive tracts or induce a specific immune response;

• other pharmaceutical products: allergy and dermatology, pain and sedation, antiemetic, reproductive, and oncology products;

• anti-infectives: products that prevent, kill or slow the growth of bacteria, fungi or protozoa;

• parasiticides: products that prevent or eliminate external and internal parasites such as fleas, ticks and worms;

• medicated feed additives: products added to animal feed that provide medicines to livestock; and

• animal health diagnostics: portable blood and urine analysis systems and point-of-care diagnostic products, including instruments and reagents, rapid immunoassay tests, reference laboratory kits and blood glucose monitors.

Our remaining revenue is derived from other non-pharmaceutical product categories, such as nutritionals and agribusiness, as well as products and services in complementary areas, including biodevices and genetic tests.

Our livestock products primarily help prevent or treat diseases and conditions to enable the cost-effective production of safe, high-quality animal protein. Human population growth and increasing standards of living are important long-term growth drivers for our livestock products in three major ways. First, population growth and increasing standards of living drive increased demand for improved nutrition, particularly animal protein. Second, population growth leads to increased natural resource constraints driving a need for enhanced productivity. Finally, as standards of living improve, there is increased focus on food quality and safety.

Our companion animal products help extend and improve the quality of life for pets; increase convenience and compliance for pet owners; and help veterinarians improve the quality of their care and the efficiency of their businesses. Growth in the companion animal medicines, vaccines and diagnostics sector is driven by economic development, related increases in disposable income and increases in pet ownership and spending on pet care. Companion animals are also living longer, receiving increased medical treatment and benefiting from advances in animal health medicines and vaccines.

The following tables present our revenue disaggregated by geographic area, species, and major product category.

Revenue by geographic area

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(MILLIONS OF DOLLARS)	2019		2018		2019		2018
United States	$	844	$	757	$	2,342	$	2,068
Australia	53		53		150		152
Brazil	72		72		206		210
Canada	47		42		142		138
China	40		46		156		170
France	24		29		83		92
Germany	35		36		111		112
Italy	26		27		82		80
Japan	39		34		118		114
Mexico	29		24		87		74
Spain	29		28		86		83
United Kingdom	46		47		145		135
Other developed markets	98		98		269		266
Other emerging markets	183		173		546		537
	1,565		1,466		4,523		4,231
Contract manufacturing & human health	19		14		63		30
Total Revenue	$	1,584	$	1,480	$	4,586	$	4,261

Revenue by major species

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(MILLIONS OF DOLLARS)	2019		2018		2019		2018
U.S.
Livestock	$	294	$	322	$	847	$	885
Companion animal	550		435		1,495		1,183
	844		757		2,342		2,068
International
Livestock	437		456		1,315		1,397
Companion animal	284		253		866		766
	721		709		2,181		2,163
Contract manufacturing & human health	19		14		63		30
Total Revenue	$	1,584	$	1,480	$	4,586	$	4,261

Revenue by species

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(MILLIONS OF DOLLARS)	2019		2018		2019		2018
Livestock:
Cattle	$	389	$	417	$	1,148	$	1,229
Swine	142		160		449		500
Poultry	135		130		417		395
Fish	42		46		90		92
Other	23		25		58		66
	731		778		2,162		2,282
Companion Animal:
Dogs and Cats	789		653		2,231		1,832
Horses	45		35		130		117
	834		688		2,361		1,949
Contract manufacturing & human health	19		14		63		30
Total Revenue	$	1,584	$	1,480	$	4,586	$	4,261

Revenue by major product category

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(MILLIONS OF DOLLARS)	2019		2018		2019		2018
Vaccines	$	364	$	382	$	1,092	$	1,109
Other pharmaceuticals	418		361		1,139		1,017
Anti-infectives	312		323		891		906
Parasiticides	243		203		740		639
Medicated feed additives	112		111		339		362
Animal health diagnostics	69		46		194		69
Other non-pharmaceuticals	47		40		128		129
	1,565		1,466		4,523		4,231
Contract manufacturing & human health	19		14		63		30
Total Revenue	$	1,584	$	1,480	$	4,586	$	4,261

B. Revenue from Contracts with Customers

Contract liabilities reflected within Other current liabilities as of December 31, 2018 and December 31, 2017, and subsequently recognized as revenue during the first nine months of 2019 and 2018 were approximately $8 million and $2 million, respectively. Contract liabilities as of September 30, 2019 and December 31, 2018 were approximately $9 million and $9 million, respectively.

Estimated future revenue expected to be generated from long-term contracts with unsatisfied performance obligations as of September 30, 2019 is not material.

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Inventories (Tables)

9 Months Ended

Sep. 30, 2019

Inventory Disclosure [Abstract]

Components of Inventory

The components of inventory are as follows:

	September 30,		December 31,
(MILLIONS OF DOLLARS)	2019		2018
Finished goods	$	713	$	744
Work-in-process	524		481
Raw materials and supplies	202		166
Inventories	$	1,439	$	1,391

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Earnings per Share (Tables)

9 Months Ended

Sep. 30, 2019

Earnings Per Share [Abstract]

Basic and Diluted Earnings Per Share

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(MILLIONS OF DOLLARS AND SHARES, EXCEPT PER SHARE DATA)	2019		2018		2019		2018
Numerator
Net income before allocation to noncontrolling interests	$	433	$	347	$	1,116	$	1,079
Less: Net loss attributable to noncontrolling interests	—		—		—		(4		)
Net income attributable to Zoetis Inc.	$	433	$	347	$	1,116	$	1,083
Denominator
Weighted-average common shares outstanding	477.8		482.0		478.7		483.9
Common stock equivalents: stock options, RSUs, PSUs and DSUs	3.7		3.8		3.6		3.8
Weighted-average common and potential dilutive shares outstanding	481.5		485.8		482.3		487.7
Earnings per share attributable to Zoetis Inc. stockholders—basic	$	0.91	$	0.72	$	2.33	$	2.24
Earnings per share attributable to Zoetis Inc. stockholders—diluted	$	0.90	$	0.71	$	2.31	$	2.22

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Financial Instruments - Fair Value of Debt (Details) - USD ($) $ in Millions	Sep. 30, 2019	Dec. 31, 2018
Senior Notes | Fair Value, Inputs, Level 2
Debt Instrument [Line Items]
Fair value, debt instrument	$ 7,082	$ 6,474

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Financial Instruments - Credit Facilities (Details)	Sep. 30, 2019 USD ($)	Dec. 31, 2018 USD ($)	Jul. 27, 2018
Line of Credit Facility [Line Items]
Line of credit facility, maximum borrowing capacity	$ 76,000,000
Maximum restructuring charges to adjusted consolidated EBITDA	$ 100,000,000
Revolving credit facility, minimum interest coverage ratio	3.50
Line of credit facility	$ 0	$ 0
Commercial Paper	0	$ 0
Revolving Credit Facility
Line of Credit Facility [Line Items]
Maximum total leverage ratio			3.50
Revolving credit facility, current borrowing capacity	1,000,000,000.0
Line of credit facility, maximum borrowing capacity	$ 1,500,000,000
Revolving credit facility, covenant compliance ratio	3.50
Maximum total leverage ratio	4.00
Revolving credit facility, minimum interest coverage ratio			3.50
Operational Efficiency [Member]
Line of Credit Facility [Line Items]
Maximum total leverage ratio	3.50
Maximum total leverage ratio	4.00

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Share-Based Payments - Narrative (Details)	9 Months Ended
	Sep. 30, 2019 $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation, options granted, shares | shares	444,789
Share-based compensation, weighted average exercise price (in dollars per share)	$ 87.77
Share-based compensation, Options, weighted average grant date fair value (in dollars per share)	$ 21.82
Share-based compensation, risk free interest rate	2.57%
Share-based compensation, expected dividend rate	0.75%
Share-based compensation, expected volatility rate	23.08%
Share-based compensation, expected term	5 years 8 months 12 days
Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation, award vesting period	3 years
Restricted Stock Units (RSUs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation, award vesting period	3 years
Share-based compensation, granted, shares | shares	361,142
Share-based compensation, weighted average grant date fair value (in dollars per share)	$ 87.85
Performance Shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation, expected volatility rate	20.30%
Share-based compensation, award vesting period	3 years
Share-based compensation, granted, shares | shares	190,170
Share-based compensation, weighted average grant date fair value (in dollars per share)	$ 101.51
Performance Shares | PeerCompanies
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation, expected volatility rate	25.30%
Performance Shares | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation, target number of units percentage	0.00%
Performance Shares | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation, target number of units percentage	200.00%

