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Table of Contents
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
March 31, 2023
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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareZTSNew 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 filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging 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
As of April 28, 2023, there were 462,112,140 shares of common stock outstanding.



Table of Contents
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)
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.




Table of Contents
PART I – FINANCIAL INFORMATION
Item 1.    Financial Statements

ZOETIS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
March 31,
(MILLIONS OF DOLLARS AND SHARES, EXCEPT PER SHARE DATA)20232022
Revenue$2,000 $1,986 
Costs and expenses:
Cost of sales
588 569 
Selling, general and administrative expenses
505 465 
Research and development expenses
142 122 
Amortization of intangible assets
37 41 
Restructuring charges and certain acquisition-related costs21 2 
Interest expense, net of capitalized interest
63 53 
Other (income)/deductions—net
(53)7 
Income before provision for taxes on income697 727 
Provision for taxes on income146 133 
Net income before allocation to noncontrolling interests551 594 
Less: Net loss attributable to noncontrolling interests(1)(1)
Net income attributable to Zoetis Inc.$552 $595 
Earnings per share attributable to Zoetis Inc. stockholders:
 Basic$1.19 $1.26 
 Diluted$1.19 $1.26 
Weighted-average common shares outstanding:
 Basic463.5 472.2 
 Diluted464.6 474.1 
Dividends declared per common share$0.375 $0.325 

See notes to condensed consolidated financial statements.
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ZOETIS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended
March 31,
(MILLIONS OF DOLLARS)20232022
Net income before allocation to noncontrolling interests$551 $594 
Other comprehensive (loss)/income, net of tax(a):
Unrealized (losses)/gains on derivatives for cash flow hedges, net of tax of $(1) and $7 for the three months ended March 31, 2023 and 2022, respectively
(2)26 
Unrealized (losses)/gains on derivatives for net investment hedges, net of tax of $(2) and $4 for the three months ended March 31, 2023 and 2022, respectively
(6)12 
Foreign currency translation adjustments(7)21 
Benefit plans: Actuarial gain, net of tax of $1 and $0 for the three months ended March 31, 2023 and 2022, respectively
4 1 
Total other comprehensive (loss)/income, net of tax(11)60 
Comprehensive income before allocation to noncontrolling interests540 654 
Less: Comprehensive loss attributable to noncontrolling interests(1)(1)
Comprehensive income attributable to Zoetis Inc.$541 $655 
(a) Presented net of reclassification adjustments, which are not material in any period presented.



See notes to condensed consolidated financial statements.
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ZOETIS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31,December 31,
20232022
(MILLIONS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)(Unaudited)
Assets
Cash and cash equivalents(a)
$2,109 $3,581 
Accounts receivable, less allowance for doubtful accounts of $20 in 2023 and $19 in 2022
1,186 1,215 
Inventories2,563 2,345 
Other current assets411 365 
Total current assets6,269 7,506 
Property, plant and equipment, less accumulated depreciation of $2,374 in 2023 and $2,297 in 2022
2,913 2,753 
Operating lease right of use assets216 220 
Goodwill2,738 2,746 
Identifiable intangible assets, less accumulated amortization1,314 1,380 
Noncurrent deferred tax assets161 173 
Other noncurrent assets143 147 
Total assets$13,754 $14,925 
Liabilities and Equity
Short-term borrowings$3 $2 
Current portion of long-term debt 1,350 
Accounts payable424 405 
Dividends payable174 174 
Accrued expenses701 682 
Accrued compensation and related items232 300 
Income taxes payable277 157 
Other current liabilities104 97 
Total current liabilities1,915 3,167 
Long-term debt, net of discount and issuance costs6,559 6,552 
Noncurrent deferred tax liabilities131 142 
Operating lease liabilities180 186 
Other taxes payable262 258 
Other noncurrent liabilities216 217 
Total liabilities9,263 10,522 
Commitments and contingencies (Note 15)
Stockholders' equity:
Common stock, $0.01 par value: 6,000,000,000 authorized; 501,891,243 and 501,891,243 shares issued; 462,495,343 and 463,808,059 shares outstanding at March 31, 2023, and December 31, 2022, respectively
5 5 
Treasury stock, at cost, 39,395,900 and 38,083,184 shares of common stock at March 31, 2023 and December 31, 2022, respectively
(4,807)(4,539)
Additional paid-in capital1,079 1,088 
Retained earnings9,045 8,668 
Accumulated other comprehensive loss(828)(817)
Total Zoetis Inc. equity4,494 4,405 
Noncontrolling interests(3)(2)
Total equity4,491 4,403 
Total liabilities and equity$13,754 $14,925 
(a)    As of March 31, 2023 and December 31, 2022, includes $4 million of restricted cash.
