ZTS Zoetis Inc. - 10-K

Item 1A. Risk Factors.

In addition to the other information set forth in this 2025 Annual Report, any of the factors described below could materially adversely affect our operating results, financial condition and liquidity, which could cause the trading price of our securities to decline.

This report contains “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect our current views with respect to, among other things, future events and performance. We generally identify forward-looking statements by using words such as “anticipate,” “estimate,” “could,” “expect,” “intend,” “project,” “plan,” “predict,” “believe,” “seek,” “continue,” “outlook,” “forecast,” “objective,” “target,” “may,” “might,” “will,” “should,” “can have,” “likely” or the negative version of these words or comparable words or by using future dates in connection with any discussion of future performance, actions or events. Forward-looking statements are based on beliefs and assumptions made by management using currently available information. These statements are not guarantees of future performance, actions or events.

In particular, forward-looking statements include statements relating to our future actions, business plans or prospects, prospective products, product approvals or products under development, product and supply chain disruptions, R&D costs, timing and likelihood of success, future operating or financial performance, future results of current and anticipated products and services, strategies, sales efforts, expenses, production efficiencies, production margins, anticipated timing of generic market entries, integration of acquired businesses, anticipated impact or timing of divestitures, interest rates, tax rates, tariffs, changes in tax regime s and laws, impacts of the timing and processing of sales in the International segment, possible impacts of the expected fiscal year alignment o f our subsidiaries operating outside the U.S., foreign exchange rates, growth in emerging markets, the outcome of contingencies, such as legal proceedings, plans related to share repurchases an d dividends, government regulation, taxes and financial results. Forward-looking statements are subject to risks and uncertainties, many of which are beyond our control, and potentially inaccurate assumptions. However, there may also be other risks that we are unable to predict at this time. If one or more of these risks or uncertainties materialize, or if management's underlying beliefs and assumptions prove to be incorrect, actual results may differ materially from those contemplated by a forward-looking statement. You should not put undue reliance on forward-looking statements. Forward-looking statements speak only as of the date on which they are made.

We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law or by the rules and regulations of the SEC. You are advised, however, to consult any further disclosures we make on related subjects in our Form 10-Q and 8-K reports and our other filings with the SEC. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties.

Risks related to our business and the animal health industry

The animal health industry is highly competitive.

We believe many of our competitors are conducting R&D activities in areas served by our products and in areas in which we are developing products. Our competitors include standalone animal health businesses, start-up companies working in the animal health area and the animal health businesses of large pharmaceutical companies. These competitors may have access to greater financial, marketing, technical and other resources or have significant market share in particular areas. As a result, they may be able to devote more resources to researching, developing, manufacturing, marketing and selling their products, initiating or withstanding substantial price competition or more readily taking advantage of acquisitions, collaborations or other opportunities. In recent years, there has been an increase in consolidation in the animal health industry, which could result in existing competitors realizing additional efficiencies or improving portfolio bundling opportunities, thereby potentially increasing their market share and pricing power, which could lead to an increase in competition and a decrease in our revenue and profitability. We also face competition from lower-priced generic alternatives to our products that no longer have patent protection.

To the extent that any of our competitors are more successful with respect to any key competitive factor or we are forced to reduce, or are unable to raise, the price of any of our products in order to remain competitive, our operating results and financial condition could be materially adversely affected.

Our results of operations are dependent upon the success of our top-selling products.

There are many difficulties and uncertainties inherent in animal health research and development, the introduction of new products and indications, business development activities to enhance or refine our product pipeline and the commercialization of our products. There is a high rate of failure inherent in medicine and vaccine discovery and development. Failure can occur at any point in the process, including in later stages after substantial investment and following meaningful cost for manufacturing capabilities and inventory to prepare for launch. Some of our top-selling products or product lines have in the past or may in the future experience issues, such as loss of patent protection, material product liability litigation, new or unexpected side effects (or an increased frequency of serious, expected adverse events), manufacturing or supply chain disruptions, regulatory proceedings or enforcement, labeling changes, public regulatory communications, other regulatory correspondence, including “Dear Veterinarian” Letters, negative publicity or social media attention, changes to veterinarian or customer preferences, or ineffectiveness in connecting with veterinarians and customers and/or disruptive innovations or the introduction of competing and/or more effective products, our revenues could be negatively impacted, perhaps significantly. For example, our five top-selling products and product lines, Simparica/Simparica Trio, Apoquel/Apoquel Chewable, Cytopoint, Librela and our ceftiofur line, contributed approximately 42% of our revenue in 2025, and certain issues with these top-selling products and product lines could have a more significant impact to our results of operations.

Our products are subject to unanticipated safety, quality or efficacy concerns.

Our products generally receive regulatory approval based on data obtained in controlled clinical trials. After approval and launch, the products are used for longer periods of time by much larger numbers of animals worldwide, which may lead to identifying new safety or efficacy concerns. In addition, we or others may conduct post-marketing clinical studies on efficacy and safety of our marketed products. Unanticipated safety, quality or efficacy concerns have, and could in the future, arise with respect to our products, whether or not scientifically or clinically supported, which have in the past and could in the future lead to product recalls, label changes or other measures that could reduce the product’s market acceptance, public

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regulatory communications, negative publicity or social media attention, withdrawals from the market or suspended or declining sales. Safety issues have, and could in the future, result in costly product liability and other claims. Any of these outcomes could result in material financial, legal, commercial, or reputational harm to our business.

Regulatory actions based on these types of safety, quality or efficacy concerns could impact all or a significant portion of a product’s sales and could, depending on the circumstances, materially adversely affect our operating results.

Since we depend on positive perceptions of the safety, quality and efficacy of our products, and animal health products generally, by our customers, veterinarians and end-users, any concerns as to the safety, quality or efficacy of our products, whether actual or perceived, has and in the future may harm our reputation or materially adversely affect our operating results and financial condition, regardless of whether such concerns are accurate. Public confidence in pharmaceuticals has been challenged in recent years by highly publicized debates about vaccine safety, the spread of misinformation and disinformation on traditional and social media, and increasing skepticism toward public health institutions including animal health institutions. These trends could materially and adversely impact our ability to successfully develop, obtain regulatory approval for, and commercialize our products.

Our business is subject to risk based on global economic and political conditions.

Macroeconomic, business, political and financial disruptions, including public health crises or pandemics, could have a material adverse effect on our operating results, financial condition and liquidity. Certain of our customers and suppliers may be affected directly by economic downturns and could face credit issues or cash flow problems that could give rise to payment delays, increased credit risk, bankruptcies and other financial hardships that could decrease the demand for our products or hinder our ability to collect amounts due from customers or goods from our suppliers. If one or more of our large customers, including distributors, discontinue their relationship with us as a result of economic conditions, public health conditions, sanctions or otherwise, our operating results and financial condition may be materially adversely affected. In addition, economic concerns and geopolitical instability may cause shortages in veterinary healthcare workers or some pet owners to forgo or defer visits to veterinary practices or could reduce their willingness to treat pet health conditions or even to continue to own a pet. Moreover, customers may seek lower price alternatives to our products if they are negatively impacted by the current poor economic conditions. Russia’s invasion of Ukraine, ongoing conflicts and rising tensions in various parts of the world, economic weakness in China, future pandemics, as well as inflation, are examples of global economic conditions that could have an adverse effect on our operating results, financial condition and liquidity.

Infectious disease outbreaks, pandemics, sanctions, geopolitical instability and widespread fear of spreading disease through human contact can cause disruptions to or negatively impact our customers’, our suppliers’ and our distributors’ business operations, which could materially adversely affect our operating results. Furthermore, our exposure to credit and collectability risk is higher in certain international markets, our ability to mitigate such risks may be limited. While we have procedures to monitor and limit exposure to credit and collectability risk and have defensive measures in place to prevent and mitigate cyberattacks, there can be no assurances that such procedures and measures will effectively limit such risks and avoid losses.

Generic and other products may be viewed as more cost-effective than our products.

We face competition from products produced by other companies, including generic alternatives to our products. We depend on patents and regulatory data exclusivity periods to provide us with exclusive marketing rights for some of our products. Patents for individual products expire at different times based on the date of the patent filing (or sometimes the date of patent grant) and the legal term of patents in the countries where such patents are obtained. The extent of protection afforded by our patents varies from country to country and is limited by the scope of the claimed subject matter of our patents, the term of the patent and the availability and enforcement of legal remedies in the applicable country and potential legislative or regulatory changes to the underlying patent framework. As a result, we face competition from lower-priced generic alternatives to many of our products that no longer have patent protection. In certain circumstances, our products have become subject to decreased sales and we have been forced to lower our prices and provide discounts or rebates in order to compete with generic products. Generic competitors are becoming more aggressive in terms of launching at risk before patent rights expire and, because of their pricing, are an increasing percentage of overall animal health sales in certain regions. For example, several companies have launched generic versions of our Rimadyl chewable and Draxxin products. In the years since the start of generic and other competition, sales of our Rimadyl chewable and Draxxin products have declined in the U.S., the largest market for these products, by 39% and 66%, respectively.

If animal health customers increase their use of new or existing generic products, our operating results and financial condition could be materially adversely affected.

Consolidation of our customers and distributors could negatively affect the pricing of our products.

Veterinarians and livestock producers are our primary customers. In recent years, there has been a trend towards the concentration of veterinarians in large clinics and hospitals. In addition, livestock producers, particularly swine and poultry producers, and our distributors, have seen consolidation in their industries. Furthermore, we have seen the expansion of larger cross-border corporate customers and an increase in the consolidation of buying groups (cooperatives of veterinary practices that leverage volume to pursue discounts from manufacturers). If these trends continue, these customers and distributors could attempt to improve their profitability by leveraging their buying power to obtain favorable pricing. The resulting decrease in our prices could have a material adverse effect on our operating results and financial condition.

Changes in distribution channels for companion animal products could negatively impact our market share, margins and distribution of our products.

In most markets, companion animal owners frequently purchase their animal health products directly from veterinarians. Companion animal owners increasingly have the option to purchase animal health products and, in some cases, veterinary services from sources other than veterinarians, such as internet-based retailers, “big-box” retail stores or other over-the-counter distribution channels. Companion animal owners also could decrease their reliance on veterinarians as they rely more on internet-based animal health information. Because we primarily market our companion animal products through the veterinarian distribution channel, any decrease in reliance on veterinarians by companion animal owners could reduce our market share for such products and materially adversely affect our operating results and financial condition. In addition, companion animal owners may substitute human health products for animal health products if human health products are deemed to be lower-cost alternatives.

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In the U.S. and certain other markets, these and other competitive conditions have increased, and may continue to increase, our reliance on internet-based retailers, “big-box” retail stores or other over-the-counter distribution channels to sell our companion animal products. Over time we may be unable to sustain our current margins due to the increased purchasing power of such retailers as compared to traditional veterinary practices. Any of these events could materially adversely affect our operating results and financial condition.

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

Sales of our livestock products could be materially adversely affected by the outbreak of disease carried by animals, which could lead to the widespread death or precautionary destruction of animals as well as the reduced consumption and demand for animal protein. In addition, outbreaks of disease carried by animals may reduce regional or global sales of particular animal-derived food products or result in reduced exports of such products, either due to heightened export restrictions or import prohibitions, which may reduce demand for our products due to reduced herd or flock sizes. In recent years, outbreaks of various diseases, including African Swine Fever, avian influenza and highly pathogenic avian influenza, foot-and-mouth disease, bovine spongiform encephalopathy (otherwise known as BSE or mad cow disease), New World screwworm, and porcine epidemic diarrhea virus (otherwise known as PEDv), have impacted the animal health business. The discovery of additional or more severe cases of any of these, or new diseases may result in additional restrictions on animal proteins, reduced herd sizes, or reduced demand for animal protein, which may have a material adverse effect on our operating results and financial condition. Also, the outbreak of any highly contagious disease near our main production sites could require us to immediately halt production of our products at such sites or force us to incur substantial expenses in procuring raw materials or products elsewhere.

Disruptive innovations and advances in medical practices and technologies could negatively affect the market for our products.

The market for our products could be impacted negatively by the introduction and/or broad market acceptance of newly-developed or alternative products that address the diseases and conditions for which we sell products, including “green” or “holistic” health products or specially bred disease-resistant animals. In addition, technological breakthroughs by others may obviate our technology and reduce or eliminate the market for our products. Introduction or acceptance of such products or technologies could materially adversely affect our operating results and financial condition.

Implementing new business lines or offering new products and services may subject us to additional risks.

From time to time, we may implement new business lines or offer new products and services within existing lines of business. There may be substantial risks and uncertainties associated with these efforts. We may invest significant time and resources in researching, developing, marketing, or acquiring new lines of business and/or offering new products and services. Initial timetables for the introduction and development or acquisition of new lines of business and/or the offering of new products or services may not be achieved, and price and profitability targets may prove to be unachievable. Our lack of experience or knowledge, as well as external factors, such as compliance with new or evolving regulations, legislative changes, regulatory interactions, competitive alternatives and shifting market preferences, may also impact the success of an acquisition or the implementation of a new line of business or a new product or service. New business lines or new products and services within existing lines of business could affect the sales and profitability of existing lines of business or products and services. Failure to successfully manage these risks in the implementation or acquisition of new lines of business or the offering of new products or services could have a material adverse effect on our reputation, business, results of operations, and financial condition.

Restrictions and bans on the use of and/or consumer preferences regarding antibacterials in food-producing animals may become more prevalent.

The issue of the potential transfer of increased antibacterial resistance in bacteria from food-producing animals to human pathogens, and the causality of that transfer, continue to be the subject of global scientific and regulatory discussion. In some countries, this issue has led to government restrictions and bans on the use of specific antibacterials in some food-producing animals. These restrictions are more prevalent in countries where animal protein is plentiful and governments are willing to take action even when there is scientific uncertainty. Our total revenue attributable to antibacterials for livestock was approximately $713 million for the year ended December 31, 2025.

For example, regulations regarding antibiotic usage in animals have been introduced in several markets, including the U.S., the EU, the U.K., China and Vietnam. In addition, certain jurisdictions like Italy have implemented the use of electronic prescriptions, which has caused more disciplined use of antibiotics and decreased the demand for our antibacterial products. Also, in certain markets, there has been an increase in consumer preference towards proteins produced without the use of antibiotics.

We cannot predict whether antibacterial resistance concerns will result in additional restrictions or bans, expanded regulations, public pressure to discontinue or reduce use of antibacterials in food-producing animals or increased consumer preference for antibiotic-free protein, any of which could materially adversely affect our operating results and financial condition.

Perceived adverse effects linked to the consumption of food derived from animals that utilize our products or animals generally could cause a decline in the sales of such products.

Our livestock business depends heavily on a healthy and growing livestock industry. If the public perceives a risk to human health from the consumption of the food derived from animals that utilize our products, there may be a decline in the production of such food products and, in turn, demand for our products. Furthermore, changing consumer preferences and increasing consumer interest in alternatives to animal-based protein and dairy products has driven the growth of plant-based substitutes. Any reputational harm to the livestock industry may also extend to companies in related industries, including our company. Adverse consumer views related to the use of one or more of our products, including vaccines, in livestock also may result in a decrease in the use of such products and could materially adversely affect our operating results and financial condition.

Increased regulation or decreased governmental financial support relating to the raising, processing or consumption of food-producing animals could reduce demand for our livestock products.

Companies in the livestock industries are subject to extensive and increasingly stringent regulations. If livestock producers are adversely affected by new regulations or changes to existing regulations, they may reduce herd sizes or become less profitable and, as a result, they may reduce their use of our products, which may materially adversely affect our operating results and financial condition. Also, many food-producing companies, including livestock producers, benefit from governmental subsidies, and if such subsidies were to be reduced or eliminated, these companies may become less

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profitable and, as a result, may reduce their use of our products. Furthermore, new or more stringent regulations could, directly or indirectly, impact the use of one or more of our products. More stringent regulation of the livestock industry or our products could have a material adverse effect on our operating results and financial condition.

We may not successfully acquire and integrate other businesses, license rights to technologies or products, form and manage alliances or divest businesses.

