Elanco Animal Health Inc

Consolidated Statements of Operations

(in millions, except per-share data)

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Balance Sheets

(in millions, except share data)

Consolidated Statements of Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

(Tables present dollars and shares in millions, except per-share and per-unit data)

Note 1. Background and Basis of Presentation

Elanco Animal Health Incorporated (collectively, Elanco, the Company, we, us, or our) 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. Elanco was incorporated in Indiana on September 18, 2018, and prior to that was a business unit of Eli Lilly and Company (Lilly). Our diverse, durable product portfolio of approximately 200 brands 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 products are generally sold worldwide to third-party distributors and independent retailers and directly to farm animal producers and veterinarians. Additionally, our omnichannel presence allows us to sell into both the veterinary clinic and retail markets, including e-commerce.

We have prepared the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States (GAAP). In our opinion, the financial statements reflect all adjustments (including those that are normal and recurring) that are necessary for fair presentation of the results of operations for the periods shown. All intercompany balances and transactions have been eliminated, and we have evaluated subsequent events up to the time of filing.

Note 2. Summary of Significant Accounting Policies

The following is a summary of significant accounting policies used in the preparation of the accompanying consolidated financial statements.

Estimates and Assumptions

The preparation of financial statements in accordance with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures at the date of the financial statements and during the reporting period. These estimates and underlying assumptions can impact all elements of our consolidated financial statements. Our estimates are often based on several factors, including the facts and circumstances available at the time the estimates are made, historical experience, risk of loss, general economic conditions and trends and the assessment of the probable future outcome. Some of our estimates require significant, difficult or complex judgments, probabilities and assumptions that we believe to be reasonable but that can be inherently uncertain and unpredictable. If our estimates and assumptions are not representative of actual outcomes, our results could be materially impacted. We regularly evaluate our estimates and assumptions and adjust them when facts and circumstances indicate the need for change. Such changes generally would be reflected in our consolidated financial statements in the period they are determined. We apply estimation methodologies consistently from year to year.

Revenue

We recognize revenue primarily from product sales to customers. Revenue from sales of products is recognized at the point where the customer obtains control of the goods and we satisfy our performance obligation, which is generally once the goods have shipped and the customer has assumed title. For contract manufacturing organization (CMO) arrangements, we recognize revenue over time or at a point in time depending on our evaluation of when the customer obtains control of the promised goods or service. Royalty revenue represents sales-based royalties that are recognized in the period in which the underlying sales occur.

Revenue reflects the total consideration to which we expect to be entitled (i.e., the transaction price) after considering various types of variable consideration such as rebates, sales allowances, product returns and discounts. Provisions for returns, rebates and discounts are established in the same period the related sales are recognized. Significant judgments must be made in determining the transaction price for sales of products related to anticipated rebates, discounts and returns. The following describe the most significant of these judgments:

Sales Rebates and Discounts

•Many of our products are sold and initially invoiced at contractual list prices. Contracts with customers often provide for various rebates and discounts that may differ in each contract. To determine the appropriate transaction price for our product sales, we must estimate any rebates or discounts that will ultimately be due to the customer and/or other customers in the distribution chain under the terms of our contracts. Rebate and discount amounts are recorded as a reduction to revenue and as a liability in the period the underlying revenue is recognized. In determining the appropriate net revenue, we consider our historical experience with similar incentives programs, current sales data and contract information and estimates of inventory levels at our channel distributors, among other factors, to evaluate the impact of such programs on revenue. We continually monitor the impact of this experience and adjust our accrual amounts as needed.

Sales Returns

•We estimate a reserve for future product returns based on several factors, including local returns policies and practices, historical returns as a percentage of revenue, an understanding of the reasons for past returns, estimated shelf life by product and estimates of the amount of time between shipment and return. Reserves for sales returns are estimated and recorded as a reduction to revenue and as a liability in the period the underlying revenue is recognized.

Payment terms differ by jurisdiction and customer but typically range from 30 to 120 days from date of shipment in most of our major jurisdictions. Revenue for our product sales has not been adjusted for the effects of a financing component, as we expect the period between when we transfer control of the product and when we receive payment will be one year or less. Any exceptions are either not material, or we collect interest for payments made after the due date. Shipping and handling activities are considered fulfillment activities and are not considered a separate performance obligation. We exclude from our measurement of the transaction price all taxes assessed by a governmental authority that are imposed on our sales of products and collected from a customer.