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Earnings per Share (Details) - USD ($) $ / shares in Units, shares in Millions, $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Numerator
Net income before allocation to noncontrolling interests	$ 433	$ 347	$ 1,116	$ 1,079
Less: Net loss attributable to noncontrolling interests	0	0	0	(4)
Net income attributable to Zoetis Inc.	$ 433	$ 347	$ 1,116	$ 1,083
Denominator
Weighted-average common shares outstanding	477.8	482.0	478.7	483.9
Common stock equivalents: stock options, RSUs, PSUs and DSUs	3.7	3.8	3.6	3.8
Weighted-average common and potential dilutive shares outstanding	481.5	485.8	482.3	487.7
Earnings per share attributable to Zoetis stockholders—basic (in dollars per share)	$ 0.91	$ 0.72	$ 2.33	$ 2.24
Earnings per share attributable to Zoetis stockholders—diluted (in dollars per share)	$ 0.90	$ 0.71	$ 2.31	$ 2.22
Antidilutive securities excluded from computation of earnings per share, amount				1.0
Stock options
Denominator
Antidilutive securities excluded from computation of earnings per share, amount			1.0

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Segment Information Selected Statement of Income Narrative (Details) - USD ($) $ in Millions		3 Months Ended		9 Months Ended
		Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Segment Reporting Information [Line Items]
Revenue		$ 1,584	$ 1,480	$ 4,586	$ 4,261
Contingent payment received related to sale of certain U.S. manufacturing sites		20		20
Inventory Adjustments		68		68
Provision				20
Reconciling Items
Segment Reporting Information [Line Items]
Employee termination costs			8
Consulting fees and exit costs					8
International
Segment Reporting Information [Line Items]
Provision			8		12
International | Operating Segments
Segment Reporting Information [Line Items]
Revenue	[1]	721	709	2,181	2,163
International | Operating Segments | Euro Member Countries, Euro
Segment Reporting Information [Line Items]
Revenue		176	180	541	555
Zoetis Initiatives | Reconciling Items
Segment Reporting Information [Line Items]
Restructuring and Other Cost Productivity Charges		7
Disposal Group, Not Discontinued Operation, Gain (Loss) on Disposal	[2]	(20)	2	(20)	2
China
Segment Reporting Information [Line Items]
Revenue		40	46	156	170
Net Gain on Relocation			18
China | Reconciling Items
Segment Reporting Information [Line Items]
Consulting fees and exit costs					18
Employee Termination Costs
Segment Reporting Information [Line Items]
Provision		8		11
Employee termination costs	[3],[4]	$ (2)	$ (17)	$ (20)	(22)
Employee Termination Costs | Europe | Reconciling Items
Segment Reporting Information [Line Items]
Provision					$ 11

[1] Revenue denominated in euros was $541 million and $555 million for the nine months ended September 30, 2019 and September 30, 2018, respectively.

[2] For the three and nine months ended September 30, 2019, represents income resulting from a contingent payment received pursuant to an agreement related to the 2016 sale of certain U.S. manufacturing sites. For the three and nine months ended September 30, 2018, represents net losses related to sales of certain manufacturing sites and products as part of our operational efficiency initiative and supply network strategy.

[3] The restructuring charges are associated with the following: • For the three months ended September 30, 2019, Manufacturing/research/corporate of $2 million. • For the three months ended September 30, 2018, International of $8 million and Manufacturing/research/corporate of $9 million. • For the nine months ended September 30, 2019, Manufacturing/research/corporate of $20 million. • For the nine months ended September 30, 2018, International of $12 million and Manufacturing/research/corporate of $11 million.

[4] The restructuring charges for the three and nine months ended September 30, 2019 primarily relate to the acquisition of Abaxis. The restructuring charges for the three and nine months ended September 30, 2018 primarily relate to employee termination costs of $8 million and $11 million, respectively, in Europe as a result of initiatives to better align our organizational structure, and employee termination costs of $10 million related to the acquisition of Abaxis.

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Revenue - Revenue by Species (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Revenue from External Customer [Line Items]
Revenue	$ 1,584	$ 1,480	$ 4,586	$ 4,261
Cattle
Revenue from External Customer [Line Items]
Revenue	389	417	1,148	1,229
Swine
Revenue from External Customer [Line Items]
Revenue	142	160	449	500
Poultry
Revenue from External Customer [Line Items]
Revenue	135	130	417	395
Fish
Revenue from External Customer [Line Items]
Revenue	42	46	90	92
Other
Revenue from External Customer [Line Items]
Revenue	23	25	58	66
Livestock
Revenue from External Customer [Line Items]
Revenue	731	778	2,162	2,282
Horses
Revenue from External Customer [Line Items]
Revenue	45	35	2,231	1,832
Horses
Revenue from External Customer [Line Items]
Revenue	789	653	130	117
Companion animal
Revenue from External Customer [Line Items]
Revenue	$ 834	$ 688	$ 2,361	$ 1,949

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Acquisitions and Divestitures - Preliminary Fair Values Allocated (Details) - USD ($) $ in Millions			9 Months Ended
		Jul. 31, 2018	Sep. 30, 2019
Business Acquisition [Line Items]
Goodwill, Acquired During Period	[1]		$ 58
Abaxis Inc
Business Acquisition [Line Items]
Cash and cash equivalents		$ 64
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Current Assets, Marketable Securities	[2]	107
Accounts receivable	[3]	30
Inventories	[4]	79
Other current assets		6
Property, plant and equipment	[5]	54
Identifiable intangible assets	[6]	894
Other noncurrent assets		29
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Current Liabilities, Accounts Payable		21
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Current Liabilities, Accrued Compensation and Related Items		10
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Current Liabilities, Other		22
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Noncurrent Liabilities		11
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Deferred Tax Liabilities Noncurrent	[7]	214
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Net		985
Goodwill, Acquired During Period	[8]	977
Business Combination, Consideration Transferred		1,962
Measurement period adjustment [Member] | Abaxis Inc
Business Acquisition [Line Items]
Identifiable intangible assets		$ (1)

[1] Includes the preliminary purchase price allocation related to the acquisition of Platinum Performance in the third quarter of 2019.

[2] Short term investments include investments in debt securities that are classified as available-for-sale and measured at fair value.

[3] The fair value approximates the gross contractual amount of accounts receivable. The contractual amount not expected to be collected is immaterial.

[4] Acquired inventory is comprised of finished goods, work in process and raw materials. The fair value of finished goods was determined based on net realizable value adjusted for the costs of the selling effort, a reasonable profit allowance for the selling effort, and estimated holding costs. The fair value of work in process was determined based on net realizable value adjusted for costs to complete the manufacturing process, costs of the selling effort, a reasonable profit allowance for the remaining manufacturing and selling effort, and an estimate of holding costs. The fair value of raw materials was determined to approximate book value.

[5] Property, plant and equipment is comprised of machinery and equipment, furniture and fixtures, computer equipment, leasehold improvements and construction in progress. The fair value was primarily determined using a reproduction/replacement cost approach which measures the value of an asset by estimating the cost to acquire or construct comparable assets adjusted for age and condition of the asset.

[6] Identifiable intangible assets primarily consist of developed technology rights, customer relationships, and trademarks and trade names. The fair value of identifiable intangible assets is determined using the income approach, which includes a forecast of expected future cash flows. For additional information regarding identifiable intangible assets, see Note 12. Goodwill and Other Intangible Assets.

[7] The acquisition was structured as a stock purchase and therefore we assumed the historical tax basis of Abaxis' assets and liabilities. The deferred tax effects resulting from the acquisition include the expected federal, state, and foreign tax consequences associated with temporary differences between the fair values of the assets acquired and liabilities assumed and the respective tax basis. The components of the Abaxis net deferred tax liability are included within amounts reported in Note 8. Income Taxes.

[8] Goodwill represents the excess of consideration transferred over the of fair values of the assets acquired and liabilities assumed. It is allocated to our existing reportable segments and is primarily attributable to the future potential of the technology platforms, as well as cost and revenue synergies including market share capture, elimination of cost redundancies and gain of cost efficiencies, and intangible assets such as assembled workforce which are not separately recognizable. The primary strategic purpose of the acquisition was to enhance the company’s existing product portfolio by strengthening Zoetis’ presence in veterinary diagnostics. The goodwill recorded is not deductible for tax purposes.

