Zoetis Inc. (NYSE: ZTS), a former business unit of Pfizer Inc.,
today reported its financial results for the second quarter of
2013. The company reported revenue of $1.11 billion for the second
quarter, an increase of 2% from the second quarter of 2012. Revenue
reflected an operational2 increase of 4%, with foreign currency
having a negative impact of 2 percentage points.
Net income for the second quarter of 2013 was $128 million, or
$0.26 per diluted share, a decrease of 26%, compared to the second
quarter of 2012. Adjusted net income1 for the second quarter of
2013 was $178 million, or $0.36 per diluted share, an increase of
1% and 3%, respectively, compared to the second quarter of 2012.
Adjusted net income1 for the second quarter of 2013 excludes the
net impact of $50 million, or $0.10 per diluted share, for purchase
accounting adjustments, acquisition-related costs and certain
significant items.
EXECUTIVE COMMENTARY
“In the second quarter, we achieved positive financial results
while we completed our separation from Pfizer and continued
delivering product innovations such as the approval of APOQUEL in
the U.S.,” said Zoetis Chief Executive Officer Juan Ramón Alaix.
“Our global scale, local presence and diverse portfolio again
helped us deliver growth in sales and adjusted earnings, despite
ongoing weather-related challenges and economic issues.”
“The company performance - both for the quarter and year-to-date
- further illustrates the commitment and talent of our people and
the strength of our business model,” said Alaix. “As we look ahead,
we remain confident in our ability to fully stand up our new
company, while meeting our customers' needs for innovative animal
health medicines and vaccines.”
“This quarter, we have made good progress on building out our
infrastructure. I am pleased with our financial results
year-to-date, and we are reaffirming our guidance for full year
2013,” said Rick Passov, Executive Vice President and Chief
Financial Officer of Zoetis.
QUARTERLY HIGHLIGHTS
Zoetis organizes and manages its business across four regional
operating segments: the United States (U.S.); Europe/Africa/Middle
East (EuAfME); Canada/Latin America (CLAR); and Asia/Pacific
(APAC). Within each of these regional segments, the company
delivers a diverse portfolio of products for livestock and
companion animals tailored to local trends and customer needs.
In the second quarter of 2013:
- Revenue in the U.S. was $437 million,
an increase of 4% over the second quarter of 2012. Growth in sales
of livestock products was driven by cattle, swine and poultry.
Growth in sales of companion animal products was driven by
increases in small animal products, partially offset by continued
contraction in the equine market.
- Revenue in EuAfME was $278 million, an
increase of 1% operationally over the second quarter of 2012. Sales
of companion animal products benefited from increased sales
associated with third-party manufacturing agreements; excluding
these sales, companion animal product sales were relatively flat.
Sales of livestock products declined, due primarily to lower sales
of cattle products resulting from cold weather conditions and
overall economic weakness in Europe, partially offset by growth in
swine and poultry products.
- Revenue in CLAR was $213 million, an
increase of 4% operationally over the second quarter of 2012. Sales
of companion animal products increased in the quarter, largely due
to increased demand and marketing programs, primarily in Brazil and
Mexico, and were slightly offset by lower sales in Canada. Growth
in sales of livestock products was driven primarily by poultry and
swine, while sales of cattle products declined.
- Revenue in APAC was $186 million, an
increase of 7% operationally over the second quarter of 2012. Sales
of companion animal products were favorably impacted by the
continued introduction of new products. Growth of livestock product
sales was driven by swine products and the continued launch of new
vaccines, while drought conditions continued to negatively impact
the sale of cattle products in Australia.
Zoetis continues to drive demand and strengthen its diverse
portfolio of products through brand lifecycle management, strong
customer relationships and access to new markets and technologies.
With an expansive and diverse product portfolio, the company
focuses on improving the performance and delivery of current
product lines; expanding product indications across species; and
pursuing approvals across new geographies. Some recent highlights
include:
- APOQUEL®, First approval of novel JAK-1 inhibitor -- The
U.S. FDA approved APOQUEL (oclacitinib tablet) on May 16th for the
control of pruritus associated with allergic dermatitis and the
control of atopic dermatitis in dogs at least 12 months of age.
Pruritus, or itching, is the most common sign of allergies in dogs.
Developed by Zoetis, APOQUEL is the first Janus kinase (JAK)
inhibitor approved for veterinary use that targets the itch and
inflammation pathway and marks a significant improvement in the
standard of care veterinarians can offer. APOQUEL provides
fast-acting relief from itching and improves inflammation for the
estimated 8.2 million dogs in the U.S. that suffer from short- and
long-term allergic skin conditions. Meanwhile, in Europe, the CVMP
(Committee for Veterinary Medicinal Products) has adopted a
positive opinion recommending the granting of a market
authorization for APOQUEL, an important step in the approval
process with the EU Commission; the company also continues pursuing
approvals of APOQUEL in additional markets.
