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美國
證券交易委員會
華盛頓特區20549
表 10-Q
☒根據1934年證券交易所法第13或15(d)條，本季度報告
截至季度末2024年9月30日
或者
☐根據1934年證券交易法第13或15(d)條款的過渡報告
在從_______到_______的過渡期間
佣金檔案號 001-38661
2015-Elanco-logo.jpg
elanco animal health公司股份有限公司
（根據其章程規定的準確名稱）
所在DIANA
 82-5497352
（國家或其他管轄區的 （IRS僱主
公司成立或組織） 唯一識別號碼）
2500 條創新方式, 格林菲爾德, 在戴安娜 46140
(總部地址和郵編)

註冊人電話號碼，包括區號 (877) 352-6261
在法案第12(b)條的規定下注冊的證券：
每一類的名稱交易標誌在其上註冊的交易所的名稱
普通股，無面值ELAN請使用moomoo賬號登錄查看New York Stock Exchange
請在以下方框內打勾，表示報告人(1)在過去12個月內（或報告人所需被要求提交這些報告的較短期間內，如果有）已經提交了所有根據1934年證券交易法第13或15(d)節規定所需提交的報告， 並且(2)在過去90天內一直受到此類提交要求的約束。Yes ☒ 否 ☐
請在以下勾選方框表示註冊人是否已在Regulation S-T Rule 405規定的前12個月(或在註冊人需要提交此類文件的較短期間內)提交了每個互動數據文件。Yes ☒ 否 ☐
請用勾號指示註冊者是否爲大型加速備案者、加速備案者、非加速備案者、較小的報告公司或新興成長公司。請參閱《交易所法》第120億.2條中關於「大型加速備案者」、「加速備案者」、「較小的報告公司」和「新興成長公司」的定義。
大型加速報告人
☒
加速文件申報人
☐
非加速文件提交人
☐
較小的報告公司
☐
新興成長公司
☐


如果是新興成長型企業，請勾選複選標記，表明註冊者已選擇不使用延長過渡期來符合根據證券交易法第13(a)條規定提供的任何新財務會計準則。 ☐
請在複選標誌處註明公司是否爲殼公司（根據交易所法令第12b-2條的定義）。
是的 ☐ 否 ☒
截至2024年11月4日，普通股的流通股數量爲 494,352,808.


elanco animal health公司
截至本季度10-Q表格 2024年9月30日
目錄
第1部分基本報表信息
項目1。
事項二
第3項。
事項4。
第II部分 。其他信息
項目1。
項目1A。
事項二
第3項。
事項4。
項目5。
項目6。

2024 年第三季度 10-Q 表格 | 1
目錄
前瞻性陳述和風險因素概要
本季度10-Q表格（10-Q表格）包含根據聯邦證券法的相關規定的前瞻性陳述。這些前瞻性陳述包括但不限於有關Elanco Animal Health Incorporated及其子公司（統稱爲Elanco、本公司、我們、我們或我們的）因業務收購整合、預期的協同效應和成本節約、產品推出、全球宏觀經濟條件、與流動性和資本來源相關的預期、我們預期的債務契約遵守情況、成本節約、與重組行動相關的費用和準備金、我們的行業與業務運作、績效和財務狀況，特別是與我們的業務、增長戰略、分銷戰略、產品開發努力和未來支出相關的陳述。
前瞻性陳述是基於我們對我們業務、經濟和其他未來條件的當前期望和假設。由於前瞻性陳述涉及未來，因其性質而受固有的不確定性、風險和難以預測的環境變化的影響。因此，我們的實際結果可能與前瞻性陳述所考慮的情況有重大差異。可能導致實際結果與前瞻性陳述不同的重要風險因素包括區域性、國家性或全球性政治、經濟、商業、競爭、市場和監管狀況，包括但不限於以下情況：
•在一個競爭激烈的行業中運營；
•我們研發和許可工作的成功；
•顛覆性創新和獸醫醫療實踐、動物健康技術以及動物來源蛋白替代品的進步的影響；
•來自可能被認爲更具成本效益的非專利產品的競爭;
•農場動物使用抗生素的監管限制變化；
•由農場動物傳播的傳染病爆發；
•與動物評估相關的風險；
•我們的客戶和分銷商的整合；
•增加或減少銷售對我們分銷渠道的影響導致我們營收波動;
•我們對我們頂級產品的成功依賴性;
•我們完成收購和剝離併成功整合我們收購的業務的能力;
•我們實施業務戰略或實現目標成本效益和毛利率改善的能力;
•製造問題和產能不平衡，包括我們的代工廠商;
•我們分銷渠道庫存水平的波動;
•與在我們業務中使用人工智能（AI）相關的風險;
•我們對複雜信息技術系統和基礎設施（包括使用第三方、基於雲的技術）的依賴，以及所依賴的信息技術系統和基礎設施的中斷或違規事件的影響;
•天氣條件、包括與氣候變化相關的影響，以及自然資源的可用性；
•需求、供應和與人類疾病爆發、流行病、大流行或其他廣泛的公共衛生關切相關的運營挑戰；
•關鍵人員或高度技能員工的流失；
•勞資爭議、罷工和/或停工的不良影響；
•我們龐大的負債對我們業務的影響，包括限制我們在債務協議中的經營彈性、信用評級變動導致借款成本增加，並可能限制信用額度。
•利率期貨的變動可能會對我們的收入和現金流產生不利影響；
•與商譽或可識別無形資產減損相關的風險；
•原材料供應不足或成本大幅上漲；
•與我們在外國市場的存在相關的風險;
•與外匯兌換率波動相關的風險；
•與資金不足的退休金計劃負債相關的風險；
2024年第三季度10-Q表格 | 2
目錄
•我們目前計劃暫不支付分紅派息，並且有關我們支付分紅派息能力的限制；
•激進股東的行動可能對我們業務策略的追求產生的潛在影響;
•與稅收支出或風險相關的風險;
•監管機構的行動，包括基於對產品安全研究的解釋所做出的反應；
•可能會減緩或停止我們農場動物永續計畫的接受和採納;
•增加規定或減少政府財務支援對飼養、加工或消費農場動物的影響；
•與修改外貿政策相關的風險；
•訴訟、監管調查和其他法律事項的影響，包括對我們聲譽的風險和我們的保險可能無法足以保護我們免受這些事項影響的風險；
•對我們的知識產權權利提出挑戰或我們被指控侵犯他人權利;
•我們產品的濫用、離譜使用或冒充使用；
•我們產品存在或未預料到的安全、質量或功效疑慮，以及與已識別問題相關的影響；
•保險覆蓋不足，無法應對風險和索賠；
•遵守隱私法律和信息安防；並
•與環保母基、健康和安全法律和規定相關的風險。
請參閱我們提交給美國證券交易委員會（SEC）的年報10-K表格第I部分結束於2023年12月31日，第1A項“風險因素”。2023年10-K表格以及本10-Q表格第II部分，以進一步描述這些以及其他因素。儘管我們已經嘗試識別重要風險因素，但我們可能尚未知曉的其他風險因素，或我們目前認為不重要，可能導致實際結果和發展與本季度報告中包含的前瞻性聲明所述有重大差異。如果任何這些風險發生，或者前瞻性聲明所依賴的以上假設中有任何錯誤，實際結果和發展可能與本季度報告中包含的前瞻性聲明所述產生或建議的有重大差異。我們警告您不要依賴任何前瞻性聲明，這些聲明應與本季度報告中其他的警語陳述一同閱讀。我們在本季度報告中所發出的任何前瞻性聲明僅代表本文日期。可能有導致我們實際結果有所不同的因素或事件不時出現，我們無法預測所有這些因素。我們不承擔公開更新或修訂任何前瞻性陳述的義務，除非法律規定。


2024年第三季度10-Q表格 | 3
目錄
第I部分

項目 1. 基本報表

elanco animal health公司
綜合綜合損益表（未經審計）
（以百萬為單位，除每股數據外）
 截至9月30日的三個月截至9月30日的九個月
 2024202320242023
營業收入$1,030 $1,068 $3,419 $3,382 
成本、費用及其他：
銷貨成本492 487 1,502 1,415 
研發費用87 86 263 248 
市場營銷、銷售和行政費用323 313 1,014 993 
營業無形資產攤銷
133 140 397 410 
資產減損、重組及其他特殊費用
17 16 143 91 
商譽減損— 1,042 — 1,042 
出售資產溢利(640)— (640)— 
利息費用，扣除資本化利息後58 72 189 210 
其他費用，淨額1 9 12 41 
471 2,165 2,880 4,450 
稅前收入（虧損）559 (1,097)539 (1,068)
所得稅費用（利益） 195 (1)193 22 
凈利潤（損失）$364 $(1,096)$346 $(1,090)
每股收益（損失）：
基本 $0.74 $(2.22)$0.70 $(2.21)
稀釋$0.73 $(2.22)$0.70 $(2.21)
加權平均股本：
基礎494.3 492.7 493.9 492.1 
稀釋497.7 492.7 496.9 492.1 

請參閱簡明合併基本報表附註。
2024年第三季度10-Q表格 | 4
目錄
elanco animal health公司
未經審核的綜合損益簡明綜合報表
(以百萬為單位)
截至9月30日的三個月截至9月30日的九個月
2024202320242023
凈利潤（損失）$364 $(1,096)$346 $(1,090)
其他綜合損益：
现金流量套期交易，扣除税款后(81)— (58)(19)
外汇翻译，扣除税款后283 (197)(10)(65)
定义利益计划，扣除税款后1 (4)(5)(6)
其他全面收益（損失），扣除稅後淨額203 (201)(73)(90)
綜合收益（損失）$567 $(1,297)$273 $(1,180)

請參閱簡明合併基本報表附註。

2024年第三季度10-Q表格 | 5
目錄
elanco animal health公司
縮短的合併財務報表
(以百萬為單位，除股份數據外) 已發行股份
2024年9月30日2023年12月31日
(未經查核)
資產 
流動資產
現金及現金等價物$490 $352 
應收帳款淨額
840 842 
其他應收款項64 168 
存貨1,632 1,735 
預付費用和其他340 310 
全部流動資產3,366 3,407 
非流動資產
商譽4,625 5,094 
其他無形資產，淨額4,011 4,494 
其他非流動資產302 341 
物業及設備，扣除折舊後淨值
979 1,026 
資產總額$13,283 $14,362 
負債及股東權益
流動負債
應付賬款$259 $270 
銷售折扣與折讓333 367 
長期債務的當期償還44 38 
其他流動負債685 566 
流動負債合計1,321 1,241 
非流動負債
長期負債4,313 5,736 
递延税款539 567 
其他非流動負債587 595 
總負債6,760 8,139 
承諾和條件
股權
普通股，無面值， 5,000,000,000 股份已授權 494,333,072 和 492,845,216 截至2024年9月30日和2023年12月31日期間已發行並流通的股份數分別為
— — 
資本公積額額外增資8,804 8,777 
累積虧損(1,942)(2,288)
累積其他全面損失(339)(266)
總股本6,523 6,223 
負債加股東權益總額$13,283 $14,362 

