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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 |
| | |
Item 1. | | | | |
| | Condensed Consolidated Statements of Income (Unaudited) | | |
| | Condensed Consolidated Statements of Comprehensive Income (Unaudited) | | |
| | Condensed Consolidated Balance Sheets (Unaudited) | | |
| | Condensed Consolidated Statements of Equity (Unaudited) | | |
| | Condensed Consolidated Statements of Cash Flows (Unaudited) | | |
| | Notes to Condensed Consolidated Financial Statements (Unaudited) | | |
| | Review Report of Independent Registered Public Accounting Firm | | |
Item 2. | | | | |
Item 3. | | | | |
Item 4. | | | | |
| | |
Item 1. | | | | |
Item 1A. | | | | |
Item 2. | | | | |
Item 3. | | Defaults Upon Senior Securities | | |
Item 4. | | Mine Safety Disclosures | | |
Item 5. | | Other Information | | |
Item 6. | | | | |
| | |
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 |
|
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 |
|
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 | ) | |
|