- Progress with
China Joint Venture -- Zoetis's joint venture in Jilin,
China, has received approval for RUI LAN AN™ - a new high standard
of innovation against highly pathogenic porcine reproductive and
respiratory syndrome (HP PRRS). This vaccine is a key milestone for
Zoetis's business in China. The vaccine combines the global
expertise of Zoetis and a strong local vaccine development program
to address vaccine needs of swine producers in China, the world's
leading pork-producing nation. The joint venture was established in
2011 to develop, manufacture and distribute animal health vaccines
in China.
- Managing Brand
Lifecycles -- Zoetis continues strengthening its diverse
portfolio of medicines and vaccines with new approvals in
additional markets and new formulations for existing brands. For
example, FOSTERA® PCV is a vaccine for swine and achieved its
latest approvals in Brazil and Japan this quarter; it helps limit
the very costly consequences of PCV-associated disease that could
compromise herd health and performance. Meanwhile in poultry, the
POULVAC® IB QX vaccine, which was first approved in France in 2010,
was recently granted registration in the German market; it has also
been registered in Romania, Bulgaria and South Africa. In the case
of new formulations, DRAXXIN® is an anti-infective for livestock
that was first approved in Europe in 2003, and this quarter the
DRAXXIN® 25 (tulathromycin) Injectable Solution was approved in the
U.S. at a new, lower concentration (of tulathromycin), which is
more suitable for swine. BOVI-SHIELD GOLD ONE SHOT™ was also
approved in the U.S. in July. It is a vaccine for cattle to help
prevent certain respiratory diseases and gives the company a
competitive combination product in this area.
FINANCIAL GUIDANCE AND
COMMENTARY
Zoetis's guidance for full-year 2013 reflects the company's
confidence in the diversity of its portfolio, the strength of its
business model, and its view of the evolving market conditions for
animal health products this year.
Zoetis reaffirmed its financial guidance for full-year 2013,
including revenue of between $4.425 billion to $4.525 billion. The
company also expects to achieve reported diluted EPS for the full
year of between $1.00 to $1.06 per share, which includes the impact
of nonrecurring costs of $200 million to $240 million, primarily
associated with becoming a standalone public company. Adjusted
diluted EPS1 for the full year is expected to be between $1.36 to
$1.42 per share, excluding purchase accounting adjustments,
acquisition-related costs and certain significant items. Additional
guidance on other items such as tax rate and expenses are included
in the financial tables and will be discussed on the company's
conference call.
WEBCAST & CONFERENCE CALL
DETAILS
Zoetis will host a webcast and conference call at 8:30 a.m.
(EDT) today, during which company executives will review second
quarter financial results, discuss 2013 financial guidance, and
respond to questions from financial analysts. Investors and the
public may access the live webcast by visiting the Zoetis website
at http://www.zoetis.com/events-and-presentations. A replay of the
webcast will be archived and made available on Aug. 6, 2013.
About Zoetis
Zoetis (zô-EH-tis) is the leading animal health company,
dedicated to supporting its customers and their businesses.
Building on a 60-year history as the animal health business of
Pfizer, Zoetis discovers, develops, manufactures and markets
veterinary vaccines and medicines, with a focus on both farm and
companion animals. In 2012, the company generated annual revenues
of $4.3 billion. With approximately 9,300 employees worldwide at
the beginning of 2013, Zoetis has a local presence in approximately
70 countries, including 29 manufacturing facilities in 11
countries. Its products serve veterinarians, livestock producers
and people who raise and care for farm and companion animals in 120
countries. For more information on the company, visit
www.zoetis.com.
1 Adjusted net income and adjusted diluted earnings per share
(non-GAAP financial measures) are defined as reported net income
attributable to Zoetis and reported diluted earnings per share,
excluding purchase accounting adjustments, acquisition-related
costs and certain significant items.
2 Operational revenue growth is defined as revenue growth
excluding the impact of foreign exchange.
DISCLOSURE NOTICES
Forward-Looking Statements: This
press release contains forward-looking statements, which reflect
Zoetis's current views with respect to business plans or prospects,
future operating or financial performance, and other future events.
These statements are not guarantees of future performance.
Forward-looking statements are subject to risks and uncertainties.