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Goodwill and Other Intangible Assets - Other Intangible Assets (Details) - USD ($) $ in Millions		3 Months Ended		9 Months Ended
		Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018	Jul. 31, 2018
Finite Lived and Indefinite Lived Intangible Assets [Line Items]
Finite-lived intangible assets, gross carrying amount		$ 2,789		$ 2,789		$ 2,644
Finite-lived intangible assets, accumulated amortization		(1,070)		(1,070)		(906)
Finite-lived intangible assets, identifiable intangible assets, less accumulated amortization		1,719		1,719		1,738
Total indefinite-lived intangible assets		216		216		308
Intangible Assets, gross carrying amount		3,005		3,005		2,952
Identifiable intangible assets, less accumulated amortization		1,935		1,935		2,046
Amortization of intangible assets		60	$ 45	176	$ 96
Brands
Finite Lived and Indefinite Lived Intangible Assets [Line Items]
Total indefinite-lived intangible assets		37		37		37
Trademarks and Trade Names
Finite Lived and Indefinite Lived Intangible Assets [Line Items]
Total indefinite-lived intangible assets		67		67		67
In Process Research and Development
Finite Lived and Indefinite Lived Intangible Assets [Line Items]
Total indefinite-lived intangible assets		105		105		197
Product Rights
Finite Lived and Indefinite Lived Intangible Assets [Line Items]
Total indefinite-lived intangible assets		7		7		7
Developed Technology Rights
Finite Lived and Indefinite Lived Intangible Assets [Line Items]
Finite-lived intangible assets, gross carrying amount	[1]	1,943		1,943		1,854
Finite-lived intangible assets, accumulated amortization	[1]	(621)		(621)		(523)
Finite-lived intangible assets, identifiable intangible assets, less accumulated amortization	[1]	1,322		1,322		1,331
Brands
Finite Lived and Indefinite Lived Intangible Assets [Line Items]
Finite-lived intangible assets, gross carrying amount		258		258		212
Finite-lived intangible assets, accumulated amortization		(163)		(163)		(154)
Finite-lived intangible assets, identifiable intangible assets, less accumulated amortization		95		95		58
Trademarks and Trade Names
Finite Lived and Indefinite Lived Intangible Assets [Line Items]
Finite-lived intangible assets, gross carrying amount		166		166		166
Finite-lived intangible assets, accumulated amortization		(56)		(56)		(51)
Finite-lived intangible assets, identifiable intangible assets, less accumulated amortization		110		110		115
Other Intangible Assets
Finite Lived and Indefinite Lived Intangible Assets [Line Items]
Finite-lived intangible assets, gross carrying amount		422		422		412
Finite-lived intangible assets, accumulated amortization		(230)		(230)		(178)
Finite-lived intangible assets, identifiable intangible assets, less accumulated amortization		$ 192		$ 192		$ 234
Abaxis Inc
Finite Lived and Indefinite Lived Intangible Assets [Line Items]
Identifiable intangible assets	[2]						$ 894
Amortization of intangible assets			$ 13		$ 78

[1] Includes additions primarily related to the preliminary fair value of intangible assets acquired in the third quarter of 2019 associated with the acquisition of Platinum Performance.

[2] Identifiable intangible assets primarily consist of developed technology rights, customer relationships, and trademarks and trade names. The fair value of identifiable intangible assets is determined using the income approach, which includes a forecast of expected future cash flows. For additional information regarding identifiable intangible assets, see Note 12. Goodwill and Other Intangible Assets.

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Organization	9 Months Ended
	Sep. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Organization	etis Inc. (including its subsidiaries, collectively, Zoetis, the company, we, us or our) is a global leader in the discovery, development, manufacture and commercialization of animal health medicines, vaccines and diagnostic products with a focus on both livestock and companion animals. We organize and operate our business in two geographic regions: the United States (U.S.) and International. We directly market our products in approximately 45 countries across North America, Europe, Africa, Asia, Australia and South America. Our products are sold in more than 100 countries, including developed markets and emerging markets. We have a diversified business, marketing products across eight core species: cattle, swine, poultry, sheep and fish (collectively, livestock) and dogs, cats and horses (collectively, companion animals); and within six major product categories: vaccines, anti-infectives, parasiticides, medicated feed additives, animal health diagnostics and other pharmaceuticals.

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CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - USD ($) $ in Millions		Sep. 30, 2019	Dec. 31, 2018
Assets
Cash and cash equivalents	[1]	$ 1,815	$ 1,602
Restricted cash		4	5
Short term investments		12	99
Accounts receivable, less allowance for doubtful accounts of $25 in 2019 and $24 in 2018		1,030	1,036
Inventories		1,439	1,391
Other current assets		322	271
Total current assets		4,618	4,399
Property, plant and equipment, less accumulated depreciation of $1,725 in 2019 and $1,599 in 2018		1,813	1,658
Operating lease right of use assets		193	0
Goodwill		2,550	2,519
Identifiable intangible assets, less accumulated amortization		1,935	2,046
Noncurrent deferred tax assets		72	61
Other noncurrent assets		91	94
Total assets		11,272	10,777
Liabilities and Equity
Short-term borrowings		0	9
Accounts payable		284	313
Dividends payable		0	79
Accrued expenses		451	487
Accrued compensation and related items		217	266
Income taxes payable		52	35
Other current liabilities		48	34
Total current liabilities		1,052	1,223
Long-term debt, net of discount and issuance costs		6,447	6,443
Noncurrent deferred tax liabilities		473	474
Operating lease liabilities		169	0
Other taxes payable		255	265
Other noncurrent liabilities		198	187
Total liabilities		8,594	8,592
Commitments and Contingencies
Stockholders' equity:
Preferred stock, $0.01 par value: 1,000,000,000 authorized, none issued		0	0
Common stock, $0.01 par value: 6,000,000,000 authorized; 501,891,243 and 501,891,243 shares issued; 476,745,789 and 479,562,326 shares outstanding at September 30, 2019, and December 31, 2018, respectively		5	5
Treasury stock, at cost, 25,145,454 and 22,328,917 shares of common stock at September 30, 2019, and December 31, 2018, respectively		(1,876)	(1,487)
Additional paid-in capital		1,031	1,026
Retained earnings		4,217	3,270
Accumulated other comprehensive loss		(699)	(629)
Total equity		2,678	2,185
Total liabilities and equity		$ 11,272	$ 10,777

[1] As of September 30, 2019, and December 31, 2018, includes $4 million and $5 million, respectively, of restricted cash.

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Leases (Details) - USD ($) $ in Millions	3 Months Ended	9 Months Ended	12 Months Ended
	Sep. 30, 2019	Sep. 30, 2019	Dec. 31, 2018
Lessee, Lease, Description [Line Items]
Operating lease expense	$ 10	$ 29
Variable lease payments not included in the measurement of lease liabilities	5	13
Short-term lease payments not included in the measurement of lease liabilities	3	9
Cash paid for amounts included in the measurement of lease liabilities	9	28
Lease obligations obtained in exchange for right-of-use assets (non-cash)	7	230
Operating lease right of use assets	193	193	$ 0
Operating lease liabilities - current (in Other current liabilities)	34	34
Operating lease liabilities - noncurrent	169	169	0
Total operating lease liabilities	$ 203	$ 203
Weighted-average remaining lease term—operating leases (years)	6 years 10 months 28 days	6 years 10 months 28 days
Weighted-average discount rate—operating leases	3.66%	3.66%
2019	$ 11	$ 11
2020	41	41
2021	35	35
2022	31	31
2023	26	26
After 2023	88	88
Total Lease Payments	232	232
Less: Imputed Interest	$ (29)	$ (29)
2019			38
2020			30
2021			24
2022			21
2023			15
After 2023			45
Total			173
Total rent expense			$ 45
Minimum
Lessee, Lease, Description [Line Items]
Weighted-average remaining lease term—operating leases (years)	1 year	1 year
Maximum
Lessee, Lease, Description [Line Items]
Weighted-average remaining lease term—operating leases (years)	15 years	15 years