請參閱簡明合併基本報表附註。
2024年第三季度10-Q表格 | 6
目錄
elanco animal health公司
資本簡表（未經審計）
(以百萬為單位)
普通股累積其他綜合損失
股份金額資本公積金累積虧損現金流量避險外幣兌換定額福利計劃總計股東權益總額
2022年12月31日
474.2 $— $8,738 $(1,057)$182 $(672)$98 $(392)$7,289 
凈利潤— — — 103 — — — — 103 
其他綜合收益（損失）- 稅後— — — — (48)130 — 82 82 
股份報酬活動，凈利潤1.0 — 6 — — — — — 6 
將有形股本單位（TEUs）轉換為普通股17.2 — — — — — — — — 
2023年3月31日492.4 — 8,744 (954)134 (542)98 (310)7,480 
淨損失— — — (97)— — — — (97)
其他綜合收益（損失）- 稅後— — — — 29 2 (2)29 29 
股份報酬活動的凈流動情況0.2 — 8 — — — — — 8 
2023年6月30日492.6 — 8,752 (1,051)163 (540)96 (281)7,420 
淨損失— — — (1,096)— — — — (1,096)
其他綜合收益（損失）- 稅後— — — — — (197)(4)(201)(201)
股份報酬活動的凈流動情況0.1 — 11 — — — — — 11 
2023年9月30日492.7 $— $8,763 $(2,147)$163 $(737)$92 $(482)$6,134 
2023年12月31日
492.8 $— $8,777 $(2,288)$57 $(379)$56 $(266)$6,223 
凈利潤— — — 32 — — — — 32 
其他綜合收益（稅後淨額損失）— — — — 32 (227)(4)(199)(199)
股票報酬活動，淨1.2 — — — — — — — — 
2024年3月31日494.0 — 8,777 (2,256)89 (606)52 (465)6,056 
淨損失— — — (50)— — — — (50)
其他全面損失，扣除稅後淨額— — — — (9)(66)(2)(77)(77)
股票報酬活動，淨0.2 — 13 — — — — — 13 
2024年6月30日494.2 — 8,790 (2,306)80 (672)50 (542)5,942 
凈利潤— — — 364 — — — — 364 
其他綜合收益（損失）- 稅後— — — — (81)283 1 203 203 
股票基礎的補償活動，凈利潤0.1 — 14 — — — — — 14 
2024年9月30日494.3 $— $8,804 $(1,942)$(1)$(389)$51 $(339)$6,523 

請參閱簡明合併基本報表附註。
2024年第三季度10-Q表格 | 7
目錄
elanco animal health公司
綜合現金流量表（未經核數）
(以百萬為單位)
截至9月30日的九個月
 20242023
經營活動現金流量
凈利潤（損失）$346 $(1,090)
調整以將凈利潤（損失）調解為營運活動現金流量：
折舊與攤提498 523 
商譽減值 — 1,042 
以股份為基礎之報酬支出40 31 
資產減值和減值費用76 5 
出售資產溢利(640)— 
利率互換結算收益5 57 
營運資產和負債的變動，扣除收購和出售後的淨額
93 (446)
其他非現金營運活動淨額(54)(8)
營業活動提供的淨現金流量364 114 
投資活動產生的現金流量
購買不動產和設備以及軟體的淨額(100)(99)
支付購併款項(5)(19)
來自業務出售所得款項1,294 — 
自前次出售Shawnee和Speke設施所得款項（見附註4）66 — 
購買無形資產(8)(14)
其他投資活動，淨額1 (2)
投資活動提供的（使用的）淨現金1,248 (134)
來自融資活動的現金流量
來自循環信貸設施的所得款項50 350 
循環信貸計劃的還款(250)(53)
來自證券化授信設施的收入170 250 
還款證券化授信設施(170)(97)
發行長期債務證券所得350 — 
長期借款的還款(1,587)(388)
其他籌資活動，淨額(23)(6)
財務活動提供的(用於)凈現金(1,460)56 
匯率變動對現金及現金等價物的影響(14)(12)
現金及現金等價物淨增加138 24 
現金及現金等價物－期初352 345 
現金及現金等價物－期末$490 $369 

請參閱簡明合併基本報表附註。
2024年第三季度10-Q表格 | 8
目錄
elanco animal health公司
基本報表註腳（未經審計）
(表格中除每股和每單位數據外，其他數據均以百萬美元和百萬股為單位)

附註1. 編制基準及重大會計政策摘要
本報告附載的未經核數的簡明綜合基本報表，已根據SEC對中期財務報告的要求編製。 根據該等規則的准許，按照美國一般公認會計原則（GAAP）編製的年度財務報表中通常包含的某些資訊和附註披露已被縮短或省略。 應閱讀本表格10-Q中包含的資訊，並參閱我們截至2023年12月31日年度的綜合財務報表及附註。 2023年10-K表格此外，中期期間的結果不應被視為預示截至2024年12月31日或任何未來期間全年結果的指標。
在我們看來，基本報表反映出了為展示所呈現的業務結果所必需的所有調整（包括正常和經常性的調整）。 在遵守GAAP的基本報表編製過程中，我們必須做出影響基本報表中資產、負債、營業收入、費用和相關披露金額的估計和假設，並且這種估計和假設影響了基本報表日和報告期間的信息。 實際結果可能與這些估計有所不同。 已對前一年度資訊進行了某些重分類，以符合當年的呈現方式。
附註二所載之合併基本報表中訂明的重大會計政策，在所有重要方面適當地反映了我們的會計政策。 2023年10-K表格 本文和這裡的附註適當地代表了我們會計政策的現況。

注意事項2. 新財務會計準則
以下表格提供了我們尚未採用的會計準則的簡要描述：
標準描述生效日期對財務報表或其他重大事項的影響
ASU 2023-07， 分節報告（TOPIC 280）：改進報告的分節披露
ASU 2023-07旨在改善與可報告片段相關的披露要求，主要通過加強對定期提供給首席營運決策者（CODM）有關重要片段支出的披露，以便評估片段的利潤或損失並決定如何分配資源。這個新標準適用於所有的公眾實體，包括像我們這樣只有一個可報告片段的實體。這個新標準將在2023年12月31日後開始的財政年度以及2024年12月15日後開始的財政年度內的中期期間生效，提前採納也是允許的。採納需要追溯應用。我們目前正在評估ASU 2023-07對我們的合併基本報表的影響，包括我們的附註披露。
ASU 2023-09， 所得稅（740主題）：所得稅披露的改進
ASU 2023-09旨在通過增強有關實體運營、相關稅務風險以及稅務規劃和運營機會如何影響其稅率和未來現金流的信息，來增強所得稅披露的透明度和決策信息的實用性。該指引自2024年12月31日後開始的財政年度生效，可以提前採納。採納允許前瞻性應用，同時允許回顧性應用。我們目前正在評估ASU 2023-09對我們的合併基本報表的影響，包括我們的所得稅附註披露。
2024年第三季度10-Q表格 | 9
目錄
標準描述生效日期對基本報表或其他重大事項的影響
ASU 2024-03，收入報表-報告綜合收支數據揭露(Subtopic 220-40)：收入報表費用分解在2024年11月，FASb發佈了ASU 2024-03，旨在提供有關在我們綜合收入報表中呈報的某些費用分類（存貨採購、員工薪酬、折舊和攤銷）的更詳細信息。這個新的準則自2026年12月15日後開始的財政年度起生效，並適用於2027年12月15日後開始的財政年度內的中期時段。允許提前採用。
修訂可以適用於 (1) 準望地對於在此ASU生效日期之後期間發行的財務報表，或者 (2) 追溯地對於在合併財務報表中呈現的所有之前期間。
我們目前正在評估ASU 2024-03對我們的合併基本報表，包括附註披露，將會有什麼影響。

注3. 營業收入
我們主要從向客戶銷售產品中認識營業收入。產品銷售的營業收入在客戶取得商品控制並且我們滿足我們履行的義務時予以認識，一般而言是在商品發貨並且客戶已經取得所有權時。對於合同製造組織（CMO）安排，我們根據我們評估客戶何時取得應承諾商品或服務的控制權，將營業收入按時間或即時予以認識。
銷售回扣和折扣的提列，是在相關銷售確認的期間，作為營業收入的減項，並基於具體協議。在確定適當的應計金額時，我們考慮了類似激勵計劃的歷史經驗、目前銷售數據以及我們渠道分銷商存貨水平的估計。 下表摘要了我們全球貨幣銷售回扣和折扣負債的活動：
截至9月30日的九個月
20242023
期初餘額$367 $324 
營業收入減少620 558 
付款(656)(522)
外匯轉換調整2 (4)
期末餘額$333 $356 
調整營業收入是由於對於先前期間出貨產品的估計變更而認可的，對於截至九個月的兩個期間，均不具有實質性影響。 全球實際產品退貨占截至2024年和2023年九個月的淨收入約為百分之 1。
2024年第三季度10-Q表格 | 10
目錄
營業收入的分解
以下表格將我們的營業收入按產品類別進行了分類摘要：
截至9月30日的三個月截至9月30日的九個月
2024202320242023
寵物健康$486 $495 $1,704 $1,688 
農場動物：
牛隻253 242 754 700 
家禽188 184 583 545 
豬88 93 262 284 
水族1 42 81 132 
農場動物總數530 561 1,680 1,661 
合約製造業 (1)
14 12 35 33 
營業收入$1,030 $1,068 $3,419 $3,382 
(1)代表著我們代表第三方製造產品所取得的營業收入。
下表詳細列出我們按地理區域分解的營業收入：
截至九月三十日止三個月，截至九月三十日止九個月
2024202320242023
美国$487 $479 $1,561 $1,522 
國際543 589 1,858 1,860 
收入$1,030 $1,068 $3,419 $3,382 
我們有一個單一客戶，佔截至2024年9月30日及2023年營業收入的約％。 112024年6月30日和2023年12月31日的時間點，公司從Thrivel Earlier Detection Corporation（“Thrive”），Ashion Analytics，LLC（“Ashion”）和OmicEra的收購中記錄的關於監管和產品開發里程碑的待定支付負債的公允價值總和為2.779億和2.887億美元。公司使用概率加權情境折現現金流模型評估預期的待定支付負債和相應的與監管和產品開發里程碑相關的負債的公允價值，該方法與預期待定支付負債的初始計量一致。每個潛在情境應用成功概率，然後通過現值因子計算折扣，得出相應的現值。時間的流逝以及草擬的里程碑實現時間，現值因子，實現度（如適用）和成功概率的變化可能導致公允價值測量的調整。與監管和產品開發里程碑相關的待定支付負債的公允價值是以2024年6月30日和2023年12月31日的加權平均成功概率和現值因子計算的，成功概率分別為%和%，現值因子分別為%和%。付款範圍的預測財政年度範圍為2025年至2031年。所使用的不可觀察的輸入值按待定支付負債的相對公允價值加權。 10產品銷售給該客戶導致了2024年9月30日和2023年12月31日的應收賬款分別達到$百萬。91 百萬美元和78 百萬。