If one or more of these risks or uncertainties materialize, or if
management's underlying assumptions prove to be incorrect, actual
results may differ materially from those contemplated by a
forward-looking statement. Forward-looking statements speak only as
of the date on which they are made. Zoetis expressly disclaims any
obligation to update or revise any forward-looking statement,
whether as a result of new information, future events or otherwise.
A further list and description of risks, uncertainties and other
matters can be found in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2012, including in the sections
thereof captioned “Forward-Looking Information and Factors That May
Affect Future Results” and “Item 1A. Risk Factors,” in our
Quarterly Reports on Form 10-Q and in our Current Reports on Form
8-K. These filings and subsequent filings are available online at
www.sec.gov, www.zoetis.com, or on request from Zoetis.
Use of Non-GAAP Financial Measures:
We use non-GAAP financial measures, such as adjusted net income and
adjusted diluted earnings per share, to assess and analyze our
operational results and trends and to make financial and
operational decisions. We believe these non-GAAP financial measures
are also useful to investors because they provide greater
transparency regarding our operating performance. The non-GAAP
financial measures included in this press release should not be
considered alternatives to measurements required by GAAP, such as
net income, operating income, and earnings per share, and should
not be considered measures of liquidity. These non-GAAP financial
measures are unlikely to be comparable with non-GAAP information
provided by other companies. Reconciliation of non-GAAP financial
measures and GAAP financial measures are included in the tables
accompanying this press release and are posted on our website at
www.zoetis.com.
Internet Posting of Information: We
routinely post information that may be important to investors in
the 'Investors' section of our web site at www.zoetis.com, on our Facebook page at
http://www.facebook.com/zoetis and on Twitter @zoetis. We encourage
investors and potential investors to consult our website regularly
and to follow us on Facebook and Twitter for important information
about us.
ZOETIS INC.
CONDENSED CONSOLIDATED AND COMBINED
STATEMENTS OF INCOME(a)
(UNAUDITED)
(millions of dollars, except per share
data)
Second Quarter
% Incr./
Six Months
% Incr./
2013 2012 (Decr.) 2013 2012
(Decr.) Revenue $ 1,114 $ 1,094 2
$
2,204
$
2,141 3 Costs and expenses: Cost of sales(b) 416 378 10 818 771 6
Selling, general and administrative expenses(b) 399 344 16 756 682
11 Research and development expenses(b) 95 92 3 185 194 (5 )
Amortization of intangible assets(c) 15 16 (6 ) 30 32 (6 )
Restructuring charges and certain acquisition-related costs (20 )
24 * (13 ) 49 * Interest expense 32 8 * 54 16 * Other
(income)/deductions–net (10 ) (20 ) (50 ) (5 ) (26 ) (81 ) Income
before provision for taxes on income 187 252 (26 ) 379 423 (10 )
Provision for taxes on income 59 79 (25 ) 111
138 (20 ) Net income before allocation to noncontrolling
interests 128 173 (26 ) 268 285 (6 ) Less: Net income attributable
to noncontrolling interests — — — — 1
(100 ) Net income attributable to Zoetis $ 128 $ 173
(26 )
$
268
$
284 (6 ) Earnings per share—basic $ 0.26 $
0.35 (26 )
$
0.54
$
0.57 (5 ) Earnings per share—diluted $ 0.26 $
0.35 (26 )
$
0.54
$
0.57 (5 ) Weighted-average shares used to calculate
earnings per share (in thousands) Basic 500,000 500,000
500,000 500,000 Diluted 500,217 500,000
500,164 500,000
* Calculation not meaningful
(a) The condensed consolidated and combined statements of
income present the three and six months ended June 30, 2013 and
July 1, 2012. Subsidiaries operating outside the United States are
included for the three and six months ended May 26, 2013 and May
27, 2012. (b) Exclusive of amortization of intangible
assets, except as discussed in footnote (c) below. (c)
Amortization expense related to
finite-lived acquired intangible assets that contribute to our
ability to sell, manufacture, research, market and distribute
products, compounds and intellectual property is included in
Amortization of intangible assets as these intangible assets
benefit multiple business functions. Amortization expense related
to 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.
Certain amounts and percentages may reflect rounding
adjustments.
ZOETIS INC.