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Financial Instruments - Fair Value of Derivative Instruments (Details) € in Millions, kr in Millions, SFr in Millions, $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2019 CHF (SFr)	Sep. 30, 2019 DKK (kr)	Sep. 30, 2019 EUR (€)	Dec. 31, 2018 USD ($)	Dec. 31, 2018 CHF (SFr)	Dec. 31, 2018 DKK (kr)	Dec. 31, 2018 EUR (€)
Derivatives, Fair Value [Line Items]
Total derivatives	$ 38		$ 38					$ 10
Foreign currency forward-exchange contracts | Derivatives Not Designated as Hedging Instruments
Derivatives, Fair Value [Line Items]
Foreign currency forward-exchange contracts	1	$ 22	5	$ 22
Derivative notional amount	1,150		1,150					1,330
Total derivatives	3		3					(1)
Foreign currency forward-exchange contracts | Derivatives Not Designated as Hedging Instruments | Other current assets
Derivatives, Fair Value [Line Items]
Derivative assets	9		9					6
Foreign currency forward-exchange contracts | Derivatives Not Designated as Hedging Instruments | Other current liabilities
Derivatives, Fair Value [Line Items]
Derivative liabilities	(6)		(6)					(7)
Interest rate swaps | Derivatives Designated as Hedging Instruments: | Other current assets
Derivatives, Fair Value [Line Items]
Derivative assets	(6)		(6)					0
Cross-currency interest rate swap contracts
Derivatives, Fair Value [Line Items]
Derivative notional amount	50		50		SFr 25	kr 600	€ 575	0	SFr 0	kr 0	€ 400
Cross-currency interest rate swap contracts | Derivatives Designated as Hedging Instruments:
Derivatives, Fair Value [Line Items]
Unrecognized net gains/(losses) on cross-currency interest rate swap contracts, recorded, net of tax	23	0	28	1
Gain (Loss) on Components Excluded from Assessment of Interest Rate Fair Value Hedge Effectiveness	5	$ 2	13	$ 3
Total derivatives	35		35					11
Cross-currency interest rate swap contracts | Derivatives Designated as Hedging Instruments: | Other current assets
Derivatives, Fair Value [Line Items]
Total derivatives	13		13					3
Cross-currency interest rate swap contracts | Derivatives Designated as Hedging Instruments: | Other noncurrent assets
Derivatives, Fair Value [Line Items]
Total derivatives	$ 28		$ 28					$ 8

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Acquisitions and Divestitures (Tables)

9 Months Ended

Sep. 30, 2019

Business Combinations [Abstract]

Schedule of Business Acquisitions, by Acquisition [Table Text Block]

fair values allocated to Abaxis' assets and liabilities as of the acquisition date, are reflected in the table below.

(MILLIONS OF DOLLARS)	Amounts
Cash and cash equivalents	$	64
Short term investments(a)	107
Accounts receivable(b)	30
Inventories(c)	79
Other current assets	6
Property, plant and equipment(d)	54
Identifiable intangible assets(e)	894
Other noncurrent assets	29
Accounts payable	(21)
Accrued compensation and related items	(10)
Other current liabilities	(22)
Other noncurrent liabilities	(11)
Noncurrent deferred tax liabilities(f)	(214)
Total net assets acquired	985
Goodwill(g)	977
Total consideration	$	1,962

^(a)  Short term investments include investments in debt securities that are classified as available-for-sale and measured at fair value.

^(b)  The fair value approximates the gross contractual amount of accounts receivable. The contractual amount not expected to be collected is immaterial.

^(c)  Acquired inventory is comprised of finished goods, work in process and raw materials. The fair value of finished goods was determined based on net realizable value adjusted for the costs of the selling effort, a reasonable profit allowance for the selling effort, and estimated holding costs. The fair value of work in process was determined based on net realizable value adjusted for costs to complete the manufacturing process, costs of the selling effort, a reasonable profit allowance for the remaining manufacturing and selling effort, and an estimate of holding costs. The fair value of raw materials was determined to approximate book value.

^(d)  Property, plant and equipment is comprised of machinery and equipment, furniture and fixtures, computer equipment, leasehold improvements and construction in progress. The fair value was primarily determined using a reproduction/replacement cost approach which measures the value of an asset by estimating the cost to acquire or construct comparable assets adjusted for age and condition of the asset.

^(e)  Identifiable intangible assets primarily consist of developed technology rights, customer relationships, and trademarks and trade names. The fair value of identifiable intangible assets is determined using the income approach, which includes a forecast of expected future cash flows. For additional information regarding identifiable intangible assets, see Note 12. Goodwill and Other Intangible Assets.

^(f)  The acquisition was structured as a stock purchase and therefore we assumed the historical tax basis of Abaxis' assets and liabilities. The deferred tax effects resulting from the acquisition include the expected federal, state, and foreign tax consequences associated with temporary differences between the fair values of the assets acquired and liabilities assumed and the respective tax basis. The components of the Abaxis net deferred tax liability are included within amounts reported in Note 8. Income Taxes.

^(g) 

Goodwill represents the excess of consideration transferred over the of fair values of the assets acquired and liabilities assumed. It is allocated to our existing reportable segments and is primarily attributable to the future potential of the technology platforms, as well as cost and revenue synergies including market share capture, elimination of cost redundancies and gain of cost efficiencies, and intangible assets such as assembled workforce which are not separately recognizable. The primary strategic purpose of the acquisition was to enhance the company’s existing product portfolio by strengthening Zoetis’ presence in veterinary diagnostics. The goodwill recorded is not deductible for tax purposes.

Business Acquisition, Pro Forma Information [Table Text Block]

Supplemental Pro Forma Information (Unaudited):

The following table provides unaudited supplemental pro forma financial information as if the acquisition of Abaxis had occurred on January 1, 2017.

	Three Months Ended		Nine Months Ended
(MILLIONS OF DOLLARS)	September 30, 2018
Revenue	$	1,500	$	4,416
Net income attributable to Zoetis Inc.	348		1,024

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2019

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

and certain of our subsidiaries are subject to numerous contingencies arising in the ordinary course of business. For a discussion of our tax contingencies, see Note 8. Income Taxes.

A. Legal Proceedings

Our non-tax contingencies include, among others, the following:

• Product liability and other product-related litigation, which can include injury, consumer, off-label promotion, antitrust and breach of contract claims.

• Commercial and other matters, which can include product-pricing claims and environmental claims and proceedings.

• Patent litigation, which typically involves challenges to the coverage and/or validity of our patents or those of third parties on various products or processes.

• Government investigations, which can involve regulation by national, state and local government agencies in the United States and in other countries.

Certain of these contingencies could result in losses, including damages, fines and/or civil penalties, and/or criminal charges, which could be substantial.

We believe that we have strong defenses in these types of matters, but litigation is inherently unpredictable and excessive verdicts do occur. We do not believe that any of these matters will have a material adverse effect on our financial position. However, we could incur judgments, enter into settlements or revise our expectations regarding the outcome of certain matters, and such developments could have a material adverse effect on our results of operations or cash flows in the period in which the amounts are paid.

We have accrued for losses that are both probable and reasonably estimable. Substantially all of these contingencies are subject to significant uncertainties and, therefore, determining the likelihood of a loss and/or the measurement of any loss can be complex. Consequently, we are unable to estimate the range of reasonably possible loss in excess of amounts accrued. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but the assessment process relies on estimates and assumptions that may prove to be incomplete or inaccurate, and unanticipated events and circumstances may occur that might cause us to change those estimates and assumptions.

Amounts recorded for legal and environmental contingencies can result from a complex series of judgments about future events and uncertainties and can rely on estimates and assumptions.

The principal matters to which we are a party are discussed below. In determining whether a pending matter is significant for financial reporting and disclosure purposes, we consider both quantitative and qualitative factors in order to assess materiality, such as, among other things, the amount of damages and the nature of any other relief sought in the proceeding, if such damages and other relief are specified; our view of the merits of the claims and of the strength of our defenses; whether the action purports to be a class action and our view of the likelihood that a class will be certified by the court; the jurisdiction in which the proceeding is pending; any experience that we or, to our

knowledge, other companies have had in similar proceedings; whether disclosure of the action would be important to a reader of our financial statements, including whether disclosure might change a reader’s judgment about our financial statements in light of all of the information about the company that is available to the reader; the potential impact of the proceeding on our reputation; and the extent of public interest in the matter. In addition, with respect to patent matters, we consider, among other things, the financial significance of the product protected by the patent.

Ulianopolis, Brazil

In February 2012, the Municipality of Ulianopolis (State of Para, Brazil) filed a complaint against Fort Dodge Saúde Animal Ltda. (FDSAL), a Zoetis entity, and five other large companies alleging that waste sent to a local waste incineration facility for destruction, but that was not ultimately destroyed as the facility lost its operating permit, caused environmental impacts requiring cleanup.