We pursue acquisitions, technology licensing arrangements, strategic alliances or divestitures of some of our businesses as part of our business strategy. We may not complete these transactions in a timely manner, on a cost-effective basis, or at all, due to regulatory constraints or limitations or other unforeseen factors that prevent us from realizing the expected benefits. We may be unable to integrate acquisitions successfully into our existing business, and we may be unable to achieve expected sales, gross margin improvements or efficiencies. We may be subject to litigation or government investigations in connection with, or as a result of, acquisitions, dispositions, licenses or other alliances. While our evaluation of any potential transaction includes business, legal and financial due diligence with the goal of identifying and evaluating the material risks involved, our due diligence reviews may not identify all of the issues necessary to accurately estimate the cost and potential loss contingencies of a particular transaction, including potential exposure to regulatory sanctions or fines resulting from an acquisition target's previous activities, inadequate controls, or costs associated with any quality issues with an acquisition target’s legacy products. Any of these events could cause us to incur significant expenses and could materially adversely affect our operating results and financial condition.

Changes in trade policies, including the imposition of tariffs, sanctions, and other trade restrictions, may adversely affect our business.

The U.S. and other countries in which our products are sourced or sold, or we or our customers do business, may from time to time modify existing or impose new quotas, duties (including antidumping or countervailing duties), tariffs, economic sanctions, export controls, or other restrictions in a manner that adversely affects us. Such measures could limit our ability to register our products, source materials, sell products, or conduct our business in certain markets. While the scope and duration of any existing trade policies remain uncertain, any new tariffs imposed by the U.S. or other governments on our products or the active pharmaceutical ingredients or other components thereof could negatively impact our financial condition and results of operations.

Current or future tariffs or other restrictive trade measures may raise the costs of raw materials, components or finished goods, which may adversely impact both our product offerings and our operational expenses. Our manufacturers, suppliers and distribution channels may also experience supply chain disruptions as a result of increased costs and uncertainty. Duties are assessed based on import value. Each jurisdiction applies its own rules and procedures for import valuation, increasing the complexity and risk of errors. While we maintain procedures to ensure compliance, there is no guarantee these will prevent all errors, and regulatory changes may heighten this risk.

Additional tariffs and other trade restrictions could result in a negative perception and/or an increased cost of goods and higher prices which may reduce demand for products and services, or extended sales cycles as customers assess the impact of evolving trade policies on their operations and face increased costs or decreased revenue. Additionally, a number of our customers, particularly U.S.-based livestock producers, benefit from free trade agreements, the loss of which could impact their operating results and spending power. Tariff and other trade-related cost pressures and supply chain disruptions may lead to reputational harm if we are unable to deliver products or services on expected timelines or if any price increases are poorly received by customers or business partners.

In addition, retaliatory trade policies or anti-U.S. sentiment in certain regions whether driven by trade tensions, political disagreements or regulatory concerns may make customers, governments and investors more hesitant to engage with, purchase from or invest in U.S. companies. This may lead to increased preference for local competitors, changes to government procurement policies or heightened regulatory scrutiny, which may result in heightened operational risks and difficulties for us in attracting and retaining non-U.S. customers, suppliers, partners and investors.

Our business may be negatively affected by weather conditions, natural disasters and the availability of natural resources.

Adverse weather events and natural disasters may interfere with and negatively impact operations at our manufacturing sites, research and development facilities and office buildings, which could have a material adverse effect on our operating results and financial condition, especially if such interruptions to regular operations are frequent or prolonged.

Weather conditions, including excessive cold or heat, natural disasters, floods, droughts and other events, could negatively impact our livestock customers by impairing the health or growth of their animals or the production or availability of feed. Such events could also interfere with our livestock customers’ operations due to power outages, fuel shortages, damage to their farms or facilities or disruption of transportation channels, among other things. In the event of a natural disaster, adverse weather conditions, or a shortage of fresh water, veterinarians or livestock producers may purchase less of our products and our operating results and financial condition could be materially adversely affected.

In addition, veterinary hospitals and practitioners depend on visits from and access to animals under their care. Veterinarians’ patient volume and ability to operate could be adversely affected if they experience natural disasters or adverse weather conditions, including floods, fires, earthquakes and hurricanes or other storms, or prolonged snow or ice, particularly in regions not accustomed to sustained inclement weather.

Climate change could have a material adverse impact on our and our customers’ businesses.

We operate in many regions, countries and communities around the world where our businesses, our activities and the activities of our customers and suppliers, could be disrupted by climate change. Potential physical risks from climate change may include altered distribution and intensity of rainfall, prolonged droughts or flooding, increased frequency of wildfires and other natural disasters, rising sea levels, and a rising heat index, any of which could cause negative impacts to our and our customers’ and suppliers’ businesses. The physical changes caused by climate change may also prompt changes in regulations or consumer preferences which in turn could have negative consequences for our and our customers’ businesses. Climate change may negatively impact our customers’ operations, particularly those in the livestock industry, through climate-related impacts such as increased air and water temperatures, rising water levels and increased incidence of disease in livestock. In addition, concerns regarding greenhouse gas emissions and other potential environmental impacts from livestock production have led to some consumers opting to limit or avoid consuming animal products. If such events affect our customers’ businesses, they may purchase fewer Zoetis products, and our revenues may be negatively impacted. Such climate driven changes could have a material adverse impact on the financial performance of our business, and on our customers.

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The impacts from climate change may also impact Zoetis’ and our suppliers’ manufacturing processes. For example, clean water is needed to produce our products, and the effects from climate change could result in water supply interruptions and low water quality. In addition, increased frequency of natural disasters and adverse weather conditions as a result of climate change may disrupt our manufacturing processes or our supply chain. These disruptions may have a material adverse effect on our business, financial condition, results of operations and/or cash flows.

Our business is subject to risk based on customer exposure to rising costs and reduced customer income.

Concerns about the financial resources of pet owners could cause veterinarians to alter their treatment recommendation in favor of lower-cost alternatives to our products. Also, feed, fuel and transportation and other key costs for livestock producers may increase or animal protein prices or sales may decrease. These trends could result in a decrease in sales of our companion animal products, especially in developed countries where there is a higher rate of pet ownership, inhibit our livestock product customers from paying us for products delivered or reduce spending on our products.

Our business may be harmed if we are unable to retain and hire executive officers or other key personnel.

We depend on the efforts of our executive officers and certain key personnel, including research, technical, legal and regulatory, sales, security, marketing, manufacturing and administrative personnel. Our ability to recruit and retain such talent will depend on a number of factors, including compensation and benefits, work location and work environment. From time to time there may be shortages of skilled labor, which may make it more difficult for us to attract and retain qualified employees or lead to increased labor costs. In addition, we generally do not enter into employment agreements with our executive officers and other key personnel. If we cannot effectively recruit and retain qualified executives and employees, we may not be able to maintain or expand our operations, or our business could be otherwise adversely affected and could, at least temporarily, have a material adverse effect on our operating results and financial condition.

Our business could be adversely affected by labor disputes, strikes or work stoppages.

Some of our employees are members of unions, works councils, trade associations or are otherwise subject to collective bargaining agreements in certain jurisdictions, including the U.S. As a result, we are subject to the risk of labor disputes, strikes, work stoppages and other labor-relations matters. We may be unable to negotiate new collective bargaining agreements on similar or more favorable terms and may experience work stoppages or other labor problems in the future at our sites. We could experience a disruption of our operations or higher ongoing labor and other operational costs, which could have a material adverse effect on our operating results and financial condition, potentially resulting in canceled orders by customers, delays in fulfilling orders, unanticipated inventory accumulation or shortages and reduced revenue and net income. We may also experience difficulty or delays in implementing changes to our workforce in certain markets. In addition, labor problems at our suppliers, CMOs or other service providers could have a material adverse effect on our operating results and financial condition.

We may be required to write down goodwill or identifiable intangible assets.

Under accounting principles generally accepted in the United States of America (U.S. GAAP), if we determine goodwill or identifiable intangible assets are impaired, we will be required to write down these assets and record a non-cash impairment charge. As of December 31, 2025, we had goodwill of $2.8 billion and identifiable intangible assets, less accumulated amortization, of $1.0 billion. Identifiable intangible assets consist primarily of developed technology rights, brands, trademarks, license agreements, patents, acquired customer relationships and in-process R&D.

Determining whether an impairment exists and the amount of the potential impairment involves quantitative data and qualitative criteria that are based on estimates and assumptions requiring significant management judgment. Future events or new information may change management's valuation of an intangible asset in a short amount of time. The timing and amount of impairment charges recorded in our Consolidated Statements of Income and write-downs recorded in our Consolidated Balance Sheets could vary if management's conclusions change. Any impairment of goodwill or identifiable intangible assets could have a material adverse effect on our operating results and financial position.

Risks related to manufacturing and supply

Manufacturing problems and capacity imbalances may cause product launch delays, inventory shortages, recalls or unanticipated costs.

In order to sell our products, we must be able to produce and ship our products in sufficient quantities. On December 31, 2025, we had a global manufacturing network consisting of 21 manufacturing sites located in 10 countries. We also employ a network of over 90 third-party CMOs. Many of our products involve complex manufacturing processes and are sole-sourced from certain manufacturing sites.

Minor deviations in our or our suppliers' manufacturing or logistical processes, such as temperature excursions or improper package sealing, could result in delays, inventory shortages, unanticipated costs, product recalls, product liability and/or regulatory action. In addition, a number of factors could cause production interruptions, including:

• the failure of us or any of our vendors or suppliers, including logistical service providers, to comply with applicable regulations and quality assurance guidelines, including any changes to Good Manufacturing Practices (GMPs);

• the failure to accurately forecast demand for our products;

• mislabeling;

• construction delays;

• equipment malfunctions;

• shortages of materials;

• labor problems, including any pandemic-related impacts;

• delays in receiving any required governmental authorizations or regulatory approvals, including as a result of any prolonged shutdown of the U.S. government;

• natural disasters and adverse weather conditions;

• power outages;

• criminal and terrorist activities;

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• changes in manufacturing production sites and limits to manufacturing capacity due to regulatory requirements, changes in types of products produced, shipping distributions or physical limitations; and

• the outbreak of any highly contagious diseases at or near our production sites.

These interruptions could result in launch delays, inventory shortages, recalls, unanticipated costs or issues with our agreements under which we supply third parties, which may adversely affect our operating results and financial condition. For example, during the COVID-19 pandemic we experienced challenges in manufacturing certain products including Simparica Trio, and the component parts of certain products including Librela and Solensia, that have impacted our ability to meet customer demand. As a result, we had to take certain measures including placing limits on the amounts of product veterinarians could purchase and delayed the launch of the product in certain markets.

Our manufacturing network, including our CMOs, may be unable to meet the demand for our products or we may have excess capacity if demand for our products changes. The unpredictability of a product's regulatory or commercial success or failure, the lead time necessary to construct highly technical and complex manufacturing sites, and shifting customer demand (including as a result of market conditions or entry of branded or generic competition) increase the potential for capacity imbalances. In addition, construction of sites is expensive, and our ability to recover costs will depend on the market acceptance and success of the products produced at the new sites, which is uncertain.

We rely on third parties to provide us with products, materials and services, and are subject to increased labor and material costs and potential disruptions in supply.

Labor costs and the materials used to manufacture our products may be subject to availability constraints and price volatility caused by changes in demand, weather conditions, supply conditions, government regulations, evolving trade policies (including the imposition of tariffs), economic climate and other factors. Increases in the demand for, availability, or the price of materials used to manufacture our products and increases in labor costs could increase the costs to manufacture our products, result in product delivery delays or shortages, and impact our ability to launch new products on a timely basis or at all. We may not be able to pass all or a material portion of any higher product, material, transportation or labor costs on to our customers, which could materially adversely affect our operating results and financial condition.

Certain third-party suppliers may be the sole or exclusive source of certain products, materials and services necessary for production of our products. We may be unable to meet demand for certain of our products if any of our third-party suppliers cease or interrupt operations due to, among other things, escalating tensions or trade disputes in their region, restrictions on the import/export of goods or services, contract manufacturing or supply chain disruptions due to financial distress, our failure to mutually agree on contract terms, or some other failure of a contractor or supplier to meet their obligations to us. In such a case, we may be required to renegotiate the terms of our agreement or pursue a strategic transaction or other alternative arrangement with that supplier or others, which may result in increased cost to produce our products or supply disruption.

There may be delays and additional costs due to changes to our existing manufacturing facilities and the construction of new manufacturing plants.

As part of our supply network strategy, we have invested and will continue to invest in improvements to our existing manufacturing facilities and in new manufacturing plants. In addition, certain of our existing manufacturing facilities are in the process of being upgraded. These types of projects are subject to risks of delay or cost overruns inherent in any large construction project, and require licensure and/or inspection by various regulatory authorities. Significant cost overruns or delays in completing these projects could have an adverse effect on our return on investment.

Risks related to our research and development

Our R&D, acquisition and licensing efforts may fail to generate new products and product lifecycle innovations.

Our future success depends on both our existing product portfolio and our pipeline of new products, including new products that we may develop through joint ventures and products that we are able to obtain through license or acquisition. We commit substantial effort, funds and other resources to R&D, both through our own dedicated resources and through collaborations with third parties.

We may be unable to determine with accuracy when or whether any of our products now under development will be approved or launched, or we may be unable to develop, license or otherwise acquire product candidates or products. In addition, we cannot predict whether any products, once launched, will be commercially successful or will achieve sales and revenue that are consistent with our expectations. The animal health industry is subject to regional and local trends and regulations and, as a result, products that are successful in some of our markets may not achieve similar success when introduced into new markets. Furthermore, the timing and cost of our R&D may increase, and our R&D may become less predictable. If we are unable to generate new products or expand the use of our existing products, our business, financial condition and results of operations will be materially adversely affected.

New product R&D leverages discoveries of pharmaceutical and biotechnology R&D. We have and expect to continue to enter into collaboration or licensing arrangements with third parties to provide us with access to molecules, compounds and other technology for purposes of our business. Such agreements are typically complex and require time to negotiate and implement. If we enter into these arrangements, we may not be able to maintain these relationships or establish new ones in the future on acceptable terms or at all. In addition, any collaboration that we enter into may not be successful, and the success may depend on the efforts and actions of our collaborators, which we may not be able to control. If we are unable to access these technologies to conduct R&D on cost-effective terms, our ability to develop some types of new products could be limited.

We may experience difficulties or delays in the development and commercialization of new products.

New products may appear promising in development but fail to reach the market within the expected or optimal timeframe, or at all. In addition, product extensions or additional indications may not be approved by government regulators. Developing and commercializing new products subjects us to inherent risks and uncertainties, including (i) delayed or denied regulatory approvals or label changes, (ii) delays or challenges with producing products in accordance with regulatory requirements, on a commercial scale and at a reasonable cost; (iii) failure to accurately predict the market for new products; and (iv) efficacy, quality and safety concerns. In addition, a failure to continue to identify and develop products, both internally and through external sources, could impact our future success. Once necessary regulatory approvals are obtained, the commercial success of any new product depends upon, among other things, its acceptance by veterinarians and end customers, and on our ability to successfully manufacture, market,

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and distribute products in sufficient quantities to meet actual demand. The inability to successfully bring a product to market could negatively impact our revenues and earnings.

Our R&D relies on evaluations in animals, which may become subject to bans or additional restrictive regulations.

The evaluation of our existing and new medicines and vaccines for animals is required in order to develop and commercialize them. Animal testing in certain countries and states has been the subject of increased regulation, controversy and adverse publicity. Our licenses or permits for animal testing could be revoked or put on hold due to animal welfare events that may occur. Some organizations and individuals have attempted to ban or limit animal testing or encourage the adoption of additional, and burdensome regulations applicable to animal testing and animal welfare at both federal and state levels. To the extent that the activities of such organizations and individuals are successful, our R&D, and by extension our operating results and financial condition, could be materially adversely affected. In addition, negative publicity about us or our industry could impact R&D projected timelines or harm our reputation or the reputation of our contract research organizations.

Risks related to legal matters and regulation

Our business is subject to substantial regulation.