RECONCILIATION OF GAAP REPORTED TO
NON-GAAP ADJUSTED INFORMATION
CERTAIN LINE ITEMS
(UNAUDITED)
(millions of dollars, except per share
data)
Quarter ended June 30, 2013
GAAPReported(1)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(2)
CertainSignificantItems(3)
Non-GAAPAdjusted(a)
Revenue
$ 1,114 $ — $ — $ — $ 1,114 Cost of sales(b)
416 (1 ) (2 ) (13 ) 400 Gross profit
698 1 2 13 714
Selling, general and administrative expenses(b)
399 — — (60
) 339 Research and development expenses(b)
95 — — (4 ) 91
Amortization of intangible assets(c)
15 (12 ) — — 3
Restructuring charges and certain acquisition-related costs
(20 ) — (7 ) 27 — Interest expense
32 — — — 32
Other (income)/deductions–net
(10 ) — — 7 (3 ) Income
before provision for taxes on income
187 13 9 43 252
Provision for taxes on income
59 4 3 8 74 Net income
attributable to Zoetis
128 9 6 35 178 Earnings per common
share attributable to Zoetis–diluted(d)
0.26 0.02 0.01 0.07
0.36 Six Months ended June 30, 2013
GAAPReported(1)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(2)
CertainSignificantItems(3)
Non-GAAPAdjusted(a)
Revenue
$ 2,204 $ — $ — $ — $ 2,204 Cost of sales(b)
818 (2 ) (2 ) (16 ) 798 Gross profit
1,386 2 2 16
1,406 Selling, general and administrative expenses(b)
756 —
— (95 ) 661 Research and development expenses(b)
185 — — (4
) 181 Amortization of intangible assets(c)
30 (23 ) — — 7
Restructuring charges and certain acquisition-related costs
(13 ) — (13 ) 26 — Interest expense
54 — — —
54 Other (income)/deductions–net
(5 ) — — 4 (1 )
Income before provision for taxes on income
379 25 15 85 504
Provision for taxes on income
111 8 5 23 147 Net income
attributable to Zoetis
268 17 10 62 357 Earnings per common
share attributable to Zoetis–diluted(d)
0.54 0.03 0.02 0.12
0.71 (a) Non-GAAP adjusted net income and its components and
non-GAAP adjusted diluted EPS are not, and should not be viewed as,
substitutes for U.S. GAAP net income and its components and diluted
EPS. Despite the importance of these measures to management in goal
setting and performance measurement, non-GAAP adjusted net income
and its components and non-GAAP adjusted diluted EPS are non-GAAP
financial measures that have no standardized meaning prescribed by
U.S. GAAP and, therefore, have limits in their usefulness to
investors. Because of the non-standardized definitions, non-GAAP
adjusted net income and its components and non-GAAP adjusted
diluted EPS (unlike U.S. GAAP net income and its components and
diluted EPS) may not be comparable to the calculation of similar
measures of other companies. Non-GAAP adjusted net income and its
components and non-GAAP adjusted diluted EPS are presented solely
to permit investors to more fully understand how management
assesses performance. (b) Exclusive of amortization of
intangible assets, except as discussed in footnote (c) below.
(c)
Amortization expense related to
finite-lived acquired intangible assets that contribute to our
ability to sell, manufacture, research, market and distribute
products, compounds and intellectual property is included in
Amortization of intangible assets as these intangible assets
benefit multiple business functions. Amortization expense related
to 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.
(d) EPS amounts may not add due to rounding. See
Notes to Reconciliation of GAAP Reported to Non-GAAP Adjusted
Information for notes (1), (2) and (3). Certain amounts may
reflect rounding adjustments.
ZOETIS INC.
RECONCILIATION OF GAAP REPORTED TO
NON-GAAP ADJUSTED INFORMATION
CERTAIN LINE ITEMS
(UNAUDITED)
(millions of dollars, except per share
data)
Quarter ended July 1, 2012
GAAPReported(1)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(2)
CertainSignificantItems(3)
Non-GAAPAdjusted(a)
Revenues
$ 1,094 $ — $ — $ — $ 1,094 Cost of sales(b)
378 (1 ) (2 ) 7 382 Gross profit
716 1 2 (7 ) 712
Selling, general and administrative expenses(b)
344 1 — 6
351 Research and development expenses(b)
92 — — (1 ) 91
Amortization of intangible assets(c)
16 (13 ) — — 3
Restructuring charges and certain acquisition-related costs
24 — (13 ) (11 ) — Interest expense
8 — — — 8 Other
(income)/deductions–net
(20 ) — — 13 (7 ) Income
before provision for taxes on income
252 13 15 (14 ) 266
Provision for taxes on income
79 5 5 1 90 Net income
attributable to Zoetis
173 8 10 (15 ) 176 Earnings per