The Municipality is seeking recovery of cleanup costs purportedly related to FDSAL's share of all waste accumulated at the incineration facility awaiting destruction, and compensatory damages to be allocated among the six defendants. We believe we have strong arguments against the claim, including defense strategies against any claim of joint and several liability.

At the request of the Municipal prosecutor, in April 2012, the lawsuit was suspended for one year. Since that time, the prosecutor has initiated investigations into the Municipality's actions in the matter as well as the efforts undertaken by the six defendants to remove and dispose of their individual waste from the incineration facility. On October 3, 2014, the Municipal prosecutor announced that the investigation remained ongoing and outlined the terms of a proposed Term of Reference (a document that establishes the minimum elements to be addressed in the preparation of an Environmental Impact Assessment), under which the companies would be liable to withdraw the waste and remediate the area. On March 5, 2015, we presented our response to the prosecutor’s proposed Term of Reference, arguing that the proposed terms were overly general in nature and expressing our interest in discussing alternatives to address the matter. The prosecutor agreed to consider our request to engage a technical consultant to conduct an environmental diagnostic of the contaminated area. On May 29, 2015, we, in conjunction with the other defendant companies, submitted a draft cooperation agreement to the prosecutor, which outlined the proposed terms and conditions for the engagement of a technical consultant to conduct the environmental diagnostic. On August 19, 2016, the parties and the prosecutor agreed to engage the services of a third-party consultant to conduct a limited environmental assessment of the site. The site assessment was conducted during June 2017, and a written report summarizing the results of the assessment was provided to the parties and the prosecutor in November 2017. The report noted that waste is still present on the site and that further (Phase II) environmental assessments are needed before a plan to manage that remaining waste can be prepared. On April 1, 2019, the defendants met with the Prosecutor to discuss the conclusions set forth in the written report. Following that discussion, on April 10, 2019, the Prosecutor issued a procedural order requesting that the defendants prepare and submit a technical proposal outlining the steps needed to conduct the additional Phase II environmental assessments. The defendants presented the technical proposal to the Prosecutor on October 21, 2019.

Lascadoil Contamination in Animal Feed

An investigation by the U.S. Food and Drug Administration (FDA) and the Michigan Department of Agriculture into the alleged contamination of the feed supply of certain turkey and hog feed mills in Michigan led to the recall of certain batches of soy oil (intended for use as an animal feed additive) that had originated with Shur-Green Farms LLC, a producer of soy oil, and that had been contaminated with lascadoil, an industrial by-product of certain Zoetis manufacturing processes. The contaminated feed is believed to have caused the deaths of approximately 50,000 turkeys and the contamination (but not death) of at least 20,000 hogs in August 2014. The investigation posited that Shur-Green inadvertently contaminated soy oil with lascadoil which it purchased from Zoetis for use as a bio-fuel ingredient, and then sold the contaminated soy oil to fat recycling vendors, who in turn unknowingly sold to feed mills for use in animal feed.

During the course of its investigation, the FDA identified the process used to manufacture Zoetis’ Avatec^® (lasalocid sodium) and Bovatec^® (lasalocid sodium) products as the possible source of the lascadoil, since lascadoil contains small amounts of lasalocid, the active ingredient found in both products. Zoetis sold the industrial lascadoil byproduct to Shur-Green, through its broker, Heritage Interactive Services, LLC. Under the terms of the sale agreement, the lascadoil could only be incinerated or resold for use in biofuel and the agreement expressly prohibited the reselling of lascadoil for use as a component in food. The FDA inspected the Zoetis site where Avatec and Bovatec are manufactured, and found no evidence that Zoetis was involved in the contamination of the animal feed.

On March 10, 2015, plaintiffs Restaurant Recycling, LLC (Restaurant Recycling) and Superior Feed Ingredients, LLC (Superior), both of whom are in the fat recycling business, filed a complaint in the Seventeenth Circuit Court for the State of Michigan against Shur-Green Farms alleging negligence and breach of warranty claims arising from their purchase of soy oil allegedly contaminated with lascadoil. Plaintiffs resold the allegedly contaminated soy oil to turkey feed mills for use in feed ingredient. Plaintiffs also named Zoetis as a defendant in the complaint alleging that Zoetis failed to properly manufacture its products and breached an implied warranty that the soy oil was fit for use at turkey and hog mills. Zoetis was served with the complaint on June 3, 2015, and we filed our answer, denying all allegations, on July 15, 2015. On August 10, 2015, several of the turkey feed mills filed a joint complaint against Restaurant Recycling, Superior, Shur-Green Farms and others, alleging claims for negligence, misrepresentation, and breach of warranty, arising out of their alleged purchase and use of the contaminated soy oil. The complaint raises only one count against Zoetis for negligence. We filed an answer to the complaint on November 2, 2015, denying the allegation. On May 16, 2016, two additional turkey producers filed a complaint in the Seventeenth Circuit Court for the State of Michigan against the company, Restaurant Recycling, Superior, Shur-Green Farms and others, alleging claims for negligence and breach of warranties. We filed an answer to the complaint on June 20, 2016, denying the allegations. The Court has consolidated all three cases in Michigan for purposes of discovery and disposition. On July 28, 2017, we filed a motion for summary disposition on the grounds that no genuine issues of material fact exist and that Zoetis is entitled to judgment as a matter of law. On October 19, 2017, the Court granted our motion and dismissed all claims against Zoetis. On October 31, 2017, the plaintiffs filed motions for reconsideration of the Court's decision granting summary disposition. The Court, denied all such motions on December 6, 2017, for the same reasons cited in the Court’s original decision. On December 27, 2017, the plaintiffs filed a request with the Michigan Court of Appeals seeking an interlocutory (or interim) appeal of the lower Court’s

decision, which we opposed on January 17, 2018. On July 5, 2018, the Court of Appeals denied the plaintiffs’ request for an interlocutory appeal. The case has been remanded back to the lower Court, where it will proceed to trial (unless settled) without Zoetis. The trial began on November 4, 2019. The plaintiffs will have the option to seek an appeal of the lower Court's decision granting Zoetis' motion for summary disposition after the final adjudication of the case.

Other Matters

On February 14, 2019, the General Court of the European Union (General Court) annulled the January 11, 2016 decision of the European Commission (EC) that selective tax advantages granted by Belgium under its "excess profit" tax scheme constitute illegal state aid. On May 8, 2019, the EC filed an appeal to the decision of the General Court. On September 16, 2019, the EC opened separate in-depth investigations to assess whether Belgium excess profit rulings granted to 39 multinational companies, including Zoetis, constituted state aid for those companies. Due to the uncertainty with respect to the outcome of the appeal to be filed by the EC, the company has not reflected any potential benefits associated with the decision of the General Court in its consolidated financial statements as of September 30, 2019. We will continue to monitor the developments of the appeal and its ultimate resolution.

The EC published a decision on alleged competition law infringements by several human health pharmaceutical companies on June 19, 2013. One of the involved legal entities is Alpharma LLC (previously having the name Zoetis Products LLC). Alpharma LLC's involvement is solely related to its human health activities prior to Pfizer's acquisition of King/Alpharma. Zoetis paid a fine in the amount of Euro 11 million (approximately $14 million) and was reimbursed in full by Pfizer in accordance with the Global Separation Agreement between Pfizer and Zoetis, which provides that Pfizer is obligated to indemnify Zoetis for any liabilities arising out of claims not related to its animal health assets. We filed an appeal of the decision on September 6, 2013, to the General Court of the European Union. On September 8, 2016, the General Court upheld the decision of the European Commission. On November 25, 2016, we filed an appeal to the Court of Justice of the European Union. On January 24, 2019, the Court heard oral argument on the merits of the appeal, and we now await the Court’s decision.

B. Guarantees and Indemnifications

In the ordinary course of business and in connection with the sale of assets and businesses, we indemnify our counterparties against certain liabilities that may arise in connection with the transaction or related to activities prior to the transaction. These indemnifications typically pertain to environmental, tax, employee and/or product-related matters and patent-infringement claims. If the indemnified party were to make a successful claim pursuant to the terms of the indemnification, we would be required to reimburse the loss. These indemnifications are generally subject to threshold amounts, specified claim periods and other restrictions and limitations. Historically, we have not paid significant amounts under these provisions and, as of September 30, 2019, recorded amounts for the estimated fair value of these indemnifications were not significant.

