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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
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 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
As of April 28, 2023, there were 462,112,140 shares of common stock outstanding.


TABLE OF CONTENTS
Page
1
Item 1.
1
Condensed Consolidated Statements of Income (Unaudited)
1
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
2
Condensed Consolidated Balance Sheets (Unaudited)
3
Condensed Consolidated Statements of Equity (Unaudited)
4
Condensed Consolidated Statements of Cash Flows (Unaudited)
5
Notes to Condensed Consolidated Financial Statements (Unaudited)
6
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
March 31,
(MILLIONS OF DOLLARS AND SHARES, EXCEPT PER SHARE DATA) 2023 2022
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 costs 21  2 
Interest expense, net of capitalized interest
 63  53 
Other (income)/deductions—net
 (53) 7 
Income before provision for taxes on income 697  727 
Provision for taxes on income 146  133 
Net income before allocation to noncontrolling interests 551  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:
 Basic 463.5  472.2 
 Diluted 464.6  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) 2023 2022
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 interests 540  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.
2 |
ZOETIS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2023 2022
(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 
Inventories 2,563  2,345 
Other current assets 411  365 
Total current assets 6,269  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 assets 216  220 
Goodwill 2,738  2,746 
Identifiable intangible assets, less accumulated amortization 1,314  1,380 
Noncurrent deferred tax assets 161  173 
Other noncurrent assets 143  147 
Total assets $ 13,754  $ 14,925 
Liabilities and Equity
Short-term borrowings $ 3  $ 2 
Current portion of long-term debt —  1,350 
Accounts payable 424  405 
Dividends payable 174  174 
Accrued expenses 701  682 
Accrued compensation and related items 232  300 
Income taxes payable 277  157 
Other current liabilities 104  97 
Total current liabilities 1,915  3,167 
Long-term debt, net of discount and issuance costs 6,559  6,552 
Noncurrent deferred tax liabilities 131  142 
Operating lease liabilities 180  186 
Other taxes payable 262  258 
Other noncurrent liabilities 216  217 
Total liabilities 9,263  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 capital 1,079  1,088 
Retained earnings 9,045  8,668 
Accumulated other comprehensive loss (828) (817)
Total Zoetis Inc. equity 4,494  4,405 
Noncontrolling interests (3) (2)
Total equity 4,491  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
Additional Other
Common Stock Treasury Stock Paid-in Retained Comprehensive Noncontrolling Total
(MILLIONS OF DOLLARS AND SHARES)
 Shares Amount Shares Amount Capital Earnings Loss Interests Equity
Balance, December 31, 2022 501.9  $ 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, 2023 501.9  $ 5  39.4  $ (4,807) $ 1,079  $ 9,045  $ (828) $ (3) $ 4,491 
Three months ended March 31, 2022
Zoetis
Accumulated
Additional Other
Common Stock Treasury Stock Paid-in Retained Comprehensive Noncontrolling Total
(MILLIONS OF DOLLARS AND SHARES)
 Shares Amount Shares Amount Capital Earnings Loss Interests Equity
Balance, December 31, 2021 501.9  $ 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, 2022 501.9  $ 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.
4 |
ZOETIS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
(MILLIONS OF DOLLARS) 2023 2022
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 expense 120  114 
Share-based compensation expense 9  16 
Asset write-offs and asset impairments 1  1 
Provision for losses on inventory 16  9 
Deferred taxes 8  (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 receivable 27  (102)
    Inventories (235) (146)
    Other assets (24) (1)
    Accounts payable 22  (31)
    Other liabilities (63) (222)
    Other tax accounts, net 118  117 
Net cash provided by operating activities 549  309 
Investing Activities
Capital expenditures (223) (115)
Acquisitions (7) (4)
Purchase of investments (1) (5)
Proceeds on derivative instrument activity, net 13  6 
Net proceeds from sale of assets 2  — 
Net cash used in investing activities (216) (118)
Financing Activities
Increase in short-term borrowings, net 1  — 
Principal payments on long-term debt (1,350) — 
Share-based compensation-related proceeds, net of taxes paid on withholding shares 4  (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 period 3,581  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 interest 89  89 
Amounts included in the measurement of lease liabilities 14  13 
Non-cash transactions:
Capital expenditures 3  4 
Excise tax accrued on net share repurchases, not paid 2  — 
Lease obligations obtained in exchange for right-of-use assets 13  19 
  Dividends declared, not paid 174  153 
See notes to condensed consolidated financial statements.
5 |
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
6 |
•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) 2023 2022
United States $ 1,005  $ 1,020 
Australia 82  65 
Brazil 84  77 
Canada 50  49 
Chile 39  41 
China 102  103 
France 34  32 
Germany 45  43 
Italy 26  30 
Japan 39  59 
Mexico 39  35 
Spain 33  33 
United Kingdom 68  64 
Other developed markets 122  115 
Other emerging markets 215  202 
1,983  1,968 
Contract manufacturing & human health 17  18 
Total Revenue $ 2,000  $ 1,986 