See notes to condensed consolidated financial statements.
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ZOETIS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
Three months ended March 31, 2023
Zoetis
Accumulated
AdditionalOther
Common StockTreasury StockPaid-inRetainedComprehensiveNoncontrollingTotal
(MILLIONS OF DOLLARS AND SHARES)
SharesAmountSharesAmountCapitalEarningsLossInterestsEquity
Balance, December 31, 2022501.9 $5 38.1 $(4,539)$1,088 $8,668 $(817)$(2)$4,403 
Net income/(loss)     552  (1)551 
Other comprehensive loss      (11) (11)
Share-based compensation awards (a)
  (0.4)17 (9)(1)  7 
Treasury stock acquired (b)
  1.7 (285)    (285)
Dividends declared     (174)  (174)
Balance, March 31, 2023501.9 $5 39.4 $(4,807)$1,079 $9,045 $(828)$(3)$4,491 
Three months ended March 31, 2022
Zoetis
Accumulated
AdditionalOther
Common StockTreasury StockPaid-inRetainedComprehensiveNoncontrollingTotal
(MILLIONS OF DOLLARS AND SHARES)
SharesAmountSharesAmountCapitalEarningsLossInterestsEquity
Balance, December 31, 2021501.9 $5 29.3 $(2,952)$1,068 $7,186 $(764)$1 $4,544 
Net income/(loss)— — — — — 595 — (1)594 
Other comprehensive income— — — — — — 60 — 60 
Share-based compensation awards (a)
— — (0.5)(4)(23) — — (27)
Treasury stock acquired (b)
— — 1.9 (361)— — — — (361)
Employee benefit plan contribution from Pfizer Inc.(c)
— — — — 1 — — — 1 
Dividends declared— — — — — (153)— — (153)
Balance, March 31, 2022501.9 $5 30.7 $(3,317)$1,046 $7,628 $(704)$ $4,658 
Shares may not add due to rounding.
(a)    Includes the issuance of shares of Zoetis Inc. common stock and the reacquisition of shares of treasury stock associated with exercises of employee share-based awards. Also includes the reacquisition of shares of treasury stock associated with the vesting of employee share-based awards to satisfy tax withholding requirements. For additional information, see Note 12. Share-based Payments and Note 13. Stockholders' Equity.
(b)    Reflects the acquisition of treasury shares in connection with the share repurchase program. For the three months ended March 31, 2023, includes excise tax accrued on net share repurchases. For additional information, see Note 13. Stockholders' Equity.
(c)    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.

See notes to condensed consolidated financial statements.