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Revenue - Revenue by Product (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Revenue from External Customer [Line Items]
Revenue	$ 1,584	$ 1,480	$ 4,586	$ 4,261
Vaccines
Revenue from External Customer [Line Items]
Revenue	364	382	1,092	1,109
Other pharmaceuticals
Revenue from External Customer [Line Items]
Revenue	418	361	1,139	1,017
Anti-infectives
Revenue from External Customer [Line Items]
Revenue	312	323	891	906
Parasiticides
Revenue from External Customer [Line Items]
Revenue	243	203	740	639
Medicated feed additives
Revenue from External Customer [Line Items]
Revenue	112	111	339	362
Animal health diagnostics
Revenue from External Customer [Line Items]
Revenue	69	46	194	69
Other non-pharmaceuticals
Revenue from External Customer [Line Items]
Revenue	47	40	128	129
Total products and services
Revenue from External Customer [Line Items]
Revenue	$ 1,565	$ 1,466	$ 4,523	$ 4,231

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Acquisitions and Divestitures - Supplemental Pro Forma Financial Information (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Business Acquisition [Line Items]
Amortization of intangible assets	$ 60	$ 45	$ 176	$ 96
Interest expense, net of capitalized interest	56	54	167	147
Share-based compensation expense			51	36
Abaxis Inc
Business Acquisition [Line Items]
Business Acquisition, Pro Forma Revenue		1,500		4,416
Business Acquisition, Pro Forma Net Income (Loss)		348		1,024
Amortization of intangible assets		13		78
Depreciation				1
Interest expense, net of capitalized interest		$ 8		36
Share-based compensation expense				$ 7
Pro Forma | Abaxis Inc
Business Acquisition [Line Items]
Adjustment to inventory	$ 7		$ 7

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CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (PARENTHETICAL) - USD ($) $ in Millions	Sep. 30, 2019	Dec. 31, 2018
Statement of Financial Position [Abstract]
Allowance for doubtful accounts	$ 25	$ 24
Accumulated depreciation	$ 1,725	$ 1,599
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	1,000,000,000	1,000,000,000
Preferred stock, shares issued	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	6,000,000,000	6,000,000,000
Common stock issued, shares	501,891,243	501,891,243
Common stock, shares outstanding	476,745,789	479,562,326
Treasury stock, shares	25,145,454	22,328,917

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Financial Instruments Derivative Notional Amounts (Details) € in Millions, kr in Millions, SFr in Millions, $ in Millions	Sep. 30, 2019 USD ($)	Sep. 30, 2019 CHF (SFr)	Sep. 30, 2019 DKK (kr)	Sep. 30, 2019 EUR (€)	Dec. 31, 2018 USD ($) swap	Dec. 31, 2018 CHF (SFr) swap	Dec. 31, 2018 DKK (kr) swap	Dec. 31, 2018 EUR (€) swap
Cross-currency interest rate swap contracts
Derivative [Line Items]
Derivative notional amount	$ 50	SFr 25	kr 600	€ 575	$ 0	SFr 0	kr 0	€ 400
Derivatives Not Designated as Hedging Instruments | Foreign Exchange Contract
Derivative [Line Items]
Derivative notional amount	$ 1,150				$ 1,330
Derivatives Designated as Hedging Instruments: | Interest rate swaps
Derivative [Line Items]
Derivative, Number of Instruments Held	250				0	0	0	0

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Financial Instruments - Foreign Exchange Risk (Details) € in Millions, kr in Millions, SFr in Millions, $ in Millions	9 Months Ended
	Sep. 30, 2019 USD ($)	Sep. 30, 2019 CHF (SFr)	Sep. 30, 2019 DKK (kr)	Sep. 30, 2019 EUR (€)	Dec. 31, 2018 USD ($)	Dec. 31, 2018 CHF (SFr)	Dec. 31, 2018 DKK (kr)	Dec. 31, 2018 EUR (€)	Jan. 28, 2013
Senior Notes | Senior notes due 2018
Derivative [Line Items]
Interest rate percentage									1.875%
Cross-currency interest rate swap contracts
Derivative [Line Items]
Derivative notional amount	$ 50	SFr 25	kr 600	€ 575	$ 0	SFr 0	kr 0	€ 400
Derivatives Not Designated as Hedging Instruments | Foreign Exchange Contract
Derivative [Line Items]
Derivative notional amount	$ 1,150				$ 1,330
Maturity period (in days)	60 days
Derivatives Not Designated as Hedging Instruments | Maximum | Foreign Exchange Contract
Derivative [Line Items]
Maturity period (in days)	1 year

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Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2019	Nov. 01, 2019
Cover page.
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2019
Document Transition Report	false
Entity File Number	001-35797
Entity Registrant Name	Zoetis Inc.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	46-0696167
Entity Address, Address Line One	10 Sylvan Way,
Entity Address, City or Town	Parsippany,
Entity Address, State or Province	NJ
Entity Address, Postal Zip Code	07054
City Area Code	973
Local Phone Number	822-7000
Title of 12(b) Security	Common Stock, par value $0.01 per share
Trading Symbol	ZTS
Security Exchange Name	NYSE
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity common Stock, Shares Outstanding		476,299,250
Document Type	10-Q
Amendment Flag	false
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q3
Entity Central Index Key	0001555280
Current Fiscal Year End Date	--12-31

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Goodwill and Other Intangible Assets - Narrative (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Goodwill and Intangible Assets Disclosure [Abstract]
Gross goodwill	$ 3,086		$ 3,086		$ 3,055
Accumulated goodwill impairment losses	536		536		$ 536
Amortization of intangible assets	$ 60	$ 45	$ 176	$ 96

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Accounting Standards

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

Accounting Standards

n February 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-02, Income Statement - Reporting Comprehensive Income, (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02), which permits companies to reclassify from accumulated other comprehensive income to retained earnings stranded tax effects resulting from the new federal corporate income tax rate. In the period of adoption, a company may choose to either apply the amendments retrospectively to each period in which the effect of the change in federal income tax rate is recognized or to apply the amendments in that reporting period. We adopted the new standard as of January 1, 2019, the required effective date. The company has elected to not reclassify the stranded income tax effects from accumulated other comprehensive income to retained earnings as the amount is insignificant.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes FASB Topic 840, Leases (Topic 840) which requires lessees to recognize most leases on the balance sheet with a corresponding right of use asset. Leases will be classified as financing or operating which will drive the expense recognition pattern. For lessees, the income statement presentation and expense recognition pattern for financing and operating leases is similar to the current model for capital and operating leases, respectively. Companies may elect to exclude short-term leases. The update also requires additional disclosures that will better enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. We adopted the new standard as of January 1, 2019, the required effective date, using the effective date transition method. As permitted under the effective date transition method, financial information and disclosure for periods prior to the date of initial application will not be updated. An adjustment to opening retained earnings was not required in conjunction with our adoption. We have elected not to reassess whether expired or existing contracts contain leases, nor did we reassess the classification of existing leases as of the adoption date. We did not use hindsight in our assessment of lease terms as of the effective date. For additional information, see Note 10. Leases.

Recently Issued Accounting Standards

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Topic 350-40), an accounting standards update which expands the scope of costs associated with cloud computing arrangements that must be capitalized. Under the new guidance, costs associated with implementing a cloud computing arrangement that is a service contract must be capitalized and expensed over the term of the hosting arrangement. We will adopt this guidance as of January 1, 2020, the required effective date, and are currently assessing the potential impact that the standard will have on our consolidated financial statements.