7 |
Revenue by major species
Three Months Ended
March 31,
(MILLIONS OF DOLLARS) 2023 2022
U.S.
Companion animal $ 721  $ 774 
Livestock 284  246 
1,005  1,020 
International
Companion animal 504  489 
Livestock 474  459 
978  948 
Total
Companion animal 1,225  1,263 
Livestock 758  705 
Contract manufacturing & human health 17  18 
Total Revenue $ 2,000  $ 1,986 
Revenue by species
Three Months Ended
March 31,
(MILLIONS OF DOLLARS) 2023 2022
Companion Animal:
Dogs and Cats $ 1,153  $ 1,199 
Horses 72  64 
1,225  1,263 
Livestock:
Cattle 399  364 
Swine 142  154 
Poultry 139  124 
Fish 49  44 
Sheep and other 29  19 
758  705 
Contract manufacturing & human health 17  18 
Total Revenue $ 2,000  $ 1,986 
Revenue by major product category
Three Months Ended
March 31,
(MILLIONS OF DOLLARS) 2023 2022
Parasiticides $ 432  $ 459 
Vaccines 429  405 
Other pharmaceuticals 294  254 
Dermatology 292  311 
Anti-infectives 288  285 
Animal health diagnostics 93  98 
Medicated feed additives 87  98 
Other non-pharmaceuticals 68  58 
1,983  1,968 
Contract manufacturing & human health 17  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 receivable 8 
Inventories(a)
 21 
Other current assets 1 
Property, plant and equipment(b)
 25 
Identifiable intangible assets(c)
 135 
Other noncurrent assets 1 
Accounts payable 2 
Other current liabilities 12 
Total net assets acquired 197 
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.

9 |
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) 2023 2022
Restructuring charges and certain acquisition-related costs:
Integration costs(a)
 $ 1  $ 2 
Restructuring charges(b):
Employee termination costs 20  — 
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 
Provision 20 
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) 2023 2022
Royalty-related income(a)
 $ (34) $ (1)
Interest income (33) (2)
Foreign currency loss(b)
 9  11 
Other, net 5  (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) 2023 2022
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) 2023 2024 2025 2026 2027 2027 Total
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) 2023 2022
Derivatives not Designated as Hedging Instruments
     Foreign currency forward-exchange contracts $ 1,716  $ 1,753 
Derivatives Designated as Hedging Instruments
     Foreign exchange derivative instruments (in foreign currency):
          Euro 650  650 
          Danish krone 600  600 
          Swiss franc 25  25 
     Forward-starting interest rate swaps $ 50  $ 50 
     Fixed-to-floating interest rate swap contracts $ 250  $ 250 

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Fair Value of Derivative Instruments
The classification and fair values of derivative instruments are as follows:
Fair Value of Derivatives
March 31, December 31,
(MILLIONS OF DOLLARS) Balance Sheet Location 2023 2022
Derivatives Not Designated as Hedging Instruments
   Foreign currency forward-exchange contracts Other current assets $ 16  $ 22 
   Foreign currency forward-exchange contracts
Other current liabilities
 (15) (21)
Total derivatives not designated as hedging instruments $ 1  $ 1 
Derivatives Designated as Hedging Instruments:
   Forward-starting interest rate swap contracts Other noncurrent assets $ 9  $ 10 
   Foreign exchange derivative instruments Other current assets 11  21 
   Foreign exchange derivative instruments Other noncurrent assets 17  19 
   Foreign exchange derivative instruments Other current liabilities (14) (9)
   Foreign exchange derivative instruments Other noncurrent liabilities (6) (4)
   Fixed-to-floating interest rate swap contracts Other noncurrent liabilities (26) (32)
Total derivatives designated as hedging instruments (9) 5 
Total derivatives $ (8) $ 6 
The company’s derivative transactions are subject to master netting agreements that mitigate credit risk by permitting net settlement of transactions with the same counterparty. The company also has collateral security agreements with certain of its counterparties. Under these collateral security agreements either party is required to post cash collateral when the net fair value of derivative instruments covered by the collateral agreement exceeds contractually established thresholds. At March 31, 2023, there was $6 million of collateral received and $21 million of collateral posted related to derivative instruments recorded in Other current liabilities and Other current assets, respectively. At December 31, 2022, there was $8 million of collateral received and $21 million of collateral posted related to derivative instruments recorded in Other current liabilities and Other current assets, respectively.
We use a market approach in valuing financial instruments on a recurring basis. Our derivative financial instruments are measured at fair value on a recurring basis using Level 2 inputs in the calculation of fair value.
The amounts of net losses on derivative instruments not designated as hedging instruments, recorded in Other (income)/deductions—net, are as follows:
Three Months Ended
March 31,
(MILLIONS OF DOLLARS) 2023 2022
Foreign currency forward-exchange contracts $ (16) $ (6)
These amounts were substantially offset in Other (income)/deductions—net by the effect of changing exchange rates on the underlying foreign currency exposures.
The amounts of unrecognized net (losses)/gains on interest rate swap contracts, recorded, net of tax, in Accumulated other comprehensive loss, are as follows:
Three Months Ended
March 31,
(MILLIONS OF DOLLARS) 2023 2022
Forward-starting interest rate swap contracts $ (1) $ 26 
Foreign exchange derivative instruments $ (6) $ 12 
Gains on interest rate swap contracts, recognized within Interest expense, net of capitalized interest, are as follows:
Three Months Ended
March 31,
(MILLIONS OF DOLLARS) 2023 2022
Foreign exchange derivative instruments $ 5  $ 3 
The net amount of deferred gains related to derivative instruments designated as cash flow hedges that is expected to be reclassified from Accumulated other comprehensive loss into earnings over the next 12 months is not material.