common share attributable to Zoetis–diluted(d)
0.35 0.02
0.02 (0.03 ) 0.35 Six months ended July 1, 2012
GAAPReported(1)
PurchaseAccountingAdjustments
Acquisition-RelatedCosts(2)
CertainSignificantItems(3)
Non-GAAPAdjusted(a)
Revenues
$ 2,141 $ — $ — $ — $ 2,141 Cost of sales(b)
771 (2 ) (5 ) 6 770 Gross profit
1,370 2 5 (6 ) 1,371
Selling, general and administrative expenses(b)
682 1 — (1 )
682 Research and development expenses(b)
194 — — (10 ) 184
Amortization of intangible assets(c)
32 (25 ) — — 7
Restructuring charges and certain acquisition-related costs
49 — (24 ) (25 ) — Interest expense
16 — — — 16 Other
(income)/deductions–net
(26 ) — — 13 (13 ) Income
before provision for taxes on income
423 26 29 17 495
Provision for taxes on income
138 9 10 9 166 Income from
continuing operations
285 17 19 8 329 Net income
attributable to noncontrolling interests
1 — — — 1 Net
income attributable to Zoetis
284 17 19 8 328 Earnings per
common share attributable to Zoetis–diluted(d)
0.57 0.03
0.04 0.02 0.66 (a) Non-GAAP adjusted net income and its
components and non-GAAP adjusted diluted EPS are not, and should
not be viewed as, substitutes for U.S. GAAP net income and its
components and diluted EPS. Despite the importance of these
measures to management in goal setting and performance measurement,
non-GAAP adjusted net income and its components and non-GAAP
adjusted diluted EPS are non-GAAP financial measures that have no
standardized meaning prescribed by U.S. GAAP and, therefore, have
limits in their usefulness to investors. Because of the
non-standardized definitions, non-GAAP adjusted net income and its
components and non-GAAP adjusted diluted EPS (unlike U.S. GAAP net
income and its components and diluted EPS) may not be comparable to
the calculation of similar measures of other companies. Non-GAAP
adjusted net income and its components and non-GAAP adjusted
diluted EPS are presented solely to permit investors to more fully
understand how management assesses performance. (b)
Exclusive of amortization of intangible assets, except as discussed
in footnote (c) below. (c)
Amortization expense related to
finite-lived acquired intangible assets that contribute to our
ability to sell, manufacture, research, market and distribute
products, compounds and intellectual property is included in
Amortization of intangible assets as these intangible assets
benefit multiple business functions. Amortization expense related
to 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.
(d) EPS amounts may not add due to rounding. See
Notes to Reconciliation of GAAP Reported to Non-GAAP Adjusted
Information for notes (1), (2) and (3). Certain amounts may
reflect rounding adjustments.
ZOETIS INC.NOTES TO RECONCILIATION OF GAAP
REPORTED TO NON-GAAP ADJUSTED INFORMATIONCERTAIN LINE
ITEMS(UNAUDITED)(millions of dollars)
(1) The condensed consolidated and combined statements of
income present the three and six months ended June 30, 2013 and
July 1, 2012. Subsidiaries operating outside the United States are
included for the three and six months ended May 26, 2013 and May
27, 2012. (2) Acquisition-related costs include the
following: Second Quarter
Six Months 2013 2012 2013 2012
Integration costs(a) $ 10 $ 12 $ 14 $ 21 Restructuring charges(b)
(1 ) 1 1 3 Additional depreciation—asset restructuring(c) —
2 — 5 Total acquisition-related costs—pre-tax 9 15 15
29 Income taxes(d) 3 5 5 10 Total
acquisition-related costs—net of tax $ 6 $ 10 $ 10
$ 19 (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. Included in Cost of sales
($2 million) and Restructuring charges and certain
acquisition-related costs ($8 million) for the three months ended
June 30, 2013. Included in Cost of sales ($2 million) and
Restructuring charges and certain acquisition-related costs ($12
million) for the six months ended June 30, 2013. Included in
Restructuring charges and certain acquisition-related costs for the
three and six months ended July 1, 2012.
(b)
Restructuring charges are associated with
employees, assets and activities that will not continue with the
company. All of these costs are included in Restructuring charges
and certain acquisition-related costs.
(c)
Represents the impact of changes in the
estimated lives of assets involved in restructuring actions.
Included in Cost of sales for the three and six months ended July
1, 2012.
(d)
Included in Provision for taxes on
income.