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Revenue Revenue Recognition and Deferred Revenue (Tables)

9 Months Ended

Sep. 30, 2019

Revenue Recognition and Deferred Revenue [Abstract]

Revenue from External Customers by Geographic Areas

Revenue by geographic area

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(MILLIONS OF DOLLARS)	2019		2018		2019		2018
United States	$	844	$	757	$	2,342	$	2,068
Australia	53		53		150		152
Brazil	72		72		206		210
Canada	47		42		142		138
China	40		46		156		170
France	24		29		83		92
Germany	35		36		111		112
Italy	26		27		82		80
Japan	39		34		118		114
Mexico	29		24		87		74
Spain	29		28		86		83
United Kingdom	46		47		145		135
Other developed markets	98		98		269		266
Other emerging markets	183		173		546		537
	1,565		1,466		4,523		4,231
Contract manufacturing & human health	19		14		63		30
Total Revenue	$	1,584	$	1,480	$	4,586	$	4,261

Revenue from External Customers by Major Species

Revenue by major species

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(MILLIONS OF DOLLARS)	2019		2018		2019		2018
U.S.
Livestock	$	294	$	322	$	847	$	885
Companion animal	550		435		1,495		1,183
	844		757		2,342		2,068
International
Livestock	437		456		1,315		1,397
Companion animal	284		253		866		766
	721		709		2,181		2,163
Contract manufacturing & human health	19		14		63		30
Total Revenue	$	1,584	$	1,480	$	4,586	$	4,261

Revenue from External Customers by Species

Revenue by species

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(MILLIONS OF DOLLARS)	2019		2018		2019		2018
Livestock:
Cattle	$	389	$	417	$	1,148	$	1,229
Swine	142		160		449		500
Poultry	135		130		417		395
Fish	42		46		90		92
Other	23		25		58		66
	731		778		2,162		2,282
Companion Animal:
Dogs and Cats	789		653		2,231		1,832
Horses	45		35		130		117
	834		688		2,361		1,949
Contract manufacturing & human health	19		14		63		30
Total Revenue	$	1,584	$	1,480	$	4,586	$	4,261

Schedule of Significant Product Revenues

Revenue by major product category

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(MILLIONS OF DOLLARS)	2019		2018		2019		2018
Vaccines	$	364	$	382	$	1,092	$	1,109
Other pharmaceuticals	418		361		1,139		1,017
Anti-infectives	312		323		891		906
Parasiticides	243		203		740		639
Medicated feed additives	112		111		339		362
Animal health diagnostics	69		46		194		69
Other non-pharmaceuticals	47		40		128		129
	1,565		1,466		4,523		4,231
Contract manufacturing & human health	19		14		63		30
Total Revenue	$	1,584	$	1,480	$	4,586	$	4,261

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Earnings per Share

9 Months Ended

Sep. 30, 2019

Earnings Per Share [Abstract]

Earnings per Share

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(MILLIONS OF DOLLARS AND SHARES, EXCEPT PER SHARE DATA)	2019		2018		2019		2018
Numerator
Net income before allocation to noncontrolling interests	$	433	$	347	$	1,116	$	1,079
Less: Net loss attributable to noncontrolling interests	—		—		—		(4		)
Net income attributable to Zoetis Inc.	$	433	$	347	$	1,116	$	1,083
Denominator
Weighted-average common shares outstanding	477.8		482.0		478.7		483.9
Common stock equivalents: stock options, RSUs, PSUs and DSUs	3.7		3.8		3.6		3.8
Weighted-average common and potential dilutive shares outstanding	481.5		485.8		482.3		487.7
Earnings per share attributable to Zoetis Inc. stockholders—basic	$	0.91	$	0.72	$	2.33	$	2.24
Earnings per share attributable to Zoetis Inc. stockholders—diluted	$	0.90	$	0.71	$	2.31	$	2.22

The number of stock options outstanding under the company's Equity Plan that were excluded from the computation of diluted earnings per share, as the effect would have been antidilutive, were de minimis for the three months ended September 30, 2019 and September 30, 2018, respectively and de minimis and 1 million for the nine months ended September 30, 2019 and September 30, 2018, respectively.

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Other (Income)/Deductions - Net

9 Months Ended

Sep. 30, 2019

Other Income and Expenses [Abstract]

Other (Income)/Deductions - Net

7. Other (Income)/Deductions—Net

The components of Other (income)/deductions—net are as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(MILLIONS OF DOLLARS)	2019			2018			2019			2018
Royalty-related income	$	(4	)	$	(5	)	$	(12	)	$	(18	)
Interest income	(10		)	(6		)	(29		)	(20		)
Net (gain)/loss on sale of assets(a)	(20		)	2			(20		)	2
Foreign currency loss(b)	7			9			14			26
Other, net(c)	1			(19		)	1			(18		)
Other (income)/deductions—net	$	(26	)	$	(19	)	$	(46	)	$	(28	)

^(a)  For the three and nine months ended September 30, 2019, represents income resulting from a contingent payment received pursuant to an agreement related to the 2016 sale of certain U.S. manufacturing sites.

For the three and nine months ended September 30, 2018, represents net losses related to sales of certain manufacturing sites and products as part of our operational efficiency initiative and supply network strategy.

^(b)  Primarily driven by costs related to hedging and exposures to certain emerging market currencies.

^(c) 

For the three and nine months ended September 30, 2018, primarily includes a net gain related to the relocation of a manufacturing site in China.

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Basis of Presentation

9 Months Ended

Sep. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

2. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements were prepared following the requirements of the Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by accounting principles generally accepted in the United States of America (U.S. GAAP) can be condensed or omitted. Balance sheet amounts and operating results for subsidiaries operating outside the United States are as of and for the nine-month periods ended August 31, 2019, and August 31, 2018.

Revenue, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be representative of those for the full year.

Certain reclassifications of prior year information have been made to conform to the current year's presentation.

We are responsible for the unaudited condensed consolidated financial statements included in this Form 10-Q. The condensed consolidated financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of our financial position and operating results. The information included in this interim report should be read in conjunction with the financial statements and accompanying notes included in our 2018 Annual Report on Form 10-K.

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Inventories

9 Months Ended

Sep. 30, 2019

Inventory Disclosure [Abstract]

Inventories

components of inventory are as follows:

	September 30,		December 31,
(MILLIONS OF DOLLARS)	2019		2018
Finished goods	$	713	$	744
Work-in-process	524		481
Raw materials and supplies	202		166
Inventories	$	1,439	$	1,391

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Goodwill and Other Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Changes in the Carrying Amount of Goodwill

The components of, and changes in, the carrying amount of goodwill are as follows:

(MILLIONS OF DOLLARS)	U.S.		International			Total
Balance, December 31, 2018	$	1,265	$	1,254		$	2,519
Additions(a)	58		—			58
Other(b)	—		(27		)	(27		)
Balance, September 30, 2019	$	1,323	$	1,227		$	2,550

^(a) Includes the preliminary purchase price allocation related to the acquisition of Platinum Performance in the third quarter of 2019.

^(b) Includes measurement period adjustments related to the acquisition of Abaxis and adjustments for foreign currency translation.

Components of Identifiable Intangible Assets

The components of identifiable intangible assets are as follows:

	As of September 30, 2019							As of December 31, 2018
						Identifiable							Identifiable
	Gross					Intangible Assets		Gross					Intangible Assets
	Carrying		Accumulated			Less Accumulated		Carrying		Accumulated			Less Accumulated
(MILLIONS OF DOLLARS)	Amount		Amortization			Amortization		Amount		Amortization			Amortization
Finite-lived intangible assets:
Developed technology rights(a)	$	1,943	$	(621	)	$	1,322	$	1,854	$	(523	)	$	1,331
Brands(a)	258		(163		)	95		212		(154		)	58
Trademarks and trade names	166		(56		)	110		166		(51		)	115
Other(a)	422		(230		)	192		412		(178		)	234
Total finite-lived intangible assets	2,789		(1,070		)	1,719		2,644		(906		)	1,738
Indefinite-lived intangible assets:
In-process research and development	105		—			105		197		—			197
Brands	37		—			37		37		—			37
Trademarks and trade names	67		—			67		67		—			67
Product rights	7		—			7		7		—			7
Total indefinite-lived intangible assets	216		—			216		308		—			308
Identifiable intangible assets	$	3,005	$	(1,070	)	$	1,935	$	2,952	$	(906	)	$	2,046

^(a) Includes additions primarily related to the preliminary fair value of intangible assets acquired in the third quarter of 2019 associated with the acquisition of Platinum Performance.

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Segment Information Segment Information (Tables)

9 Months Ended

Sep. 30, 2019

Segment Reporting [Abstract]

Schedule of Selected Income Statement Information by Segment

Segment Assets

We manage our assets on a total company basis, not by operating segment. Therefore, our chief operating decision maker does not regularly review any asset information by operating segment and, accordingly, we do not report asset information by operating segment.