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10. Inventories
The components of inventory are as follows:
March 31, December 31,
(MILLIONS OF DOLLARS) 2023 2022
Finished goods $ 1,065  $ 1,090 
Work-in-process 999  825 
Raw materials and supplies 499  430 
Inventories $ 2,563  $ 2,345 
11. Goodwill and Other Intangible Assets
A. Goodwill
The components of, and changes in, the carrying amount of goodwill are as follows:
(MILLIONS OF DOLLARS) U.S. International Total
Balance, December 31, 2022 $ 1,485  $ 1,261  $ 2,746 
Adjustments —  (1) (1)
Other(a)
 —  (7) (7)
Balance, March 31, 2023 $ 1,485  $ 1,253  $ 2,738 
(a) Includes adjustments for foreign currency translation.
The gross goodwill balance was $3,274 million and $3,282 million as of March 31, 2023 and December 31, 2022, respectively. Accumulated goodwill impairment losses (generated entirely in fiscal 2002) were $536 million as of March 31, 2023 and December 31, 2022.
B. Other Intangible Assets
The components of identifiable intangible assets are as follows:
As of March 31, 2023 As of December 31, 2022
Identifiable Identifiable
Gross Intangible Assets Gross Intangible Assets
Carrying Accumulated Less Accumulated Carrying Accumulated Less Accumulated
(MILLIONS OF DOLLARS) Amount Amortization Amortization Amount Amortization Amortization
Finite-lived intangible assets:
Developed technology rights $ 1,900  $ (1,006) $ 894  $ 1,918  $ (975) $ 943 
Brands and tradenames 390  (239) 151  395  (237) 158 
Other 332  (238) 94  337  (233) 104 
Total finite-lived intangible assets 2,622  (1,483) 1,139  2,650  (1,445) 1,205 
Indefinite-lived intangible assets:
Brands and tradenames 91  —  91  91  —  91 
In-process research and development 77  —  77  77  —  77 
Product rights 7  —  7  7  —  7 
Total indefinite-lived intangible assets 175  —  175  175  —  175 
Identifiable intangible assets $ 2,797  $ (1,483) $ 1,314  $ 2,825  $ (1,445) $ 1,380 
C. Amortization
Amortization expense related to finite-lived acquired intangible assets that contribute to our ability to sell, manufacture, research, market and distribute products, compounds and intellectual property is included in Amortization of intangible assets as it benefits multiple business functions. Amortization expense related to finite-lived acquired intangible assets that are associated with a single function is included in Cost of sales, Selling, general and administrative expenses or Research and development expenses, as appropriate. Total amortization expense for finite-lived intangible assets was $47 million and $52 million for the three months ended March 31, 2023 and 2022, respectively.
12. Share-based Payments
The Zoetis 2013 Equity and Incentive Plan (Equity Plan) provides long-term incentives to our employees and non-employee directors. The principal types of share-based awards available under the Equity Plan may include, but are not limited to, stock options, restricted stock and restricted stock units (RSUs), deferred stock units (DSUs), performance-vesting restricted stock units (PSUs) and other equity-based or cash-based awards.

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The components of share-based compensation expense are as follows:
Three Months Ended
March 31,
(MILLIONS OF DOLLARS) 2023 2022
Stock options / stock appreciation rights $ 1  $ 2 
RSUs / DSUs 7  9 
PSUs 1  5 
Share-based compensation expense—total(a)
 $ 9  $ 16 
(a) For the three months ended March 31, 2023 and 2022, we capitalized less than $1 million of share-based compensation expense to inventory.
During the three months ended March 31, 2023, the company granted 268,008 stock options with a weighted-average exercise price of $162.07 per stock option and a weighted-average fair value of $43.56 per stock option. The fair-value based method for valuing each Zoetis stock option grant on the grant date uses the Black-Scholes-Merton option-pricing model, which incorporates a number of valuation assumptions. The weighted-average fair value was estimated based on the following assumptions: risk-free interest rate of 3.84%; expected dividend yield of 0.92%; expected stock price volatility of 28.63%; and expected term of 4.2 years. In general, stock options granted prior to 2023 vest after three years of continuous service, while stock options granted in 2023 are subject to graded vesting over three years. The values determined through this fair-value based method generally are amortized on a straight-line basis over the vesting term into Cost of sales, Selling, general and administrative expenses, or Research and development expenses, as appropriate.
During the three months ended March 31, 2023, the company granted 262,508 RSUs, with a weighted-average grant date fair value of $162.08 per RSU. RSUs are accounted for using a fair-value-based method that utilizes the closing price of Zoetis common stock on the date of grant. In general, RSUs granted prior to 2023 vest after three years of continuous service from the grant date while RSUs granted in 2023 are subject to graded vesting over three years. The values generally are amortized on a straight-line basis over the vesting term into Cost of sales, Selling, general and administrative expenses, or Research and development expenses, as appropriate.
During the three months ended March 31, 2023, the company granted 99,626 PSUs with a weighted-average grant date fair value of $238.24 per PSU. PSUs are accounted for using a Monte Carlo simulation model. The units underlying the PSUs will be earned and vested over a three-year performance period, based upon the total shareholder return of the company in comparison to the total shareholder return of the companies comprising the S&P 500 stock market index at the start of the performance period, excluding companies that during the performance period are acquired or no longer publicly traded (Relative TSR). The weighted-average fair value was estimated based on volatility assumptions of Zoetis common stock and an average of the S&P 500 companies, which were 31.8% and 40.9%, respectively. Depending on the company’s Relative TSR performance at the end of the performance period, the recipient may earn from 0% to 200% of the target number of units. Vested units are settled in shares of the company’s common stock. PSU values are amortized on a straight-line basis over the vesting term into Cost of sales, Selling, general and administrative expenses, or Research and development expenses, as appropriate.
13. Stockholders' Equity
Zoetis is authorized to issue 6 billion shares of common stock and 1 billion shares of preferred stock.
In December 2021, our Board of Directors authorized a $3.5 billion share repurchase program. As of March 31, 2023, there was $2.3 billion remaining under this authorization. Purchases of Zoetis shares may be made at the discretion of management, depending on market conditions and business needs.
Accumulated other comprehensive loss
Changes, net of tax, in accumulated other comprehensive loss, were as follows:
Currency Translation Adjustments
Other Currency Benefit Plans Accumulated Other
Cash Flow Net Investment Translation Actuarial Comprehensive
(MILLIONS OF DOLLARS) Hedges Hedges Adjustments (Losses)/Gains Loss
Balance, December 31, 2022 $ 90  $ 41  $ (944) $ (4) $ (817)
Other comprehensive (loss)/income, net of tax (2) (6) (7) 4 