(3) Certain significant items include the following:
Second Quarter Six Months
2013 2012 2013 2012 Restructuring
charges(a) $ (27 ) $ 11
$
(26 )
$
25 Implementation costs and additional depreciation—asset
restructuring(b) 1 1 3 11 Certain asset impairment charges(c) — — 1
— Net gain on sale of assets(d) (6 ) — (6 ) — Stand-up costs(e) 77
— 111 — Other(f) (2 ) (26 ) 2 (19 ) Total
certain significant items—pre-tax 43 (14 ) 85 17 Income taxes(g) 8
1 23 9 Total certain
significant items—net of tax $ 35 $ (15 )
$
62
$
8 (a)
Represents restructuring charges incurred
for our cost-reduction/productivity initiatives. For the three and
six months ended June 30, 2013, includes a decrease in employee
termination expenses relating to the reversal of a previously
established termination reserve related to our operations in
Europe. Included in Restructuring charges and certain
acquisition-related costs.
(b)
Related to our cost-reduction/productivity
initiatives. Included in Cost of sales for the three months ended
June 30, 2013. Included in Cost of sales ($1 million) and Selling,
general and administrative expenses ($2 million) for the six months
ended June 30, 2013. Included in Selling, general and
administrative expenses for the three months ended July 1, 2012.
Included in Research and development expenses ($10 million) and
Selling, general and administrative expenses ($1 million) for the
six months ended July 1, 2012.
(c)
Included in Other (income)/deductions—net
for the six months ended June 30, 2013.
(d)
Included in Other (income)/deductions—net
for the three and six months ended June 30, 2013.
(e)
Represents certain nonrecurring costs
related to becoming a standalone public company, such as new
branding (including changes to the manufacturing process for
required new packaging), the creation of standalone systems and
infrastructure, site separation, accelerated vesting and associated
cash payment related to certain Pfizer equity awards, and certain
legal registration and patent assignment costs. Included in Cost of
sales ($13 million), Selling, general and administrative expenses
($60 million) and Research and development expenses ($4 million)
for the three months ended June 30, 2013. Included in Cost of sales
($15 million), Selling, general and administrative expenses ($92
million) and Research and development expenses ($4 million) for the
six months ended June 30, 2013.
(f) For the three and six months ended June 30, 2012,
primarily relates to income related to a favorable legal settlement
for an intellectual property matter ($14 million) and income due to
a change in estimate related to transitional manufacturing purchase
agreements associated with divestitures ($5 million). (g)
Included in Provision for taxes on income.
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.
ZOETIS INC.
ADJUSTED SELECTED COSTS AND
EXPENSES(a)
(UNAUDITED)
(millions of dollars)
Second Quarter
% Change(Favorable)/Unfavorable
2013 2012 Total
Foreignexchange
Operational Adjusted cost of sales(a) $ 400 $ 382 5 % (4 )% 9 % As
a percent of revenue 35.9 % 34.9 % NA NA NA Adjusted SG&A
expenses(a) 339 351 (3 )% (1 )% (2 )% Adjusted R&D expenses(a)
91 91 — % 1 % (1 )% Total $ 830 $ 824 1
% (2 )% 3 % Six Months
% Change(Favorable)/Unfavorable
2013 2012 Total
Foreignexchange
Operational Adjusted Cost of Sales(1)
$ 798
$ 770
4 % (1 )% 5 % As a Percent of Revenue 36.2 % 36.0 % NA NA NA
Adjusted SG&A Expenses(1) 661 682 (3 )% (1 )% (2 )% Adjusted
R&D Expenses(1) 181 184 (2 )% — % (2 )% Total
$1,640
$1,636
—
%
(1 )% 1 % (a) Adjusted cost of sales, adjusted selling,
general, and administrative (SG&A) expenses and adjusted
research and development (R&D) expenses are defined as the
corresponding reported U.S. generally accepted accounting
principles (GAAP) income statement line items excluding purchase
accounting adjustments, acquisition-related costs, and certain
significant items. Reconciliations of certain reported to adjusted
information for the quarter and six months ended June 30 2013 and
July 1, 2012 are provided in the materials accompanying this
report. These adjusted income statement line item measures are not,
and should not be viewed as, substitutes for the corresponding U.S.
GAAP line items.
ZOETIS INC.
2013 GUIDANCE
Selected Line Items Revenue $4,425 to $4,525 million
Adjusted cost of sales as a percentage of revenue(a) 35% to 36%
Adjusted SG&A expenses(a) $1,385 to $1,435 million Adjusted
R&D expenses(a) $385 to $415 million Adjusted interest
expense(a) Approximately $115 million Adjusted
other(income)/deductions(a) Approximately $20 million income
Effective tax rate on adjusted net income(a) Approximately 29.5%
Reported diluted EPS $1.00 to $1.06 Adjusted diluted EPS(a) $1.36
to $1.42 Certain significant items(b) and acquisition-related costs
$200 to $240 million A reconciliation of 2013 adjusted net income
and adjusted diluted EPS guidance to 2013 reported net income
attributable to Zoetis and reported diluted EPS attributable to
Zoetis common shareholders guidance follows:
Full-Year 2013 Guidance (millions of dollars, except per
share amounts) Net Income Diluted EPS Adjusted net
income/diluted EPS(a) guidance ~$680 - $710 ~$1.36 - $1.42 Purchase
accounting adjustments (35) (0.07) Certain significant items(b) and
acquisition-related costs (130 - 160) (0.26 - 0.32) Reported net
income attributable to Zoetis/diluted EPS guidance ~$500 - $530
~$1.00 - $1.06 (a) Adjusted net income and its
components and adjusted diluted EPS are defined as reported U.S.