As a global company, we are subject to various state, federal and international laws and regulations, including but not limited to, regulations relating to the research, development, quality assurance, manufacturing, data protection, environmental protection, importation, exportation, distribution, marketing and sale of our products, including our in vitro diagnostic products used in human health. In addition, our manufacturing facilities are subject to periodic inspections by regulatory agencies, such as the FDA, the USDA and foreign equivalents. Our failure, or the failure of third parties we rely on, including CMOs, to comply with these regulatory requirements, allegations of such non-compliance or the discovery of previously unknown problems with a product or manufacturer could result in, among other things, inspectional observation notices, label changes, untitled or warning letters or other public regulatory communications or correspondence, including "Dear Veterinarian" letters, fines, a partial or total shutdown of production in one or more of our facilities while an alleged violation is remediated, withdrawals or suspensions of current products from the market, product seizures, injunctions and civil or criminal prosecution, as well as decreased sales as a result of negative publicity and product liability claims. Any one of these consequences could materially adversely affect our operating results and financial condition. Furthermore, we cannot predict the nature of future laws, regulations, or changes in tax laws and tariffs, nor can we determine the effect that additional laws or regulations or changes in existing laws or regulations could have on our business when and if promulgated. Changes in applicable federal, state, local and foreign laws and regulations could have a material adverse effect on our operating results and financial condition.

In addition, we will not be able to market new products unless and until we have obtained all required regulatory approvals in each jurisdiction where we propose to market those products. Delays by government agencies in approving new products or product upgrades or taking action with respect to other regulatory matters could have a negative impact on our growth and profitability. The ability of government agencies to review and approve new products or product upgrades or take other actions can be affected by various factors, including government budget and funding levels, ability to hire and retain key and other personnel, staffing shortages, public health emergencies, and statutory, regulatory, and policy changes. If a prolonged government shutdown or other disruption of normal business operations occurs, it could significantly impact the ability of the USDA, FDA, EPA and other agencies to timely review and process our regulatory submissions, including with respect to new product candidates, which could have an adverse effect on our business. Even after a product reaches market, it may be subject to re-review and may lose its registrations or approvals. We have changed, and may in the future change, the locations of where certain of our products are manufactured and, because of these changes, we may be required to obtain new regulatory approvals. Our failure to obtain approvals, delays in the approval process, including any delays in the United States resulting from federal workforce reductions or hiring freezes, federal agency reorganizations or deregulatory efforts, or any prolonged shutdown of the U.S. government, or our failure to maintain approvals in any jurisdiction, may prevent us from selling products in that jurisdiction until approval or reapproval is obtained, if ever.

The OFAC at the U.S. Treasury Department and the Bureau of Industry and Security at the U.S. Department of Commerce (BIS), The Council of the EU and similar agencies in other countries and territories, administer certain laws and regulations that restrict its persons and, in some instances, extraterritorial persons, in conducting activities, transacting business with or making investments in certain countries, governments, entities and individuals subject to economic sanctions. Our international operations subject us to these laws and regulations, which are complex, restrict our business dealings with certain countries, governments, entities, and individuals, and are constantly changing. For example, we sell limited humanitarian animal health products, including medicines and vaccines, to Russia and Iran. Although we believe such activities are in compliance with economic sanctions affecting these countries, violations of sanctions regulations may be punishable by civil penalties, including fines, denial of export privileges, injunctions, asset seizures, debarment from government contracts and revocations or restrictions of licenses, as well as criminal fines and imprisonment, which could adversely affect our reputation, business, financial condition, results of operations and cash flows. In addition, our internal control policies and procedures may not protect us from reckless or criminal acts committed by our employees and agents or operational difficulties arising from counterparties or other intermediaries.

A failure to comply with the environmental, health and safety laws and regulations to which we are subject, including any permits issued thereunder, may result in environmental remediation costs, loss of permits, public regulatory communications or announcements, fines, penalties or other adverse governmental or private actions, including regulatory or judicial orders enjoining or curtailing operations or requiring corrective measures, installation of pollution control equipment or remedial measures. We cannot assure you that our costs of complying with current and future environmental, health and safety laws, and our liabilities arising from past or future releases of, or exposure to, hazardous materials will not materially adversely affect our business, results of operations or financial condition.

There has been a broad range of proposed and promulgated state, national and international regulation aimed at reducing the effects of climate change. Such regulations apply or could apply in countries where we have interests or could have interests in the future. The EU adopted the European Sustainability Reporting Standards (ESRS) and the Corporate Sustainability Reporting Directive (CSRD) that will require disclosure by EU entities, including certain EU subsidiaries of non-EU entities, regarding the risks and opportunities arising from environmental, social and corporate governance issues, and on the impact of companies' activities on people and the environment. Similarly, the State of California passed the Climate Corporate Data Accountability Act and the Climate-Related Financial Risk Act that imposes broad climate-related disclosure obligations on certain

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companies doing business in California, including us. Any new regulation could result in additional costs in the form of investments of capital to maintain compliance with laws and regulations and taxes. Climate change regulation continues to evolve, and it is not possible to accurately estimate the timing for the emergence of new regulation, their scope or our future costs relating to implementation and compliance.

We are also subject to chemical regulation in the United States and internationally. For example, governmental authorities in the EU and the United States are increasingly focused on preventing environmental contamination from per- and polyfluoroalkyl substances (PFAS), which may be contained in certain of our products or product packaging. Federal and state governments and regulatory agencies, like the European Chemicals Agency, are in various stages of considering and/or implementing laws and regulations requiring the reporting, restriction and/or phase-out of PFAS-containing products (subject to applicable product exceptions).

Furthermore, we cannot predict the nature of future laws, regulations, or changes in tax laws and tariffs, nor can we determine the effect that additional laws or regulations or changes in existing laws or regulations could have on our business when and if promulgated. Changes in applicable federal, state, local and foreign laws and regulations could have a material adverse effect on our operating results and financial condition.

We may incur substantial costs and receive adverse outcomes in litigation and/or other legal matters.

Our operating results, financial condition and liquidity could be materially adversely affected by unfavorable results in pending or future litigation matters. In addition, changes in the interpretations of laws and regulations to which we are subject, or in legal standards in one or more of the jurisdictions in which we operate, could increase our exposure to liability. For example, in the U.S., attempts have been made to allow damages for emotional distress and pain and suffering in connection with the loss of, or injury to, a companion animal. If such attempts were successful, our exposure with respect to product liability claims could increase materially. We also sell certain in vitro diagnostic products used in human health that could increase the scope of our liability.

Litigation matters, regardless of their merits or their ultimate outcomes, are costly, divert management's attention and may materially adversely affect our reputation and demand for our products. We cannot predict with certainty the eventual outcome of pending or future litigation matters. An adverse outcome of litigation or legal matters could result in our being responsible for significant damages. Any of these negative effects resulting from litigation matters could materially adversely affect our operating results and financial condition.

The illegal distribution and sale by third parties of counterfeit or illegally compounded versions of our products or of stolen, diverted or relabeled products could have a negative impact on our reputation and business.

Third parties may illegally distribute and sell counterfeit or illegally compounded versions of our products that do not meet the exacting standards of our development, manufacturing and distribution processes. Counterfeit or illegally compounded medicines pose a significant risk to animal health and safety because of the conditions under which they are manufactured and the lack of regulation of their contents. Our reputation and business could suffer harm as a result of counterfeit or illegally compounded products which are alleged to be equivalent and/or which are sold under our brand name. We are aware of at least one pharmacy in Brazil that may be engaged in the practice of illegally compounding oclacitinib, the active pharmaceutical ingredient in our Apoquel product. We are also aware of some counterfeit versions of our Simparica and Apoquel products in Brazil and are coordinating with the local authorities. In addition, products stolen or unlawfully diverted from inventory, warehouses, plants or while in transit, which are not properly stored or which have an expired shelf life and which have been repackaged or relabeled and which are sold through unauthorized channels, could adversely impact animal health and safety, our reputation and our business. Public loss of confidence in the integrity of vaccines and/or pharmaceutical products as a result of counterfeiting, illegally compounding or theft could have a material adverse effect on our product sales, business and results of operations.

The misuse or off-label use of our products may harm our reputation or result in financial or other damages.

Our products have been approved for use under specific circumstances for the treatment of certain diseases and conditions in specific species. There may be increased risk of product liability claims and other liability if veterinarians, livestock producers, pet owners or others attempt to use our products off-label, including the use of our products in species (including humans) for which they have not been approved. In addition, certain of our products are regulated by the U.S. Drug Enforcement Administration as controlled substances because of their potential to be misused or abused by humans, which could expose us to liability. Furthermore, the use of our products for indications other than those indications for which our products have been approved may not be effective, which could harm our reputation and lead to an increased risk of litigation. If we are deemed by a governmental or regulatory agency to have engaged in the promotion of any of our products for off-label use, such agency could request that we modify our training or promotional materials and practices and we could be subject to significant fines and penalties, and the imposition of these sanctions could also affect our reputation and position within the industry. Additionally, if we fail to maintain effective controls against diversion of our products that are classified as controlled substances, we could be subject to significant fines and penalties as well as reputational damage. Any of these events could materially adversely affect our operating results and financial condition.

Our operations and reputation may be impacted if we do not comply with complex and continually evolving laws and regulations regarding data privacy information and the use of AI.

We collect, store and use personal data of our customers, employees and suppliers, including sensitive personal data, such as health information in our human health business, in a variety of ways. In addition, we continue to invest in data and digital capabilities and have expanded our diagnostics portfolio. Our customers, employees and suppliers expect that we will adequately protect their data.

Our collection, use, processing, retention, storage, disclosure, transfer, security and sharing of personal data is subject to a variety of data privacy laws and regulations in the United States and other jurisdictions globally where we operate. These laws and regulations are constantly evolving as regulators continue to adopt new measures addressing data privacy. Moreover, the interpretation and application of existing data protection laws and regulations are uncertain and may be inconsistent with our existing data management practices.

As a global company, we are faced with the challenge of how to manage a patchwork of laws, rules, regulations and industry standards, including, but not limited to, a growing number of U.S state privacy laws, the EU's General Data Protection Regulation, the U.K.'s General Data Protection Regulation, the Brazilian General Data Protection Law, China’s Personal Information Protection Law and India's Digital Personal data Protection (DPDP) Act.

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These laws and regulations vary across countries, are complex and can be subject to significant change. Any new laws or regulations, changes to existing laws and regulations, or the interpretation or application of laws and regulations may impact our business operations, including our ability to effectively transfer data across borders. Any actual or perceived failure to comply with these current and future laws could result in significant consequences for Zoetis. This could include substantial fines and penalties, regulatory investigations, and civil lawsuits with damages, all of which could have a material adverse effect on our reputation and our business. In addition, with the growing number of new privacy, cybersecurity and AI laws and regulatory requirements, the costs associated with compliance with these legal and regulatory requirements are significant and likely to increase in the future.

Our aspirations, goals and disclosures related to sustainability matters expose us to numerous risks, including risks to our reputation.

Our Driven to Care sustainability program includes various aspirations and goals. These goal statements reflect our current plans and aspirations and are not guarantees that we, or third parties we rely on, including CMOs, will be able to achieve them. Our efforts to accomplish and accurately report on these goals and objectives present numerous operational, reputational, financial, legal and other risks, any of which could have a material negative impact, including on our reputation. Our ability to achieve any goal or objective is subject to numerous risks, many of which are outside of our control. Examples of such risks include: (i) the availability and cost of low- or non-carbon-based energy sources and technologies, (ii) evolving regulatory requirements and rulings affecting sustainability standards or disclosures, (iii) our ability to recruit, develop and retain talent in our labor markets, (iv) our ability to rely on third-party CMOs to incorporate appropriate sustainability actions, and (v) the impact of our organic growth and acquisitions or dispositions of businesses or operations.

The standards for tracking and reporting on sustainability matters and continue to evolve. Our processes and controls may not always align with evolving standards for identifying, measuring and reporting sustainability metrics, our interpretation of reporting standards that may be required by the SEC, EU and other regulators may differ from those of others and such standards may change over time, any of which could result in significant revisions to our goals or reported progress in achieving such goals. If our sustainability practices do not meet evolving investor or other stakeholder expectations and standards, then our reputation, our ability to attract or retain employees and our attractiveness as an investment, business partner or acquirer could be negatively impacted. Similarly, our failure or perceived failure to pursue or fulfill our goals, targets and objectives or to satisfy various reporting standards within the timelines we announce, or at all, could also have similar negative impacts and expose us to government enforcement actions and private litigation.

Risks related to information technology

We may be unable to adequately protect our information technology systems from cyberattacks, ransomware attacks, phishing attempts, social engineering schemes and other technology enabled threats, breaches of security, data loss or misappropriation of data, which could result in the disclosure of sensitive, personal, confidential or proprietary information, damage our reputation, and subject us to significant financial and legal exposure.

Our reputation as a global leader in animal health and our reliance on complex information systems and digital solutions make us inherently vulnerable to malicious cyber intrusion and attack, which have evolved in frequency and sophistication. In addition, we have been investing in data and digital capabilities, including incorporating the use of certain AI capabilities into the development of new technologies and products, and have expanded our diagnostics portfolio, and as a result, there could be an increased likelihood of a cyberattack, ransomware attacks, phishing attempts, social engineering schemes and other technology enabled threats, that could negatively impact us, our third-party partners or our customers. Cyberattacks, ransomware attacks, phishing attempts, social engineering schemes and other technology enabled threats are increasing in their frequency, sophistication and intensity, including through the use of AI and have become increasingly difficult to detect; and could include wrongful conduct by hostile foreign governments, industrial espionage, the deployment of harmful malware, ransomware, denial-of-service attacks, and other means to threaten data confidentiality, integrity and availability. In addition, despite our efforts to protect sensitive, confidential or personal data or information, we (or our third-party partners) may be vulnerable to material security breaches, theft, misplaced or lost data, programming errors, employee errors and/or malfeasance that could potentially lead to the compromise of sensitive, proprietary, confidential or personal data or information, improper use of our systems or networks, unauthorized access, theft, use, disclosure, modification or destruction of information (including confidential business information, proprietary information, trade secrets, intellectual property and corporate strategic plans), defective products, production downtimes and operational disruptions.

In support of our flexible work environment, many of our workforce work either part-time or full-time remotely, which could increase risks associated with cybersecurity, phishing attempts, information technology and systems which could have a material adverse effect on our business.

The security measures we implement may not always be effective, and our assessment of and response to security events may be inadequate. The costs imposed on us because of a cyberattack, ransomware attacks, phishing attempts, social engineering schemes, and other technology enabled threats or network disruption could be significant. Among others, such costs could include increased expenditures on cybersecurity measures, insurance premiums, litigation, regulatory investigations, ransomware payments, penalties, fines, and sanctions, lost revenues from business interruption, damage to the public’s perception regarding our ability to keep our information secure and significant remediation costs. As a result, cyberattacks, ransomware attacks, phishing attempts, social engineering schemes, and other technology enabled threats, or network disruption could have a material adverse effect on our business, financial condition, and operating results.

We depend on sophisticated information technology and infrastructure.

We rely on the efficient and uninterrupted operation of complex information technology systems to manage our operations, to process, transmit and store electronic and financial information, and to comply with regulatory, legal and tax requirements. We also depend on our information technology infrastructure for digital marketing activities and for electronic communications among our personnel, customers and suppliers around the world. System failures or outages could compromise our ability to perform these functions in a timely manner, which could harm our ability to conduct business, hurt our relationships with our customers, or delay our financial reporting. Such failures could materially adversely affect our operating results and financial condition.

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In addition, we depend on third parties and applications on virtualized (cloud) infrastructure to operate and support our information systems and are currently in the process of a multi-year implementation process to update our enterprise resource planning (ERP) system to a new fully cloud-based system. These third parties include large established vendors, as well as many small, privately owned companies. Failure by these providers to adequately support our operations or a change in control or insolvency of these providers could have an adverse effect on our business, which in turn may materially adversely affect our operating results and financial condition.

The current transition of our ERP system is a multi-year implementation process; transitioning to new systems, integrating new systems into current systems or any disruptions or malfunctions (including from circumstances beyond our control) affecting our information systems could cause critical information upon which we rely to be delayed, unreliable, corrupted, insufficient or inaccessible. Costs and risks inherent in this transition may include disruptions to business continuity, administrative and technical problems, interruptions or delays in sales processes, manufacturing or R&D processes, expenditure overruns, payment delays, and data migration issues. If we do not properly address or mitigate these issues, they could result in increased costs and diversion of resources, negatively impacting our operating results and ability to effectively manage our business. Any of these potential issues, individually or in aggregation, could have a material adverse effect on our operating results and financial condition.