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ZOETIS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
(MILLIONS OF DOLLARS)20232022
Operating Activities
Net income before allocation to noncontrolling interests$551 $594 
Adjustments to reconcile net income before noncontrolling interests to net cash provided by operating activities:
Depreciation and amortization expense120 114 
Share-based compensation expense9 16 
Asset write-offs and asset impairments1 1 
Provision for losses on inventory16 9 
Deferred taxes8 (45)
Employee benefit plan contribution from Pfizer Inc. 1 
Other non-cash adjustments(1)4 
Other changes in assets and liabilities, net of acquisitions and divestitures:
    Accounts receivable27 (102)
    Inventories(235)(146)
    Other assets(24)(1)
    Accounts payable22 (31)
    Other liabilities(63)(222)
    Other tax accounts, net118 117 
Net cash provided by operating activities549 309 
Investing Activities
Capital expenditures(223)(115)
Acquisitions(7)(4)
Purchase of investments(1)(5)
Proceeds on derivative instrument activity, net13 6 
Net proceeds from sale of assets2  
Net cash used in investing activities(216)(118)
Financing Activities
Increase in short-term borrowings, net1  
Principal payments on long-term debt(1,350) 
Share-based compensation-related proceeds, net of taxes paid on withholding shares4 (30)
Purchases of treasury stock(283)(361)
Cash dividends paid(174)(154)
Net cash used in financing activities(1,802)(545)
Effect of exchange-rate changes on cash and cash equivalents(3)4 
Net decrease in cash and cash equivalents(1,472)(350)
Cash and cash equivalents at beginning of period3,581 3,485 
Cash and cash equivalents at end of period$2,109 $3,135 
Supplemental cash flow information
Cash paid during the period for:
Income taxes$20 $26 
Interest, net of capitalized interest89 89 
Amounts included in the measurement of lease liabilities14 13 
Non-cash transactions:
Capital expenditures3 4 
Excise tax accrued on net share repurchases, not paid2  
Lease obligations obtained in exchange for right-of-use assets13 19 
  Dividends declared, not paid174 153 
See notes to condensed consolidated financial statements.
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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 animal health industry, focused on the discovery, development, manufacture and commercialization of medicines, vaccines, diagnostic products and services, biodevices, genetic tests and precision animal health technology. 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, commercializing products across eight core species: dogs, cats and horses (collectively, companion animals) and cattle, swine, poultry, fish and sheep (collectively, livestock); and within seven major product categories: parasiticides, vaccines, other pharmaceutical products, dermatology, anti-infectives, medicated feed additives and animal health diagnostics.
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 U.S. are as of and for the three months ended February 28, 2023 and February 28, 2022.
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.
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 2022 Annual Report on Form 10-K.
3. Accounting Standards
Recently Adopted Accounting Standards
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In January 2021 and December 2022, it issued subsequent amendments to the initial guidance: ASU No. 2021-01 and ASU No. 2022-06, Reference Rate Reform (Topic 848). The new guidance provides temporary optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform. Adoption of the guidance is optional and effective as of March 12, 2020, but only available through December 31, 2024. During the first quarter of 2023, we adopted the guidance by executing amendments to our affected contracts that referenced LIBOR. The adoption did not have a material impact on our condensed consolidated financial statements or related disclosures.
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, retailers or e-commerce outlets. 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 all different brands of a particular product, or its dosage forms for all species, as a product line. We have approximately 300 comprehensive product lines, including products for both companion animals and livestock within each of our major product categories.
Our major product categories are:
parasiticides: products that prevent or eliminate external and internal parasites such as fleas, ticks and worms;
vaccines: biological preparations that help prevent diseases of the respiratory, gastrointestinal and reproductive tracts or induce a specific immune response;
other pharmaceutical products: pain and sedation, antiemetic, reproductive, and oncology products;
dermatology products: products that relieve itch associated with allergic conditions and atopic dermatitis;
anti-infectives: products that prevent, kill or slow the growth of bacteria, fungi or protozoa;
animal health diagnostics: testing and analysis of blood, urine and other animal samples and related products and services, including point-of-care diagnostic products, instruments and reagents, rapid immunoassay tests, reference laboratory kits and services and blood glucose monitors; and
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medicated feed additives: products added to animal feed that provide medicines to livestock.
Our remaining revenue is derived from other non-pharmaceutical product categories, such as nutritionals, as well as products and services in biodevices, genetic tests and precision animal health.
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, deepening the human-animal bond, receiving increased medical treatment and benefiting from advances in animal health medicine, vaccines and diagnostics.