Allowance for Doubtful Accounts

We provide for an allowance for doubtful accounts, which represents our best estimate of expected lifetime credit losses inherent in our accounts and other receivables portfolios. Our estimates include a continuing credit evaluation of customers' financial condition, trade accounts and other receivables aging and historical loss experience, as well as reasonable and supportable forecasts of future economic conditions. As of December 31, 2025 and 2024, we had an allowance for doubtful accounts of$17 million and $13 million, respectively.

Inventories

We state all inventories at the lower of cost and net realizable value. We value a majority of our inventories using the first-in-first-out (FIFO) method, although at December 31, 2025 and 2024, $373 million and $301 million, respectively, of our total inventories were valued using the last-in, first-out (LIFO) method.

Property and Equipment

Property and equipment assets placed into service are recorded at cost and depreciated using the straight-line method over their estimated useful life(12 to 50 years for buildings and 3 to 25 years for equipment), except for certain leasehold improvements, which are depreciated over the shorter of their economic useful life or remaining lease term. Repair and maintenance costs that do not extend the useful life of the asset are expensed as incurred. Major replacements and significant improvements that either increase asset values or extend useful lives are capitalized. We assess the recoverability of the carrying value of property and equipment whenever events or changes in circumstances indicate the carrying amount may not be fully recoverable. When such indications of a potential impairment exist, we compare the projected undiscounted cash flows to be generated by the asset (or asset group) to its carrying value. If the carrying amount is found to be greater, an impairment charge is recorded equal to the excess of the asset's carrying value over its fair value. In such an event, we also re-evaluate the remaining useful life of the asset (or asset group) and modify it, as appropriate.

Goodwill and Indefinite-lived Intangible Assets

Goodwill represents the excess of the consideration transferred in a business combination over the assigned fair value of the net assets of the acquired business. Goodwill is not amortized but is reviewed at least annually for impairment during the fourth quarter, or more frequently if there is a significant change in events or circumstances that indicate the fair value of our single reporting unit is more likely than not less than its carrying amount (a "triggering event"). We begin by assessing qualitative factors to determine whether it is more likely than not that the fair value of our single reporting unit is less than its carrying value. Based on this qualitative assessment, if we conclude it is more likely than not that the fair value of our single reporting unit is less than its carrying value, we conduct a quantitative goodwill impairment test, which involves a comparison of the estimated fair value of our single reporting unit to its carrying value, including goodwill. When required, we estimate the fair value of our single reporting unit using an income approach, which is a valuation technique that provides an estimate of the fair value of an asset based on market participant expectations of the cash flows an asset would generate over its remaining useful life. If the carrying value of our single reporting unit exceeds its estimated fair value, we will recognize an impairment loss for the difference.

The income approach represents a Level 3 fair value measurement in the fair value hierarchy (see Note 9. Fair Value for further information). When a quantitative goodwill impairment test is required, significant management judgment is involved in estimating our single reporting unit’s fair value, including in the creation of forecasts of future operating results to be used in the income approach valuation. These significant judgments include, but are not limited to, estimates and assumptions regarding our future cash flows, revenue growth rates, profitability measures such as gross margin and earnings before interest, taxes, depreciation and amortization (EBITDA) margin and the determination of an appropriate discount rate.

Similar to goodwill, indefinite-lived intangible assets, which primarily represent in-process research and development (IPR&D) assets acquired from prior business combinations, are reviewed annually for impairment during the fourth quarter, or more frequently in the event of a triggering event. We utilize an income approach for determining the estimated fair value of indefinite-lived intangible assets upon acquisition and as needed for evaluations of potential impairment. Acquired IPR&D assets are treated as indefinite-lived intangible assets until completion or abandonment of the projects, at which time the assets are tested for impairment and, if not impaired, are transferred to marketed products and amortized over their estimated economic life.