We may be unable to successfully manage our online ordering sites.

In many markets around the world, such as the U.S. and Brazil, we provide online ordering sites to customers, often relying on third parties to host and support the application. The operation of our online business depends on our ability to maintain the efficient and uninterrupted operation of our online order-taking and fulfillment operations. Problems in any one or more of these areas could have a material adverse effect on our operating results and financial condition and could damage our reputation.

We use machine learning and AI in various business operations, and inability to successfully monitor and manage its use could result in operational, competitive or reputational harm, regulatory enforcement, and legal liability.

We incorporate (and expect to continue incorporating) AI capabilities in the development of new technologies and products and continue to expand the use of AI in our business and operations. Generative AI technologies are new and rapidly evolving technologies that could deliver significant benefits, but also present a number of operational, compliance, ethical, and reputational risks. AI algorithms are currently known to sometimes generate, among other things, irrelevant, nonsensical, deficient, factually inaccurate, biased or infringing content and results. In addition, if the manners in which we deploy and use AI become controversial, we may experience reputational harm to our brand, competitive harm or legal liability. In addition, we are subject to a growing number of cybersecurity and AI safety laws in markets in which we operate. For example, some of our European operations are subject to NIS2 which imposes cybersecurity requirements on “essential entities.” The EU AI Act prohibits certain AI systems that are categorized as “High Risk,” and requires certain disclosures about the use of AI tools. In the United States, there are emerging state AI laws and regulations that may impose additional requirements and restrictions in connection with the use of AI systems, including their use for "high risk" or "consequential" decision making. These rapidly changing regulatory complexities may increase our compliance costs. Moreover, there is risk that confidential information, including material non-public information, trade secrets or personal identifiable information, is input into AI applications, resulting in such information becoming accessible by third parties, including our competitors.

The use of AI tools in the development of new technologies and products presents significant IP challenges. Determining IP ownership for AI-generated content remains uncertain in some jurisdictions. Also, AI tools might also unintentionally access or use third party IP or generate output infringing, thereby heightening exposure to IP claims and disputes. Inventions or works of authorship created using AI may be based on or contain, materials that were used in the training of such AI technologies and are identical or similar to third-party intellectual property, which could further limit our ability to obtain intellectual property protection in such inventions or works of authorship.

Our competitors may incorporate AI into their operations more quickly or effectively than we do or with more successful outcomes. Additionally, we may not be able to attract or retain the necessary talent to support our AI technology investment or maintain our systems, which may affect our ability to remain competitive. Disruption or failure of our AI systems, or those of various third parties on whom we rely on, could lead to delays and operational challenges, as well as compliance and reputational issues which could materially adversely affect our business, financial condition and results of operations.

Risks related to operating in foreign jurisdictions

A significant portion of our operations are conducted in foreign jurisdictions, including jurisdictions presenting a high risk of bribery and corruption, and are subject to the economic, political, legal and business environments of the countries in which we do business.

Our international operations could be limited or disrupted by any of the following:

• volatility in the international financial markets;

• difficulties enforcing contractual and intellectual property rights;

• theft or compromise of technology, data and intellectual property;

• parallel trade in our products (importation of our products from EU countries where our products are sold at lower prices into EU countries where the products are sold at higher prices);

• compliance with a wide variety of potentially changing and conflicting laws and regulations, such as the FCPA, the U.K. Bribery Act of 2010 and similar anti-bribery and corruption-related laws globally;

• political and social instability, including crime, civil disturbance, terrorist activities and armed conflicts;

• trade restrictions and restrictions on direct investments by foreign entities, including restrictions administered by OFAC and the EU, in relation to our products or the products of farmers and other customers (e.g., restrictions on the importation of agricultural products from the EU to Russia);

• government limitations on foreign ownership or government takeover or nationalization of our business;

• imposition of anti-dumping and countervailing duties or other trade-related sanctions;

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• costs and difficulties and compliance risks in staffing, managing and monitoring international operations, including the use of overseas third-party goods and service providers;

• longer payment cycles and increased exposure to counterparty risk; and

• additional limitations on transferring personal information between countries or other restrictions on the processing of personal information.

While the impact of these factors is difficult to predict, any of them could materially adversely affect our operating results and financial condition. Changes in any of these laws, regulations or requirements, or the political environment in a particular country, may affect our ability to engage in business transactions in certain markets, including investment, procurement and repatriation of earnings.

Foreign exchange rate fluctuations and potential currency controls affect our results of operations, as reported in our financial statements.

We conduct operations in many areas of the world, involving transactions denominated in a variety of currencies. In 2025, we generated approximately 42% of our revenue in currencies other than the U.S. dollar, principally the euro, Brazilian real, Australian dollar, British pound, Canadian dollar and Chinese renminbi. We are subject to currency exchange rate risk to the extent that our costs are denominated in currencies other than those in which we earn revenue. In addition, because our financial statements are reported in U.S. dollars, changes in currency exchange rates, including changes in countries with highly inflationary economies, between the U.S. dollar and other currencies have had, and will continue to have, an impact on our results of operations. Although the Company employs a variety of techniques to mitigate the impact of exchange rate fluctuations, there cannot be a guarantee that such hedging and risk management strategies will be effective, and our results of operations could be adversely affected.

We also face risks arising from currency devaluations and the imposition of cash repatriation restrictions and exchange controls. Currency devaluations result in a diminished value of funds denominated in the currency of the country instituting the devaluation. Cash repatriation restrictions and exchange controls may limit our ability to convert foreign currencies into U.S. dollars or to remit dividends and other payments by our foreign subsidiaries or businesses located in or conducted within a country imposing restrictions or controls. We currently have substantial operations in countries that have cash repatriation restrictions or exchange controls in place, including China, and, if we were to need to repatriate or convert such cash, these controls and restrictions may have a material adverse effect on our operating results and financial condition.

We may not be able to realize the expected benefits of our investments in emerging markets and are subject to certain risks due to our presence in emerging markets, including political or economic instability and failure to adequately comply with legal and regulatory requirements.

We have been taking steps to increase our presence in emerging markets. Failure to continue to maintain and expand our business in emerging markets could materially adversely affect our operating results and financial condition.

Some countries within emerging markets may be especially vulnerable to periods of local, regional or global economic, political or social instability or crisis. Furthermore, we have also experienced lower than expected sales in certain emerging markets due to local, regional and global restrictions on banking and commercial activities in those countries. In addition, certain emerging markets have currencies that fluctuate substantially, which may impact our financial performance. For example, in the past, our revenue in certain emerging markets in Latin America has been adversely impacted by currency fluctuations and devaluations.

In addition, certain emerging markets have legal systems that are less developed or familiar to us. Compliance with myriad legal requirements is costly and time-consuming and requires significant resources. In the event we believe or have reason to believe our employees have or may have violated applicable laws or regulations, we may be subject to investigation costs, potential penalties and other related costs which in turn could negatively affect our reputation and our results of operations.

Risks related to tax matters

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

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

For example, the Organisation for Economic Co-operation and Development (OECD) is continuing to work on fundamental changes in the allocation of profits among tax jurisdictions in which companies do business (Pillar One), as well as the implementation of a global minimum tax (Pillar Two). Global minimum tax legislation has been proposed and/or enacted in various jurisdictions. These two pillars combined represent a significant change in the international tax regime, and there is risk of an adverse impact to our effective tax rate as legislation becomes effective in countries in which we do business. We continue to monitor pending OECD guidance and legislation enactment and implementation by individual countries.

In addition, our effective tax rate is subject to potential risks that various taxing authorities may challenge the pricing of our cross-border arrangements and subject us to additional tax, adversely impacting our effective tax rate and our tax liability. The company is also subject to the examination of its tax positions, tax returns and other tax matters by the Internal Revenue Service (IRS) and other tax authorities and governmental bodies. For example, as disclosed in Note 8. Tax Matters , in September 2024, the IRS issued a Revenue Agent Report related to the one-time mandatory deemed repatriation tax. Based on current facts and circumstances, we disagree with the IRS' position and will defend our position taken on the 2018 U.S. Federal Income Tax return, however, there can be no assurance as to the outcome of this or other examinations. If the company’s effective tax rates were to increase, particularly in the U.S. or other material foreign jurisdictions, or if the company's tax positions are either not sustained upon examination or only partially sustained, the company’s operating results, cash flows and financial condition could be adversely affected.

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Risks related to intellectual property

The alleged intellectual property rights of third parties may negatively affect our business.

A third party may sue us, our distributors or licensors, or otherwise make a claim, alleging infringement, misappropriation or other violation of the third-party's patents, trademarks, trade dress, copyrights, trade secrets, domain names or other intellectual property rights. The costs of defending an intellectual property action are often substantial and could materially adversely affect our operating results and financial condition, even if we successfully defend such action. Moreover, even if we believe that we do not infringe a validly existing third-party patent, we may choose to obtain a license to such patent, which would result in associated costs and obligations. We may also incur costs in connection with an obligation to compensate a distributor, licensor or other third party. The intellectual property positions of animal health medicines and vaccines businesses frequently involve complex legal and factual questions. We cannot guarantee that a competitor or other third party does not have or will not obtain rights to intellectual property that, in the absence of a license, may prevent us from manufacturing, developing or marketing certain of our products, regardless of whether we believe such intellectual property rights are valid and enforceable, which may harm our operating results and financial condition.

If our intellectual property rights are challenged or circumvented, competitors may be able to take advantage of our research and development efforts.

Our long-term success largely depends on our ability to market technologically competitive products. We rely and expect to continue to rely on a combination of intellectual property, including patent, trademark, trade dress, copyright, trade secret, data protection, and domain name protection laws, as well as confidentiality and license agreements with our employees and others, to protect our intellectual property and proprietary rights. In addition, many of our vaccine products and other products are based on or incorporate proprietary information, including proprietary master seeds and proprietary or patented adjuvant formulations.

However, we may not have sufficient protection or such protection might not be granted to us by the appropriate regulatory authority in every country where our products are available. If we are unable to obtain and maintain adequate intellectual property protection, we may not be able to prevent third parties from using our proprietary technologies or from marketing products that are very similar or identical to ours. The validity, enforceability, scope and effective term of our intellectual property can be highly uncertain and often involve complex legal, policy, regulatory and factual questions and proceedings that differ between jurisdictions. Our ability to enforce our intellectual property rights also depends on the laws, policies and regulations of individual countries and each country's practice with respect to enforcement of intellectual property rights. In addition, if we are unable to maintain our existing license agreements or other agreements pursuant to which third parties grant us rights to intellectual property, including because such agreements expire or are terminated, our operating results and financial condition could be adversely affected.

We are regularly party to patent litigation and other intellectual property rights claims that are expensive and time consuming, and if resolved adversely, could have a significant impact on our business and financial condition. Any claims relating to these issues, whether meritorious or not, could cause us to enter into costly litigation or settlements, potentially including royalty arrangements, awards of monetary damages or orders limiting our ability to sell our products. We may also be required to enter into licensing agreements as a result of such claims, which may be on terms that are unfavorable to us. Any of these circumstances could divert the attention of management and adversely affect our business, results of operations and financial situation.

Risks related to our indebtedness

We have substantial indebtedness.

We have a significant amount of indebtedness, which could materially adversely affect our operating results, financial condition and liquidity. As of December 31, 2025, we had approximately $9.2 billion of total unsecured indebtedness outstanding related to our senior notes and convertible senior notes. In addition, we currently have agreements for a $1.25 billion multi-year revolving credit facility and a $1.0 billion commercial paper program. While we currently do not have any amounts drawn under the credit facility nor any commercial paper issued under the commercial paper program, we may incur indebtedness under these arrangements in the future.

We may incur substantial additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other purposes. If we do so, the risks related to our high level of debt could intensify. Specifically, our high level of debt could have important consequences, including:

• making it more difficult for us to satisfy our obligations with respect to our debt;

• limiting our ability to obtain additional financing to fund future working capital, capital expenditures, business development or other general corporate requirements, including dividends;

• increasing our vulnerability to general adverse economic and industry conditions;

• exposing us to the risk of increased interest rates as certain of our borrowings may in the future be at variable rates of interest;

• limiting our flexibility in planning for and reacting to changes in the animal health industry;

• placing us at a competitive disadvantage to other, less leveraged competitors;

• impacting our effective tax rate; and

• increasing our cost of borrowing.

In addition, the instruments governing our indebtedness contain restrictive covenants that will limit our ability to engage in activities that may be in our long-term best interest. Our failure to comply with such covenants could result in an event of default, which could result in the acceleration of all our debt.

Our credit ratings may not reflect all risks of an investment in our senior notes. Actual or anticipated changes or downgrades in our credit ratings, including any announcement that our ratings are under further review for a downgrade, could affect the market prices of our securities and increase our borrowing costs.

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We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments on or refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal and interest on our indebtedness.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures, or to dispose of material assets or operations, alter our dividend policy, seek additional debt or equity capital or restructure or refinance our indebtedness. We may not be able to effect any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations.

In addition, we conduct our operations through our subsidiaries. Accordingly, repayment of our indebtedness will depend on the generation of cash flow by our subsidiaries, including certain international subsidiaries, and their ability to make such cash available to us, by dividend, debt repayment or otherwise. In the event that we do not receive distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness.

Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, may materially adversely affect our operating results, financial condition and liquidity and our ability to satisfy our obligations under our indebtedness or pay dividends on our common stock.

We may not have the funds necessary to finance the change of control offer required by the indenture governing our senior notes.

Upon the occurrence of a change of control of Zoetis and a downgrade below investment grade by Moody's Investor Services, Inc. and S&P Global Ratings, a division of S&P Global Inc., we will be required to offer to repurchase all of our outstanding senior notes. However, we may not have sufficient funds available at the time of the change of control to finance the required change of control offer or restrictions in our then-existing debt instruments will not allow such repurchases. Our failure to purchase the senior notes as required under the indenture would result in a default under the indenture, which could have material adverse consequences for us and the holders of the senior notes.

We may not have the ability to raise the funds necessary to settle conversions of our convertible senior notes in cash, or to repurchase the convertible senior notes upon a fundamental change, and our existing debt contains, and future debt may contain, limitations on our ability to pay cash upon conversion or repurchase of the convertible senior notes.

Holders of the convertible senior notes have the right, subject to certain conditions and limited exceptions, to require us to repurchase all or a portion of their convertible senior notes upon the occurrence of a fundamental change at a repurchase price equal to 100% of the principal amount of the convertible senior notes to be repurchased, plus accrued and unpaid interest, if any. In addition, upon conversion of the convertible senior notes, we will be required to make cash payments in respect of the convertible senior notes being converted. However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of the convertible senior notes surrendered therefor or pay cash with respect to the convertible senior notes being converted. In addition, our existing debt does not permit repurchase of the convertible senior notes upon a fundamental change and our ability to repurchase the convertible senior notes or to pay cash upon conversions of the convertible senior notes may be limited by law, by regulatory authority or by agreements governing our existing and future indebtedness. Our failure to repurchase the convertible senior notes at a time when the repurchase is required by the indenture or to pay any cash payable on future conversions of the convertible senior notes as required by the indenture would constitute a default under the indenture. A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our other indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the convertible senior notes or make cash payments upon conversions thereof.

The conditional conversion feature of our convertible senior notes, if triggered, may adversely affect our financial condition and operating results.

In the event the conditional conversion feature of the convertible senior notes is triggered, holders of convertible senior notes will be entitled to convert the convertible senior notes at any time during specified periods at their option. If one or more holders elect to convert their convertible senior notes, we would be required to settle any converted principal amount of such convertible senior notes through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their convertible senior notes, we would be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the convertible senior notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.

Conversion of our convertible senior notes may dilute the ownership interest of our stockholders or may otherwise depress the price of our common stock.

The conversion of some or all of the convertible senior notes may dilute the ownership interests of our stockholders. Upon conversion of the convertible senior notes, we have the option to pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock in respect of the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the convertible senior notes being converted. If we elect to settle the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the convertible senior notes being converted in shares of our common stock or a combination of cash and shares of our common stock, any sales in the public market of our common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of the convertible senior notes may encourage short selling by market participants because the conversion of the convertible senior notes could be used to satisfy short positions, or anticipated conversion of the convertible senior notes into shares of our common stock could depress the price of our common stock.