註4. 併購、出售及其他安排
收購
在2023年，我們完成了從NutriQuest, LLC (NutriQuest)收購某些在美國市場銷售的產品、管線產品、庫存以及組建的員工隊伍，以及從NutriQuest Nutricao Animal Ltda (NutriQuest Brazil)收購某些資產，包括庫存和某些在美國市場銷售產品的分銷權。這些交易中的每一筆都按照會計的併購方法進行了處理。併購方法要求，資產的購買和負債的負擔必須於收購日按其公允價值予以確認。估計公允價值的確定需要管理層進行重大估計和假設。如適用，超出購買價格與取得的淨資產公允價值之間的差額被記錄為商譽。
NutriQuest
2023年1月3日，我們以總購買價格$ 收購了NutriQuest。59 百萬。NutriQuest是動物生產者的豬、家禽和牛隻營養保健產品供應商。這次收購幫助我們擴大了現有的營養保健產品領域，並進一步助力我們探索創新的抗生素替代品。 購買價格的構成如下：
預付現金代價$16 
2024年1月4日支付的递延現金代價5 
待定條件考量的公允價值38 
總購買代價$59 
這筆收購的條件性對價款最高可達$85百萬現金對價款，若達成特定的發展、銷售和地理擴張里程碑，根據資產購買協議概述而支付。這筆條件性對價款負債的初始公允價值$38 百萬於收購日期使用蒙地卡羅模擬模型估計，代表公允價值層次中的第3級衡量（詳見附註10.公允價值以獲得進一步資訊）。
2024年第三季度10-Q表格 | 11
目錄
以下表格總結了截至收購日期資產的公允價值：
存貨$3 
無形資產：
市場產品29 
取得的未完成研發9 
其他無形資產15 
可識別資產總額56 
商譽3 
轉移總代價$59 
其他無形資產包括客戶關係和商標。已取得的明確有限壽命無形資產正在按加權平均估計使用年限分攤。 12 年以直線基礎分攤。
NutriQuest巴西
在2023年8月1日，我們以總購買代價1000萬美元收購了NutriQuest巴西。19購買價格的組成部分包括在結束日期支付的5800萬美元現金，以及價值約4700萬美元的額外代價，其中一部分取決於資產購買協議中設置的某些條款和條件的繼續。3購買價格的組成部分包括在結束日期支付的5800萬美元現金，以及價值約4700萬美元的額外代價，其中一部分取決於資產購買協議中設置的某些條款和條件的繼續。16購買價格的組成部分包括在結束日期支付的5800萬美元現金，以及價值約4700萬美元的額外代價，其中一部分取決於資產購買協議中設置的某些條款和條件的繼續。
以下表格總結了資產在收購日期取得的公允價值:
存貨$3 
有限壽命無形資產15 
資產之總認定18 
商譽1 
轉移之總代價$19 
這些取得的確定壽命無形資產正以加權平均估計使用壽命為依據按比例攤銷。 九年 以直線法來處理。
分拆
水族業務
2024 年 7 月 9 日，我們以美元的價格為美克動物健康的荷蘭子公司 Intervet International B.v. 關閉了我們的水業務出售。1,294數百萬現金，其絕大部分用於在交易結束後償還未償還定期貸款債務（見註 8）。債務以獲取更多信息）。我們的水族業務包括溫水和冷水物種的產品，並產生了美元的收入81到出售日期為 2024 年的百萬元，以及 $132截至二零二三年九月三十日止九個月內，有百萬。鑑於我們以單一報告單位運作業務，因此我們無法合理地確定獨立成本及所得稅前相關的收入或損失，可歸屬於水產業務。我們亦確定銷售不符合作為已停止業務報告的資格，因為它不代表將對我們的營運和/或財務業績產生重大影響的策略轉變。出售的資產包括庫存、房地產和設備，包括我們在加拿大和越南的製造站點，以及某些知識產權、技術和其他無形資產，包括市場銷售產品。此外，大約 280 商業和製造業員工被轉移至默克動物衛生，作為該項拆售的一部分。
截至處置日期，下列主要資產的攜帶金額已從我們的簡明綜合資產負債表中認列。
存貨$43 
商譽458 
其他無形資產，淨額51 
物業及設備，扣除折舊後淨值68 
其他資產14 
總資產 $634 
在結束時，根據我們水產業務處置組的總攜帶值為$634百萬和$20 百萬的賣出成本，我們記錄了減持的税前收益為$640 百萬。與應課稅收益相關的所得稅費用$171 百萬也在2024年9月30日結束的三個月內認列。在確定要包含在我們的水產業務處置組中的商譽金額時，我們的單一報告
2024年第三季度10-Q表格 | 12
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單位的商譽是根據相對公平價值的基礎分配給它，通過將處置群組的公平值與我們單一報告單位的預估公平值進行比較。 我們使用收入法估計了我們單一報告單位的公平值，這是一種估值技術，根據市場參與者對資產在其剩餘有用生命期間將產生的現金流量的期望，提供了一個公平值估計。 估計我們單一報告單位的公平值需要重要的管理裁量，包括但不限於有關我們單一報告單位未來現金流量、營收增長和其他盈利能力指標（如毛利率和利息、稅金、折舊和攤銷前收益（EBITDA）率）的估計和假設，以及確定合適的折珨率。 我們認為這種估值方法在公平值分層結構下屬於三級估量。
雪尼與斯皮克
2021年8月和2022年2月，我們分別完成了對TriRx製藥（TriRx）收購我們位於堪薩斯州肖尼和英國Speke的工廠的交易。根據原始的交易條件，我們預期將從TriRx那裡收到現金款項。 三年期間相對於S＆P 500 IT板塊指數進行度量，有潛在購股%的帶有TSR數據量度的PSUs ，我們預期將於2022年從TriRx收到現金款項$13百萬。到2023年12月31日，根據修訂後的協議，我們從TriRx那裡應收的餘額則為$69百萬。2024年2月，我們收到了$66百萬，此外還有應計利息。
2024年9月，TriRx Speke Ltd，TriRx的子公司，進入了交易管理，這是一個在英國設計的正式破產程序，旨在幫助面臨嚴重財務挑戰的公司恢復穩定。由於該網站進入交易管理，我們減值了與TriRx有利的供應協議相關的合同資產剩餘價值$12百萬。此減損費用已納入資產減值、重組和其他特殊費用中，在我們截至2024年9月30日的三個月和九個月的簡明綜合損益表中。

第5項 資產減值、重組和其他特別費用
近年來，我們承擔了與重組計劃和成本削減倡議相關的大量成本，旨在實現靈活和競爭成本結構。重組活動主要包括與產品、設施和業務重整以及員工減少相關的費用。我們還承擔了與執行收購、出售和其他重大交易以及相關整合和/或分離活動相關的成本。 資產減值、重組和其他特別費用元件如下：
截至9月30日的三個月截至9月30日的九個月
2024202320242023
重组费用(1)
$2 $— $45 $— 
併購和剝離相關費用(2)
— 11 17 86 
非現金及其他項目:
資產減值(3)
15 5 76 5 
其他— — 5 — 
總費用$17 $16 $143 $91 
(1)2024年的重組費用主要與預期現金型解聘成本有關，這些成本與2024年2月批准並宣布的重組計劃有關，該計劃旨在通過將國際資源從農業動物轉移到寵物健康來重新配置資源。這一重組計劃還導致我們在阿根廷市場等地的運營和銷售方式發生變化。
(2)2024年收購和剝離相關的費用包括與最近剝離我們水產業務直接相關的交易成本（詳見附註4。收購、剝離和其他安排以獲得更多信息）。2023年的收購和剝離相關費用主要是由於實施新系統、計劃和流程所產生的成本，這是由於與拜耳動物健康整合有關。
(3)2024 年的資產減值主要包括我們 IL-4R 知識產權及發展資產的清除（$）53百萬) 在第二季度和 $15百萬 第三季度資產減值與我們合約製造供應合作夥伴 TriRx 的財務困難有關，其中最大的是一美元12與優惠供應協議相關的合約資產減值百萬元（見註 4）。收購、出售及其他安排，以獲取進一步資料）。2023 年的資產減值主要與由於相關折扣利率上升而導致若干無限期無形資產的減價有關。
2024年第三季度10-Q表格 | 13
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以下表格彙總了我們在重組活動中建立的儲備活動。
2023年12月31日餘額$7 
收費45 
支付現金(27)
非現金項目及其他(2)
2024年9月30日結餘$23 
重組準備金償付預計時間，由於特定國家的談判和規定可能有所不同。在2024年9月30日的簡明綜合資產負債表中，總儲備金中有$14百萬被納入我們的其他流動負債中，其餘部分被納入其他非流動負債中。

備註 6. 存貨
存貨以成本和可變現值中的較低者列示。我們採用先進先出（FIFO）方法估計大部分的存貨價值，雖然對於部分存貨我們使用後進先出（LIFO）方法。
庫存包括以下內容：
2024年9月30日2023年12月31日
成品$811 $857 
在製品779 814 
原材料和用品105 128 
總計1,695 1,799 
將費用下降至後進先出成本(63)(64)
存貨$1,632 $1,735 

筆記 7. 權益
有形股本單位（TEU）發售
2020年1月，我們發行了 11 百萬TEUs，標價為每單位$50 。TEU預付股票購買合約已於2023年2月1日換股為我們的普通股。我們TEU的持有人根據適用市值的最大結算率，每人獲得 1.5625 份我們的普通股，因為市值低於每份$32.00。總共，我們向持有人發行了約 17百萬股與結算相關的股份。

注8。債務
長期債務包括以下內容：
2024年9月30日2023年12月31日
截至2025年到期的增量期限設施 (1)
$— $175 
截至2028年到期的增量期限設施371 489 
截至2029年到期的增量期限設施188 247 
截至2031年到期的增量期限設施 (1)
350 — 
到期日為2027年的Term Loan b2,603 3,838 
循環信貸設施 (2)
— 200 
證券化設施 (3)
125 125 
4.900% 2028年到期的優先票據 (4)
750 750 
未分攤債務發行成本(30)(50)
4,357 5,774 
長期負債的不含當期部分44 38 
總長期負債$4,313 $5,736 
(1)2024年8月13日，我們與Farm Credit Mid-America, PCA（Farm Credit）簽署了增量承擔協議。利用這項新設施的部分收益，我們全額償還了到期於2025年的增量期限設施。更多詳細信息請見下文。
(2)2024年7月3日，我們修訂了我們的循環信用設施，將到期日延長至2029年7月。我們的循環信用設施提供高達$750百萬美元的借款額度，並採用基於我們的淨總槓桿比率而定的Term SOFR利率加利差，其定義在修訂協議中，在2024年9月30日為 2.10％。
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(3)我們的證券化設施以我們的美國淨應收賬款餘額作為抵押，最大借款能力為＄300 百萬，按期限SOFR利率加 1.25％計息，並於2026年7月到期。
(4)2018年8月發行後，我們的 4.900% 2028年到期債券已經因信用評等機構的降級而受到利率上升的影響。截至2024年9月30日，這些債券的利率為 6.650%.
2024年度融資
2024年8月13日，我們與農業信貸公司簽署了一份增量承擔協議，補充並修訂了我們於2020年8月1日簽署的現有信貸協議，該協議涉及我們的優先擔保授信安排。增量承擔協議提供了一個增量到期連貸（到2031年到期的增量到期連貸），總本金金額為$350百萬美元，到期日為2031年8月13日。到2031年到期的增量到期連貸利率為Term SOFR，包括一個利差調整，再加上 175 基點，將支付包括本金和利息的季度分期付款，並於2031年8月13日支付最後的氣球式付款。款項用於償還我們到2025年到期的增量到期連貸的余額，以及用於一般企業目的。因此，截至2024年9月30日，所有與到2025年到期的增量到期連貸相關的義務和承諾已得到充分滿足。到2031年到期的增量到期連貸的條款，包括抵押品和融資維護條款，一般與我們現有的到2027年到期的定期貸款b的條款一致。
2024年度貸款還款
如註 4 所述。收購、出售及其他安排，我們於 2024 年 7 月 9 日以美元售出水業務給默克動物衛生的子公司1,294數百萬現金利用這些收益的絕大部分，以及我們 2031 年到期的增量定期設施的部分收益和現有現金，我們已償還 $1,587截至二零二四年九月三十日止九個月內，我們的定期貸款 b 及我們的增量定期貸款服務有百萬美元之前未償還的定期貸款債務。與這些本金還款同時，我們確認了 $ 的費用12截至二零二四年九月三十日止三個月及九個月之簡明綜合業務報表中的資本利息，以百萬元計算的先前延期融資成本，已包括在利息開支中。
截至2024年9月30日，約有 81我們所有長期負債中，近%以固定利率計息，包括透過利率互換將變量利率轉為固定利率（請參閱註釋9. 財務工具以獲取更多信息）。截至2024年9月30日，我們所有債務條款均得到遵守。