generally accepted accounting principles (GAAP) net income and its
components and reported diluted EPS excluding purchase accounting
adjustments, acquisition-related costs and certain significant
items. Adjusted cost of sales, adjusted selling, general and
administrative (SG&A) expenses, adjusted research and
development (R&D) expenses, adjusted interest expense and
adjusted other(income)/deductions are income statement line items
prepared on the same basis, and, therefore, components of the
overall adjusted income measure. Despite the importance of these
measures to management in goal setting and performance measurement,
adjusted net income and its components and adjusted diluted EPS are
non-GAAP financial measures that have no standardized meaning
prescribed by U.S. GAAP and, therefore, have limits in their
usefulness to investors. Because of the non-standardized
definitions, adjusted net income and its components and adjusted
diluted EPS (unlike U.S. GAAP net income and its components and
diluted EPS) may not be comparable to the calculation of similar
measures of other companies. Adjusted net income and its components
and adjusted diluted EPS are presented solely to permit investors
to more fully understand how management assesses performance.
Adjusted net income and its components and adjusted diluted EPS are
not, and should not be viewed as, substitutes for U.S. GAAP net
income and its components and diluted EPS. (b) Primarily
includes certain nonrecurring costs related to becoming a
standalone public company, such as new branding (including changes
to the manufacturing process for required new packaging), the
creation of standalone systems and infrastructure, site separation
and certain legal registration and patent assignment costs.
ZOETIS INC.
CONSOLIDATED REVENUE BY SEGMENT(a) AND
SPECIES
(UNAUDITED)
(millions of dollars)
Second Quarter % Change 2013 2012 Total
Foreignexchange
Operational
Revenue: Livestock $ 670 $ 665 1 % (2 )% 3 %
Companion Animal 444 429 3 % (2 )% 5 %
Total
Revenue $ 1,114 $ 1,094
2 % (2 )% 4 %
U.S. Livestock $ 204 $ 192 6 % —
%
6 % Companion Animal 233 229 2 % —
%
2 %
Total U.S. Revenue $ 437 $
421 4 % —
%
4 % EuAfME Livestock $ 184 $ 193 (5 )%
(3 )% (2 )% Companion Animal 94 90 4 % (2 )% 6 %
Total EuAfME Revenue $ 278 $
283 (2 )% (3 )% 1
% CLAR Livestock $ 153 $ 154 (1 )% (5 )% 4 %
Companion Animal 60 57 5 % (1 )% 6 %
Total CLAR
Revenue $ 213 $ 211
1 % (3 )% 4 %
APAC Livestock $ 129 $ 126 2 % (3 )% 5 % Companion Animal 57
53 8 % (5 )% 13 %
Total APAC Revenue $
186 $ 179 4 %
(3 )% 7 % Livestock:
Cattle $ 356 $ 371 (4 )% (2 )% (2 )% Swine 152 142 7 % (2 )% 9 %
Poultry 137 129 6 % (3 )% 9 % Other 25 23 9 % (1 )%
10 %
Total Livestock Revenue $ 670
$ 665 1 % (2 )%
3 % Companion Animal: Horses $ 45 $ 50
(10 )% — % (10 )% Dogs and Cats 399 379 5 % (2 )% 7 %
Total Companion Animal Revenue $ 444
$ 429 3 % (2 )%
5 % (a) For a description of each
segment, see Note 17A to Zoetis' combined financial statements
included in Zoetis' Form 10-K for the year ended December 31, 2012.
Certain amounts and percentages may reflect rounding
adjustments.
ZOETIS INC.