Finite-lived Intangible Assets

Finite-lived intangible assets primarily relate to marketed products acquired or licensed from third parties and software. Marketed products consist of the amortized cost of the rights to assets acquired in business combinations and approved for marketing in a significant global jurisdiction. The cost basis of marketed products includes both the initial assigned IPR&D value, as well as any associated milestone payments subsequent to the product receiving regulatory approval in a significant global jurisdiction. Software consists of certain costs incurred in connection with obtaining or developing internal-use software, including compensation and benefits for employees directly associated with the internal-use software projects and direct costs of external resources. Other finite-lived intangible assets consist primarily of the amortized cost of licensed platform technologies, manufacturing technologies, customer relationships and finite-lived trade names. Intangible assets with finite lives are capitalized and amortized over their estimated economic lives, typically ranging from 3 to 20 years. We assess the recoverability of the carrying value of finite-lived intangible assets in the same manner as property and equipment, as described above.

Research and Development Expenses

Research and development (R&D) costs are expensed as incurred and relate to the effort associated with the discovery of new knowledge that will be useful in developing a new product or in significantly improving an existing product and the implementation of research findings. R&D costs include, but are not limited to, compensation and benefits, facilities and overhead expenses, clinical trial expenses and fees paid to contract research organizations.

We may also enter into licensing arrangements with third parties to acquire the rights to IPR&D. These arrangements typically do not meet the definition of a business combination. In such arrangements, prior to regulatory approval of a product, we record upfront and milestone payments to third parties as expense when the event requiring the upfront or milestone payment occurs.

Advertising Expenses

Costs associated with advertising, including costs for TV, radio and other electronic media and publications, are generally expensed when the related advertising occurs, and are included in marketing, selling and administrative expenses in the consolidated statements of operations. Advertising expenses for the years ended December 31, 2025, 2024 and 2023, approximated$314 million, $236 million and $207 million, respectively.

Financial Instruments

We utilize various financial instruments to help manage our exposures to market risks, such as changes in foreign currency exchange rates and variable interest rates. At inception, we formally assess, designate and document, as a hedge of an underlying exposure, each qualifying derivative instrument that will be accounted for as an accounting hedge. We also assess at least quarterly thereafter whether the qualifying derivative instrument continues to be effective at offsetting changes in either the fair values or cash flows of the underlying exposures. Derivative cash flows are principally classified in the operating activities section of the consolidated statements of cash flows, consistent with the underlying hedged item, while cash proceeds from or payments for the settlement of net investment hedges are classified as investing activities. Our financial instruments are recorded at their fair values on our consolidated balance sheets, and we do not offset derivative assets and liabilities. Fair values are estimated based on quoted market values for similar instruments and are classified as Level 2 in the fair value hierarchy. As of December 31, 2025 and 2024, we held the following types of financial instruments:

Derivatives Not Designated as Hedges

•Foreign currency derivatives used for hedging our exposure to fluctuating currency exchange rates 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 consolidated statements of operations. These instruments generally have maturities not exceeding 12 months.

Derivatives Designated as Hedges – Net investment hedges

•Cross-currency fixed interest rate swaps determined to be effective economic hedges of net investments in foreign denominated net assets are designated as net investment hedges. Gains or losses on our net investment hedges due to spot rate fluctuations are recorded as cumulative translation adjustments, 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.

Derivatives Designated as Hedges – Interest rate swaps

•Interest rate swap contracts are used to effectively convert a portion of our variable-rate debt into fixed-rate debt. Differences between the variable interest rate payments and the fixed interest rate settlements with the swap counterparties are recorded as an adjustment to interest expense, net of capitalized interest over the life of the swaps. Changes in the fair value of interest rate swaps 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.

Foreign Currency Translation

Operations in our subsidiaries outside the U.S. are recorded in the functional currency of each subsidiary, which is determined by a review of the environment where each subsidiary primarily generates and expends cash. The results of operations for our subsidiaries outside the U.S. where the U.S. dollar is not the functional currency, are translated from the functional currency into U.S. dollars using the exchange rates in effect as of the date of the transactions, or a reasonable approximation thereof, such as the weighted-average currency rate for the period. Assets and liabilities are translated using the period-end exchange rates. The U.S. dollar effects that arise from translating the net assets of these subsidiaries are recorded in other comprehensive income (loss).

Foreign currency transaction gains and losses are due to the effect of exchange rate changes on transactions denominated in currencies other than a subsidiary's functional currency and are recognized in other expense, net, in the consolidated statements of operations in the period incurred. Transaction losses of$14 million, $12 million and $40 million were recorded during the years ended December 31, 2025, 2024 and 2023, respectively.

We generally identify hyperinflationary markets as those markets whose cumulative inflation rate over a three-year period exceeds 100%. Translation adjustments resulting from the application of hyperinflationary accounting are also recognized in other expense, net, in the consolidated statements of operations in the period incurred.