(11)
Balance, March 31, 2023 $ 88  $ 35  $ (951) $ —  $ (828)
Balance, December 31, 2021 $ 4  $ 5  $ (756) $ (17) $ (764)
Other comprehensive income, net of tax 26  12  21  1  60 
Balance, March 31, 2022 $ 30  $ 17  $ (735) $ (16) $ (704)

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14. Earnings per Share
The following table presents the calculation of basic and diluted earnings per share:
Three Months Ended
(MILLIONS OF DOLLARS AND SHARES, EXCEPT PER SHARE DATA) March 31,
2023 2022
Numerator
Net income before allocation to noncontrolling interests $ 551  $ 594 
Less: Net loss attributable to noncontrolling interests (1) (1)
Net income attributable to Zoetis Inc. $ 552  $ 595 
Denominator
Weighted-average common shares outstanding 463.5  472.2 
Common stock equivalents: stock options, RSUs, PSUs and DSUs 1.1  1.9 
Weighted-average common and potential dilutive shares outstanding 464.6  474.1 
Earnings per share attributable to Zoetis Inc. stockholders—basic $ 1.19  $ 1.26 
Earnings per share attributable to Zoetis Inc. stockholders—diluted $ 1.19  $ 1.26 
The number of stock options outstanding under the company's Equity Plan that were excluded from the computation of diluted earnings per share, as the effect would have been antidilutive, were not material for the three months ended March 31, 2023 and 2022.
15. Commitments and Contingencies
We and certain of our subsidiaries are subject to numerous contingencies arising in the ordinary course of business. For a discussion of our tax contingencies, see Note 8. Income Taxes.
A. Legal Proceedings
Our non-tax contingencies include, among others, the following:
•    Product liability and other product-related litigation, which can include injury, consumer, off-label promotion, antitrust and breach of contract claims.
•    Commercial and other matters, which can include product-pricing claims and environmental claims and proceedings.
•    Patent litigation, which typically involves challenges to the coverage and/or validity of our patents or those of third parties on various products or processes.
•    Government investigations, which can involve regulation by national, state and local government agencies in the U.S. and in other countries.
Certain of these contingencies could result in losses, including damages, fines and/or civil penalties, and/or criminal charges, which could be substantial.
We believe that we have strong defenses in these types of matters, but litigation is inherently unpredictable and excessive verdicts do occur. We do not believe that any of these matters will have a material adverse effect on our financial position. However, we could incur judgments, enter into settlements or revise our expectations regarding the outcome of certain matters, and such developments could have a material adverse effect on our results of operations or cash flows in the period in which the amounts are paid.
We have accrued for losses that are both probable and reasonably estimable. Substantially all of these contingencies are subject to significant uncertainties and, therefore, determining the likelihood of a loss and/or the measurement of any loss can be complex. Consequently, we are unable to estimate the range of reasonably possible loss in excess of amounts accrued. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but the assessment process relies on estimates and assumptions that may prove to be incomplete or inaccurate, and unanticipated events and circumstances may occur that might cause us to change those estimates and assumptions.
Amounts recorded for legal and environmental contingencies can result from a complex series of judgments about future events and uncertainties and can rely on estimates and assumptions.
The principal matters to which we are a party are discussed below. In determining whether a pending matter is significant for financial reporting and disclosure purposes, we consider both quantitative and qualitative factors in order to assess materiality, such as, among other things, the amount of damages and the nature of any other relief sought in the proceeding, if such damages and other relief are specified; our view of the merits of the claims and of the strength of our defenses; whether the action purports to be a class action and our view of the likelihood that a class will be certified by the court; the jurisdiction in which the proceeding is pending; any experience that we or, to our knowledge, other companies have had in similar proceedings; whether disclosure of the action would be important to a reader of our financial statements, including whether disclosure might change a reader’s judgment about our financial statements in light of all of the information about the company that is available to the reader; the potential impact of the proceeding on our reputation; and the extent of public interest in the matter. In addition, with respect to patent matters, we consider, among other things, the financial significance of the product protected by the patent.
Ulianopolis, Brazil
In February 2012, the Municipality of Ulianopolis (State of Para, Brazil) filed a complaint against Fort Dodge Saúde Animal Ltda. (FDSAL), a Zoetis entity, and five other large companies alleging that waste sent to a local waste incineration facility for destruction, but that was not ultimately destroyed as the facility lost its operating permit, caused environmental impacts requiring cleanup.