	Earnings						Depreciation and Amortization(a)
	Three Months Ended						Three Months Ended
	September 30,						September 30,
(MILLIONS OF DOLLARS)	2019			2018			2019		2018
U.S.
Revenue	$	844		$	757
Cost of sales	163			151
Gross profit	681			606
Gross margin	80.7		%	80.1		%
Operating expenses	130			116
Other (income)/deductions	—			—
U.S. Earnings	551			490			$	12	$	9
International
Revenue(b)	721			709
Cost of sales	234			226
Gross profit	487			483
Gross margin	67.5		%	68.1		%
Operating expenses	134			131
Other (income)/deductions	—			(1		)
International Earnings	353			353			13		11
Total operating segments	904			843			25		20
Other business activities	(87		)	(84		)	7		6
Reconciling Items:
Corporate	(172		)	(178		)	19		15
Purchase accounting adjustments	(55		)	(49		)	55		43
Acquisition-related costs	(6		)	(40		)	—		—
Certain significant items(c)	17			8			—		—
Other unallocated	(73		)	(82		)	1		—
Total Earnings(d)	$	528		$	418		$	107	$	84

^(a)  Certain production facilities are shared. Depreciation and amortization is allocated to the reportable operating segments based on estimates of where the benefits of the related assets are realized.

^(b)  Revenue denominated in euros was $176 million and $180 million for the three months ended September 30, 2019 and September 30, 2018, respectively.

^(c)  For the three months ended September 30, 2019, primarily includes income of $20 million resulting from a contingent payment received pursuant to an agreement related to the 2016 sale of certain U.S. manufacturing sites.

For the three months ended September 30, 2018 primarily represents: (i) employee termination costs of $8 million, (ii) a net gain of $18 million related to the relocation of a manufacturing site in China, and (iii) a loss of $2 million related to sales of certain manufacturing sites and products as a result of our supply network strategy.

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

	Earnings						Depreciation and Amortization(a)
	Nine Months Ended						Nine Months Ended
	September 30,						September 30,
(MILLIONS OF DOLLARS)	2019			2018			2019		2018
U.S.
Revenue	$	2,342		$	2,068
Cost of sales	468			431
Gross profit	1,874			1,637
Gross margin	80.0		%	79.2		%
Operating expenses	367			328
Other (income)/deductions	—			—
U.S. Earnings	1,507			1,309			$	31	$	25
International
Revenue(b)	2,181			2,163
Cost of sales	662			689
Gross profit	1,519			1,474
Gross margin	69.6		%	68.1		%
Operating expenses	412			411
Other (income)/deductions	—			2
International Earnings	1,107			1,061			38		34
Total operating segments	2,614			2,370			69		59
Other business activities	(246		)	(247		)	18		17
Reconciling Items:
Corporate	(512		)	(470		)	49		42
Purchase accounting adjustments	(179		)	(95		)	165		88
Acquisition-related costs	(33		)	(41		)	—		—
Certain significant items(c)	(56		)	(2		)	—		—
Other unallocated	(224		)	(243		)	2		1
Total Earnings(d)	$	1,364		$	1,272		$	303	$	207

^(a)  Certain production facilities are shared. Depreciation and amortization is allocated to the reportable operating segments based on estimates of where the benefits of the related assets are realized.

^(b)  Revenue denominated in euros was $541 million and $555 million for the nine months ended September 30, 2019 and September 30, 2018, respectively.

^(c)  For the nine months ended September 30, 2019, primarily represents (i) a change in estimate related to inventory costing of $68 million, (ii) income of $20 million resulting from a contingent payment received pursuant to an agreement related to the 2016 sale of certain U.S. manufacturing sites, and (iii) product transfer costs and consulting fees of $7 million related to our supply network strategy.

For the nine months ended September 30, 2018, primarily represents: (i) charges related to our operational efficiency initiative and supply network strategy of $8 million which includes consulting fees, product transfer costs, employee termination costs, and a loss related to sales of certain manufacturing sites and products, (ii) employee termination costs of $11 million in Europe as a result of initiatives to better align our organizational structure, and (iii) a net gain of $18 million related to the relocation of a manufacturing site in China.

^(d) 

Defined as income before provision for taxes on income.

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Financial Instruments - Schedule of Long-term Debt (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018	Aug. 20, 2018	Sep. 12, 2017	Nov. 13, 2015	Jan. 28, 2013
Debt Instrument [Line Items]
Total long-term debt	$ 6,500		$ 6,500		$ 6,500
Unamortized debt discount / debt issuance costs	(53)		(53)		(57)
Long-term debt, net of discount and issuance costs	6,447		6,447		6,443
Interest expense, net of capitalized interest	56	$ 54	167	$ 147
Capitalized interest	3	$ 2	9	$ 6
Senior Notes
Debt Instrument [Line Items]
Total long-term debt						$ 1,500	$ 1,250	$ 1,250	$ 3,650
Senior Notes | 3.450% 2015 senior notes due 2020
Debt Instrument [Line Items]
Interest rate percentage								3.45%
Total long-term debt	500		500		500
Senior Notes | 2018 floating senior notes due 2021
Debt Instrument [Line Items]
Total long-term debt	300		300		300	$ 300
Senior Notes | 3.250% 2018 senior notes due 2021
Debt Instrument [Line Items]
Interest rate percentage						3.25%
Total long-term debt	300		300		300	$ 300
Senior Notes | 3.250% 2013 senior notes due 2023
Debt Instrument [Line Items]
Interest rate percentage									3.25%
Total long-term debt	1,350		1,350		1,350
Senior Notes | 4.500% 2015 senior notes due 2025
Debt Instrument [Line Items]
Interest rate percentage								4.50%
Total long-term debt	750		750		750
Senior Notes | 3.000% 2017 senior notes due 2027
Debt Instrument [Line Items]
Interest rate percentage							3.00%
Total long-term debt	750		750		750
Senior Notes | 3.900% 2018 senior notes due 2028
Debt Instrument [Line Items]
Interest rate percentage						3.90%
Total long-term debt	500		500		500	$ 500
Senior Notes | 4.700% 2013 senior notes due 2043
Debt Instrument [Line Items]
Interest rate percentage									4.70%
Total long-term debt	1,150		1,150		1,150
Senior Notes | 3.950% 2017 senior notes due 2047
Debt Instrument [Line Items]
Interest rate percentage							3.95%
Total long-term debt	500		500		500
Senior Notes | 4.450% 2018 senior notes due 2048
Debt Instrument [Line Items]
Interest rate percentage						4.45%
Total long-term debt	$ 400		$ 400		$ 400	$ 400

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Income Taxes - Tax Contingencies (Details) - USD ($) $ in Millions	Sep. 30, 2019	Dec. 31, 2018
Income Tax Contingency [Line Items]
Liabilities associated with uncertain tax positions	$ 181	$ 185
Unrecognized tax benefits, income tax penalties and interest accrued	12	11
Noncurrent Deferred Tax Assets
Income Tax Contingency [Line Items]
Liabilities associated with uncertain tax positions	3	3
Other Taxes Payable
Income Tax Contingency [Line Items]
Liabilities associated with uncertain tax positions	$ 178	$ 182

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Share-Based Payments - Components of Share-Based Compensation Expense (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019		Sep. 30, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense—direct	$ 16	$ 14	$ 51	[1]	$ 36	[1]
Share-based Payment Arrangement, Accelerated Cost	1		5
Stock options / stock appreciation rights
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense—direct	3	2	8		7
RSUs / DSUs(a)(b)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense—direct	10	10	34	[2]	23	[2]
PSUs
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense—direct	3	$ 2	9		$ 6
Abaxis Inc
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense—direct	$ 4		$ 13

[1] mounts capitalized to inventory were $1 million for the nine months ended September 30, 2019 and were insignificant for the three months ended September 30, 2019 as well as for the three and nine months ended September 30, 2018.

[2] For the three and nine months ended September 30, 2019, includes share-based compensation expense of $4 million and $13 million, respectively, related to the acquisition of Abaxis for the post-merger service period. For additional details, see Note 5. Acquisitions.

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Commitments and Contingencies (Details) € in Millions, $ in Millions			1 Months Ended		9 Months Ended
	May 16, 2016 producer	Jun. 03, 2015 count	Aug. 31, 2014 animal	Apr. 30, 2012	Sep. 30, 2019 customer	Jun. 19, 2013 USD ($)	Jun. 19, 2013 EUR (€)	Feb. 29, 2012 defendant
Ulianopolis, Brazil
Loss Contingencies [Line Items]
Number of additional defendants | defendant								5
Number of claims seeking damages | defendant								6
Duration of suspension of lawsuit				1 year
Lasadoil
Loss Contingencies [Line Items]
Number of deaths from contamination of animal feed | animal			50,000
Number of contaminated animal from contamination of animal feed | animal			20,000
Number of complaints	2	1			3
European Commission
Loss Contingencies [Line Items]
Amount reimbursed by Pfizer						$ 14	€ 11