Zoetis Inc.

Previous wording

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. For over 70 years, we have been innovating ways to predict, prevent, detect, and treat animal illness, and continue to stand by those raising and caring for animals worldwide - from veterinarians and pet owners to livestock producers.

Current wording

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.

Previous wording

We directly market our products to veterinarians and livestock producers located in approximately 45 countries across North America, Europe, Africa, Asia, Australia and South America, and are a market leader in nearly all of the major regions in which we operate. Through our efforts to establish an early and direct presence in many emerging markets, such as Brazil, Chile, China and Mexico, we believe we are one of the largest animal health medicines and vaccines businesses as measured by revenue across emerging markets as a whole. In markets where we do not have a direct commercial presence, we generally contract with distributors that provide logistics and sales and marketing support for our products.

Current wording

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.

Previous wording

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

Current wording

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:

Previous wording

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 49% 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.

Current wording

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.

Previous wording

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 $950 million for the year ended December 31, 2024. As a result of the divestiture of our medicated feed additive product portfolio, certain water soluble products and related assets, we anticipate our total revenues attributable to antibacterials for livestock will decrease.

Current wording

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.

Previous wording

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, 2024, approximately 41% 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, 2024, approximately 59% of our total revenue was in U.S. dollars. Our year-over-year total revenue growth was unfavorably impacted by 3% from changes in foreign currency values relative to the U.S. dollar.

Current wording

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.

Previous wording

Our revenue, costs and expenses are reported for the year ended December 31 for each year presented, except for operations 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.

Current wording

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.

Previous wording

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 2024, our two top-selling products and product lines, Simparica/Simparica Trio and Apoquel/Apoquel Chewable, contributed approximately 15% and 11% 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 41% of our revenue. Our ten top-selling products and product lines contributed 55% 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 2024, see Item 1. Business—Products.

Current wording

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.

Previous wording

Our impairment reviews of most of our long-lived assets depend on the determination of fair value, as defined by U.S. GAAP, and these judgments can materially impact our results of operations. 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. For information about the risks associated with estimates and assumptions, see Notes to Consolidated Financial Statements—Note 3. Significant Accounting Policies: Estimates and Assumptions.

Current wording

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.

Previous wording

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

Current wording

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 costsand 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.

Previous wording

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 ($136 million as of December 31, 2024). IPR&D assets are higher-risk assets given the uncertain nature of R&D activity.

Current wording

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.

Previous wording

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 2024, we performed a periodic 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 2023, we performed a qualitative impairment assessment as of September 30, 2023, which did not result in the impairment of goodwill associated with any of our reporting units.

Current wording

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.

Previous wording

We report information in accordance with U.S. generally accepted accounting principles (GAAP). Management also measures performance using non-GAAP financial measures that may exclude certain amounts from the most directly comparable GAAP measure. Despite the importance of these measures to management in goal setting and performance measurement, non-GAAP financial measures have no standardized meaning prescribed by U.S. GAAP and, therefore, have limits in their usefulness to investors and may not be comparable to the calculation of similar measures of other companies. We present certain identified non-GAAP measures solely to provide investors with useful information to more fully understand how management assesses performance.

Current wording

38 | 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.

Previous wording

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

Current wording

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.

Previous wording

Total revenue increased by $712 million, or 8%, in 2024 compared with 2023 reflecting operational revenue growth of $921 million, or 11%. Operational revenue growth was primarily due to the following:

Current wording

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:

Previous wording

•volume growth from new products of approximately 3%; and

Current wording

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

Previous wording

•volume growth from key dermatology products of approximately 2%.

Current wording

•volume growth from key franchises of approximately 1%,

Previous wording

Foreign exchange decreased our reported revenue growth by approximately 3%.

Current wording

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

Previous wording

Cost of sales as a percentage of revenue was 29.4% in 2024, compared with 30.0% in 2023. The decrease was primarily as a result of:

Current wording

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:

Previous wording

•unfavorable manufacturing and other costs; and

Current wording

•unfavorable manufacturing and other costs.