Recently Adopted Accounting Pronouncements

In December 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which was intended to enhance the transparency and usefulness of income tax disclosures by providing incremental and disaggregated income tax disclosures pertaining to the effective tax rate reconciliation and income taxes paid by jurisdiction. We adopted this standard on a prospective basis for the year ended December 31, 2025. See Note 15. Income Taxes for further details.

Recently Issued Accounting Pronouncements

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which is intended to provide more detailed and disaggregated information about significant expense categories, such as purchases of inventory, employee compensation, depreciation and amortization and selling expenses. This new standard, including related updates, is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted, and the amendments may be applied either prospectively or retrospectively. We are currently assessing the impact ASU 2024-03 will have on our consolidated financial statements, including our footnote disclosures.

Other Significant Accounting Policies

Our other significant accounting policies are described in the remaining appropriate notes to the consolidated financial statements.

Note 3. Revenue

The following table summarizes the activity in our global sales rebates and discounts liability for the years ended December 31:

Adjustments to revenue recognized as a result of changes in estimates during the years ended December 31, 2025, 2024 and 2023, for product shipped in previous periods were not material. Actual global product returns approximated 1% of net revenue in each of the years ended December 31, 2025, 2024 and 2023.

Disaggregation of Revenue

The following table summarizes our revenue disaggregated by product category for the years ended December 31:

(1)On July 9, 2024, we sold our aqua business to a subsidiary of Merck Animal Health (see Note 4. Acquisitions and Divestitures for further details).

(2)Represents revenue from arrangements in which we manufacture products on behalf of a third party and royalty revenue. In May 2025, we entered into an agreement to sell certain qualifying royalties, among other potential future cash flows, to a third party for proceeds of $295 million in cash. While we are no longer entitled to these qualifying royalties, we are required under GAAP to continue recognizing them as revenue. For the year ended December 31, 2025, royalty revenue associated with this arrangement, which is reflected within Contract Manufacturing and Other in the table above, totaled $19 million. See Note 10. Liability for Sale of Future Revenue for additional information.

The following table summarizes our revenue disaggregated by geographic area for the years ended December 31:

We have a single customer that accounted for approximately 12%,11% and 10% of revenue for the years ended December 31, 2025, 2024 and 2023, respectively. Product sales with this customer resulted in accounts receivable of$107 million and $90 million as of December 31, 2025 and 2024, respectively.

Note 4. Acquisitions and Divestitures

Acquisitions

In November 2024, we acquired a manufacturing facility in Speke, United Kingdom (U.K.), including its workforce and related assets such as inventory and property and equipment (Speke), from a former contract manufacturing supply partner, TriRx Speke Ltd (TriRx Speke). During 2023, we completed the acquisitions of certain U.S. marketed products, pipeline products, inventory and an assembled workforce from NutriQuest, LLC (NutriQuest), a provider of swine, poultry and cattle nutritional health products to animal producers, and certain assets including inventory and distribution rights for certain marketed products from NutriQuest Nutricao Animal Ltda (NutriQuest Brazil). These transactions were all accounted for as business combinations under the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The excess of the purchase price over the fair value of the acquired net assets, where applicable, has been recorded as goodwill.

Speke: In 2021 and 2022, respectively, we sold manufacturing facilities in Shawnee, Kansas, and Speke, United Kingdom (U.K.), to TriRx Pharmaceuticals (TriRx). We received cash proceeds from our sale of these facilities over several years, with the final cash payment of $66 million received from TriRx, in addition to accrued interest, during the first quarter of 2024.

Concurrent with our initial sale of the Speke facility to TriRx, we entered into a long-term supply agreement with them for a number of farm animal product lines. Because we determined this supply agreement to be on favorable terms to us, we recorded a contract asset associated with it. In 2023, due to a forecasted decline in cash flows associated with this contract asset, we determined the asset was partially impaired, and we recorded a $26 million impairment charge. In September 2024, TriRx Speke entered into trading administration, a formal insolvency process in the U.K. At this time, we impaired the remaining $12 million value of this contract asset. Each of these impairment charges was recorded within asset impairment, restructuring and other special charges within our consolidated statements of operations.