Note 9. 金融工具
為了管理我們面臨的市場風險，如外幣兌換率和利率變動，我們已參與各種衍生品交易。我們正式評估、指定和記錄每一個符合資格的衍生工具，作為在成立時作為會計避險的衍生工具。此後至少每季我們也會評估財務工具在避險交易中是否有效地抵消了基礎風險的公平價值或現金流量的變動。衍生現金流量主要在精簡合併現金流量表的營運活動部分進行分類，與基礎避險項目一致。此外，我們對精簡合併資產負債表上的衍生資產和負債不予抵消。
Derivatives not designated as hedges
We may enter into foreign currency exchange forward or option contracts to reduce the effects of fluctuating foreign currency exchange rates. Foreign currency derivatives used for hedging are put in place using the same or like currencies and duration as the underlying exposures and are recorded at fair value with gains or losses recognized in other expense, net in the condensed consolidated statements of operations. Forward contracts generally have maturities not exceeding 12 months. As of September 30, 2024 and December 31, 2023, we had outstanding foreign currency exchange contracts with aggregate notional amounts of $726 million and $891 million, respectively.
The amounts of net gains on derivative instruments not designated as hedging instruments, recorded in other expense, net were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Foreign exchange forward contracts (1)
$9 $1 $3 $2 
(1)These amounts were substantially offset in other expense, net by the effect of changing exchange rates on the underlying foreign currency exposures.
Derivatives designated as hedges - Net investment hedges
In September 2023, we entered into a series of cross-currency fixed interest rate swaps to help mitigate the impact of foreign currency fluctuations on our operations in Switzerland with a combined 1,000 million CHF notional amount with tenors in 2026 and 2027. These instruments were determined to be, and were designated as, effective
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economic hedges of net investments in our CHF denominated net assets. The fair values of these instruments were estimated based on quoted market values of similar hedges and are classified as Level 2 in the fair value hierarchy (see Note 10. Fair Value for further information). Gains or losses related to these instruments due to spot rate fluctuations are recorded as cumulative translation adjustments as a component of other comprehensive income (loss). Gains and losses will remain in accumulated other comprehensive income (loss) until either the sale or substantial liquidation of the hedged subsidiary. (Losses) gains on net investment hedges, net of tax, recorded in other comprehensive income (loss), were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Cross-currency fixed interest rate swaps$(53)$9 $(1)$9 
During the nine months ended September 30, 2024, and 2023 these instruments also generated $23 million and $1 million of interest income, respectively, which was included as a contra interest expense, net of capitalized interest in our condensed consolidated statements of operations.
Derivatives designated as hedges - Interest rate swaps
To manage our exposure to variable interest rate risk, we utilize interest rate swap contracts to effectively convert our variable-rate debt into fixed-rate debt. We recognize any differences between the variable interest rate payments and the fixed interest rate settlements with the swap counterparties as an adjustment to interest expense, net of capitalized interest over the life of the swaps. We have designated our interest rate swaps as cash flow hedges and record them at fair value on the condensed consolidated balance sheets. Changes in the fair value of the hedges are recognized in other comprehensive income (loss) and reclassified into earnings through interest expense, net of capitalized interest at the time earnings are affected by the hedged transaction. Fair value is estimated based on quoted market values of similar hedges and is classified as Level 2 in the fair value hierarchy.
We had outstanding interest rate swaps with aggregate notional amounts of $2,800 million and $3,800 million as of September 30, 2024 and December 31, 2023, respectively. Following the sale of our aqua business and the associated debt pay down (see Note 4. Acquisitions, Divestitures and Other Arrangements and Note 8. Debt for further information), in July 2024 we settled $1,000 million of existing interest rate swaps. We received cash proceeds of approximately $5 million upon these settlements, which was recorded in accumulated other comprehensive loss and will be amortized to interest expense, net of capitalized interest in future periods. As of September 30, 2024, all of our outstanding interest rate swap instruments had scheduled maturities in 2026.
Additionally, on August 21, 2024, we entered into new forward-starting interest rate swap agreements with a combined notional amount of $850 million, which will become effective on August 1, 2026, and mature in line with the applicable Incremental Term Facility maturities, which range between 2028 and 2031.
The amounts of (losses) gains on our interest rate swap contracts, net of tax, recorded in other comprehensive income (loss) were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Interest rate swaps$(54)$34 $30 $75 
The amounts of gains reclassified from accumulated other comprehensive loss and recognized into earnings through interest expense, net of capitalized interest were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Interest rate swaps$27 $34 $88 $94 
Over the next 12 months, we expect to reclassify a gain of $35 million from accumulated other comprehensive loss into interest expense, net of capitalized interest related to our current and previously settled interest rate swaps.
As of September 30, 2024, when factoring in the impact from our interest rate swaps, the weighted-average effective interest rate on our outstanding indebtedness was 6.42% (excluding the expected future reclassifications to interest expense, net of capitalized interest related to past interest rate swap settlements).

Note 10. Fair Value
Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value measurements are based on a framework that utilizes the inputs market participants use to determine the fair value of an asset or liability and establishes a fair value hierarchy to prioritize those inputs. Level 1 fair value measurements are based on quoted prices in active markets for identical assets or liabilities. We determine our Level 2 fair value measurements based on a market approach
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using quoted market values or significant other observable inputs for identical or comparable assets or liabilities. Our Level 3 fair value measurements are based on unobservable inputs based on little or no market activity.
The following table summarizes the fair value information at September 30, 2024 and December 31, 2023, for assets and liabilities measured at fair value on a recurring basis in the respective balance sheet line items, as well as long-term debt, for which fair value is disclosed on a recurring basis:
  Fair Value Measurements Using 
Financial statement line itemCarrying
Amount		Quoted Prices in Active Markets for Identical Assets
(Level 1)		Significant
Other Observable Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Fair
Value
September 30, 2024
Recurring fair value measurements
Prepaid expenses and other - derivative instruments$28 $— $28 $— $28 
Other current liabilities - derivative instruments(22)— (22)— (22)
Other current liabilities - contingent consideration(20)— — (20)(20)
Other noncurrent liabilities - derivative instruments(131)— (131)— (131)
Other noncurrent liabilities - contingent consideration(16)— — (16)(16)
Financial instruments not carried at fair value
Long-term debt, including current portion(4,387)— (4,413)— (4,413)
December 31, 2023
Recurring fair value measurements
Prepaid expenses and other - derivative instruments$65 $— $65 $— $65 
Other current liabilities - derivative instruments(63)— (63)— (63)
Other current liabilities - contingent consideration(9)— — (9)(9)
Other noncurrent liabilities - derivative instruments(132)— (132)— (132)
Other noncurrent liabilities - contingent consideration(31)— — (31)(31)
Financial instruments not carried at fair value
Long-term debt, including current portion(5,824)— (5,825)— (5,825)
Cash and cash equivalents include cash on hand and all highly liquid investments with original maturities at the time of purchase of three months or less. The carrying values of cash and cash equivalents, accounts and other receivables, accounts payable and other current liabilities are reasonable estimates of their fair values due to the short-term nature of these assets and liabilities. We also had investments without readily determinable fair values and equity method investments, which were classified as other noncurrent assets on our condensed consolidated balance sheets totaling $25 million and $26 million as of September 30, 2024 and December 31, 2023, respectively. These investments are not recorded at fair value on a recurring basis, and as such, are not included in the fair value table above.
The fair values of contingent consideration liabilities related to our acquisition of NutriQuest were estimated using the Monte Carlo simulation model, consisting of Level 3 inputs not observable in the market, including estimates relating to revenue forecasts, discount rates and volatility.


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Note 11. Goodwill
The following table summarizes the changes in the carrying amount of goodwill:
December 31, 2023 (gross)
$6,136 
Accumulated impairment(1,042)
December 31, 2023 (net)
5,094 
Divestiture (1)
(458)
Foreign currency translation adjustments(11)
September 30, 2024 (net)
$4,625 
(1)We derecognized $458 million of goodwill during the three months ended September 30, 2024, in connection with the divestiture of our aqua business. See Note 4. Acquisitions, Divestitures and Other Arrangements for further information.
As previously disclosed, there was a sharp increase in long-term treasury rates during the third quarter of 2023, and as a result, we assessed our long-lived assets, including goodwill, for impairment. Due principally to an increased discount rate assumption, which was driven by the sharp increase in long-term treasury rates, our quantitative goodwill impairment test resulted in a $1,042 million pre-tax impairment charge. No impairments to the carrying value of goodwill have been recorded during the three or nine months ended September 30, 2024.

Note 12. Income Taxes
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Income tax expense (benefit)$195 $(1)$193 $22 
Effective tax rate34.8 %0.2 %35.8 %(2.0)%
For the three months ended September 30, 2024, we recognized income tax expense of $195 million, while for the nine months ended September 30, 2024, we recognized income tax expense of $193 million. Of the total income tax expense for the three and nine months ended September 30, 2024, $171 million related to the income tax expense associated with the taxable gain on the divestiture of our aqua business. The taxable gain on divestiture exceeded the reported gain of $640 million primarily due to the derecognition of non-deductible goodwill.
Our effective tax rate of 34.8% for the three months ended September 30, 2024, differed from the statutory income tax rate primarily due to the tax impact from the aforementioned gain on divestiture, the jurisdictional earnings mix of projected income in higher tax jurisdictions and losses for which no tax benefit was recognized. Our effective tax rate of 35.8% for the nine months ended September 30, 2024, differed from the statutory income tax rate primarily due to the tax impact from the gain on divestiture of our aqua business, partially offset by the release of a valuation allowance attributable to the sale of our aqua business and the recognition of certain state tax credits.
For the three and nine months ended September 30, 2023, we recognized an income tax benefit of $1 million and income tax expense of $22 million, respectively. Our effective tax rates of 0.2% and (2.0)%, respectively, differed from the statutory income tax rates primarily due to the recognition of the $1,042 million goodwill impairment charge, which was non-deductible in most of the impacted jurisdictions.
We were included in Eli Lilly and Company's (Lilly's) U.S. tax examinations by the Internal Revenue Service through the full separation date of March 11, 2019. Pursuant to the tax matters agreement we executed with Lilly in connection with our initial public offering (IPO), the potential liabilities or potential refunds attributable to pre-IPO periods in which Elanco was included in a Lilly consolidated or combined tax return remain with Lilly. The U.S. examination of tax years 2016 to 2018 began in 2019 and remains ongoing. Final resolution of certain matters is dependent upon several factors, including the potential for formal administrative proceedings.