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The Municipality is seeking recovery of cleanup costs purportedly related to FDSAL's share of all waste accumulated at the incineration facility awaiting destruction, and compensatory damages to be allocated among the six defendants. We believe we have strong arguments against the claim, including defense strategies against any claim of joint and several liability.
At the request of the Municipal prosecutor, in April 2012, the lawsuit was suspended for one year. Since that time, the prosecutor has initiated investigations into the Municipality's actions in the matter as well as the efforts undertaken by the six defendants to remove and dispose of their individual waste from the incineration facility. On October 3, 2014, the Municipal prosecutor announced that the investigation remained ongoing and outlined the terms of a proposed Term of Reference (a document that establishes the minimum elements to be addressed in the preparation of an Environmental Impact Assessment), under which the companies would be liable to withdraw the waste and remediate the area.
On March 5, 2015, we presented our response to the prosecutor’s proposed Term of Reference, arguing that the proposed terms were overly general in nature and expressing our interest in discussing alternatives to address the matter. The prosecutor agreed to consider our request to engage a technical consultant to conduct an environmental diagnostic of the contaminated area. On May 29, 2015, we, in conjunction with the other defendant companies, submitted a draft cooperation agreement to the prosecutor, which outlined the proposed terms and conditions for the engagement of a technical consultant to conduct the environmental diagnostic. On August 19, 2016, the parties and the prosecutor agreed to engage the services of a third-party consultant to conduct a limited environmental assessment of the site. The site assessment was conducted during June 2017, and a written report summarizing the results of the assessment was provided to the parties and the prosecutor in November 2017. The report noted that waste is still present on the site and that further (Phase II) environmental assessments are needed before a plan to manage that remaining waste can be prepared. On April 1, 2019, the defendants met with the Prosecutor to discuss the conclusions set forth in the written report. Following that discussion, on April 10, 2019, the Prosecutor issued a procedural order requesting that the defendants prepare and submit a technical proposal outlining the steps needed to conduct the additional Phase II environmental assessments. The defendants presented the technical proposal to the Prosecutor on October 21, 2019. On March 3, 2020, the Prosecutor notified the defendants that he submitted the proposal to the Ministry of the Environment for its review and consideration by the Prosecutor. On July 15, 2020, the Prosecutor recommended certain amendments to the proposal for the Phase II testing. On September 28, 2020, the parties and the Prosecutor agreed to the final terms and conditions concerning the cooperation agreement with respect to the Phase II testing. Due to the ongoing issues presented by the coronavirus (COVID-19) pandemic, the parties have been unable to secure a start date for the Phase II testing and have no timeline at this point when testing will begin.
Belgium Excess Profit Tax Regime
On February 14, 2019, the General Court of the European Union (General Court) annulled the January 11, 2016 decision of the European Commission (EC) that selective tax advantages granted by Belgium under its "excess profit" tax scheme constitute illegal state aid. As a result of the 2016 decision, the company recorded a net tax charge of approximately $35 million in the first half of 2016. On May 8, 2019, the EC filed an appeal to the decision of the General Court. On September 16, 2019, the EC opened separate in-depth investigations to assess whether Belgium excess profit rulings granted to 39 multinational companies, including Zoetis, constituted state aid for those companies. On September 16, 2021, the European Court of Justice upheld the EC’s decision that the Belgium excess profit ruling system is considered an aid scheme and referred the case back to the General Court to rule on open questions. On May 24, 2022, the General Court resumed all proceedings involved with the Excess Profit Rulings cases, including Zoetis. On June 23, 2022, as requested by the General Court, the company provided observations in relations to (i) the impact of the Court of Justice’s decision that the Belgium excess profit ruling system is considered an aid scheme and (ii) the impact of recent case laws by the General Court with regards to the existence of a selective advantage. On December 16, 2022, the company submitted observations on the conclusions drawn from the November 8, 2022 Fiat Chrysler Finance Europe and Ireland v Commission judgement, as requested by the General Court. A hearing by the General Court took place on February 15, 2023 and we are now awaiting a decision on our plea. The company has not reflected any potential benefits in its condensed consolidated financial statements as of March 31, 2023 as a result of the 2019 annulment. We will continue to monitor the developments of the appeal and its ultimate resolution.
B. Guarantees and Indemnifications
In the ordinary course of business and in connection with the sale of assets and businesses, we indemnify our counterparties against certain liabilities that may arise in connection with the transaction or related to activities prior to the transaction. These indemnifications typically pertain to environmental, tax, employee and/or product-related matters and patent-infringement claims. If the indemnified party were to make a successful claim pursuant to the terms of the indemnification, we would be required to reimburse the loss. These indemnifications are generally subject to threshold amounts, specified claim periods and other restrictions and limitations. Historically, we have not paid significant amounts under these provisions and, as of March 31, 2023, recorded amounts for the estimated fair value of these indemnifications were not material.
16. Segment Information
Operating Segments
We manage our operations through two geographic operating segments: the U.S. and International. Each operating segment has responsibility for its commercial activities. Within each of these operating segments, we offer a diversified product portfolio, including parasiticides, vaccines, other pharmaceutical products, dermatology, anti-infectives, medicated feed additives and animal health diagnostics, for both companion animal and livestock customers. Our chief operating decision maker uses the revenue and earnings of the two operating segments, among other factors, for performance evaluation and resource allocation.
Other Costs and Business Activities
Certain costs are not allocated to our operating segment results, such as costs associated with the following:
•    Other business activities, includes our Client Supply Services (CSS) contract manufacturing results, our human health business, and expenses associated with our dedicated veterinary medicine research and development organization, research alliances, U.S. regulatory affairs and other operations focused on the development of our products. Other R&D-related costs associated with non-U.S. market and regulatory activities are generally included in the international commercial segment.