Our livestock products primarily help prevent or treat diseases and conditions to allow veterinarians and producers to care for their animals and 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 demand for improved nutrition, particularly through increased consumption of animal protein. Second, population growth leads to greater natural resource constraints driving a need for enhanced productivity. Finally, as standards of living improve and the global food chain faces increased scrutiny, there is more focus on food quality, safety and reliability of supply.
The following tables present our revenue disaggregated by geographic area, species and major product category:
Revenue by geographic area
Three Months Ended
March 31,
(MILLIONS OF DOLLARS)20232022
United States$1,005 $1,020 
Australia82 65 
Brazil84 77 
Canada50 49 
Chile39 41 
China102 103 
France34 32 
Germany45 43 
Italy26 30 
Japan39 59 
Mexico39 35 
Spain33 33 
United Kingdom68 64 
Other developed markets122 115 
Other emerging markets215 202 
1,983 1,968 
Contract manufacturing & human health17 18 
Total Revenue$2,000 $1,986 

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Revenue by major species
Three Months Ended
March 31,
(MILLIONS OF DOLLARS)20232022
U.S.
Companion animal$721 $774 
Livestock284 246 
1,005 1,020 
International
Companion animal504 489 
Livestock474 459 
978 948 
Total
Companion animal1,225 1,263 
Livestock758 705 
Contract manufacturing & human health17 18 
Total Revenue$2,000 $1,986 
Revenue by species
Three Months Ended
March 31,
(MILLIONS OF DOLLARS)20232022
Companion Animal:
Dogs and Cats$1,153 $1,199 
Horses72 64 
1,225 1,263 
Livestock:
Cattle399 364 
Swine142 154 
Poultry139 124 
Fish49 44 
Sheep and other29 19 
758 705 
Contract manufacturing & human health17 18 
Total Revenue$2,000 $1,986 
Revenue by major product category
Three Months Ended
March 31,
(MILLIONS OF DOLLARS)20232022
Parasiticides$432 $459 
Vaccines429 405 
Other pharmaceuticals294 254 
Dermatology292 311 
Anti-infectives288 285 
Animal health diagnostics93 98 
Medicated feed additives87 98 
Other non-pharmaceuticals68 58 
1,983 1,968 
Contract manufacturing & human health17 18 
Total Revenue$2,000 $1,986 
B. Revenue from Contracts with Customers
Contract liabilities reflected within Other current liabilities as of December 31, 2022 and 2021, and subsequently recognized as revenue during the first three months of 2023 and 2022 were $1 million and $2 million, respectively. Contract liabilities as of March 31, 2023 and December 31, 2022 were $14 million.
Estimated future revenue expected to be generated from long-term contracts with unsatisfied performance obligations as of March 31, 2023 is not material.

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5. Acquisitions
In 2022, we completed the acquisition of Basepaws, a privately held petcare genetics company based in the U.S., which provides pet owners with genetic tests, analytics and early health risk assessments that can help manage the health, wellness and quality of care for their pets. We also completed the acquisition of NewMetrica, a privately held company based in Scotland, that provides scientifically-developed instruments to measure quality of life in companion animals. These transactions did not have a material impact on our condensed consolidated financial statements.
During 2021, we entered into an agreement to acquire Jurox, a privately held animal health company based in Australia, which develops, manufactures and markets a wide range of veterinary medicines for treating companion animals and livestock. On September 30, 2022, after satisfying all customary closing conditions, including clearance from the Australian Competition and Consumer Commission, we completed the acquisition of Jurox. We acquired 100% of the outstanding shares for an aggregate cash purchase price of $226 million, which was adjusted to $240 million for cash and working capital and other adjustments as of the closing date. Net cash consideration transferred to the seller was $215 million during 2022 and $5 million for the three months ended March 31, 2023. The transaction was accounted for as a business combination, with the assets acquired and liabilities assumed measured at their respective acquisition date fair values. The table below presents the preliminary fair values allocated to the assets and liabilities of Jurox as of the acquisition date:
(MILLIONS OF DOLLARS)Amounts
Cash and cash equivalents$20 
Accounts receivable8 
Inventories(a)
21 
Other current assets1 
Property, plant and equipment(b)
25 
Identifiable intangible assets(c)
135 
Other noncurrent assets1 
Accounts payable2 
Other current liabilities12 
Total net assets acquired197 
Goodwill(d)
43 
Total consideration$240 
(a)        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.