CONSOLIDATED REVENUE BY SEGMENT(a) AND
SPECIES
(UNAUDITED)
(millions of dollars)
Six Months % Change 2013 2012 Total
Foreignexchange
Operational
Revenue: Livestock $ 1,376 $ 1,356 1 % (2 )% 3 %
Companion Animal 828 785 5 % (1 )% 6 %
Total
Revenue $ 2,204 $ 2,141
3 % (1 )% 4 %
U.S. Livestock $ 449 $ 432 4 % —
%
4 % Companion Animal 442 414 7 % —
%
7 %
Total U.S. Revenue $ 891 $
846 5 % —
%
5 % EuAfME Livestock $ 379 $ 380 — % (1
)% 1 % Companion Animal 189 178 6 % — % 6 %
Total
EuAfME Revenue $ 568 $ 558
2 % — % 2 %
CLAR Livestock $ 292 $ 292 — % (5 )% 5 % Companion Animal 92
92 — % (3 )% 3 %
Total CLAR Revenue $
384 $ 384 — %
(4 )% 4 % APAC Livestock
$ 256 $ 252 2 % (1 )% 3 % Companion Animal 105 101 4
% (4 )% 8 %
Total APAC Revenue $ 361
$ 353 2 % (3 )%
5 % Livestock: Cattle $ 746 $ 771 (3 )%
(1 )% (2 )% Swine 310 285 9 % (1 )% 10 % Poultry 270 250 8 % (2 )%
10 % Other 50 50 — % (3 )% 3 %
Total Livestock
Revenue $ 1,376 $ 1,356
1 % (2 )% 3 %
Companion Animal: Horses $ 87 $ 95 (8 )% — % (8 )%
Dogs and Cats 741 690 7 % (1 )% 8 %
Total
Companion Animal Revenue $ 828 $
785 5 % (1 )% 6
% (a) For a description of each segment, see
Note 17A to Zoetis' combined financial statements included in
Zoetis' Form 10-K for the year ended December 31, 2012.
Certain amounts and percentages may reflect rounding adjustments.
ZOETIS INC.
SEGMENT EARNINGS(a)
(UNAUDITED)
(millions of dollars)
Second Quarter % Change 2013 2012 Total
Foreignexchange
Operational U.S. $ 254 $ 227 12 % — % 12 % EuAfME 91
88
3 % 2 % 1 % CLAR 78 77 1 % (6 )% 7 % APAC 71 63 13 %
2 % 11 % Total Reportable Segments 494 455 9 % — % 9 % Other
business activities(b) (74 ) (61 ) 21 % Reconciling Items:
Corporate(c) (137 ) (104 ) 32 % Purchase accounting adjustments(d)
(13 ) (13 ) — % Acquisition-related costs(e) (9 ) (15 ) (40 )%
Certain significant items(f) (43 ) 14 * Other unallocated(g) (31 )
(24 ) 29 % Total Earnings(h) $ 187 $ 252 (26 )%
Six Months % Change 2013 2012 Total
Foreignexchange
Operational U.S.
$488
$444
10 % — % 10 % EuAfME 208 192 8 % (2 )% 10 % CLAR 130 131 (1 )% (9
)% 8 % APAC 146 134 9 % — % 9 % Total Reportable
Segments 972 901 8 % (1 )% 9 % Other business activities(b)
(148 ) (126 ) 17 % Reconciling Items: Corporate(c) (253 ) (233 ) 9
% Purchase accounting adjustments(d) (25 ) (26 ) (4 )%
Acquisition-related costs(e) (15 ) (29 ) (48 )% Certain significant
items(f) (85 ) (17 ) * Other unallocated(g) (67 ) (47 ) 43 % Total
Earnings(h)
$379
$423
(10 )% * Calculation not meaningful (a) For a
description of each segment, see Note 17A to Zoetis' combined
financial statements included in Zoetis' Form 10-K for the year
ended December 31, 2012. (b) Other business activities
reflect the research and development costs managed by our Research
and Development organization. (c) Corporate includes, among
other things, administration expenses, interest expense, certain
compensation and other costs not charged to our operating segments.
(d) Purchase accounting adjustments include certain charges
related to the fair value adjustments to inventory, intangible
assets and property, plant and equipment not charged to our
operating segments. (e) Acquisition-related costs can
include costs associated with acquiring, integrating and
restructuring newly acquired businesses, such as transaction costs,
integration costs, restructuring charges and additional
depreciation associated with asset restructuring. (f)
Certain significant items are substantive, unusual items that,
either as a result of their nature or size, would not be expected
to occur as part of our normal business on a regular basis. Such
items primarily include restructuring charges and implementation
costs associated with our cost-reduction/productivity initiatives
that are not associated with an acquisition, the impact of
divestiture-related gains and losses and certain costs related to
becoming a standalone public company. (g) Includes overhead
expenses associated with our manufacturing operations not directly
attributable to an operating segment. (h) Defined as income
before provision for taxes on income. Certain amounts and
percentages may reflect rounding adjustments.
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