ELAN

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How ELAN rewrote its risk factors

10-K ITEM 1A · FY2024 → FY2025

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Risk Factors, may cause our actual results, financial position and cash flows to differ materially from these forward-looking statements.
Business Overview Elanco is a global leader in animal health, dedicated to innovating and delivering products and services to prevent and treat disease in farm animals and pets.
We partner with farmers, pet owners, veterinarians and society to create value and help our customers improve the health of animals in their care, while also making a meaningful impact on the communities we serve.
Our diverse, durable product portfolio is sold in more than 90 countries and serves animals across many species, primarily: dogs and cats (collectively, pet health) and cattle, poultry, swine and sheep (collectively, farm animal).
Our purpose – making life better for animals makes life better – inspires us to Go Beyond for animals, our customers, our people and society.
With a heritage dating back to 1954, we operate our business in a single segment within the animal health industry, offering a diverse product portfolio of approximately 200 brands, which helps make us a trusted partner to pet owners, veterinarians and farm animal producers.
Our omnichannel presence extends to both the veterinary clinic and retail markets, including e-commerce.
Product Development and Regulatory Update A key element of our targeted value creation strategy is to drive revenue growth through portfolio development and product innovation.
We continue to pursue the development of new chemical and biological molecules, as well as additional registrations and indications for current products.
Our future growth and success depend on both our pipeline of new products, including new products we develop internally, with partners or obtain through licenses or acquisitions, and the life cycle management of our existing products.
We believe we are an industry leader in animal health R&D, with a track record of successful product innovation, business development and commercialization.
New product development, regulatory and product launch highlights throughout 2024 and 2025 include the following: Bovaer : In May 2024, the FDA completed its comprehensive, multi-year review of Bovaer (3-NOP), a first-in-class methane-reducing feed ingredient for use in lactating dairy cattle.
Producers began feeding the product to cattle in the U.S. during the third quarter of 2024.
Zenrelia : We received final FDA approval for Zenrelia , a JAK inhibitor targeting control of pruritus and atopic dermatitis in dogs, in September 2024.
We launched Zenrelia in the U.S. shortly after final approval and have also received approval for Zenrelia in Australia, Brazil, Canada, the EU, Japan and the U.K.
Additional reviews are ongoing in other markets.
Credelio Quattro : In October 2024, we received final FDA approval for Credelio Quattro , a monthly chewable tablet for dogs that protects against fleas, ticks, heartworms, roundworms, hookworms and three different species of tapeworms.
Credelio Quattro was launched in January 2025, and in December 2025 we also received conditional approval for treatment of the New World screwworm.
Regulatory approval was received in February 2026 in Australia and additional submissions have now been made in other key markets, including Canada, the EU, Japan and the U.K.
Experior : In October 2024, we received multiple combination clearance approvals from the FDA for Experior to be used in combination with other farm animal products, allowing for broader use in heifers, which represent nearly 40% of the fed cattle population in the U.S.
AdTab : In April 2025, AdTab , a chewable flea and tick treatment for dogs and cats, was approved and launched in the U.K.
Befrena : In December 2025, we received final approval from the USDA for Befrena , a new anti-IL31 monoclonal antibody injection targeting canine allergic and atopic dermatitis.
We anticipate launching Befrena in the second quarter of 2026.
Other Key Trends and Factors Affecting Our Results of Operations Restructuring Activities: In December 2025, our Board of Directors authorized a restructuring plan (the 2025 Restructuring Plan) to support margin expansion, optimize our global footprint and further invest in innovation.
Specifically, the 2025 Restructuring Plan targeted an expected 2026 closure of the animal studies portion of our R&D facilities in Monheim, Germany, while also expanding our R&D organization in Indianapolis, Indiana, among other changes to our R&D organization.
The 2025 Restructuring Plan is also expected to result in our exit from certain farm animal implant products and the related closure of our manufacturing facility in Kansas City, Kansas, in 2026.
In total, the 2025 Restructuring Plan is expected to result in a global headcount reduction of approximately 300 employees, with an additional approximately 300 employees whose positions will be replaced with positions in growth areas or in lower-cost geographies.
In 2025, we incurred $155 million of charges associated with the 2025 Restructuring Plan, of which $116 million related to expected cash-based severance costs and $39 million related primarily to non-cash impairment charges associated with our animal studies R&D facilities in Monheim, Germany, and our manufacturing facility in Kansas City, Kansas.
We expect a further $25 million to $30 million of restructuring charges in 2026, primarily related to the remaining shut-down costs for our Monheim, Germany, and Kansas City, Kansas, facilities.
The 2025 Restructuring Plan is expected to result in savings of approximately $25 million in 2026 and approximately $60 million in 2027.
Additionally, in February 2024, our Board of Directors authorized a separate restructuring plan (the 2024 Restructuring Plan) to improve operational efficiencies and better align our organizational structure with business needs, top strategic priorities and key growth opportunities.
Specifically, the 2024 Restructuring Plan reallocated resources by shifting international resources from farm animal to pet health in anticipation of the global launches of several potential blockbuster products.
The 2024 Restructuring Plan also impacted how we operate in and sell into the Argentina market, among others.
Asset Impairment, Restructuring and Other Special Charges to the consolidated financial statements for further information on the 2025 and 2024 Restructuring Plans.
Government Initiatives: Changes to U.S. trade policy throughout 2025 and into 2026 have resulted in new or higher tariffs on goods imported from numerous countries, and some countries have imposed retaliatory tariffs on imports from the U.S.
While pharmaceutical products are largely exempt from the U.S. tariffs imposed, it remains uncertain if this will continue to be the case, and pharmaceutical products are not exempt from all tariffs imposed outside of the U.S.
A side from quarterly fluctuations in revenue due to some customers' accelerated purchases of certain farm animal products internationally in anticipation of future tariff increases, these new and increased tariffs did not have a material impact on our r esults of operations during the year ended December 31, 2025.
Supreme Court issued a decision concluding that the International Emergency Economic Powers Act does not provide authority for the U.S.
Subsequently, new tariffs were imposed pursuant to Section 122 of the Trade Act of 1974.
While the ultimate financial impact of these and other decisions cannot be reasonably estimated at this time, we will continue to closely monitor the trade policies in the countries in which we operate and/or from where we import products and continue to take actions, where possible, to mitigate the impacts on our business.