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•    Corporate, includes enabling functions such as information technology, facilities, legal, finance, human resources, business development, certain diagnostic costs and communications, among others. These costs also include compensation costs and other miscellaneous operating expenses not charged to our operating segments, as well as interest income and expense.
•Certain transactions and events such as (i) Purchase accounting adjustments, where we incur expenses associated with the amortization of fair value adjustments to inventory, intangible assets and property, plant and equipment; (ii) Acquisition-related activities, where we incur costs associated with acquiring and integrating newly acquired businesses, such as transaction costs and integration costs; and (iii) Certain significant items, which comprise substantive, unusual items that, either as a result of their nature or size, would not be expected to occur as part of our normal business on a regular basis, such as restructuring charges and implementation costs associated with our cost-reduction/productivity initiatives that are not associated with an acquisition, certain asset impairment charges, certain legal and commercial settlements and the impact of divestiture-related gains and losses.
•Other unallocated includes (i) certain overhead expenses associated with our global manufacturing operations not charged to our operating segments; (ii) certain costs associated with finance that specifically support our global manufacturing operations; (iii) certain supply chain and global logistics costs; and (iv) procurement costs.
Segment Assets
We manage our assets on a total company basis, not by operating segment. Therefore, our chief operating decision maker does not regularly review any asset information by operating segment and, accordingly, we do not report asset information by operating segment.
Selected Statement of Income Information    
Earnings
Depreciation and Amortization(a)
Three Months Ended Three Months Ended
March 31, March 31,
(MILLIONS OF DOLLARS) 2023 2022 2023 2022
U.S.
Revenue $ 1,005  $ 1,020 
Cost of sales 203  185 
Gross profit 802  835 
    Gross margin 79.8  % 81.9  %
Operating expenses 188  165 
Other (income)/deductions-net —  — 
U.S. Earnings 614  670  $ 19  $ 13 
International
Revenue(b)
 978  948 
Cost of sales 291  265 
Gross profit 687  683 
    Gross margin 70.2  % 72.0  %
Operating expenses 151  145 
Other (income)/deductions-net 1  — 
International Earnings 535  538  21  18 
Total operating segments 1,149  1,208  40  31 
Other business activities
 (114) (98) 8  7 
Reconciling Items:
Corporate
 (208) (259) 32  35 
Purchase accounting adjustments
 (42) (40) 39  40 
Acquisition-related costs
 (1) (2) —  — 
Certain significant items(c)
 (22) —  —  — 
Other unallocated
 (65) (82) 1  1 
Total Earnings(d)
 $ 697  $ 727  $ 120  $ 114 
(a)    Certain production facilities are shared. Depreciation and amortization is allocated to the reportable operating segments based on estimates of where the benefits of the related assets are realized.
(b)    Revenue denominated in euros was $204 million and $203 million for the three months ended March 31, 2023 and 2022, respectively.
(c)    For the three months ended March 31, 2023, primarily consisted of employee termination costs related to organizational structure refinements.
For the three months ended March 31, 2022, primarily consisted of product transfer costs offset by other items.
(d)    Defined as income before provision for taxes on income.