To minimize supply disruption for our impacted product lines, we acquired Speke on November 15, 2024, for $36 million. The following table summarizes the fair value of assets acquired and liabilities assumed as of the acquisition date:

NutriQuest: On January 3, 2023, we acquired NutriQuest for total purchase consideration of $59 million. The composition of the purchase price was as follows:

The following table summarizes the fair value of assets acquired as of the acquisition date:

Other intangible assets consisted of customer relationships and trade names. The acquired finite-lived intangible assets are being amortized over a weighted-average useful life of approximately 12 years on a straight-line basis.

NutriQuest Brazil: On August 1, 2023, we acquired NutriQuest Brazil for total purchase consideration of $19 million. The following table summarizes the fair values of assets acquired as of the acquisition date:

Divestitures

New Zealand manufacturing facility: In February 2025, we sold our manufacturing facility in Manukau, New Zealand, to a third party for cash proceeds of $9 million. Assets divested included property and equipment related to the facility and inventory. Additionally, approximately 50 individuals were transferred to the new owners as part of the divestiture. This transaction did not result in a material gain or loss on divestiture.

Aqua business: On July 9, 2024, we sold our aqua business to Intervet International B.V., a Dutch subsidiary of Merck Animal Health, for $1,294 million in cash, the vast majority of which was utilized to repay previously outstanding term loan debt. Our aqua business included products across both warm-water and cold-water species and generated revenues of $81 million in 2024, through the divestiture date, and $175 million in 2023. 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. Additionally, approximately 280 commercial and manufacturing employees were transferred to Merck Animal Health as part of this divestiture.

As of the disposal date, the carrying amounts of the following major assets were derecognized from our consolidated balance sheet:

Based on the aggregate carrying value of our aqua business and $20 million of costs to sell, we recorded a pre-tax gain on divestiture of $640 million. We also recognized income tax expense of $170 million related to the taxable gain. In determining the amount of goodwill to include in our disposal group, a portion of our single reporting unit’s goodwill was allocated to it on a relative fair value basis by comparing the fair value of the disposal group to the estimated fair value of our single reporting unit as a whole. We estimated the fair value of our single reporting unit using the income approach. Significant management judgment was required in estimating the fair value of our single reporting unit, including, but not limited to, estimates and assumptions regarding future cash flows of our single reporting unit, revenue growth and other profitability measures, such as gross margin and earnings before interest, taxes, depreciation and amortization (EBITDA) margin, and the determination of an appropriate discount rate. We considered this valuation approach to be a Level 3 measurement under the fair value hierarchy.

Note 5. Asset Impairment, Restructuring and Other Special Charges

In recent years, we have incurred substantial costs associated with restructuring programs and cost-reduction initiatives. For example, 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. 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. We have also incurred costs associated with executing acquisitions, divestitures and other significant transactions and related integration and/or separation activities.

Components of asset impairment, restructuring and other special charges for the years ended December 31 were as follows:

(1)Restructuring charges in 2025 primarily related to $116 million of expected cash-based severance costs associated with the 2025 Restructuring Plan, as well as $39 million primarily consisting of non-cash asset impairment charges associated with our animal studies research facilities in Monheim, Germany, and our manufacturing facility in Kansas City, Kansas. Restructuring charges in 2024 primarily related to cash-based severance charges associated with the 2024 Restructuring Plan.

(2)Acquisition and divestiture-related charges in 2024 primarily consisted of transaction costs related to the divestiture of our aqua business (see Note 4. Acquisitions and Divestitures for further information). Acquisition and divestiture-related charges in 2023 primarily represented costs associated with the implementation of new systems, programs and processes due to the integration of Bayer Animal Health.

(3)Asset impairments in 2025 primarily included a $47 million impairment of a marketed product intangible asset due to a decline in projected sales of a product group acquired in a past acquisition and $16 million in impairments related totwo early-stage capital projects that were indefinitely suspended. Asset impairments in 2024 principally included a $53 million write-off of an IPR&D asset and $15 million of asset impairments tied to the financial difficulties of TriRx Speke (see Note 4. Acquisitions and Divestitures for further information). Asset impairments in 2023 primarily included a $26 million partial write-down of a contract asset with TriRx Speke.

The following table summarizes the activity in our reserves established in connection with restructuring activities:

Timing of when restructuring reserve obligations are expected to be paid can vary due to country-specific negotiations and regulations. As of December 31, 2025, $80 million of our restructuring reserve was classified within other current liabilities on our consolidated balance sheet, with the remainder classified within other noncurrent liabilities.