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Risk Factors - We have substantial indebtedness." Cash Flows The following table provides a summary of cash flows from operating, investing and financing activities for the years ended December 31, 2024 and 2023: (in millions) Net cash provided by (used for): 2024 2023 $ Change Operating activities $ 541 $ 271 $ 270 Investing activities 1,158 (169) 1,327 Financing activities (1,492) (83) (1,409) Effect of exchange rate changes on cash and cash equivalents (91) (12) (79) Net increase in cash and cash equivalents $ 116 $ 7 $ 109 Operating Activities Cash provided by operating activities increased $270 million to $541 million for the year ended December 31, 2024, compared to $271 million for the year ended December 31, 2023.
The increase in cash provided by operating activities was driven by year-over-year improvements in changes in operating assets and liabilities, partially offset by a decrease of $52 million of cash proceeds from interest rate swap settlements year-over-year.
Investing Activities Cash provided by investing activities was $1,158 million for the year ended December 31, 2024, and was driven by cash proceeds of $1,294 million from the sale of our aqua business in July 2024, and to a lesser extent, the collection of a $66 million receivable related to the previous divestiture of our Shawnee and Speke facilities.
These proceeds from investing activities were partially offset by $147 million of net purchases of property and equipment and software and $36 million of cash paid for the acquisition of the Speke facility (see Note 4.
Acquisitions, Divestitures and Other Arrangements to the consolidated financial statements for additional information on current and prior year acquisition and divestiture activities).
Cash used for investing activities of $169 million during the year ended December 31, 2023, primarily related to $140 million of cash paid for property and equipment and software and $19 million paid for our acquisitions of NutriQuest and NutriQuest Brazil.
Financing Activities Cash used for financing activities was $1,492 million for the year ended December 31, 2024, compared to $83 million for the year ended December 31, 2023.
In 2024, we repaid $1,600 million of term loan debt, $200 million, net on our Revolving Credit Facility and $25 million, net on our Securitization Facility.
Cash used for financing activities during 2023 primarily reflected the repayment of our previously outstanding 4.272% Senior Notes due 2023, partially offset by $200 million of net borrowings on our Revolving Credit Facility and $125 million of net borrowings on our Securitization Facility.
Debt to the consolidated financial statements for further information related to our debt related borrowing and repayment activity.
Capital Expenditures Capital expenditures, which we define as cash paid for property and equipment and software, were $147 million during 2024, an increase of $7 million compared to 2023.
We anticipate capital expenditures in 2025 to be approximately $225 million to $255 million.
This anticipated increase in capital expenditures in 2025 compared to recent years is due, in part, to expected capital spend associated with the expansion of our monoclonal antibody manufacturing facility in Elwood, Kansas.
Description of Indebtedness For a complete description of our debt and available credit facilities as of December 31, 2024, see Note 8.
Debt to the consolidated financial statements.
Contractual Obligations Our contractual obligations and commitments as of December 31, 2024, are primarily comprised of long-term debt obligations, operating leases, including a 25-year lease commitment that will commence in 2025 for our new corporate headquarters in Indianapolis, Indiana, and purchase obligations.
Our long-term debt obligations are comprised of our expected principal and interest obligations.
Purchase obligations consist of open purchase orders as of December 31, 2024, and contractual payment obligations with significant vendors which are noncancelable and not contingent.
Leases to the consolidated financial statements for further discussion regarding our contractual obligations related to leases, including for our new corporate headquarters in Indianapolis, Indiana.
Critical Accounting Estimates The preparation of financial statements in accordance with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the date of the financial statements and during the reporting period.