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Risks related to our relationship with Pfizer

Pfizer's rights as licensor under the patent and know-how license could limit our ability to develop and commercialize certain products.

Under the Patent and Know-How License Agreement (Pfizer as licensor) Pfizer licenses to us certain of its intellectual property. If we fail to comply with our obligations under this license agreement and Pfizer exercises its right to terminate it, our ability to continue to research, develop and commercialize products incorporating that intellectual property will be limited. In addition, in circumstances where Pfizer has an interest in the licensed intellectual property in connection with its human health development programs, our rights to use the licensed intellectual property are restricted and/or, in limited instances, subject to Pfizer's right to terminate such license at will. These limitations and termination rights may make it more difficult, time-consuming or expensive for us to develop and commercialize certain new products, or may result in our products being later to market than those of our competitors.

We are dependent on Pfizer to prosecute, maintain and enforce certain intellectual property.

Under the Patent and Know-How License Agreement, Pfizer is responsible for filing, prosecuting and maintaining patents that Pfizer licenses to us. In the animal health field, Pfizer has the first right, and in some cases the sole right, to enforce such licensed patents, and in the human health field, subject to certain exceptions, Pfizer has the sole right to enforce the licensed patents. If Pfizer fails to fulfill its obligations or chooses to not enforce the licensed patents under this agreement, we may not be able to prevent competitors from making, using and selling competitive products, which could have an adverse effect on our business.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Introduction

Our management’s discussion and analysis of financial condition and results of operations (MD&A) is provided to assist readers in understanding our performance, as reflected in the results of our operations, our financial condition and our cash flows and should be read in conjunction with our consolidated financial statements and notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data . The discussion in this MD&A contains forward-looking statements that involve substantial risks and uncertainties. Our objective is to also provide discussion of material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be indicative of future results, which could differ materially from historical performance and from those anticipated in the forward-looking statements as a result of various factors such as those discussed in Item 1A. Risk Factors and Forward-looking statements and factors that may affect future results sections of this MD&A.

A discussion regarding our financial condition and results of operations for fiscal 2025 compared to fiscal 2024 is presented below. A discussion regarding our financial condition and results of operations for fiscal 2024 compared to fiscal 2023 can be found under Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on February 13, 2025 (our “2024 Annual Report”), which is available free of charge on the SEC’s website at www.sec.gov.

Overview of our business

We are 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. With a legacy of nearly 75 years, we continue to pioneer ways to predict, prevent, detect, and treat animal illness, supporting those raising and caring for animals worldwide - from veterinarians and pet owners to livestock producers.

We manage our operations through two geographic operating segments: the United States (U.S.) and International. Within each of these operating segments, we offer diverse products for both companion animals and livestock customers in order to capitalize on local and regional trends and customer needs. See Notes to Consolidated Financial Statements— Note 19. 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. 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 products 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.

A summary of our 2025 performance compared with the comparable 2024 and 2023 periods follows:

Year Ended December 31,

% Change

(MILLIONS OF DOLLARS)

Revenue

Net income attributable to Zoetis

Adjusted net income (a)

(a)     Adjusted net income is a non-GAAP financial measure. See the Non-GAAP financial measures and Adjusted net income sections of this MD&A for more information.

Our operating environment

Industry

The animal health industry, which focuses on both companion animals and livestock, is a growing industry that impacts billions of people worldwide. The primary companion animal species are dogs, cats and horses. Factors influencing growth in demand for companion animal medicines, vaccines and diagnostics include:

• increasing pet owners’ commitment to the health and well-being of their pets;

• economic development and related increases in disposable income, particularly in many emerging markets;

• companion animals living longer;

• increasing medical treatment of companion animals; and

• advances in companion animal medicines, vaccines and diagnostics.

The primary livestock species are cattle (both beef and dairy), swine, poultry, fish and sheep. Livestock health and production are essential to meeting the growing demand for animal protein of a global population. Factors influencing growth in demand for livestock medicines and vaccines include:

• human population growth and increasing standards of living, particularly in many emerging markets;

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• increasing demand for improved nutrition, particularly animal protein;

• natural resource constraints, such as scarcity of arable land, fresh water and increased competition for cultivated land, resulting in fewer resources that will be available to meet an increasing demand for animal protein;

• increasing urbanization; and

• increased focus on food safety and food security.

The overall economic environment

In addition to industry-specific factors, we, like other businesses, face challenges related to global economic conditions, an economic downturn and high inflation. Growth in both the livestock and companion animal sectors is driven by overall economic development and related growth, particularly in many emerging markets. In the past, certain of our customers and suppliers have been affected directly by shortages in veterinary healthcare workers and economic downturns or inflation, which decreased the demand for our products and, in some cases, hindered our ability to collect amounts due from customers.

Industry sources have reported that pet owners indicated a preference for reducing spending on other aspects of their lifestyle, including entertainment, clothing and household goods, before reducing spending on pet healthcare. Similarly, the cost of medicines and vaccines to our livestock producer customers is small relative to other production costs, including feed, and the use of these products is intended to improve livestock producers’ economic outcomes. As a result, demand for our products has historically been more stable than demand for other production inputs. Each of these factors, plus our broad and innovative portfolio, contributes to our ability to incorporate inflationary challenges into our product pricing and mitigate the impact on our results. While these factors have mitigated the impact of prior downturns in the global economy, economic challenges, including an economic downturn and inflation, could increase cost sensitivity among our customers, which may result in reduced demand for our products, which could have a material adverse effect on our operating results and financial condition.

Competition

The animal health industry is highly competitive. Although our business is the largest based on revenue in the animal health industry (which includes medicines, vaccines and diagnostics), we face competition in the regions in which we operate. Principal methods of competition vary depending on the particular region, species, product category or individual product. Some of these methods include new product development, quality, price, service and promotion to veterinary professionals, pet owners and livestock producers. Our competitors include standalone animal health businesses and the animal health businesses of large pharmaceutical companies. In recent years, there has been an increase in consolidation in the animal health industry. There are also many start-up companies working in the animal health area. In addition to competition from established market participants, there could be new entrants to the animal health medicines, vaccines and diagnostics industry in the future. We also compete with companies that produce generic products, following our products’ loss of exclusivity in a given market. For example, Draxxin currently competes with generic products in key markets including the U.S., Europe, Canada, Mexico and Australia. Since 2021, the first year of generic competition, sales of Draxxin declined by 66% in the U.S., its largest market. For more information regarding the generic competition we expect to encounter as patents on certain of our key products expire, see Item 1. Business – Intellectual Property .

Manufacturing and supply

In order to sell our products, we must be able to produce and ship our products in sufficient quantities. Many of our products involve complex manufacturing processes and are sole-sourced from certain manufacturing sites. Minor deviations in our manufacturing or logistical processes, such as temperature excursions or improper package sealing, could result in delays, inventory shortages, unanticipated costs, product recalls, product liability and/or regulatory action. In addition, a number of factors could cause production interruptions that could result in launch delays, inventory shortages, recalls, unanticipated costs or issues with our supply agreements with third parties.

Our manufacturing network may be unable to meet the demand for our products or we may have excess capacity if demand for our products changes. The unpredictability of a product's regulatory or commercial success or failure, the lead time necessary to construct highly technical and complex manufacturing sites, and shifting customer demand increase the potential for capacity imbalances.

Perceptions of product quality, safety and reliability

We believe that animal health customers value high-quality manufacturing and reliability of supply. The importance of quality and safety concerns to pet owners, veterinarians and livestock producers also contributes to animal health brand loyalty, which often continues after the loss of patent-based and regulatory exclusivity. We depend on positive perceptions of the safety and quality of our products by our customers, veterinarians and end-users.

In addition, negative beliefs about animal health products generally could impact demand for our products. For example, the issue of the potential transfer of increased antibacterial resistance in bacteria from food-producing animals to human pathogens, and the causality of that transfer, continue to be the subject of global scientific and regulatory discussion. In some countries, this issue has led to government restrictions and bans on the use of specific antibacterials in some food-producing animals, regardless of the route of administration (in feed or injectable). In addition, consumer preferences in some markets have impacted the use of antibacterials in food producing animals. Such restrictions and consumer preferences in some cases may negatively impact sales of our antibacterial products, but in other instances may increase sales of our products that can be used as antibacterial alternatives. Our total revenue attributable to antibacterials for livestock was approximately $713 million for the year ended December 31, 2025.

Similarly, concerns regarding greenhouse gas emissions and other potential environmental impacts of livestock production have led to some consumers opting to limit or avoid consuming animal products. However, we believe the impact of this trend is limited as the livestock industry is still expected to continue to grow in order to feed a growing global population.

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Product development initiatives

Our future success depends on both our existing products and our pipeline of new products, including new products that we may develop through joint ventures and products that we are able to obtain through license or acquisition. We believe we are an industry leader in animal health R&D, with a track record of generating new products a nd product lifecycle innovation, which is defined as R&D programs that leverage existing animal health products by adding new species or claims, achieving approvals in new markets or creating new reformulations, modifications and combinations. The majority of our R&D programs focus on new products. In addition to traditional medicines and vaccines, we develop products across additional categories to address the needs of veterinarians and producers to predict, prevent, detect and treat conditions in both companion animals and livestock, including products and services in diagnostics, genetics, precision animal health and digital and data analytics.

Changing distribution channels for companion animal products

In most markets, companion animal owners typically purchase their animal health products directly from veterinarians. However, in the U.S. and certain other markets, companion animal owners increasingly have the option to purchase animal health products from sources other than veterinarians, such as internet-based retailers, “big-box” retail stores or other over-the-counter distribution channels. We believe the ability of pet owners to purchase our products online and from retail stores may increase pet owner compliance and result in increased sales. However, over time, we may be unable to sustain our current margins due to the increased purchasing power of such retailers as compared to traditional veterinary practices.

In addition, this trend could negatively impact the sales of products we primarily sell through the veterinarian distribution channel, as any decrease in visits to veterinarians by companion animal owners could reduce our market share and sales of such products. A reduction in the number of pet owners who purchase our products directly from their veterinarian could also lead to increased use of generic alternatives to our products or the increased substitution of our products with other animal health products or human health products if such other products are deemed to be lower-cost alternatives.

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.

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 year ended December 31, 2025, approximately 42% 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 renminbi, 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 year ended December 31, 2025, approximately 58% of our total revenue was in U.S. dollars. Our year-over-year total revenue growth was unfavorably impacted by 1% from changes in foreign currency values relative to the U.S. dollar.

Weather conditions, climate change and the availability of natural resources

The animal health industry and demand for many of our animal health products in a particular region are affected by weather conditions, as usage of our products follows varying weather patterns and weather-related pressures from pests, such as ticks. As a result, we may experience regional and seasonal fluctuations in our results of operations.

In addition, veterinary hospitals and practitioners depend on visits from and access to the animals under their care. Veterinarians’ patient volume and ability to operate could be adversely affected if they experience prolonged snow, ice or other severe weather conditions, particularly in regions not accustomed to sustained inclement weather. Furthermore, weather conditions, including excessive cold or heat, natural disasters and other events, could negatively impact our livestock customers by impairing the health or growth of their animals or the production or availability of feed, as well as disrupting their normal operations. For example, livestock producers depend on the availability of natural resources, including large supplies of fresh water. Their animals’ health and their ability to operate could be adversely affected if they experience a shortage of fresh water due to human population growth, climate change or floods, droughts or other weather conditions. In the event of adverse weather conditions, climate-change related impacts or a shortage of fresh water, veterinarians and livestock producers may purchase less of our products.

Adverse weather conditions, natural disasters and climate change may also impact the aquaculture business. Changes in water temperatures could affect the timing of reproduction and growth of various fish species, as well as trigger the outbreak of certain waterborne diseases.

Our strategic pillars

Our vision is to be the most trusted and valued animal health company, shaping the future of animal care through our innovation, customer obsession and purpose-driven colleagues. We have a global presence in both developed and emerging markets and across eight core species. We intend to grow our business by pursuing the following core strategies:

• Lead through innovation across our diverse portfolio - We seek to define the future of animal health by delivering new products and solutions as well as lifecycle innovations across the continuum of care that span from disease prediction and prevention to detection and treatment. We are focused on innovating across vaccines, pharmaceuticals, diagnostics, genetics, biodevices, and other product segments, and across all core species. Our internal R&D capabilities are differentiators, but we also collaborate across both academia and industry partners to ensure we are bringing the best possible innovations to our customers;

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• Deliver an exceptional experience to delight our customers - We believe that our customers' success is our success and that the best way to realize that success is by enabling veterinarians, livestock producers and pet owners to provide the best possible care for animals. We are focused on providing greater value to our customers through the integration and connectedness of our portfolio and by reducing frictions in the way they engage with us and our products and solutions;

• Power our business through digital solutions and data insights - We believe that digital and data are no longer just enablers, but are core decision drivers for the future of animal health. We are leaders in the translation of digital solutions and data insights to positive outcomes for our customers and for the animals they care for, whether for better identification of health care solutions in pets or improved production capabilities in livestock;

• Support a workplace where our colleagues can thrive - We view the strength of our leadership team and our talented colleagues around the world as a critical component of our past and future success. We believe that by focusing on colleague well-being and providing all of our colleagues with supportive tools, training and environment that we are best positioned to succeed. With that, our colleagues are committed to our purpose, our customers and each other. We are committed to maintaining an inclusive workplace culture that attracts, retains and develops the best talent in the industry;

• Advance sustainability in animal health for a better future - As the world’s leading animal health company, our business purpose is well aligned with our social purpose. We strive to make a meaningful difference in society through the three pillars of our sustainability approach: (1) by improving access to care for animals and by supporting the veterinary profession; (2) by leveraging our innovation capabilities to develop solutions that improve productivity, keep animals healthy, and fight emerging infectious diseases; and (3) by taking actions to protect our planet that reduce our footprint on the environment; and

• Perform with excellence and agility - We recognize the increasing uncertainty in our industry and more broadly across the world. While we aim to improve our ability to predict, we more importantly aim to be proactive in how we effectively manage our resources and how quickly we can redeploy focus to emerging themes or priorities. We actively: (1) review and manage our resource allocation; (2) continuously improve key operational processes; and (3) ensure strategic focus on our core business.

Components of revenue and costs and expenses

Our revenue, costs and expenses are reported for the year ended December 31 for each year presented, except for subsidiaries operating outside the U.S., for which the financial information is included in our consolidated financial statements for the fiscal year ended November 30 for each year presented.

Revenue

Our revenue is primarily derived from our diversified product portfolio of medicines, vaccines and diagnostic products and services used to treat and protect companion animals and livestock. 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. In 2025, our two top-selling products and product lines, Simparica/Simparica Trio and Apoquel/Apoquel Chewable, contributed approximately 16% and 12% of our revenue, respectively, and combined with our next three top-selling products and product lines, Cytopoint, Librela and our ceftiofur line, these five products and product lines contributed approximately 42% of our revenue. Our ten top-selling products and product lines contributed 57% of our revenue. For additional information regarding our products, including descriptions of our product lines that each represented approximately 1% or more of our revenue in 2025, see Item 1. Business—Products .

Costs and expenses

Costs of sales consist primarily of cost of materials, facilities and other infrastructure used to manufacture our medicine and vaccine products, as well as costs to operate our reference labs and royalty expenses associated with the intellectual property of our products, when relevant.

Selling, general and administrative (SG&A) expenses consist of, among other things, the internal and external costs of marketing, promotion, advertising and shipping and handling as well as certain costs related to business technology, facilities, legal, finance, human resources, business development, public affairs and procurement.

Research and development (R&D) expenses consist primarily of project costs specific to new product R&D and product lifecycle innovation, overhead costs associated with R&D operations and investments that support local market clinical trials for approved indications and expenses related to regulatory approvals for our products. We do not disaggregate R&D expenses by research stage or by therapeutic area for purposes of managing our business.

Amortization of intangible assets consists primarily of the amortization expense for identifiable finite-lived intangible assets that have been acquired through business combinations. These assets consist of, but are not limited to, developed technology, brands and trademarks.