(b)    Property, plant and equipment is comprised of buildings, machinery and equipment, land, construction in progress and furniture and fixtures. 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.
(c)    Identifiable intangible assets consist of developed technology rights. The fair value of identifiable intangible assets was determined using the income approach, which includes a forecast of expected future cash flows. For additional information regarding identifiable intangible assets, see Note 11. Goodwill and Other Intangible Assets.
(d)        Goodwill represents the excess of consideration transferred over the fair values of the assets acquired and liabilities assumed. It is allocated to our International segment and is primarily attributable to 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.
All amounts recorded are subject to final valuation. Any adjustments to our preliminary purchase price allocation identified during the measurement period, which will not exceed one year from the acquisition date, will be accounted for prospectively.
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 business technology, shared services and corporate operations.

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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
March 31,
(MILLIONS OF DOLLARS)20232022
Restructuring charges and certain acquisition-related costs:
Integration costs(a)
$1 $2 
Restructuring charges(b):
Employee termination costs20  
Total Restructuring charges and certain acquisition-related costs
$21 $2 
(a)    Integration costs represent external, incremental costs directly related to integrating acquired businesses and primarily include expenditures for consulting and the integration of systems and processes, as well as product transfer costs.
(b)    The restructuring charges for the three months ended March 31, 2023 primarily consisted of employee termination costs related to organizational structure refinements.
(MILLIONS OF DOLLARS)
Accrual
Balance, December 31, 2022(a)
$15 
Provision20 
Utilization and other(b)
(3)
Balance, March 31, 2023(a)
$32 
(a)     At March 31, 2023 and December 31, 2022, included in Accrued expenses ($22 million and $5 million, respectively) and Other noncurrent liabilities ($10 million).
(b)     Includes adjustments for foreign currency translation.
7. Other (Income)/Deductions—Net
The components of Other (income)/deductions—net are as follows:
Three Months Ended
March 31,
(MILLIONS OF DOLLARS)20232022
Royalty-related income(a)
$(34)$(1)
Interest income(33)(2)
Foreign currency loss(b)
9 11 
Other, net5 (1)
Other (income)/deductions—net$(53)$7 
(a)     For the three months ended March 31, 2023, predominantly associated with a settlement for underpayment of royalties in prior periods.
(b)     Primarily driven by costs related to hedging and exposures to certain emerging and developed market currencies.
8. Income Taxes
A. Taxes on Income
Our effective tax rate was 20.9% for the three months ended March 31, 2023, compared with 18.3% for the three months ended March 31, 2022. The higher effective tax rate for the three months ended March 31, 2023, was attributable to lower net discrete tax benefits for the three months ended March 31, 2023 and a less favorable jurisdictional mix of earnings (which includes the impact of the location of earnings and repatriation costs), partially offset by a higher benefit in the U.S. related to foreign-derived intangible income for the three months ended March 31, 2023. Jurisdictional mix of earnings can vary depending on repatriation decisions, operating fluctuations in the normal course of business and the impact of non-deductible items and non-taxable items.
In 2022, the company implemented an initiative to maximize its cash position in the U.S. This initiative resulted in a tax benefit in the U.S. in connection with a prepayment from a related foreign entity in Belgium which qualifies as foreign-derived intangible income; however, this income tax benefit was deferred for 2022. A portion of this benefit was recognized during the three months ended March 31, 2023.
B. Deferred Taxes
As of March 31, 2023, the total net deferred income tax asset of $30 million is included in Noncurrent deferred tax assets ($161 million) and Noncurrent deferred tax liabilities ($131 million).