Note 13. Commitments and Contingencies
Legal Matters
We are party to various legal actions that arise in the normal course of business. The most significant matters are described below. Under GAAP, loss contingency provisions are recorded when we deem it probable that we will incur a loss and we are able to formulate a reasonable estimate of that loss.
Seresto Class Action Lawsuits
Claims seeking actual damages, injunctive relief and/or restitution for allegedly deceptive marketing have been made against Elanco Animal Health Inc. and Bayer HealthCare LLC, along with other Elanco and Bayer entities, arising out of the use of Seresto™, a non-prescription flea and tick collar for cats and dogs. During 2021, putative class action lawsuits were filed in federal courts in the U.S. alleging that the Seresto collars contain pesticides that can cause serious injury and death to cats and/or dogs wearing the product. In August 2021, the lawsuits were consolidated by the Judicial Panel on Multidistrict Litigation, and the cases were transferred to the Northern District
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of Illinois. In June 2023, the parties agreed on the monetary terms of a potential settlement of the consolidated class action lawsuits, and as a result, a charge of $15 million was recorded within Other expense, net in our condensed consolidated statements of operations for the nine months ended September 30, 2023. As of December 31, 2023, the parties had agreed on the non-monetary terms of a potential settlement, in addition to the monetary terms agreed to in June 2023. In January 2024, the court preliminarily approved the settlement. The court set a hearing to consider final approval of the settlement in December 2024. If at that time all conditions of the settlement are met, and the settlement is approved, we anticipate the settlement amount will be payable in the first quarter of 2025. As such, the $15 million provision was included within other current liabilities on our condensed consolidated balance sheet as of September 30, 2024.
Additional Legal Matters
For the legal matters discussed below, we either believe loss is not probable or are unable to estimate the possible loss or range of loss, if any. The process of resolving these matters is inherently uncertain and may develop over an extended period of time; therefore, at this time, the ultimate resolutions cannot be predicted. As of September 30, 2024 and December 31, 2023, we had no material liabilities established related to the legal matters discussed below.
On October 7, 2024, a putative securities class action lawsuit captioned Joseph Barpar v. Elanco Animal Health Inc., et al. (Barpar) was filed in the United States District Court for the District of Maryland against Elanco and two of its executives. Barpar alleges claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and specifically alleges that Elanco and the two executives made materially false and/or misleading statements and/or failed to disclose certain facts about the safety of and labeling for our Zenrelia® product, as well as the approval and launch timelines for Zenrelia and our Credelio Quattro™ product. The plaintiff purports to represent purchasers of Elanco securities between November 7, 2023 and June 26, 2024. On November 1, 2024, a shareholder derivative action captioned Lawrence Hollin v. Lawrence E. Kurzius, et al. was filed in the United States District Court for the District of Maryland against current members of Elanco's board and senior management, alleging claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and state law claims for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, unjust enrichment and waste of corporate assets, based on allegations substantially similar to the allegations in the putative class action complaint in Barpar. We intend to vigorously defend our positions in connection with both actions. The process of resolving these matters is inherently uncertain and may develop over an extended period of time; therefore, at this time, the ultimate resolution cannot be predicted.
On May 20, 2020, a shareholder class action lawsuit captioned Hunter v. Elanco Animal Health Inc., et al. (Hunter) was filed in the United States District Court for the Southern District of Indiana against Elanco and certain executives. On September 3, 2020, the court appointed a lead plaintiff, and on November 9, 2020, the lead plaintiff filed an amended complaint adding additional claims against Elanco, certain executives and other individuals. The lawsuit alleged, in part, that Elanco and certain of its executives made materially false and/or misleading statements and/or failed to disclose certain facts about Elanco’s supply chain, inventory, revenue and projections. The lawsuit sought unspecified monetary damages and purports to represent purchasers of Elanco securities between September 30, 2018 and May 6, 2020, and purchasers of Elanco common stock issued in connection with Elanco's acquisition of Aratana Therapeutics, Inc. On January 13, 2021, we filed a motion to dismiss, and on August 17, 2022, the court issued an order granting our motion to dismiss the case without prejudice. On October 14, 2022, the plaintiffs filed a motion for leave to amend the complaint. On December 7, 2022, we filed an opposition to the plaintiffs' motion, and on September 27, 2023, the court denied the plaintiffs' motion for leave, issuing final judgment in favor of Elanco. On October 25, 2023, the plaintiffs filed a notice of appeal to the United States Court of Appeals for the Seventh Circuit. We continue to believe the claims made in the case are meritless, and we intend to continue to vigorously defend our position.
On October 16, 2020, a shareholder class action lawsuit captioned Safron Capital Corporation v. Elanco Animal Health Inc., et al. was filed in the Marion Superior Court of Indiana against Elanco, certain executives and other individuals and entities. On December 23, 2020, the plaintiffs filed an amended complaint adding an additional plaintiff. The lawsuit alleges, in part, that Elanco and certain of its executives made materially false and/or misleading statements and/or failed to disclose certain facts about Elanco’s relationships with third-party distributors and revenue attributable to those distributors within the registration statement on Form S-3 dated January 21, 2020, and accompanying prospectus filed in connection with Elanco’s public offering which closed on or about January 27, 2020. The lawsuit seeks unspecified monetary damages and purports to represent purchasers of Elanco common stock or TEUs issued in connection with the public offering. From February 2021 to August 2022, this case was stayed in deference to Hunter. On October 24, 2022, we filed a motion to dismiss. On December 23, 2022, the plaintiffs filed their opposition to the motion to dismiss. Prior to the ruling on the motion to dismiss, on June 8, 2023, the plaintiffs filed a motion for leave to file a second amended complaint, which is now the operative complaint. We filed a motion to dismiss the second amended complaint on August 7, 2023, to which the plaintiffs filed their opposition on October 13, 2023. On April 17, 2024, our motion to dismiss was granted. The dismissal is without prejudice to plaintiffs' right to re-file a claim, and it is possible the plaintiffs will attempt to file a third amended
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complaint. We continue to believe the claims made in the case are meritless, and we intend to vigorously defend our position.
In the third quarter of 2019, Tevra Brands, LLC (Tevra) filed a complaint in the U.S. District Court of the Northern District of California, alleging that Bayer Animal Health (acquired by us in August 2020) had been involved in unlawful, exclusive dealing and tying of its flea and tick products Advantage, Advantix and Seresto and maintained a monopoly in the market. The complaint was amended in March 2020 and then dismissed in September 2020 with leave to amend. A second amended complaint was filed in March 2021 and realleged claims of unlawful exclusive dealing related to Advantage and Advantix and monopoly maintenance. A motion to dismiss the second amended complaint was denied in January 2022. Tevra’s demands included both actual and treble damages. On April 16, 2024, the court granted our motion for summary judgment to exclude all damages subsequent to our acquisition of Bayer Animal Health in August 2020. A jury trial was held in July 2024, and on August 1, 2024, the jury returned a verdict in favor of Bayer Animal Health. In August 2024, the plaintiff filed an appeal to this decision. We continue to believe the claims made in the case are meritless and will continue to vigorously defend our position.
Regulatory Matters
On July 1, 2021, we received a subpoena from the SEC relating to our channel inventory and sales practices prior to mid-2020. We have engaged in discussions with the SEC about a possible resolution or settlement of potential disclosure claims, and in late July 2024 we reached an agreement in principle on terms of a potential settlement of disclosure claims, without admitting or denying the underlying allegations. We previously accrued a liability of $15 million, which was included within other current liabilities on our condensed consolidated balance sheet as of September 30, 2024. The agreement remains subject to SEC approval and, therefore, it remains uncertain whether a definitive agreement will be reached and the terms of any such agreement.
Other Commitments
As of September 30, 2024, we had a lease commitment that has not yet commenced for our new corporate headquarters in Indianapolis, Indiana. Total minimum lease payments are estimated to be approximately $378 million over a term of 25 years, excluding extensions. Final lease payments may vary depending on the actual cost of certain construction activities. Lease commencement is expected in 2025.
The land for our new corporate headquarters is located in a Tax Increment Finance District, and the project is, in part, funded through Tax Incremental Financing (TIF) through an incentive agreement between the City of Indianapolis and us. The agreement provides for an estimated total incentive of $64 million to be funded by the City of Indianapolis in connection with the future tax increment revenue generated from the developed property. In December 2021, as part of a funding and development agreement entered into between the developer and us, we made a commitment to use the expected TIF proceeds towards the cost of developing and constructing the headquarters. In exchange, the developer reimbursed us up to the $64 million commitment in 2021. During 2022, we refunded approximately $15 million of the TIF proceeds to the developer. As a result, it is our expectation that our future lease payments will be reduced. The remaining accrued incentive was included in other noncurrent liabilities on our condensed consolidated balance sheets and will be amortized over the lease term beginning on the commencement date and offset future rent expense.