Restructuring charges and certain acquisition and divestiture-related costs consist of all restructuring charges (those associated with cost reduction/productivity initiatives and those associated with acquisition activity) and costs associated with executing the transaction which include acquiring and integrating businesses and costs associated with divesting and disintegrating businesses. Restructuring charges are associated with employees, assets and activities that will not continue in the company. Acquisition and divestiture-related costs are associated with acquiring and integrating acquired businesses, which may include expenditures for consulting and the integration of systems and processes, product transfers, transaction costs and restructuring the company, as well as costs associated with divesting and disintegrating a portion of our business which may include expenditures for consulting and the disintegration of systems and processes, transfer costs, and restructuring charges which may include charges related to employees, assets and activities that will not continue in the company's ongoing operations.

Other (income)/deductions—net consists of various items, primarily net (gains)/losses on business sales and divestitures, as well as asset disposals, interest income, royalty-related income, foreign exchange translation (gains)/losses and certain asset impairment charges.

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Variability of Financial Results

Our financial results are subject to variability related to a number of factors including, but not limited to: tariffs and other trade protection measures, the decline in global macroeconomic conditions, competitive dynamics, geopolitical tensions with and economic uncertainty in certain markets, inflation, global supply chain disruption and supply availability, variability in distributor inventory stocking levels, including as a result of expected demand and promotional activities, weather patterns, herd management decisions, regulatory actions, disease outbreaks, product and geographic mix, timing of price increases and customer expectations related to the same, timing of investment decisions and operational and other changes made in connection with the expected change in accounting principle to eliminate the one-month reporting lag in 2026 for our subsidiaries operating outside the U.S.

Significant accounting policies and application of critical accounting estimates

In presenting our financial statements in conformity with U.S. GAAP, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. For a description of our significant accounting policies, see Notes to Consolidated Financial Statements— Note 3. Significant Accounting Policies .

We believe that the following accounting policies are critical to an understanding of our consolidated financial statements as they require the application of the most difficult, subjective and complex judgments and, therefore, could have the greatest impact on our financial statements: (i) fair value; (ii) revenue; (iii) asset impairment reviews; and (iv) contingencies.

Below are some of our more critical accounting estimates. See Notes to Consolidated Financial Statements— Note 3. Significant Accounting Policies: Estimates and Assumptions for a discussion about the risks associated with estimates and assumptions.

Fair value

For a discussion about the application of fair value to our long-term debt and financial instruments, see Notes to Consolidated Financial Statements— Note 9. Financial Instruments .

For a discussion about the application of fair value to our business combinations, see Notes to Consolidated Financial Statements— Note 3. Significant Accounting Policies: Fair Value .

For a discussion about the application of fair value to our asset impairment reviews, see Asset impairment reviews below .

Revenue

Our gross product revenue is subject to deductions that are generally estimated and recorded in the same period that the revenue is recognized and primarily represents sales returns and revenue incentives. For example:

• for sales returns, we perform calculations in each market that incorporate the following, as appropriate: local returns policies and practices; past returns as a percentage of revenue; an understanding of the reasons for past returns; estimated shelf life by product; an estimate of the amount of time between shipment and return or lag time; and any other factors that could impact the estimate of future returns, product recalls, discontinuation of products or a changing competitive environment; and

• for revenue incentives, we use our historical experience with similar incentives programs to estimate the impact of such programs on revenue.

If any of our ratios, factors, assessments, experiences or judgments are not indicative or accurate predictors of our future experience, our results could be materially affected. Although the amounts recorded for these revenue deductions are dependent on estimates and assumptions, historically our adjustments to actual results have not been material. The sensitivity of our estimates can vary by program, type of customer and geographic location.

Amounts recorded for revenue deductions can result from a complex series of judgments about future events and uncertainties and can rely on estimates and assumptions. For further information about the risks associated with estimates and assumptions, see Notes to Consolidated Financial Statements— Note 3. Significant Accounting Policies: Estimates and Assumptions .

Asset impairment reviews

We review all of our long-lived assets for impairment indicators throughout the year and we perform detailed testing whenever impairment indicators are present. In addition, we perform impairment testing for goodwill and indefinite-lived intangible assets at least annually. When necessary, we record charges for impairments of long-lived assets for the amount by which the fair value is less than the carrying value of these assets.

Our impairment review processes are described below and in Notes to Consolidated Financial Statements— Note 3. Significant Accounting Policies: Amortization of Intangible Assets, Depreciation and Certain Long-Lived Assets and, for deferred tax assets, in Note 3. Significant Accounting Policies: Deferred Tax Assets and Liabilities and Income Tax Contingencies .

Examples of events or circumstances that may be indicative of impairment include:

• a significant adverse change in the extent or manner in which an asset is used. For example, restrictions imposed by the regulatory authorities could affect our ability to manufacture or sell a product; and

• a projection or forecast that demonstrates losses or reduced profits associated with an asset. This could result, for example, from the introduction of a competitor’s product that results in a significant loss of market share or the inability to achieve the previously projected revenue growth, or from the lack of acceptance of a product by customers.

For finite-lived identifiable intangible assets, such as developed technology rights, and for other long-lived assets, such as property, plant and equipment, whenever impairment indicators are present, we calculate the undiscounted value of the projected cash flows associated with the asset, or asset group, and compare this estimated amount to the carrying amount. If the carrying amount is found to be greater, we record an impairment loss for the excess of book value over fair value. In addition, in all cases of an impairment review, we re-evaluate the remaining useful lives of the assets and modify them, as appropriate.

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Our impairment reviews of most of our long-lived assets depend on the determination of fair value, as defined by U.S. GAAP. A single estimate of fair value can result from a complex series of judgments about future events and uncertainties and can rely on estimates and assumptions which can materially impact our results of operations. For information about the risks associated with estimates and assumptions, see Notes to Consolidated Financial Statements— Note 3. Significant Accounting Policies: Estimates and Assumptions .

Intangible assets other than goodwill

We test indefinite-lived intangible assets for impairment at least annually, or more frequently if impairment indicators exist, by first assessing qualitative factors to determine whether it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying amount. If we conclude it is more likely than not that the fair value is less than the carrying amount, a quantitative test that compares the fair value of the indefinite-lived intangible asset with its carrying value is performed. If the fair value is less than the carrying amount, an impairment loss is recognized. Impairments of identifiable intangible assets other than goodwill, are recorded in Restructuring charges and certain acquisition and divestiture-related costs and Other (income)/deductions—net , as applicable. We did not have any material intangible asset impairment charges for the years ended December 31, 2025, 2024 and 2023.

When we are required to determine the fair value of intangible assets other than goodwill, we use an income approach, specifically the multi-period excess earnings method, also known as the discounted cash flow method. We start with a forecast of all the expected net cash flows associated with the asset, which includes the application of a terminal value for indefinite-lived assets, and then we apply an asset-specific discount rate to arrive at a net present value amount. Some of the more significant estimates and assumptions inherent in this approach include: the amount and timing of the projected net cash flows, which includes the expected impact of competitive, legal and/or regulatory forces on the projections, the impact of technological risk associated with IPR&D assets, as well as the selection of a long-term growth rate; the discount rate, which seeks to reflect the risks inherent in the projected cash flows; foreign currency fluctuations; and the effective tax rate, which seeks to incorporate the geographic diversity of the projected cash flows.

While all identifiable intangible assets can be impacted by events and thus lead to impairment, in general, identifiable intangible assets that are at the highest risk of impairment include IPR&D assets ($141 million as of December 31, 2025). IPR&D assets are higher-risk assets given the uncertain nature of R&D activity.

For a description of our accounting policy, see Notes to Consolidated Financial Statements— Note 3. Significant Accounting Policies: Amortization of Intangible Assets, Depreciation and Certain Long-Lived Assets .

Goodwill

Goodwill represents the excess of the consideration transferred over the fair value of net assets of businesses purchased and is assigned to reporting units. We test goodwill for impairment on at least an annual basis, or more frequently if necessary, either by assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount or by performing a periodic quantitative assessment.

Factors considered in the qualitative assessment include general macroeconomic conditions, conditions specific to the industry and market, cost factors which could have a significant effect on earnings or cash flows, the overall financial performance of the reporting unit and whether there have been sustained declines in our share price. Additionally, we evaluate the extent to which the fair value exceeded the carrying value of the reporting unit at the date of the last quantitative assessment performed.

When performing a quantitative assessment to test for goodwill impairment we utilize the income approach, which is forward-looking, and relies primarily on internal forecasts. Within the income approach, the method that we use is the discounted cash flow method. We start with a forecast of all the expected net cash flows associated with the reporting unit, which includes the application of a terminal value, and then apply a reporting unit-specific discount rate to arrive at a net present value. Some of the more significant estimates and assumptions inherent in this approach include: the amount and timing of the projected net cash flows, which includes the expected impact of technological risk and competitive, legal and/or regulatory forces on the projections, as well as the selection of a long-term growth rate; the discount rate, which seeks to reflect the various risks inherent in the projected cash flows; and the effective tax rate, which seeks to incorporate the geographic diversity of the projected cash flows.

We test goodwill for impairment on at least an annual basis, or more frequently if necessary, either by assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount or by performing a periodic quantitative assessment. In 2025, we performed a periodic qualitative impairment assessment as of September 30, 2025 and, in 2024, we performed a quantitative impairment assessment as of September 30, 2024, which did not result in the impairment of goodwill associated with any of our reporting units in either period.

For all of our reporting units, there are a number of future events and factors that may impact future results and that could potentially have an impact on the outcome of subsequent goodwill impairment testing. For a list of these factors, see Forward-looking statements and factors that may affect future results.

For a description of our accounting policy, see Notes to Consolidated Financial Statements— Note 3. Significant Accounting Policies: Amortization of Intangible Assets, Depreciation and Certain Long-Lived Assets .

Contingencies

For a discussion about income tax contingencies, see Notes to Consolidated Financial Statements— Note 8C. Tax Matters: Tax Contingencies .

For a discussion about legal contingencies, guarantees and indemnifications, see Notes to Consolidated Financial Statement— Note 18. Commitments and Contingencies .

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

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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 and divestiture-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.

Fiscal Year Alignment of International Subsidiaries

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). For subsidiaries operating outside the U.S. (the “International Subsidiaries”), the consolidated financial information is included as of and for the fiscal year ended November 30 for each year presented. As a result, results of operations of our International Subsidiaries for the month of December 2025 are not included in our consolidated results of operations for fiscal year 2025 (and results of operations of our International Subsidiaries for the month of December 2024 are included).

In connection with our multi-year process to transition our ERP system noted above, we expect to eliminate the one-month reporting lag in 2026 for our International Subsidiaries, effective beginning with the Company’s first quarterly report in 2026, which would result in an alignment of the year-end for all subsidiaries and operations to December 31 (the “Expected Fiscal Year Alignment”). As a result of this alignment, the results of operations of our International Subsidiaries for the month of December 2025 would not be included in our consolidated results of operations for fiscal year 2026 but will be included in the retrospective application of the new accounting principle to prior financial statement periods. This alignment is an important preliminary step in the process to transition our ERP system because it will contribute to more seamless financial consolidation, regulatory compliance and consistent reporting.

In connection with the Expected Fiscal Year Alignment, revenue in the International segment for the reported fourth quarter of 2025 benefited from operational changes resulting in the acceleration of the timing of sales into the reported fourth quarter of 2025, which led to an approximate 2.5% to 3.5% increase in sales in the International segment in the reported fourth quarter of 2025, a trend that we do not expect to recur at the end of fiscal year 2026.

The operational changes in connection with the Expected Fiscal Year Alignment to date also included a shift implemented in early 2026 to the timing of annual price increases in certain International Subsidiaries so that the price increase and anticipated customer buying preceding the price increase would occur in the same calendar year. In addition, processing of certain customer orders from December 2025 was delayed to calendar year 2026.

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Analysis of the Consolidated Statements of Income

The following discussion and analysis of our Consolidated Statements of Income should be read along with our consolidated financial statements, and the notes thereto.

Year Ended December 31,

% Change

(MILLIONS OF DOLLARS)

Revenue

Costs and expenses:

Cost of sales (a)

% of revenue

Selling, general and administrative expenses (a)

% of revenue

Research and development expenses (a)

% of revenue

Amortization of intangible assets (a)

Restructuring charges and certain acquisition and divestiture-related costs

Interest expense, net of capitalized interest

Other (income)/deductions—net

Income before provision for taxes on income

% of revenue

Provision for taxes on income

Effective tax rate

Net income before allocation to noncontrolling interests

Less: Net gain/(loss) attributable to noncontrolling interests

Net income attributable to Zoetis

% of revenue

* Calculation not meaningful.

(a)     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 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.

Revenue

Total revenue by operating segment was as follows:

Year Ended December 31,

% Change

(MILLIONS OF DOLLARS)

International

Total operating segments

Contract manufacturing & human health

Total Revenue

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

Year Ended December 31,

% Change

(MILLIONS OF DOLLARS)

Companion animal

Livestock

Contract manufacturing & human health

Total Revenue

Total revenue increased by $211 million, or 2%, in 2025 compared with 2024 reflecting operational revenue growth of $247 million, or 3%. Operational revenue growth was primarily due to the following:

• price growth of approximately 4%;

• volume growth from other in-line products of approximately 1%; and

• volume growth from key franchises of approximately 1%,

partially offset by:

• volume decrease related to the impact of the divestiture of our medicated feed additive product portfolio, certain water soluble products and related assets (MFA divestiture) of approximately 3%.

Foreign exchange decreased our reported revenue growth by approximately $36 million, or 1%.

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Costs and Expenses

Cost of sales

Year Ended December 31,

% Change

(MILLIONS OF DOLLARS)

Cost of sales

% of revenue

Cost of sales as a percentage of revenue was 28.2% in 2025, compared with 29.4% in 2024. The decrease was primarily as a result of:

• favorable impact of the MFA divestiture;

• price increases;

• favorable foreign exchange; and

• lower inventory charges,

partially offset by:

• unfavorable manufacturing and other costs.

Selling, general and administrative expenses

Year Ended December 31,

% Change

(MILLIONS OF DOLLARS)

Selling, general and administrative expenses

% of revenue

SG&A expenses increased by $60 million, or 3%, in 2025 compared with 2024, primarily as a result of:

• an increase in software expense;

• higher charitable contributions;

• an increase in certain significant items;

• higher professional and consulting fees; and

• higher travel and entertainment expenses,

partially offset by:

• lower depreciation expense;

• favorable foreign exchange; and

• lower logistics and freight expense.

Research and development expenses

Year Ended December 31,

% Change

(MILLIONS OF DOLLARS)

Research and development expenses

% of revenue

R&D expenses increased by $12 million, or 2%, in 2025 compared with 2024, primarily as a result of:

• higher depreciation expense;

• an increase in certain compensation-related costs to support innovation and portfolio progression; and

• unfavorable impact from foreign exchange,

partially offset by:

• lower professional and consulting services.

Amortization of intangible assets

Year Ended December 31,

% Change

(MILLIONS OF DOLLARS)

Amortization of intangible assets

Amortization of intangible assets decreased by $13 million, or 9%, in 2025 compared with 2024 primarily due to asset impairments taken in 2025 and 2024, as well as assets that became fully amortized, partially offset by intangible assets placed in service in 2025 and 2024.

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Restructuring charges and certain acquisition and divestiture-related costs

Year Ended December 31,

% Change

(MILLIONS OF DOLLARS)

Restructuring charges and certain acquisition and divestiture-related costs

* Calculation not meaningful.

Restructuring charges and certain acquisition and divestiture-related costs were $51 million in 2025 and $53 million in 2024. Restructuring charges and certain acquisition and divestiture-related costs in 2025 primarily consisted of charges related to a transition from internal to external innovation and manufacturing of certain products and the closure of a related site, as well as employee termination costs related to organizational structure refinements. Restructuring charges and certain acquisition and divestiture-related costs in 2024 primarily consisted of employee termination costs related to organizational structure refinements, as well as costs related to the sale of our medicated feed additive product portfolio, certain water soluble products and related assets, partially offset by a reversal of certain employee termination costs as a result of a change in strategy from our 2015 operational efficiency initiative.

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

Interest expense, net of capitalized interest

Year Ended December 31,

% Change

(MILLIONS OF DOLLARS)

Interest expense, net of capitalized interest

Interest expense, net of capitalized interest, decreased by $3 million, or 1%, in 2025 compared with 2024, primarily as a result of higher capitalized interest in the current period associated with capital projects to support our future growth and higher gains on foreign exchange derivative instruments, partially offset by a higher average debt balance during a portion of the current year.