As of December 31, 2022, the total net deferred income tax asset of $31 million is included in Noncurrent deferred tax assets ($173 million) and Noncurrent deferred tax liabilities ($142 million).

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C. Tax Contingencies
As of March 31, 2023, the net tax liabilities associated with uncertain tax positions of $196 million (exclusive of interest and penalties related to uncertain tax positions of $21 million) are included in Noncurrent deferred tax assets and Other noncurrent assets ($1 million) and Other taxes payable ($195 million).
As of December 31, 2022, the net tax liabilities associated with uncertain tax positions of $194 million (exclusive of interest and penalties related to uncertain tax positions of $19 million) are included in Noncurrent deferred tax assets and Other noncurrent assets ($2 million) and Other taxes payable ($192 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.
9. Financial Instruments
A. Debt
Credit Facilities
In December 2022, we entered into an amended and restated revolving credit agreement with a syndicate of banks providing for a multi-year $1.0 billion senior unsecured revolving credit facility (the credit facility), which expires in December 2027. The credit facility replaced the company's existing revolving credit facility dated as of December 2016. Subject to certain conditions, we have the right to increase the credit facility to up to $1.5 billion. The credit facility contains a financial covenant requiring us to not exceed a maximum total leverage ratio (the ratio of consolidated net debt as of the end of the period to consolidated Earnings Before Interest, Income Taxes, Depreciation and Amortization (EBITDA) for such period) of 3.50:1. Upon entering into a material acquisition, the maximum total leverage ratio increases to 4.00:1, and extends until the fourth full consecutive fiscal quarter ended immediately following the consummation of a material acquisition. In addition, the credit facility contains other customary covenants.
We were in compliance with all financial covenants as of March 31, 2023 and December 31, 2022. There were no amounts drawn under the credit facility as of March 31, 2023 or December 31, 2022.
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 March 31, 2023, we had access to $51 million of lines of credit which expire at various times and are generally renewed annually. There were $3 million of borrowings outstanding related to these facilities as of March 31, 2023 and $2 million of borrowings outstanding related to these facilities as of December 31, 2022.
Commercial Paper Program
In February 2013, we entered into a commercial paper program with a capacity of up to $1.0 billion. As of March 31, 2023 and December 31, 2022, there was no commercial paper outstanding under this program.
Senior Notes and Other Long-Term Debt
On November 8, 2022, we issued $1.35 billion aggregate principal amount of our senior notes (2022 senior notes), with an original issue discount of $2 million. These notes are comprised of $600 million aggregate principal amount of 5.400% senior notes due 2025 and $750 million aggregate principal amount of 5.600% senior notes due 2032. On February 1, 2023, the net proceeds were used to redeem in full, upon maturity, the $1.35 billion aggregate principal amount of our 3.250% 2013 senior notes due 2023.
Our senior notes are governed by an indenture and supplemental indentures (collectively, the indenture) between us and Deutsche Bank Trust Company Americas, as trustee. The indenture contains certain covenants, including limitations on our and certain of our subsidiaries' ability to incur liens or engage in sale-leaseback transactions. The indenture also contains restrictions on our ability to consolidate, merge or sell substantially all of our assets. In addition, the indenture contains other customary terms, including certain events of default, upon the occurrence of which the senior notes may be declared immediately due and payable.
Pursuant to the indenture, we are able to redeem the senior notes of any series, in whole or in part, at any time by paying a “make whole” premium, plus accrued and unpaid interest to, but excluding, the date of redemption. Upon the occurrence of a change of control of us and a downgrade of the senior notes below an investment grade rating by each of Moody's Investors Service, Inc. and Standard & Poor's Ratings Services, we are, in certain circumstances, required to make an offer to repurchase all of the outstanding senior notes at a price equal to 101% of the aggregate principal amount of the senior notes together with accrued and unpaid interest to, but excluding, the date of repurchase.