Note 14. Earnings Per Share
We compute basic earnings per share by dividing net income available to common shareholders by the actual weighted-average number of common shares outstanding for the reporting period. Elanco has variable common stock equivalents relating to certain equity awards in stock-based compensation arrangements. We also had variable common stock equivalents related to the TEU prepaid stock purchase contracts in the first quarter of 2023 through the settlement date of February 1, 2023 (see Note 7. Equity for further discussion). Diluted earnings per share reflects the potential dilution that could have occurred if holders of the unvested equity awards converted their holdings into common stock and that could have occurred if holders of unsettled TEUs had converted their holdings into common stock prior to the February 1, 2023, settlement date. The weighted-average number of potentially dilutive shares outstanding was calculated using the treasury stock method. Potential common shares that would have had the effect of increasing diluted earnings per share were considered to be anti-dilutive and as such, these shares were not included in the calculation of diluted earnings per share.
Basic and diluted weighted-average shares outstanding were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Basic weighted-average common shares outstanding (1)
494.3 492.7493.9 492.1
Assumed conversion of dilutive common stock equivalents (2)
3.4 — 3.0 — 
Diluted weighted-average shares outstanding497.7 492.7 496.9 492.1
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(1)The TEU prepaid stock purchase contracts were convertible into a minimum of 14.3 million shares or a maximum of 17.2 million shares. The minimum 14.3 million shares were included in the calculation of basic weighted-average shares from January 22, 2020 to February 1, 2023. The 17.2 million shares that were ultimately issued have been included in the calculation of basic weighted-average shares outstanding subsequent to the settlement date of February 1, 2023.
(2)For the three months ended September 30, 2024 and 2023, approximately 0.9 million and 2.7 million, respectively, of potential common shares were excluded from the calculation of diluted weighted-average shares outstanding because their effect was anti-dilutive. For the nine months ended September 30, 2024 and 2023, approximately 0.7 million and 2.7 million, respectively, of potential common shares were excluded from the calculation of diluted weighted-average shares outstanding because their effect was anti-dilutive.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction
Management’s discussion and analysis of financial condition and results of operations (MD&A) is intended to assist the reader in understanding and assessing significant changes and trends related to our results of operations and financial position. This discussion and analysis should be read in conjunction with the condensed consolidated financial statements and accompanying footnotes in Item 1 of Part I of this Form 10-Q. Certain statements in this Item 2 of Part I of this Form 10-Q constitute forward-looking statements. Various risks and uncertainties, including those discussed in “Forward-Looking Statements” of this Form 10-Q, in Item 1A, “Risk Factors” of Part II of this Form 10-Q and in Item 1A, “Risk Factors” of Part I of our 2023 Form 10-K, may cause our actual results, financial position and cash generated from operations to differ materially from these forward-looking statements. Further, due to the seasonality of our pet health sales, interim results are not necessarily an appropriate base from which to project annual results.
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. 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, sheep and, prior to the divestiture in July 2024 (see Note 4. Acquisitions, Divestitures and Other Arrangements to the condensed consolidated financial statements for further information), aqua (collectively, farm animal). With a heritage dating back to 1954, we consistently innovate to improve the health of animals and to benefit our customers while fostering an inclusive, cause-driven culture for our employees. We operate our business in a single segment, directed at advancing the well-being of animals, people and the planet, enabling us to realize our vision of Food and Companionship Enriching Life.
Our diverse product portfolio of approximately 200 brands helps make us a trusted partner to pet owners, veterinarians and farm animal producers. Our products are generally sold worldwide to third-party distributors and independent retailers and directly to farm animal producers and veterinarians. In recent years, we have expanded our omnichannel presence in both the veterinary clinic and in 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, develop with partners or that we 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.
Bovaer: In May 2024, the U.S Food and Drug Administration (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: Final FDA approval for Zenrelia®, a JAK inhibitor targeting control of pruritus and atopic dermatitis in dogs, was received in September 2024. Launch of the product followed shortly after final approval, with the first sales of Zenrelia occurring in late September. We have also received approval for Zenrelia in Brazil, which launched in September 2024, and in Canada and Japan. Additional reviews are ongoing in other key markets, including Europe, United Kingdom and Australia.
Credelio Quattro: In October 2024, we received final approval from the FDA for Credelio QuattroTM, a monthly chewable tablet for dogs that protects against fleas, ticks, heartworms, roundworms, hookworms and three different species of tapeworms. We expect product launch in the first quarter of 2025.
Experior: In October 2024, we received multiple combination clearance approvals from the FDA for our Experior® product 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.
Other Key Trends and Factors Affecting Our Results of Operations
Aqua Business Divestiture: On July 9, 2024, we closed the sale of our aqua business to a subsidiary of Merck Animal Health, for $1,294 million in cash proceeds, which was paid at closing. We utilized a vast majority of these proceeds to repay previously outstanding term loan debt, thereby reducing our leverage and expected future interest expense. Our aqua business included products across both warm-water and cold-water species and
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generated revenues of $81 million in 2024, through the divestiture date, and $132 million during the nine months ended September 30, 2023. Strategically, this divestiture allows us to prioritize our investments in larger markets with greater long-term earnings potential.
Assets sold included inventories, real property and equipment, including our manufacturing sites in Canada and Vietnam, and certain intellectual property, technology and other intangible assets, including marketed products. Along with these assets, approximately 280 commercial and manufacturing employees were transferred to Merck Animal Health as part of this divestiture. We recorded a pre-tax gain on divestiture of $640 million during the third quarter of 2024. Income tax expense associated with this gain on divestiture was $171 million, a majority of which will be payable in 2025. See Note 4. Acquisitions, Divestitures and Other Arrangements to the condensed consolidated financial statements for further information.
Restructuring Activities: In February 2024, our Board of Directors authorized a restructuring plan (the restructuring plan) to improve operational efficiencies and better align our organizational structure with current business needs, top strategic priorities and key growth opportunities. Specifically, the restructuring plan was intended to reallocate resources by shifting international resources from farm animal to pet health as we plan for the global launches of certain blockbuster potential products. Further, the restructuring plan impacted how we operate in and sell into the Argentina market, among others, reducing our foreign currency exposure in those markets.
During the nine months ended September 30, 2024, we incurred $45 million of charges associated with the restructuring plan, the majority relating to expected cash-based severance costs. The restructuring plan is expected to result in annualized net savings of $30 to $35 million. See Note 5. Asset Impairment, Restructuring and Other Special Charges to the condensed consolidated financial statements for further information.
Supplier Administration: In September 2024, one of our contract manufacturing supply partners, TriRx Speke Ltd (TriRx Speke), entered into trading administration, a formal insolvency process in the U.K. designed to help companies facing severe financial challenges regain stability. Since this time we have been making up-front prepayments to support the operational costs of the site to minimize supply disruption, resulting in increased costs for us that we expect to continue for the foreseeable future. While we are not anticipating significant supply disruption throughout the remainder of 2024, we are currently exploring options with parties involved to maintain continued product supply. Further, as a result of the site entering into trading administration, we impaired the remaining $12 million value of a contract asset related to a favorable supply agreement with TriRx Speke. See Note 4. Acquisitions, Divestitures and Other Arrangements to the condensed consolidated financial statements for further information.
Macroeconomic Factors: Our operations are exposed to and are impacted by various global macroeconomic factors. We face continuing market and operating challenges across the globe due to, among other factors, the Russia-Ukraine conflict, conditions related to supply chain disruption, higher interest rates, foreign currency exchange rate volatility and inflationary pressures. Continued evolution of these conditions has led to economic slowdowns in certain countries and/or regions and volatility in consumer behavior. We anticipate global macroeconomic pressures to continue throughout 2024.
Seasonality: While many of our products are sold consistently throughout the year, we do experience seasonality in our pet health business due to increased demand for certain parasiticide product offerings in the first half of the year. For example, based upon historical results, approximately 75% and 60% of total annual revenue contributed by our higher-margin parasiticide products Seresto and Advantage Family, respectively, typically occurs during the first half of the year, which is reflective of the flea and tick season in the Northern Hemisphere.