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview of our business
Zoetis is a global leader in the animal health industry, focused on the discovery, development, manufacture and commercialization of medicines, vaccines, diagnostic products and services, biodevices, genetic tests and precision animal health technology. For over 70 years, we have been innovating ways to predict, prevent, detect, and treat animal illness, and continue to stand by those raising and caring for animals worldwide - from veterinarians and pet owners to livestock farmers and ranchers.
We manage our operations through two geographic operating segments: the United States (U.S.) and International. Within each of these operating segments, we offer a diversified product portfolio for both companion animal and livestock customers in order to capitalize on local and regional trends and customer needs. See Notes to Condensed Consolidated Financial Statements — Note 16. Segment Information.
We directly market our products to veterinarians and livestock producers located in approximately 45 countries across North America, Europe, Africa, Asia, Australia and South America, and are a market leader in nearly all of the major regions in which we operate. Through our efforts to establish an early and direct presence in many emerging markets, such as Brazil, Chile, China and Mexico, we believe we are one of the largest animal health medicines and vaccines businesses as measured by revenue across emerging markets as a whole. In markets where we do not have a direct commercial presence, we generally contract with distributors that provide logistics and sales and marketing support for our products.
We believe our investments in one of the industry’s largest sales organizations, including our extensive network of technical and veterinary operations specialists, our high-quality manufacturing and reliability of supply, and our long track record of developing products that meet customer needs, has led to enduring and valued relationships with our customers. Our research and development (R&D) efforts enable us to deliver innovative products to address unmet needs and evolve our product lines so that they remain relevant for our customers.
We have approximately 300 product lines that we sell in over 100 countries for the prediction, prevention, detection and treatment of diseases and conditions that affect various companion animal and livestock species. The diversity of our product portfolio and our global operations provides stability to our overall business. For instance, in livestock, impacts on our revenue that may result from disease outbreaks or weather conditions in a particular market or region are often offset by increased sales in other regions from exports and other species as consumers shift to other animal proteins.
A summary of our 2023 performance compared with the comparable 2022 period follows:
% Change
Three Months Ended Related to
March 31, Foreign
(MILLIONS OF DOLLARS) 2023 2022 Total Exchange
Operational(a)
Revenue $ 2,000  $ 1,986  1  (3) 4 
Net income attributable to Zoetis 552  595  (7) —  (7)
Adjusted net income(a)
 607  625  (3) —  (3)
(a)    Operational growth and adjusted net income are non-GAAP financial measures. See the Non-GAAP financial measures section of this Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) for more information.
Our operating environment
For a description of our operating environment, including factors which could materially affect our business, financial condition, or future results, see "Our Operating Environment" in the MD&A of our 2022 Annual Report on Form 10-K. Set forth below are updates to certain of the factors disclosed in our 2022 Annual Report on Form 10-K.
Quarterly Variability of Financial Results
Our quarterly financial results are subject to variability related to a number of factors including, but not limited to: the continuing decline in global macroeconomic conditions, global supply chain disruption, Russia’s invasion of Ukraine, variability in distributor inventory stocking levels as a result of expected demand and promotional activities, weather patterns, herd management decisions, regulatory actions, inflation, competitive dynamics, disease outbreaks, the impact of the COVID-19 pandemic, product and geographic mix, timing of price increases and timing of investment decisions.
Global Supply Chain Disruption
We are seeing improvements and recovery in supply for certain products as compared to the prior year. However, we continue to have supply chain challenges for other products and component parts, as well as competition for manufacturing inputs. Our global manufacturing team remains committed to addressing specific issues with ongoing supply chain optimizations, controlled launches for new products in additional markets and customer coordination.
Disease Outbreaks
Sales of our livestock products have in the past, and may in the future be, adversely affected by the outbreak of disease carried by animals. Outbreaks of disease may reduce regional or global sales of particular animal-derived food products or result in reduced exports of such products, either due to heightened export restrictions or import prohibitions, which may reduce demand for our products. Also, the outbreak of any highly contagious disease near our main production sites could require us to immediately halt production of our products at such sites or force us to incur substantial expenses in procuring raw materials or products elsewhere. Alternatively, sales of products that treat specific disease outbreaks may increase.

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Foreign Exchange Rates
Significant portions of our revenue and costs are exposed to changes in foreign exchange rates. Our products are sold in more than 100 countries and, as a result, our revenue is influenced by changes in foreign exchange rates. For the three months ended March 31, 2023, approximately 45% of our revenue was denominated in foreign currencies. We seek to manage our foreign exchange risk, in part, through operational means, including managing same-currency revenue in relation to same-currency costs and same-currency assets in relation to same-currency liabilities. As we operate in multiple foreign currencies, including the Australian dollar, Brazilian real, British pound, Canadian dollar, Chinese yuan, euro and other currencies, changes in those currencies relative to the U.S. dollar will impact our revenue, cost of goods and expenses, and consequently, net income. Exchange rate fluctuations may also have an impact beyond our reported financial results and directly impact operations. These fluctuations may affect the ability to buy and sell our goods and services between markets impacted by significant exchange rate variances. For the three months ended March 31, 2023, approximately 55% of our total revenue was in U.S. dollars. Our year-over-year total revenue growth was unfavorably impacted by approximately 3% from changes in foreign currency values relative to the U.S. dollar. For operations in highly inflationary economies, we translate monetary items at rates in effect at the balance sheet date, with translation adjustments recorded in Other (income)/deductions––net, and we translate non-monetary items at historical rates.
Non-GAAP financial measures
We report information in accordance with U.S. generally accepted accounting principles (GAAP). Management also measures performance using non-GAAP financial measures that may exclude certain amounts from the most directly comparable GAAP measure. Despite the importance of these measures to management in goal setting and performance measurement, non-GAAP financial measures have no standardized meaning prescribed by U.S. GAAP and, therefore, have limits in their usefulness to investors and may not be comparable to the calculation of similar measures of other companies. We present certain identified non-GAAP measures solely to provide investors with useful information to more fully understand how management assesses performance.
Operational Growth
We believe that it is important to not only understand overall revenue and earnings growth, but also “operational growth.” Operational growth is a non-GAAP financial measure defined as revenue or earnings growth excluding the impact of foreign exchange. This measure provides information on the change in revenue and earnings as if foreign currency exchange rates had not changed between the current and prior periods to facilitate a period-to-period comparison. We believe this non-GAAP measure provides a useful comparison to previous periods for the company and investors, but should not be viewed as a substitute for U.S. GAAP reported growth.
Adjusted Net Income and Adjusted Earnings Per Share
Adjusted net income and the corresponding adjusted earnings per share (EPS) are non-GAAP financial measures of performance used by management. We believe these financial measures are useful supplemental information to investors when considered together with our U.S. GAAP financial measures. We report adjusted net income to portray the results of our major operations, and the discovery, development, manufacture and commercialization of our products, prior to considering certain income statement elements. We define adjusted net income and adjusted EPS as net income attributable to Zoetis and EPS before the impact of purchase accounting adjustments, acquisition-related costs and certain significant items.
We recognize that, as an internal measure of performance, the adjusted net income and adjusted EPS measures have limitations, and we do not restrict our performance management process solely to these metrics. A limitation of the adjusted net income and adjusted EPS measures is that they provide a view of our operations without including all events during a period, such as the effects of an acquisition or amortization of purchased intangibles, and do not provide a comparable view of our performance to other companies. The adjusted net income and adjusted EPS measures are not, and should not be viewed as, a substitute for U.S. GAAP reported net income attributable to Zoetis and reported EPS. See the Adjusted Net Income section below for more information.