Revenue Recognition Our gross product revenue is subject to reductions that are generally estimated and recorded in the same period the revenue is recognized and primarily represent revenue incentives (rebates and discounts).
For estimates related to revenue incentives, we use our historical experience with similar incentives programs, current sales data and estimates of inventory levels at our channel distributors to estimate the impact of such programs on revenue and continually monitor the impact of this experience and adjust as necessary.
Although the amounts recorded for revenue reductions 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 reductions can result from a complex series of judgments about future events and uncertainties and can rely on estimates and assumptions.
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.
Revenue to the consolidated financial statements for further discussion regarding our revenue recognition policy and quantitative information regarding our rebate programs, respectively.
These fair value estimates require significant judgment with respect to future revenues and earnings before interest and taxes (EBIT) margins, use of working capital, the selection of appropriate discount rates, product mix, income tax rates and other assumptions and estimates.
Such estimates and assumptions are determined based upon our business plans and, when applicable, market participants' views of us and similar companies.
In determining the amount of goodwill to be included in our aqua business disposal group, we compared the fair value of the disposal group, which we determined corresponded with the agreed upon sales price, to the estimated fair value of our single reporting unit as a whole.
While we believe the estimates and assumptions underlying our fair value estimates were reasonable in view of all available information, significant changes to any of these significant judgments could have resulted in a different amount of goodwill allocated to our aqua business disposal group, and if so, would have impacted the amount of the pre-tax gain recognized.
When required, a comparison of fair value to the carrying amount of our reporting unit is performed to determine the amount of impairment, if any.
Based on that qualitative assessment, if we conclude it is more likely than not that the fair value is less than its carrying value, we conduct a quantitative impairment test, which involves comparing the estimated fair value of our single reporting unit to its carrying value.
Given the sharp increase in long-term treasury rates in the third quarter of 2023, we assessed our long-lived assets for impairment, concluding that a triggering event existed for certain indefinite-lived assets, including goodwill.
Accordingly, we performed interim quantitative impairment tests of our goodwill and other indefinite-lived assets, which resulted in a $1,042 million pre-tax goodwill impairment charge.
We have closely monitored for additional triggering events since this impairment charge, and the results of our most recent annual review indicated that the estimated fair value of our single reporting unit more likely than not exceeded its carrying amount.
While we believe the estimates and assumptions underlying our annual goodwill impairment review in the fourth quarter of 2024 were reasonable in view of all available information, these assumptions are subject to change in future periods because of, among other things, reductions in our estimates of future cash flows, revenue growth or other profitability measures, and/or an increase in the discount rate, which is highly correlated with long-term treasury rates.
We have observed long-term treasury rates increase since our annual goodwill impairment review.
While we believe, as of December 31, 2024, the current rate environment does not represent a triggering event, based on our best estimates we believe a further 50 basis-point increase in long-term treasury rates could result in a triggering event, and therefore, a quantitative goodwill impairment test.
While we cannot say with certainty whether or not such a quantitative test would result in a goodwill impairment, we do believe a 100 basis-point increase, absent any other changes, would likely result in a goodwill impairment charge.

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Sentence-level comparison of Item 1A in the two most recent 10-Ks (FY2024 ↗, FY2025 ↗). A reworded sentence counts as one dropped and one added, so heavy edits read as low “kept”. Headings and page furniture are stripped; nothing is summarised by a model.

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