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Results of Operations
The following discussion and analysis of our results of operations should be read along with our condensed consolidated financial statements and the notes thereto. Our results of operations for the periods presented below may not be comparable with prior periods or with our results of operations in the future due to many factors, including but not limited to the factors identified above.
Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in millions)20242023% Change20242023% Change
Revenue $1,030 $1,068 (4)%$3,419 $3,382 1 %
Costs, expenses and other:
Cost of sales492 487 1 %1,502 1,415 6 %
% of revenue48 %46 %44 %42 %
Research and development87 86 1 %263 248 6 %
% of revenue8 %8 %8 %7 %
Marketing, selling and administrative323 313 3 %1,014 993 2 %
% of revenue31 %29 %30 %29 %
Amortization of intangible assets133 140 (5)%397 410 (3)%
Asset impairment, restructuring and other special charges17 16 6 %143 91 57 %
Goodwill impairment— 1,042 NM— 1,042 NM
Gain on divestiture(640)— NM(640)— NM
Interest expense, net of capitalized interest58 72 (19)%189 210 (10)%
Other expense, net1 9 (89)%12 41 (71)%
Income (loss) before income taxes559 (1,097)NM539 (1,068)NM
Income tax expense (benefit)195 (1)NM193 22 NM
Net income (loss)$364 $(1,096)NM$346 $(1,090)NM
Certain amounts and percentages may reflect rounding adjustments.
NM - Not meaningful
Revenue
Our products are sold in more than 90 countries, and as a result, a significant portion of our revenue is recorded in currencies other than the U.S. Dollar. Because of this, our revenue is influenced by changes in foreign currency exchange rates. During the nine months ended September 30, 2024 and 2023, approximately 53% of our revenue was denominated in foreign currencies.
Further, increases or decreases in inventory levels in our distribution channels can positively or negatively impact our quarterly revenue results, leading to variations in revenue. This can be a result of various factors, such as end customer demand, new customer contracts, heightened and generic competition, the need for certain inventory levels, our ability to renew distribution contracts with expected terms, our ability to implement commercial strategies, regulatory restrictions, unexpected customer behavior, proactive measures taken by us in response to shifting market dynamics, payment terms we extend, which are subject to internal policies, blackout shipping periods due to system downtime, implementations and integrations and procedures and environmental factors beyond our control.
Our revenue by product category for the three and nine months ended September 30, 2024 and 2023, was as follows:
Three Months Ended September 30,
Revenue% of Total Revenue
(Dollars in millions)2024202320242023$ Change% Change
Pet Health$486 $495 47 %46 %$(9)(2)%
Farm Animal530 561 52 %53 %(31)(6)%
Contract Manufacturing (1)
14 12 1 %1 %217 %
Total$1,030 $1,068 100 %100 %$(38)(4)%
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Nine Months Ended September 30,
Revenue% of Total Revenue
(Dollars in millions)2024202320242023$ Change% Change
Pet Health$1,704 $1,688 50 %50 %$161 %
Farm Animal1,680 1,661 49 %49 %191 %
Contract Manufacturing (1)
35 33 1 %1 %26 %
Total$3,419 $3,382 100 %100 %$371 %
Note: Numbers may not add due to rounding.
(1)Represents revenue from arrangements in which we manufacture products on behalf of a third party.
The effects of price, foreign currency exchange rates, volume and the impact of our divestiture of our aqua business on changes in revenue for the three and nine months ended September 30, 2024, compared to the three and nine months ended September 30, 2023, were as follows:
Three months ended September 30, 2024
(Dollars in millions)
RevenuePriceFX RateVolumeDivestitureTotal
Pet Health$486 2%—%(4)%—%(2)%
Farm Animal530 3%(1)%—%(8)%(6)%
Contract Manufacturing14 6%(1)%12%—%17%
Total$1,030 2%(1)%(1)%(4)%(4)%
Nine months ended September 30, 2024
(Dollars in millions)
RevenuePriceFX RateVolumeDivestitureTotal
Pet Health$1,704 3%—%(2)%—%1%
Farm Animal1,680 2%(1)%3%(3)%1%
Contract Manufacturing35 2%(1)%5%—%6%
Total$3,419 3%(1)%—%(1)%1%
Note: Numbers may not add due to rounding
Pet health revenue decreased $9 million, or 2%, for the three months ended September 30, 2024, compared to the same period in 2023, driven by lower volumes, partially offset by a 2% increase in pricing. Lower volumes were primarily attributable to continued competitive pressure on certain products in the U.S. veterinary channel, competitive pressure in Australia and supply volatility for vaccines in the U.S. These volume declines were partially offset by increased revenue from new products and improved demand for retail parasiticide products in the U.S. and Europe.
Pet health revenue increased $16 million, or 1%, for the nine months ended September 30, 2024, compared to the same period in 2023, driven by a 3% increase in pricing, partially offset by lower volumes. Volumes during the nine months ended September 30, 2024 were lower due to competitive pressure on certain products in the U.S. veterinary channel and purchasing patterns of certain over-the-counter (OTC) products by U.S. retailers. These decreases were partially offset by revenue from new products and improved demand for retail parasiticide products in certain European markets, including Spain.
Farm animal revenue decreased $31 million, or 6%, for the three months ended September 30, 2024, compared to the same period in 2023, driven by the divestiture of our aqua business on July 9, 2024, partially offset by a 3% increase in pricing. Excluding the impact from our aqua business divestiture, volumes for the three months ended September 30, 2024, were flat compared to the same period in 2023. Strength in U.S. cattle, led by Experior and Rumensin, and increased revenue from poultry products in the U.S. and Europe were offset by lower demand for sheep products in Australia, volume declines associated with our previous strategic decisions to change how we operate in and sell into certain international markets, including Argentina, and the impact from the European recall of Kexxtone, which occurred during the second quarter of 2024.
Farm animal revenue increased $19 million, or 1%, for the nine months ended September 30, 2024, compared to the same period in 2023, driven by a 2% increase in pricing and higher volumes of non-aqua products, partially offset by the impact of the divestiture of our aqua business. Higher volumes of our non-aqua products were primarily driven by strength in U.S. cattle, led by Experior and Rumensin, and strength in poultry sales globally, partially offset by weakness in global swine markets, volume declines associated with our previous strategic decisions to change how we operate in and sell into certain international markets, including Argentina, and the impact from the European recall of Kexxtone, which occurred during the second quarter of 2024.
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Cost of Sales
Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in millions)20242023% Change20242023% Change
Cost of sales$492 $487 1 %$1,502 $1,415 6 %
% of revenue48 %46 %44 %42 %
Cost of sales increased $5 million for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, while cost of sales as a percentage of revenue increased to 48%, compared to 46% for the prior year period. Gross margin was unfavorably impacted during the three months ended September 30, 2024, compared to the prior year, by a combination of inflation, unfavorable manufacturing performance and product mix associated with the divestiture of our aqua business. These factors were partially offset by increased pricing.
Cost of sales increased $87 million for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, and cost of sales as a percentage of revenue increased to 44%, compared to 42% for the prior year period. These increases were due to a combination of inflation, planned reduced throughput at certain manufacturing sites and product mix, partially offset by increased pricing.
Research and Development
Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in millions)20242023% Change20242023% Change
Research and development$87 $86 1 %$263 $248 6 %
% of revenue8 %8 %8 %7 %
Research and development expenses increased $1 million and $15 million for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in the prior year, primarily driven by higher employee-related expenses and timing of project costs.
Marketing, Selling and Administrative
Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in millions)20242023% Change20242023% Change
Marketing, selling and administrative$323 $313 3 %$1,014 $993 2 %
% of revenue31 %29 %30 %29 %
Marketing, selling and administrative expenses increased $10 million and $21 million for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in the prior year. The increase for the three months ended September 30, 2024, was primarily driven by higher employee related expenses and investments supporting the U.S. pet health business. The increase for the nine months ended September 30, 2024, also included increases in marketing and promotional spend supporting our global pet health business, partially offset by cost savings associated with the completion of our ERP system integration in the second quarter of 2023.
Amortization of Intangible Assets
Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in millions)20242023% Change20242023% Change
Amortization of intangible assets$133 $140 (5)%$397 $410(3)%
Amortization of intangible assets decreased $7 million and $13 million, for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in the prior year. These decreases were partially driven by changes in foreign currency exchange rates, as well as the elimination of amortization related to our aqua business intangible assets, which met the criteria to be classified as held for sale on February 1, 2024, at which date amortization of these finite-lived intangible assets ceased. See Note 4. Acquisitions, Divestitures and Other Arrangements to the condensed consolidated financial statements for further information.
Asset Impairment, Restructuring and Other Special Charges
Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in millions)20242023% Change20242023% Change
Asset impairment, restructuring and other special charges$17 $166 %$143 $9157 %
Amounts recorded to asset impairment, restructuring and other special charges during the three months ended September 30, 2024, primarily reflected $15 million of asset impairments tied to the financial difficulties of our contract manufacturing supply partner, TriRx, the largest of which was a $12 million impairment of a contract asset related to a favorable supply agreement. Asset impairment, restructuring and other special charges for the nine
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months ended September 30, 2024, also included a $53 million impairment charge related to the write-off of a pet health IPR&D asset, $45 million of costs associated with our restructuring plan announced in February 2024 and $17 million of transaction costs associated with the divestiture of our aqua business.
Amounts recorded during the three and nine months ended September 30, 2023, primarily represented costs associated with the implementation of new systems, programs and processes due to the integration of Bayer Animal Health. For additional information regarding our asset impairment, restructuring and other special charges, see Note 5. Asset Impairment, Restructuring and Other Special Charges to the condensed consolidated financial statements.
Gain on Divestiture
Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in millions)20242023% Change20242023% Change
Gain on divestiture$(640)$— NM$(640)$—NM
As discussed above, we recorded a pre-tax gain on the divestiture of our aqua business during the three months ended September 30, 2024, of $640 million. See Note 4. Acquisitions, Divestitures and Other Arrangements to the condensed consolidated financial statements for further information.
Goodwill Impairment
Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in millions)20242023% Change20242023% Change
Goodwill impairment$— $1,042 NM$— $1,042NM
As previously disclosed, there was a sharp increase in long-term treasury rates during the third quarter of 2023, and as a result, we assessed our long-lived assets, including goodwill for impairment. Due principally to an increased discount rate assumption, which was driven by the sharp increase in long-term treasury rates, our quantitative goodwill impairment test resulted in a $1,042 million pre-tax impairment charge. See Note 11. Goodwill to the condensed consolidated financial statements for further information.
Interest Expense, Net of Capitalized Interest
Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in millions)20242023% Change20242023% Change
Interest expense, net of capitalized interest$58 $72 (19)%$189 $210(10)%
Interest expense, net of capitalized interest decreased $14 million and $21 million, respectively, for the three and nine months ended September 30, 2024, as compared to the same periods in the prior year, primarily due to lower average outstanding debt balances given debt repayment activity in the current year (see Note 8. Debt to the condensed consolidated financial statements for further information). These decreases were partially offset by a $12 million non-cash charge during the three months ended September 30, 2024, related to the write-off of previously deferred financing costs given our early debt repayments.
Other expense, net
Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in millions)20242023% Change20242023% Change
Other expense, net$1 $9 (89)%$12 $41(71)%
Other expense, net for the three and nine months ended September 30, 2024, primarily consisted of foreign currency exchange losses and mark-to-market adjustments. Other expense, net for the three months ended September 30, 2023 principally related to foreign currency exchange losses and an increase in the contingent consideration liability related to the NutriQuest acquisition. Other expense, net during the nine months ended September 30, 2023, also included a settlement provision of $15 million related to the Seresto class action lawsuits recorded during the second quarter of 2023 (see Note 13. Commitments and Contingencies to the condensed consolidated financial statements for further information).
Income tax expense (benefit)
Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in millions)20242023% Change20242023% Change
Income tax expense (benefit)$195 $(1)NM$193 $22NM
Effective tax rate34.8 %0.2 %35.8 %(2.0)%
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We recognized income tax expense of $195 million for the three months ended September 30, 2024, and an income tax benefit of $1 million for the three months ended September 30, 2023. Of the total income tax expense for the three months ended September 30, 2024, $171 million related to the income tax expense associated with the taxable gain on the divestiture of our aqua business. Our effective tax rate of 34.8% for the three months ended September 30, 2024, differed from the statutory income tax rate primarily due to the recognition of the gain on the divestiture of our aqua business, which exceeded the reported gain of $640 million primarily due to the derecognition of non-deductible goodwill. Our effective tax rate was also impacted by the jurisdictional earnings mix of projected income in higher tax jurisdictions and losses for which no tax benefit was recognized. Our effective tax rate of 0.2% for the three months ended September 30, 2023, differed from the statutory income tax rate primarily due to the recognition of the aforementioned $1,042 million goodwill impairment charge, which was non-deductible in most of the impacted jurisdictions.
We recognized income tax expense of $193 million and $22 million for the nine months ended September 30, 2024 and 2023, respectively. Our effective tax rate of 35.8% for the nine months ended September 30, 2024, differed from the statutory income tax rate primarily due to the income tax expense impact of the gain on divestiture, partially offset by the release of a valuation allowance attributable to the sale of our aqua business and the recognition of certain state tax credits. Our effective tax rate of (2.0)% for the nine months ended September 30, 2023, differed from the statutory income tax rates primarily due to the recognition of the $1,042 million goodwill impairment charge, which was non-deductible in most of the impacted jurisdictions.