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The components of our long-term debt are as follows:
March 31,December 31,
(MILLIONS OF DOLLARS)20232022
3.250% 2013 senior notes due 2023
$ $1,350 
4.500% 2015 senior notes due 2025
750 750 
5.400% 2022 senior notes due 2025
600 600 
3.000% 2017 senior notes due 2027
750 750 
3.900% 2018 senior notes due 2028
500 500 
2.000% 2020 senior notes due 2030
750 750 
5.600% 2022 senior notes due 2032
750 750 
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 
3.000% 2020 senior notes due 2050
500 500 
6,650 8,000 
Unamortized debt discount / debt issuance costs(65)(66)
Less current portion of long-term debt 1,350 
Cumulative fair value adjustment for interest rate swap contracts(26)(32)
Long-term debt, net of discount and issuance costs$6,559 $6,552 
The fair value of our long-term debt was $6,273 million and $6,108 million as of March 31, 2023 and December 31, 2022, respectively, and has been determined using a third-party matrix-pricing model that uses significant inputs derived from, or corroborated by, observable market data and Zoetis’ credit rating (Level 2 inputs).
The principal amount of long-term debt outstanding, as of March 31, 2023, matures in the following years:
After
(MILLIONS OF DOLLARS)202320242025202620272027Total
Maturities$ $ $1,350 $ $750 $4,550 $6,650 
Interest Expense
Interest expense, net of capitalized interest, was $63 million and $53 million for the three months ended March 31, 2023 and 2022, respectively. Capitalized interest expense was $6 million and $5 million for the three months ended March 31, 2023 and 2022, respectively.
B. 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 Sheets. The derivative financial instruments primarily offset exposures in the British pound, Canadian dollar, Chinese yuan, euro, Japanese yen and Norwegian krone. 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 currency forward-exchange contracts not designated as hedging instruments, we recognize the gains and losses 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 currency forward-exchange contracts mature within 60 days and all mature within three years.
For foreign exchange derivative instruments that are designated as hedging instruments 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. These instruments include cross-currency interest rate swaps and foreign currency forward-exchange contracts. 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 Statements of Cash Flows. These contracts have varying maturities of up to three 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.

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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 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.
During the period from 2019 to 2022, we entered into forward-starting interest rate swaps with an aggregate notional value of $650 million. We designated these swaps as cash flow hedges against interest rate exposure related principally to the issuance of fixed-rate debt to refinance our 3.250% 2013 senior notes due 2023. Upon issuance of our 2022 senior notes, we terminated these contracts and received $114 million in cash from the counterparties for settlement, included in Net cash provided by operating activities in the Consolidated Statements of Cash Flows. The settlement amount, which represented the fair value of the contracts at the time of termination, was recorded in Accumulated other comprehensive loss, and will be amortized into income (offset to Interest expense, net of capitalized interest) over the life of the 5.600% 2022 senior notes due 2032.
As of March 31, 2023, we had outstanding a forward-starting interest rate swap, having an effective date and mandatory termination date in March 2026, to hedge against interest rate exposure related principally to the anticipated future issuance of fixed-rate debt to be used primarily to refinance our 4.500% 2015 senior notes due 2025.
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 the Secured Overnight Financing Rate (SOFR). These derivative instruments effectively convert a portion of the company’s long-term debt from fixed-rate to floating-rate debt based on the daily SOFR rate plus a spread. Gains or losses on the fixed-to-floating interest rate swaps due to changes in SOFR 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 March 31, 2023, we had outstanding fixed-to-floating interest rate swaps that correspond to a portion of the 3.900% 2018 senior notes due 2028 and the 2.000% senior notes due 2030. The amounts recorded during the three months ended March 31, 2023 for changes in the fair value of these hedges are not material to our condensed consolidated financial statements.
During the first quarter of 2023, we executed amendments to certain of our interest rate swap contracts, which changed the floating rate index from LIBOR to SOFR. These amendments did not have a material impact on our condensed consolidated financial statements.
Outstanding Positions
The aggregate notional amount of derivative instruments are as follows:
Notional
March 31,December 31,
(MILLIONS)20232022
Derivatives not Designated as Hedging Instruments