Other (income)/deductions—net

Year Ended December 31,

% Change

(MILLIONS OF DOLLARS)

Other (income)/deductions—net

* Calculation not meaningful.

The change in Other (income)/deductions—net is primarily as a result of the net loss on the sale of our medicated feed additive product portfolio, certain water soluble products and related assets in 2024, as well as lower asset impairment charges in the current period, partially offset by lower interest income in the current period.

Provision for taxes on income

Year Ended December 31,

% Change

(MILLIONS OF DOLLARS)

Provision for taxes on income

Effective tax rate

The income tax provision in the Consolidated Statements of Income includes tax costs and benefits, such as uncertain tax positions, repatriation decisions and audit settlements, among others.

Our effective tax rate was 20.4% for 2025 and 20.3% for 2024. The higher effective tax rate for 2025, as compared to 2024, was primarily attributable to a lower benefit in the U.S. related to foreign-derived intangible income, partially offset by a more favorable jurisdictional mix of earnings (which includes the impact of the location of pre-tax earnings, tax impact of permanent differences and repatriation activity) and higher net discrete tax benefits.

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Operating Segment Results

The mix of revenue between companion animal and livestock products was as follows:

% Change

Related to

Related to

Year Ended December 31,

Foreign Exchange

Foreign Exchange

(MILLIONS OF DOLLARS)

Total

Operational

Total

Operational

Companion animal

Livestock

International

Companion animal

Livestock

Total

Companion animal

Livestock

Contract manufacturing & human health

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

% Change

Related to

Related to

Year Ended December 31,

Foreign Exchange

Foreign Exchange

(MILLIONS OF DOLLARS)

Total

Operational

Total

Operational

International

Total reportable segments

Other business activities

Reconciling Items:

Corporate

Purchase accounting adjustments

Acquisition and divestiture-related costs

Certain significant items

Other unallocated

Income before income taxes

* Calculation not meaningful.

U.S. operating segment

U.S. segment revenue increased by $23 million in 2025, which was relatively flat compared with 2024, of which $166 million resulted from growth in companion animal products, partially offset by a $143 million decline in livestock products.

• Companion animal revenue growth was primarily due to increased sales of Simparica Trio, key dermatology products and small animal diagnostics, partially offset by lower sales of Librela.

• Livestock revenue declined due to the impact of the MFA divestiture across cattle, poultry and swine products. Excluding the impact of the MFA divestiture, livestock revenue increased primarily due to higher demand for vaccines in our cattle and poultry markets, partially offset by a decrease in demand for certain swine products.

U.S. segment earnings increased by $102 million, or 3%, in 2025 compared with 2024, primarily due to higher revenue and lower cost of sales, partially offset by higher operating expenses.

International operating segment

International segment revenue increased by $152 million, or 4%, in 2025 compared with 2024. Operational revenue growth was $188 million, or 5%, reflecting growth of $145 million in companion animal products and $43 million in livestock products.

• Companion animal operational revenue growth was driven primarily by increased sales of our Simparica franchise products, key dermatology products and our mAb products for OA pain, Librela and Solensia.

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• Livestock operational revenue growth was due to increased sales in our cattle and fish products, partially offset by lower sales of poultry products. Excluding the impact of the MFA divestiture, livestock revenue increased across all species. Sales of cattle products grew largely due to price and sales of poultry products grew due to higher demand for vaccines in key poultry markets and price. Sales of our fish products grew due to increased vaccine sales in Norway and Chile. Sales of swine products increased due to higher demand for vaccines and geographic expansion.

• International segment revenue was positively impacted by operational changes made in connection with the Expected Fiscal Year Alignment, leading to an approximate 2.5% to 3.5% increase in sales in the International segment in the reported fourth quarter 2025 due to an acceleration of the timing of sales into the reported fourth quarter of 2025, a trend that we do not expect to recur.

• Additionally, International segment revenue was unfavorably impacted by foreign exchange which decreased revenue by approximately $36 million, or 1%, primarily driven by the Brazilian real, Argentinian peso, Turkish lira, Mexican peso, Australian dollar and Canadian dollar.

International segment earnings increased by $146 million, or 7%, in 2025 compared with 2024. Operational earnings growth was $106 million, or 5%, primarily due to higher revenue, partially offset by higher cost of sales and operating expenses.

Other business activities

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

Other business activities net loss was flat in 2025 compared with 2024, reflecting a decrease in R&D costs primarily due to timing of spend related to projects and other strategic investments, as well as contract manufacturing results, offset by an increase in certain compensation-related costs and depreciation expense.

Reconciling items

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

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

• Certain transactions and events such as Purchase accounting adjustments , Acquisition and divestiture-related activities and Certain significant items , which are defined below; and

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

Corporate expenses increased by $27 million, or 2%, in 2025 compared with 2024, primarily due to an increase in compensation-related costs, partially offset by favorable foreign exchange.

Other unallocated expenses increased by $19 million, or 6%, in 2025 compared with 2024, primarily due to higher manufacturing costs and other charges, partially offset by lower inventory obsolescence, freight charges and favorable foreign exchange.

See Notes to Consolidated Financial Statements— Note 19. Segment Information for further information.

Adjusted net income

General description of adjusted net income (a non-GAAP financial measure)

Adjusted net income is an alternative view of performance used by management, and we believe that investors’ understanding of our performance is enhanced by disclosing this performance measure. The adjusted net income measure is an important internal measurement for us. Additionally, we measure our overall performance on this basis in conjunction with other performance metrics. The following are examples of how the adjusted net income measure is utilized:

• senior management receives a monthly analysis of our operating results that is prepared on an adjusted net income basis;

• our annual budgets are prepared on an adjusted net income basis; and

• other goal setting and performance measurements.

Purchase accounting adjustments

Adjusted net income is calculated prior to considering certain significant purchase accounting impacts that result from business combinations and net asset acquisitions. These impacts, primarily associated with certain acquisitions, include amortization related to the increase in fair value of the acquired finite-lived intangible assets and depreciation related to the increase/decrease to fair value of the acquired fixed assets. Therefore, the adjusted net income measure includes the revenue earned upon the sale of the acquired products without considering the aforementioned significant charges.

While certain purchase accounting adjustments can occur through 20 or more years, this presentation provides an alternative view of our performance that is used by management to internally assess business performance. We believe the elimination of amortization attributable to acquired intangible

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assets provides management and investors an alternative view of our business results by providing a degree of parity to internally developed intangible assets for which R&D costs previously have been expensed.

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

Acquisition and divestiture-related costs

Adjusted net income is calculated prior to considering transaction, integration and disintegration costs associated with significant business combinations, net asset acquisitions and divestitures. These incremental costs are excluded as they are incurred to acquire and integrate, or dispose and disintegrate, certain businesses as a result of the acquisition or disposal decision and are unique to each transaction. We have made no adjustments for the resulting synergies from these transactions.

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

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

Certain significant items

Adjusted net income is calculated excluding certain significant items. Certain significant items represent substantive, unusual items that are evaluated on an individual basis. Such evaluation considers both the quantitative and the qualitative aspect of their unusual nature. Unusual, in this context, may represent items that are not part of our ongoing business; items that, either as a result of their nature or size, we would not expect to occur as part of our normal business on a regular basis; items that would be nonrecurring; or items that relate to products that we no longer sell. While not all-inclusive, examples of items that could be included as certain significant items would be costs related to a major non-acquisition or divestiture-related restructuring charge and associated implementation costs for a program that is specific in nature with a defined term, such as those related to our non-acquisition or divestiture-related cost-reduction and productivity initiatives; costs related to our business process transformation program; amounts related to disposals of products or facilities that do not qualify as discontinued operations as defined by U.S. GAAP; certain asset impairment charges; adjustments related to the resolution of certain tax positions; significant currency devaluation; the impact of adopting certain significant, event-driven tax legislation; or charges related to legal matters. See Notes to Consolidated Financial Statements— Note 18. Commitments and Contingencies . Our normal, ongoing defense costs or settlements of and accruals on legal matters made in the normal course of our business would not be considered certain significant items.

Reconciliation

A reconciliation of net income attributable to Zoetis, as reported under U.S. GAAP, to adjusted net income follows:

Year Ended December 31,

% Change

(MILLIONS OF DOLLARS)

GAAP reported net income attributable to Zoetis

Purchase accounting adjustments—net of tax

Acquisition and divestiture-related costs—net of tax

Certain significant items—net of tax

Non-GAAP adjusted net income (a)

* Calculation not meaningful.

(a)     The effective tax rate on adjusted pretax income was 20.3%, 19.8% and 20.1% in 2025, 2024 and 2023, respectively.

The higher effective tax rate on adjusted pretax income for 2025, as compared to 2024, was primarily attributable to a lower benefit in the U.S related to foreign-derived intangible income and a less favorable jurisdictional mix of earnings (which includes the impact of the location of pre-tax earnings, tax impact of permanent differences and repatriation activity), partially offset by higher net discrete benefits.

The lower effective tax rate on adjusted pretax income for 2024, as compared to 2023, was primarily attributable to a higher benefit in the U.S. related to foreign-derived intangible income and lower net discrete tax expenses, partially offset by a less favorable jurisdictional mix of earnings (which includes the impact of the location of earnings, repatriation costs and Pillar Two global minimum tax). Jurisdictional mix of earnings can vary depending on repatriation decisions, operating fluctuations in the normal course of business and the impact of non-deductible and non-taxable items.

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

Year Ended December 31,

% Change

Earnings per share—diluted (a) :

GAAP reported EPS attributable to Zoetis—diluted

Purchase accounting adjustments—net of tax

Acquisition and divestiture-related costs—net of tax

Certain significant items—net of tax

Non-GAAP adjusted EPS—diluted

* Calculation not meaningful.

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

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

Year Ended December 31,

(MILLIONS OF DOLLARS)

Interest expense, net of capitalized interest

Interest income

Income taxes

Depreciation

Amortization

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

Year Ended December 31,

(MILLIONS OF DOLLARS)

Purchase accounting adjustments:

Amortization and depreciation

Cost of sales

Total purchase accounting adjustments—pre-tax

Income taxes (a)

Total purchase accounting adjustments—net of tax

Acquisition and divestiture-related costs:

Acquisition-related costs

Divestiture-related costs (b)

Restructuring costs

Total acquisition and divestiture-related costs—pre-tax

Income taxes (a)

Total acquisition and divestiture-related costs—net of tax

Certain significant items:

Other restructuring charges and cost-reduction/productivity initiatives (c)

Business process transformation cost s (d)

Certain asset impairment charges (e)

Net loss/(gain) on sale of businesses (f)

Other

Total certain significant items—pre-tax

Income taxes (a)

Total certain significant items—net of tax

Total purchase accounting adjustments, acquisition and divestiture-related costs, and certain significant items—net of tax

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

Income taxes in Certain significant items also includes:

• For 2024, a tax expense related to the divestiture of the medicated feed additive product portfolio, certain water soluble products and related assets.

• For 2023, a benefit from the tax loss on the divestiture of Performance Livestock Analytics, partially offset by a tax expense related to changes to prior years’ tax positions with regard to the one-time mandatory deemed repatriation tax under the Tax Cuts and Jobs Act.

(b)     Represents costs related to the sale of our medicated feed additive product portfolio, certain water soluble products and related assets.

(c)     For 2025, primarily consisted of employee termination costs related to organizational structure refinements, as well as costs related to a transition from internal to external innovation and manufacturing of certain products and the closure of a related site.

For 2024, primarily consisted of employee termination costs related to organizational structure refinements, partially offset by a reversal of certain employee termination costs as a result of a change in strategy from our 2015 operational efficiency initiative.

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For 2023, primarily represents employee termination and exit costs related to organizational structure refinements and other cost-reduction and productivity initiatives.

(d)      Represents costs related to our multi-year business process transformation program, which includes the implementation of a new enterprise resource planning (ERP) system, related digital technology solutions and other related costs. This comprehensive program is a major global and cross-functional company-wide effort, of which the Expected Fiscal Year Alignment is a part, that we believe will transform how we work across our business and contribute to all of our strategic priorities. Due to the nature, scope and magnitude of this investment, these costs are incremental transformational costs that are far in excess of the historical normal level of spending to support operations and are not expected to recur in the foreseeable future.

(e)     For 2025, represents charges related to a transition from internal to external innovation and manufacturing of certain products and the closure of a related site, as well as charges related to our aquaculture product portfolio.

For 2024, represents certain asset impairment charges related to our aquaculture business.

For 2023, primarily represents certain asset impairment charges related to our precision animal health and diagnostics businesses.

(f)         For 2025 and 2024, represents a net loss related to the sale of our medicated feed additive product portfolio, certain water soluble products and related assets in 2024.

For 2023, primarily represents a net gain on the sale of a majority interest in our pet insurance business.

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

Year Ended December 31,

(MILLIONS OF DOLLARS)

Cost of sales:

Purchase accounting adjustments

Inventory write-offs

Business process transformation costs

Other

Total Cost of sales

Selling, general & administrative expenses:

Purchase accounting adjustments

Business process transformation costs

Other

Total Selling, general & administrative expenses

Research & development expenses:

Purchase accounting adjustments

Total Research & development expenses

Amortization of intangible assets:

Purchase accounting adjustments

Total Amortization of intangible assets

Restructuring charges and certain acquisition and divestiture-related costs:

Acquisition-related costs

Divestiture-related costs

Employee termination costs

Asset impairments

Exit costs

Total Restructuring charges and certain acquisition and divestiture-related costs

Other (income)/deductions—net:

Asset impairments

Net loss/(gain) on sale of businesses

Other

Total Other (income)/deductions—net

Provision for taxes on income

Total purchase accounting adjustments, acquisition and divestiture-related costs, and certain significant items—net of tax

Analysis of the Consolidated Statements of Comprehensive Income

Changes in other comprehensive income for the periods presented are primarily related to foreign currency translation adjustments and unrealized gains/(losses) on derivative instruments. The foreign currency translation adjustment changes result from the strengthening or weakening of the U.S. dollar as compared to the currencies in the countries in which we do business. Unrealized gains/(losses) on the changes in the fair value of derivative instruments are recorded within Accumulated other comprehensive income/(loss) and reclassified into earnings depending on the nature and purpose of the financial instrument, as described in Note 9. Financial Instruments of the Notes to Consolidated Financial Statements.

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Analysis of the Consolidated Balance Sheets

December 31, 2025 vs. December 31, 2024

For a discussion about the changes in Cash and cash equivalents , Short-term borrowings, Current portion of long-term debt and Long-term debt, net of discount and issuance costs , see “Analysis of financial condition, liquidity and capital resources” below.

Accounts receivable, less allowance for doubtful accounts increased primarily as a result of higher net sales in the period.

Inventories increased primarily as a result of inventory build-up to support production for the forecasted demand of certain products. See Notes to Consolidated Financial Statements - Note 11. Inventories.

Other current assets increased primarily due to an increase in collateral posted related to derivative contracts, the deferral of a prepaid tax benefit in connection with a prepayment from a related foreign entity in Belgium, as well as higher value-added tax receivables, partially offset by the mark-to-market adjustments of derivative instruments.

Property, plant and equipment less accumulated depreciation increased primarily as a result of capital spending, partially offset by depreciation expense. See Notes to Consolidated Financial Statements - Note 12. Property, Plant and Equipment.

The increase in Operating lease right-of-use assets reflects assets acquired through new and amended lease agreements, partially offset by lease amortization, while the increase in Operating lease liabilities primarily reflects an amended lease obligation in the current period, partially offset by lease payments. See Notes to Consolidated Financial Statements— Note 10. Leases .

Identifiable intangible assets, less accumulated amortization decreased primarily due to amortization expense. See Notes to Consolidated Financial Statements - Note 13. Goodwill and Other Intangible Assets.

The net changes in Noncurrent deferred tax assets, Noncurrent deferred tax liabilities, Income taxes payable and Other taxes payable primarily reflect adjustments to the accrual for the income tax provision, the timing of income tax payments and the tax impact of various acquisitions and divestitures.

Other noncurrent assets increased primarily due to capitalized cloud computing arrangements implementation costs, partially offset by the mark-to-market adjustments of derivative instruments.

Accounts payable increased as a result of the timing of vendor and value-added tax payments.

Accrued expenses increased primarily as a result of increases in accrued contract rebates, interest and third-party inventory.