Liquidity and Capital Resources
Our primary sources of liquidity are cash on hand, cash flows from operations and funds available under our credit facilities. As a significant portion of our business is conducted internationally, we hold a significant portion of cash outside of the U.S. We monitor and adjust the amount of foreign cash based on projected cash flow requirements. Our ability to use foreign cash to fund cash flow requirements in the U.S. may be impacted by local regulations and, to a lesser extent, the income taxes associated with transferring cash to the U.S. We intend to indefinitely reinvest substantially all foreign earnings for continued use in our foreign operations. As our business evolves, we may change that strategy, particularly to the extent we identify tax-efficient reinvestment alternatives for our foreign earnings or change our cash management strategy.
We believe our primary sources of liquidity are sufficient to fund our short-term and long-term existing and planned capital requirements, which include working capital obligations, funding existing marketed and pipeline products, capital expenditures, business development in our targeted areas, short-term and long-term debt obligations, such as principal and interest payments, as well as interest rate swaps, operating lease payments, purchase obligations and costs associated with mergers, acquisitions, divestitures and business integrations and/or restructuring activities. As of September 30, 2024, we had cash and cash equivalents of $490 million and unused borrowing capacity on our Revolving Credit Facility of approximately $750 million. In addition, our Securitization Facility provides additional borrowing capacity in the event our borrowing capacity on this facility, which is correlated to our U.S. Net Eligible Receivables Balances, exceeds our outstanding borrowings on the facility. As of September 30, 2024, we had $93 million in undrawn borrowing capacity on our Securitization Facility. We also have the ability to access capital markets to obtain debt financing for longer-term funding, if required. Further, we believe we have sufficient cash flow and liquidity to remain in compliance with our debt covenants.
We made $1,587 million of term loan debt repayments during the nine months ended September 30, 2024, utilizing a majority of the proceeds from the sale of our aqua business as well as a portion of the proceeds from our new $350 million Incremental Term Facility due 2031 and available cash on hand. We also repaid $200 million during the nine months ended September 30, 2024, on our Revolving Credit Facility. Combined, these net repayments of $1,437 million have significantly reduced our leverage and anticipated future interest expense.
Our ability to meet future funding requirements may be impacted by macroeconomic, business and financial volatility. As market conditions change, we will continue to monitor our liquidity position. However, a challenging economic environment or an economic downturn may impact our liquidity or ability to obtain future financing. See "Item 1A. Risk Factors - We have substantial indebtedness" in Part I of our 2023 Form 10-K.
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Cash Flows
The following table provides a summary of cash flows from operating, investing and financing activities for the nine months ended September 30, 2024 and 2023:
(in millions)
Net cash provided by (used for):20242023$ Change
Operating activities$364 $114 $250 
Investing activities1,248 (134)1,382 
Financing activities(1,460)56 (1,516)
Effect of exchange-rate changes on cash and cash equivalents(14)(12)(2)
Net increase in cash and cash equivalents$138 $24 $114 
Operating activities
Cash provided by operating activities was $364 million for the nine months ended September 30, 2024, compared to cash provided by operating activities of $114 million for the nine months ended September 30, 2023. The increase in cash provided by operating activities was driven by year-over-year improvements in changes in operating assets and liabilities.
Investing activities
Cash provided by investing activities was $1,248 million for the nine months ended September 30, 2024, compared to cash used for investing activities of $134 million for the nine months ended September 30, 2023. Cash provided by investing activities during the nine months ended September 30, 2024, was driven by the 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 locations (see Note 4. Acquisitions, Divestitures and Other Arrangements to the condensed consolidated financial statements for additional information). These proceeds were partially offset by net purchases of property and equipment and software. Cash used for investing activities during the nine months ended September 30, 2023, primarily related to net purchases of property and equipment and software, $19 million paid for our acquisition of NutriQuest and $14 million for the purchase of intangible assets.
Financing activities
Cash used for financing activities was $1,460 million for the nine months ended September 30, 2024, compared to cash provided by financing activities of $56 million for the nine months ended September 30, 2023. Cash used for financing activities during the nine months ended September 30, 2024, included $1,587 million in gross repayments of term loan debt and net repayments on our Revolving Credit Facility of $200 million. These repayments were partially offset by proceeds of $350 million from the issuance of our Incremental Term Facility due 2031 in August 2024. Cash provided by financing activities of $56 million during the nine months ended September 30, 2023, primarily reflected net proceeds from our Revolving Credit Facility and Securitization Facility, largely offset by the repayment of indebtedness outstanding under our previously outstanding 4.272% Senior Notes due 2023.
Description of Indebtedness
For a complete description of our existing debt and available credit facilities as of September 30, 2024 and December 31, 2023, see Note 8. Debt within Item 8, “Financial Statements and Supplementary Data,” of Part II of our 2023 Form 10-K. New developments are discussed in Note 8. Debt of this Form 10-Q.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with U.S. GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Certain of our accounting policies are considered critical because these policies are the most important to the depiction of our financial statements and require significant, difficult or complex judgments, often requiring the use of estimates about the effects of matters that are inherently uncertain. Actual results that differ from our estimates could have an unfavorable effect on our financial position and results of operations. We apply estimation methodologies consistently from year to year. Such policies are summarized in Item 7, "Management's Discussion & Analysis of Results of Financial Condition and Results of Operations," of our 2023 Form 10-K. There were no significant changes or developments in the application of our critical accounting policies during the nine months ended September 30, 2024.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Exchange Risk
We operate on a global basis and are exposed to the risk that our earnings, cash flows and equity could be adversely impacted by fluctuations in foreign currency exchange rates. We are exposed to foreign currency exchange risk as the functional currency financial statements of non-U.S. subsidiaries are translated to U.S. dollars. We are also subject to foreign currency transaction gains and losses to the extent revenue and expense transactions are not denominated in the functional currency of a subsidiary. We are primarily exposed to foreign currency exchange risk with respect to net assets denominated in the Euro, British pound, Swiss franc, Brazilian real, Australian dollar, Japanese yen, Canadian dollar and Chinese yuan.
Additionally, we generally identify hyperinflationary markets as those markets whose cumulative inflation rate over a three-year period exceeds 100%. We have applied hyperinflationary accounting for our Argentina and Turkey subsidiaries since 2018 and 2022, respectively, and as a result, have changed their functional currencies to the U.S. dollar. During the nine months ended September 30, 2024, revenue in Argentina and Turkey each represented less than 1% of our consolidated revenue, and assets held in Argentina and Turkey as of September 30, 2024, each represented less than 1% of our consolidated assets.
In February 2024 our Board of Directors authorized a restructuring plan that, among other strategic decisions, has resulted in a change in how we operate in and sell into the Argentina market, which has reduced our foreign currency exposure with respect to the Argentine peso. In spite of this, and while the application of hyperinflationary accounting for our subsidiaries in Argentina and Turkey did not have a material impact on our business during the nine months ended September 30, 2024, we may in the future incur further currency devaluations, which could have a material adverse impact on our results of operations.
Interest Risk
At September 30, 2024, we held interest rate swap agreements with a notional value of $2,800 million that had the economic effect of modifying this amount of our variable-rate debt to fixed-rate. We also held forward-starting interest rate swap agreements with a combined notional amount of $850 million, which will become effective in 2026. When including variable-rate converted to fixed-rate through the use of interest rate swaps, as of September 30, 2024, approximately 81% of our long-term indebtedness bears interest at a fixed rate.


ITEM 4. CONTROLS AND PROCEDURES
(a)Evaluation of Disclosure Controls and Procedures. Under applicable SEC regulations, management of a reporting company, with the participation of the principal executive officer and principal financial officer, must periodically evaluate the company’s “disclosure controls and procedures,” which are defined generally as controls and other procedures of a reporting company designed to ensure that information required to be disclosed by the reporting company in its periodic reports filed with the SEC (such as this Form 10-Q) is recorded, processed, summarized and reported on a timely basis.
Our management, with the participation of Jeffrey N. Simmons, president and chief executive officer, and Todd S. Young, executive vice president and chief financial officer, evaluated our disclosure controls and procedures as of September 30, 2024, and concluded they were effective.
(b)Changes in Internal Controls. During the third quarter of 2024, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II

ITEM 1. LEGAL PROCEEDINGS
See Note 13. Commitments and Contingencies to the condensed consolidated financial statements for a summary of our legal proceedings. This item should be read in conjunction with "Legal Proceedings" in Part I, Item 3 of our 2023 Form 10-K.

ITEM 1A. RISK FACTORS
Our risk factors are documented in Item 1A of Part I of our 2023 Form 10-K. Other than the revisions set forth below, there have been no material changes from the risk factors previously disclosed in the 2023 Form 10-K.
The following risk factors have been changed from the risk factors that were previously disclosed:
Manufacturing problems and capacity imbalances have caused, and may in the future cause, product launch delays, inventory shortages, recalls and/or unanticipated costs.
In order to sell our products, we must be able to produce and ship sufficient quantities to our customers. We own and operate 16 internal manufacturing sites across 9 countries and also employ a network of approximately 140 third-party CMOs. Many of our products involve complex manufacturing processes, are highly regulated and can rely on inputs that are sole sourced from certain manufacturing sites. Shifting or adding manufacturing capacity can be a lengthy process requiring significant capital expenditures, process modifications and regulatory approvals. Due to this, unplanned plant shutdowns, manufacturing or quality assurance difficulties, failure or refusal of a supplier or CMO to supply contracted quantities or difficulties in predicting or variability in demand for our products have caused, and may in the future cause, interruption or higher costs in the supply of certain products, product shortages or pauses or discontinuations of product sales in one or more markets. Further, minor deviations in our manufacturing or logistical processes, such as temperature excursions or improper package sealing, could result, and have in the past resulted 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;
•mislabeling;
•construction delays;
•equipment malfunctions;
•shortages of materials;
•labor problems;
•delays in receiving required governmental authorizations or regulatory approvals;
•natural disasters and/or adverse weather conditions;
•power outages;
•criminal and terrorist activities;
•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.
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 materially adversely affect our business, financial condition and results of operations. Further, global transportation and logistics challenges, cost inflation and tight labor markets have caused, and in the future may cause, delays in and/or increased costs related to the distribution of our products, the construction or acquisition of manufacturing capacity, procurement activity and supplier or contract manufacturer arrangements.
For example, in September 2024 one of our contract manufacturing supply partners, TriRx Speke Ltd (TriRx Speke), entered into trading administration, a formal insolvency process in the U.K. designed to help companies facing severe financial challenges regain stability. Since this time we have been making up-front prepayments to support the operational costs of the site to minimize supply disruption, resulting in increased costs for us that we expect to continue for the foreseeable future. While we are not anticipating significant supply disruption throughout the remainder of 2024, we are currently exploring options with parties involved to maintain continued product supply.
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In addition, volatility in the overall demand for animal health products in different markets and distribution channels has had, and may continue to have, a number of impacts on our business, including increased costs and disruptions in the supply of our products. 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. Throughout 2023 we experienced increasing levels of inventory on-hand, in part due to volatility in demand across different markets and distribution channels. In addition to the negative impact on our cash flows, if we are not able to more effectively manage the purchase and production of our inventories to match the timing of customer demand, we may face increased costs for warehousing and the potential for our inventories to become unusable or obsolete.
We have also in the past invested in, and will continue to invest in, improvements to our existing manufacturing facilities and may also invest in new manufacturing plants in the future. These types of projects are subject to risks of delay or cost overruns inherent in any large construction project and require licensing by or approvals from various regulatory authorities. 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. Significant cost overruns or delays in completing these projects could have an adverse effect on our financial condition and results of operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(none)

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(none)

ITEM 4. MINE SAFETY DISCLOSURES
(none)

ITEM 5. OTHER INFORMATION
During the three months ended September 30, 2024, no director or officer of the Company adopted, modified or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K.
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ITEM 6. EXHIBITS
The following exhibits are either filed or furnished herewith (as applicable) or, if so indicated, incorporated by reference to the documents indicated in parentheses, which have previously been filed or furnished with the SEC.

Exhibit Number Description
Amendment No. 2, dated as of July 3, 2024, to the Credit Agreement, dated as of August 1, 2020, by and among Elanco Animal Health Incorporated, as borrower, Elanco US Inc., as co-borrower, the subsidiary loan parties party thereto, the lenders and issuing banks party thereto from time to time, Goldman Sachs Bank USA, as term facility agent, collateral agent, and security trustee, and JPMorgan Chase Bank, N.A., as revolving facility agent (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the SEC on July 3, 2024).
Incremental Assumption Agreement dated August 13, 2024, by and among Elanco Animal Health Incorporated, Elanco US Inc., the subsidiary loan parties party thereto, Farm Credit Mid-America, PCA, as incremental term lender, and Goldman Sachs Bank USA, as the term facility agent (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the SEC on August 13, 2024).
Section 302 Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
Section 302 Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
101Interactive Data Files (Inline XBRL).
104Cover Page Interactive Data File (formatted as Inline XBRL document and included in Exhibit 101).



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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ELANCO ANIMAL HEALTH INCORPORATED
(Registrant)
Date:November 7, 2024/s/ Jeffrey N. Simmons
Jeffrey N. Simmons
President and Chief Executive Officer
(Principal Executive Officer)
Date:November 7, 2024/s/ Todd S. Young
Todd S. Young
Executive Vice President, Chief Financial Officer
(Principal Financial Officer)



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