Previous wording

SG&A expenses increased by $167 million, or 8%, in 2024 compared with 2023, primarily as a result of:

Current wording

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

Previous wording

R&D expenses increased by $72 million, or 12%, in 2024 compared with 2023, primarily as a result of:

Current wording

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

Previous wording

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

Current wording

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

Previous wording

Amortization of intangible assets decreased in 2024 compared with 2023 primarily due to asset impairments taken in 2024 and 2023, as well as assets that became fully amortized, partially offset by intangible assets placed in service in 2024 and 2023.

Current wording

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.

Previous wording

Restructuring charges and certain acquisition and divestiture-related costs were $53 million in 2024 and 2023. 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. Restructuring charges and certain acquisition and divestiture-related costs in 2023 primarily consisted of employee termination and exit costs related to organizational structure refinements and other cost-reduction and productivity initiatives, as well as costs related to recent acquisitions.

Current wording

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.

Previous wording

Interest expense, net of capitalized interest, decreased by $14 million, or 6%, in 2024 compared with 2023, primarily as a result of higher capitalized interest in the current period associated with capital projects to support our future growth and a higher debt balance during a portion of the prior year.

Current wording

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.

Previous wording

The change in Other (income)/deductions—net is primarily as a result of a gain on the sale of a majority interest in our pet insurance business in the prior period, royalty-related income in the prior period that was predominantly associated with a settlement received from a third-party for underpayment of royalties related to prior periods and a loss on the sale of our medicated feed additive product portfolio, certain water soluble products and related assets in the current period, partially offset by lower asset impairment charges in the current period.

Current wording

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.

Previous wording

U.S. segment revenue increased by $519 million, or 11%, in 2024 compared with 2023, of which $525 million resulted from growth in companion animal products and $6 million decline in livestock products.

Current wording

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.

Previous wording

•Companion animal revenue growth was primarily due to growth in sales of Simparica Trio, our mAb products for OA pain, Librela and Solensia, and key dermatology products, partially offset by lower sales of our small animal vaccines.

Current wording

•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.

Previous wording

U.S. segment earnings increased by $473 million, or 17%, in 2024 compared with 2023, primarily due to higher revenue, partially offset by higher cost of sales and operating expenses.

Current wording

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.

Previous wording

International segment revenue increased by $191 million, or 5%, in 2024 compared with 2023. Operational revenue growth was $401 million, or 10%, reflecting growth of $257 million in companion animal products and $144 million in livestock products.

Current wording

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.

Previous wording

•Companion animal operational revenue growth was driven primarily by the growth in sales of our key dermatology products, mAb products for OA pain, Librela and Solensia, small animal parasiticides and vaccine products.

Current wording

•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.

Previous wording

•Livestock operational revenue growth was due to increased sales of cattle, poultry and fish products, partially offset by a decline in sales of sheep products. Sales of cattle products grew due to price, partially offset by volume declines as compared to the prior year period due to prior year supply recoveries. Sales of products in our poultry portfolio grew due to price and demand generation efforts in key poultry markets. Sales of our fish portfolio grew due to increased vaccine sales in Norway, partially offset by lower sales of parasiticides in Chile. Sales of sheep products declined primarily due to supply constraints in Australia compounded by poor market conditions.

Current wording

•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.

Previous wording

•Additionally, International segment revenue was unfavorably impacted by foreign exchange which decreased revenue by approximately $210 million, or 5%, primarily driven by fluctuations in the Argentinian peso, Brazilian real, Turkish lira, Japanese yen and Egyptian pound.

Current wording

•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.

Previous wording

International segment earnings increased by $81 million, or 4%, in 2024 compared with 2023. Operational earnings growth was $230 million, or 11%, primarily due to higher revenue, partially offset by higher cost of sales and operating expenses.

Current wording

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.

Previous wording

Other unallocated expenses increased by $18 million, or 6%, in 2024 compared with 2023, primarily due to higher manufacturing costs and unfavorable foreign exchange, partially offset by lower freight charges and lower inventory obsolescence.

Current wording

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.

Previous wording

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 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.

Current wording

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

Previous wording

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; 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.

Current wording

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.

Previous wording

(a)The effective tax rate on adjusted pretax income was 19.8%, 20.1% and 20.3% in 2024, 2023 and 2022, respectively.

Current wording

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

Previous wording

The lower effective tax rate 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.

Current wording

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.