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Analysis of the condensed consolidated statements of income
The following discussion and analysis of our statements of income should be read along with our condensed consolidated financial statements and the notes thereto included elsewhere in Part I— Item 1 of this Quarterly Report on Form 10-Q.
Three Months Ended
March 31, %
(MILLIONS OF DOLLARS) 2023 2022 Change
Revenue $ 2,000  $ 1,986  1 
Costs and expenses:
Cost of sales 588  569  3 
% of revenue 29.4  % 28.7  %
Selling, general and administrative expenses 505  465  9 
% of revenue 25  % 23  %
Research and development expenses 142  122  16 
% of revenue 7  % 6  %
Amortization of intangible assets 37  41  (10)
Restructuring charges and certain acquisition-related costs 21  2  *
Interest expense, net of capitalized interest 63  53  19 
Other (income)/deductions—net (53) 7  *
Income before provision for taxes on income 697  727  (4)
% of revenue 35  % 37  %
Provision for taxes on income 146  133  10 
Effective tax rate 20.9  % 18.3  %
Net income before allocation to noncontrolling interests 551  594  (7)
Less: Net loss attributable to noncontrolling interests (1) (1) — 
Net income attributable to Zoetis Inc. $ 552  $ 595  (7)
% of revenue 28  % 30  %
*Calculation not meaningful
Revenue
Three months ended March 31, 2023 vs. three months ended March 31, 2022
Total revenue increased by $14 million, or 1%, in the three months ended March 31, 2023, compared with the three months ended March 31, 2022, an increase of $79 million, or 4%, on an operational basis. Operational revenue growth was comprised primarily of the following:
•price growth of approximately 5%;
•volume growth from new products of approximately 1%,
partially offset by:
•volume decrease from key dermatology products of approximately 1%; and
•volume decrease from other in-line products of approximately 1%.
Foreign exchange decreased reported revenue growth by approximately 3%.
Costs and Expenses
Cost of sales
Three Months Ended
March 31, %
(MILLIONS OF DOLLARS) 2023 2022 Change
Cost of sales $ 588  $ 569  3 
% of revenue 29.4  % 28.7  %
Three months ended March 31, 2023 vs. three months ended March 31, 2022
Cost of sales as a percentage of revenue was 29.4% in the three months ended March 31, 2023, compared with 28.7% in the three months ended March 31, 2022. The increase was primarily as a result of:
•unfavorable manufacturing and other costs;
•unfavorable product mix; and
•inventory obsolescence, scrap and other charges,
partially offset by:
•favorable foreign exchange; and

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•price increases.
Selling, general and administrative expenses
Three Months Ended
March 31, %
(MILLIONS OF DOLLARS) 2023 2022 Change
Selling, general and administrative expenses $ 505  $ 465  9 
% of revenue 25  % 23  %
Three months ended March 31, 2023 vs. three months ended March 31, 2022
SG&A expenses increased by $40 million, or 9%, in the three months ended March 31, 2023, compared with the three months ended March 31, 2022, primarily as a result of:
•certain compensation-related costs primarily due to timing of new hires in 2022;
•higher travel and entertainment expenses; and
•higher freight and logistics costs;
partially offset by:
•favorable foreign exchange; and
•lower bad debt reserves for accounts receivable.
Research and development expenses
Three Months Ended
March 31, %
(MILLIONS OF DOLLARS) 2023 2022 Change
Research and development expenses $ 142  $ 122  16 
% of revenue 7  % 6  %
Three months ended March 31, 2023 vs. three months ended March 31, 2022
R&D expenses increased by $20 million, or 16%, in the three months ended March 31, 2023, compared with the three months ended March 31, 2022, primarily as a result of:
•an increase in certain compensation-related costs to support innovation;
•higher other operating costs; and
•increased spending driven by project investments,
partially offset by:
•favorable foreign exchange.
Amortization of intangible assets
Three Months Ended
March 31, %
(MILLIONS OF DOLLARS) 2023 2022 Change
Amortization of intangible assets $ 37  $ 41  (10)
Three months ended March 31, 2023 vs. three months ended March 31, 2022
Amortization of intangible assets decreased in the three months ended March 31, 2023 versus the comparable prior year period primarily due to asset impairments taken in 2022 and assets that became fully amortized during 2022, partially offset by intangible assets acquired during 2022.
Restructuring charges and certain acquisition-related costs
Three Months Ended
March 31, %
(MILLIONS OF DOLLARS) 2023 2022 Change
Restructuring charges and certain acquisition-related costs $ 21  $ 2  *
* Calculation not meaningful
Three months ended March 31, 2023 vs. three months ended March 31, 2022
Restructuring charges and certain acquisition-related costs were $21 million and $2 million in the three months ended March 31, 2023 and 2022, respectively. Restructuring charges and certain acquisition-related costs in the three months ended March 31, 2023 primarily consisted of employee termination costs related to organizational structure refinements. Restructuring charges and certain acquisition-related costs in the three months ended March 31, 2022 primarily consisted of integration costs related to recent acquisitions.

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