Accrued compensation and related items  decreased primarily due to the payments of 2024 annual incentive bonuses, payments for sales incentive bonuses and savings plan contributions to eligible employees, partially offset by the accrual of 2025 annual incentive bonuses, savings plan contributions to eligible employees and sales incentive bonuses.

Other current liabilities decreased primarily due to a decrease in collateral received related to derivative contracts, partially offset by the mark-to-market adjustments of derivative instruments.

Other noncurrent liabilities increased primarily due to the mark-to-market adjustments of derivative instruments.

For an analysis of the changes in Total Equity , see the Consolidated Statements of Equity and Notes to Consolidated Financial Statements— Note 16. Stockholders' Equity .

Analysis of the Consolidated Statements of Cash Flows

Year Ended December 31,

$ Change

(MILLIONS OF DOLLARS)

Net cash provided by (used in):

Operating activities

Investing activities

Financing activities

Effect of exchange-rate changes on cash and cash equivalents

Net increase/(decrease) in cash and cash equivalents

Operating activities

Net cash provided by operating activities was $2,904 million in 2025 compared with $2,953 million in 2024. The decrease in operating cash flows was primarily attributable to the timing of receipts and payments in the ordinary course of business and higher inventory build-up of certain products due to increased demand, partially offset by higher net income adjusted by non-cash items and the timing of income taxes paid.

Investing activities

Net cash used in investing activities was $748 million in 2025 compared with $315 million in 2024. The net cash used in investing activities for 2025 was primarily due to capital expenditures and net payments of derivative instrument activity. The net cash used in investing activities for 2024 was primarily due to capital expenditures, partially offset by net proceeds on the sale of our medicated feed additive product portfolio, certain water soluble products and related assets, as well as net proceeds from derivative instrument activity.

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Financing activities

Net cash used in financing activities was $1,870 million in 2025 compared with $2,660 million in 2024. The net cash used in financing activities for 2025 was primarily attributable to the purchase of treasury shares and related excise taxes, the repayment of the aggregate principal amounts of our 2015 and 2022 senior notes due 2025, the payment of dividends and payment of the capped calls related to the convertible senior notes, partially offset by proceeds from the issuance of the convertible senior notes in December 2025 and senior notes in August 2025. The net cash used in financing activities for 2024 was primarily attributable to the purchase of treasury shares and related payment of excise taxes, the payment of dividends and taxes paid on withholding shares, partially offset by proceeds in connection with the issuance of common stock under our equity incentive plan.

Analysis of financial condition, liquidity and capital resources

While we believe our cash and cash equivalents on hand, our operating cash flows and our existing financing arrangements will be sufficient to support our cash needs for the next twelve months and beyond, this may be subject to the environment in which we operate. Risks to our meeting future funding requirements are described in Global economic conditions below.

Selected measures of liquidity and capital resources

Certain relevant measures of our liquidity and capital resources follow:

December 31,

(MILLIONS OF DOLLARS)

Cash and cash equivalents

Accounts receivable, net (a)

Current portion of long-term debt

Long-term debt

Working capital

Ratio of current assets to current liabilities

(a)     Accounts receivable are usually collected over a period of 45 to 75 days . For the years ended December 31, 2025 and 2024, the number of days that accounts receivables were outstanding have remained within this range. We regularly monitor our accounts receivable for collectability, particularly in markets where economic conditions remain uncertain. We believe that our allowance for doubtful accounts is appropriate. Our assessment is based on such factors as past due aging, historical and expected collection patterns, the financial condition of our customers, the robust nature of our credit and collection practices and the economic environment.

For additional information about the sources and uses of our funds, see the Analysis of the Consolidated Balance Sheets and Analysis of the Consolidated Statements of Cash Flows sections of this MD&A.

Credit facility and other lines of credit

In August 2025, we entered into a new revolving credit agreement with a syndicate of banks providing for a multi-year $1.25 billion senior unsecured revolving credit facility (the credit facility), which expires in August 2030. Subject to certain conditions, we have the right to increase the credit facility up to $1.75 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 December 31, 2025 and December 31, 2024. There were no amounts drawn under the credit facility as of December 31, 2025 or December 31, 2024.

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 December 31, 2025, we had access to $51 million of lines of credit which expire at various times and are generally renewed annually. There were no borrowings outstanding related to these facilities as of December 31, 2025 or December 31, 2024.

Domestic and international short-term funds

Many of our operations are conducted outside the U.S. The amount of funds held in the U.S. will fluctuate due to the timing of receipts and payments in the ordinary course of business and due to other reasons, such as business development activities. As part of our ongoing liquidity assessments, we regularly monitor the mix of U.S. and international cash flows (both inflows and outflows). Actual repatriation of overseas funds can result in additional U.S. and local income taxes, such as U.S. state income taxes, local withholding taxes, and taxes on currency gains and losses. See Notes to Consolidated Financial Statements— Note 8. Tax Matters .

Global economic conditions

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

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Contractual obligations

In the normal course of business, we enter into contracts and commitments that obligate us to make payments in the future. These obligations include long-term debt, including interest obligations, purchase obligations, lease commitments, other liabilities, benefit plan obligations and uncertain tax positions. See Notes to Consolidated Financial Statements— Note 9. Financial Instruments , Note 18. Commitments and Contingencies, Note 10. Leases , Note 6. Restructuring Charges and Other Costs Associated with Acquisitions and Divestitures, Note 14. Benefit Plans and Note 8. Tax Matters for further information on material cash requirements from known contractual and other obligations.

Debt securities

Convertible Senior Notes

On December 18, 2025, we completed a private offering (the “offering”) of 0.250% convertible senior notes (the “convertible senior notes”) with a maturity date of June 15, 2029, unless earlier repurchased, redeemed or converted. The aggregate principal amount of the convertible senior notes sold in the offering was $2.0 billion, which includes $250 million in aggregate principal amount of convertible senior notes issued pursuant to the initial purchasers’ option to purchase additional convertible senior notes on the same terms and conditions, which the initial purchasers exercised in full for settlement on December 18, 2025.

The convertible senior notes were issued pursuant to an indenture, dated as of December 18, 2025, between us and Deutsche Bank Trust Company Americas, as trustee. If we call any convertible senior notes for redemption, a "make-whole fundamental change" will occur under the indenture with respect to those convertible senior notes, in which case the conversion rate applicable to the conversion of those convertible senior notes will be increased if they are converted during a specified period of time after they are called for redemption. The convertible senior notes are convertible at an initial conversion price of approximately $148.20 per share of common stock. Prior to March 15, 2029, the convertible senior notes are convertible during certain periods only: (i) if the trading price of our common stock is greater than or equal to 130% of the conversion price for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days prior to the end of a calendar quarter, (ii) the trading price per $1,000 principal amount of convertible senior notes for each trading day of the specified measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day, (iii) if we call the notes for redemption and (iv) upon the occurrence of certain corporate events, as set forth in the indenture. On or after March 15, 2029, holders may convert all or any portion of their notes, regardless of the foregoing conditions. Upon any conversion of the convertible senior notes, we will pay cash up to the aggregate principal amount of the notes to be converted and pay or deliver, as the case may be, cash, shares of our common stock or a combination thereof, at our election, in respect of the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the notes being converted.

The net proceeds from the offering were $1,970 million, after deducting the initial purchasers’ discounts and expenses of $30 million. We used the net proceeds from the offering as follows: (i) $187 million to fund the cost of entering into the capped call transactions described below, (ii) $248 million to purchase approximately 2.1 million shares of Zoetis’ common stock, par value $0.01 per share (the “common stock”), in privately negotiated transactions entered into concurrently with the pricing of the offering effected with or through one of the initial purchasers or its affiliate and (iii) the remaining $1,535 million for additional repurchases of common stock following the date of the offering, which repurchases were substantially completed as of December 31, 2025.

In connection with the issuance of the convertible senior notes, we also entered into privately negotiated capped call transactions with certain counterparties (the “capped calls”). The capped calls each have a strike price of approximately $148.20 per share, subject to certain adjustments, which correspond to the initial conversion price of the convertible senior notes. The capped calls have initial cap prices of approximately $211.72 per share, subject to certain adjustments. The capped calls cover, subject to anti-dilution adjustments, approximately 13.5 million shares of our common stock. We have the option to settle the capped calls in either shares, cash or a combination thereof. The capped calls are generally intended to reduce or offset the potential dilution to our common stock upon any conversion of the convertible senior notes with such reduction or offset, as the case may be, subject to a cap based on the cap price. However, if the market price per share of our common stock, as measured under the terms of the capped calls, exceeds the cap prices of the capped calls, there would nevertheless be dilution and/or there would not be an offset of such cash payments, in each case, to the extent that such market price exceeds the cap price of the capped calls. The capped calls are separate transactions, and not part of the terms of the convertible senior notes. We analyzed the transactions under ASC 815, Derivatives and Hedging, and determined that the capped calls met the criteria for classification as an equity transaction with no subsequent remeasurement, as long as they continue to meet the conditions for equity classification. These capped calls are recorded in stockholders’ equity on our balance sheet and are not accounted for as a bifurcated derivative. The cost of the capped calls of $187 million, net of $42 million in deferred tax assets, was recorded as a decrease to Additional paid-in capital on our Consolidated Balance Sheets as of December 31, 2025.

On December 17, 2025, we and the lenders under the credit facility entered into the First Waiver to the Revolving Credit Agreement, dated as of December 17, 2025 (the “waiver”), among us, the lenders party thereto, the issuing banks party thereto and JPMorgan Chase Bank, N.A., as administrative agent. The waiver waived a technical provision in the credit facility and explicitly permits early conversions of the convertible senior notes pursuant to their terms.

Senior Notes and Other Long-Term Debt

On August 18, 2025, we issued $850 million aggregate principal amount of 4.150% senior notes due 2028 and $1.00 billion aggregate principal amount of 5.000% senior notes due 2035 (collectively, 2025 senior notes), with an original issue discount of $2 million. The net proceeds were used to redeem in full the $600 million aggregate principal amount of our 5.400% 2022 senior notes due 2025 and the $750 million aggregate principal amount of our 4.500% 2015 senior notes due 2025 on August 28, 2025 and September 17, 2025, respectively, and the remainder is being used for general corporate purposes.

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 lease-back transactions. The indenture also contains restrictions on our ability to consolidate, merge or sell substantially all of our assets. In addition, the indenture contains other customary terms, including certain events of default, upon the occurrence of which the senior notes may be declared immediately due and payable.

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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.

Our outstanding debt securities are as follows:

Description

Principal Amount

Interest Rate

Terms

2017 Senior Notes due 2027

$750 million

Interest due semi annually, not subject to amortization, aggregate principal due on September 12, 2027

2018 Senior Notes due 2028

$500 million

Interest due semi annually, not subject to amortization, aggregate principal due on August 20, 2028

2025 Senior Notes due 2028

$850 million

Interest due semi annually, not subject to amortization, aggregate principal due on August 17, 2028

2025 Convertible Senior Notes due 2029

$2,000 million

Interest due semi annually, not subject to amortization, aggregate principal due on June 15, 2029

2020 Senior Notes due 2030

$750 million

Interest due semi annually, not subject to amortization, aggregate principal due on May 15, 2030

2022 Senior Notes due 2032

$750 million

Interest due semi annually, not subject to amortization, aggregate principal due on November 16, 2032

2025 Senior Notes due 2035

$1,000 million

Interest due semi annually, not subject to amortization, aggregate principal due on August 17, 2035

2013 Senior Notes due 2043

$1,150 million

Interest due semi annually, not subject to amortization, aggregate principal due on February 1, 2043

2017 Senior Notes due 2047

$500 million

Interest due semi annually, not subject to amortization, aggregate principal due on September 12, 2047

2018 Senior Notes due 2048

$400 million

Interest due semi annually, not subject to amortization, aggregate principal due on August 20, 2048

2020 Senior Notes due 2050

$500 million

Interest due semi annually, not subject to amortization, aggregate principal due on May 15, 2050

Credit ratings

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

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

Commercial Paper

Long-term Debt

Date of Last Action

Name of Rating Agency

Rating

Rating

Outlook

Moody’s

Stable

January 2025

BBB+

Stable

April 2025

Pension obligations

We maintain pension obligations associated with certain international defined benefit plans and expect to contribute a total of $8 million to these plans in 2026. As of December 31, 2025, the supplemental savings plan liability was $47 million. For additional information, see Notes to Consolidated Financial Statements— Note 14. Benefit Plans.

Share repurchase program

In August 2024, our Board of Directors authorized a multi-year share repurchase program of up to $6 billion of our outstanding common stock. In connection with the December 18, 2025 private offering of 0.250% convertible senior notes, we purchased approximately 2.1 million shares of Zoetis’ common stock, par value $0.01 per share, in privately negotiated transactions entered into concurrently with the pricing of the convertible senior notes offering effected with or through one of the initial purchasers or its affiliate. Following the date of the offering, we used $1,535 million of the remaining proceeds from the offering for additional repurchases of common stock which repurchases were substantially completed as of December 31, 2025. As of December 31, 2025, there was $2.4 billion remaining under this authorization. Purchases of Zoetis shares may be made at the discretion of management, depending on market conditions and business needs. Share repurchases may be executed through various means, including open market or privately negotiated transactions. During 2025, 23.9 million shares were repurchased for $3.2 billion, which excludes a $31 million accrual for excise tax on net share repurchases.

Off-balance sheet arrangements

In the ordinary course of business and in connection with the sale of assets and businesses, we may indemnify our counterparties against certain liabilities that may arise in connection with a transaction or that are related to activities prior to a transaction. These indemnifications typically pertain to environmental, tax, employee and/or product-related matters, and patent-infringement claims. If the indemnified party were to make a successful claim pursuant to the terms of the indemnification, we would be required to reimburse the loss. These indemnifications are generally subject to threshold amounts, specified claim periods and other restrictions and limitations. Historically, we have not paid significant amounts under these provisions and, as of December 31, 2025 and 2024, recorded amounts for the estimated fair value of these indemnifications are not material.

New accounting standards

See Note 3. Significant Accounting Policies in the Notes to Consolidated Financial Statements for discussion of recent accounting pronouncements, including the respective dates of adoption or expected adoption and effects or expected effects on our consolidated financial position, results of operations and cash flows.

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Forward-looking statements and factors that may affect future results

This report contains “forward-looking” statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We generally identify forward-looking statements by using words such as “anticipate,” “estimate,” “could,” “expect,” “intend,” “project,” “plan,” “predict,” “believe,” “seek,” “continue,” “outlook,” “forecast,” “objective,” “target,” “may,” “might,” “will,” “should,” “can have,” “likely” or the negative version of these words or comparable words or by using future dates in connection with any discussion of future performance, actions or events.

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

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

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

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

• the decline in global economic conditions, including the ongoing conflicts and rising tensions in various parts of the world, economic weakness in China and inflation;

• consolidation of our customers and distributors;

• changes in the distribution channel for companion animal products;

• an outbreak of infectious disease carried by animals;

• disruptive innovations and advances in medical practices and technologies;

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

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

• perceived adverse effects linked to the consumption of food derived from animals that utilize our products or animals generally;

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

• modification of foreign trade policy by the U.S. or other countries or the imposition of tariffs on imported or exported goods;

• adverse weather conditions and the availability of natural resources;

• the impact of climate change on our activities and the activities of our customers and suppliers;

• an inability to hire and retain executive officers and other key personnel;

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

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

• difficulties or delays in the development or commercialization of new products;

• illegal distribution and/or sale of our products or the misuse or off-label use of our products;

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

• fluctuations in foreign exchange rates and potential currency controls;

• a cyberattack, information security breach or other misappropriation of our data;

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

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

• failure to generate sufficient cash to service our substantial indebtedness; and

• the other factors set forth under “Risk Factors” in Item 1A of Part I of this 2025 Annual Report.

However, there may also be other risks that we are unable to predict at this time. These risks or uncertainties may cause actual results to differ materially from those contemplated by a forward-looking statement. You should not put undue reliance on forward-looking statements. Forward-looking statements speak only as of the date on which they are made. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law or by the rules and regulations of the SEC. You are advised, however, to consult any further disclosures we make on related subjects in our Form 10-Q and 8-K reports and our other filings with the SEC. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider the above to be a complete discussion of all potential risks or uncertainties.

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