Note 6. Inventories

Inventories at December 31 consisted of the following:

Note 7. Debt and Finance Lease Liability

Our long-term debt and finance lease liability as of December 31, consisted of the following:

(1)On October 31, 2025, we repaid our Term Loan B due 2027 in full, primarily with the proceeds from three new debt facilities, our Term Loan B due 2032, Euro Term Loan due 2029 and Incremental Term Facility due 2032 (see below for further details).

(2)In June 2025, we entered into a finance lease arrangement for our new corporate headquarters. See Note 13. Leases for further information.

Term Loan B due 2027 and Revolving Credit Facility

In 2020, we simultaneously entered into our Term Loan B due 2027 facility and Revolving Credit Facility. In July 2024, we amended our Revolving Credit Facility, which extended its maturity through July 2029. Our Revolving Credit Facility provides up to $750 million in borrowing capacity and bears interest at Term SOFR plus a spread, dependent on our Net Total Leverage Ratio, as defined within the amended agreement, which was 1.50% at December 31, 2025. There aretwo financial maintenance covenants under our Revolving Credit Facility which are solely for the benefit of the lenders, a net total leverage ratio covenant and an interest coverage ratio covenant. The net total leverage ratio covenant requires us to maintain a net total leverage ratio (which is not subject to step-downs) as of the end of each quarter. The required level of this covenant is based on the ratio of our pro forma net debt to our pro forma adjusted EBITDA not to exceed 7.71 to 1.00 for the preceding four fiscal quarters. The interest coverage ratio covenant requires us to maintain a ratio of pro forma adjusted EBITDA to cash interest expense for the preceding four fiscal quarters of no less than 2.00 to 1.00. We were in compliance with all of our debt covenants as of December 31, 2025. During the year ended December 31, 2025, we both borrowed and repaid $125 million on our Revolving Credit Facility.

On October 31, 2025, we entered into three new debt facilities, our Term Loan B due 2032, Euro Term Loan due 2029 and Incremental Term Facility due 2032 (all described below) for aggregate gross proceeds of $2,106 million. We simultaneously repaid our Term Loan B due 2027 in full utilizing these proceeds, net of issuance costs and discounts of approximately $32 million, and cash on hand. With this repayment, all obligations and commitments under our Term Loan B due 2027 were satisfied. We recognized charges of $20 million during the year ended December 31, 2025, related to refinancing costs and the write-off of previously deferred financing costs, which were included within interest expense, net of capitalized interest in the consolidated statement of operations.

Term Loan B due 2032

On October 31, 2025, concurrent with the repayment of our Term Loan B due 2027, we entered into a new Term Loan B (the Term Loan B due 2032) in the amount of $1,100 million. The Term Loan B due 2032 bears interest at Term SOFR plus 1.75% and amortizes in quarterly required principal payments of 0.25%, with a final balloon payment due on the scheduled maturity date of October 31, 2032.

Euro Term Loan due 2029

On October 31, 2025, we also entered into a Euro Term Loan A facility (the Euro Term Loan due 2029) in the amount of €400 million. The Euro Term Loan due 2029 bears interest at the Euro Interbank Offered Rate (EURIBOR) plus a spread dependent on our Net Total Leverage Ratio, as defined within the agreement, which was 1.50% at December 31, 2025, and amortizes in quarterly required principal payments of 1.875%, with a final balloon payment due on the scheduled maturity date of April 30, 2029. Our Euro Term Loan due 2029 has both a net total leverage ratio covenant and an interest coverage ratio covenant, both of which are consistent with our Revolving Credit Facility's financial maintenance covenants.

Additional Term Facilities

Incremental Term Facility due 2028: Our Incremental Term Facility due 2028 bears interest at Term SOFR plus 1.75% and is payable in quarterly installments of principal and interest with a final balloon payment due at scheduled maturity on August 12, 2028. The terms of the Incremental Term Facility due 2028 are generally consistent with the terms of our Term Loan B due 2032 and Revolving Credit Facility.

Incremental Term Facility due 2029: Our Incremental Term Facility due 2029 bears interest at Term SOFR plus 1.75% and is payable in quarterly installments of principal and interest with a final balloon payment due at scheduled maturity on April 19, 2029. The terms of the Incremental Term Facility due 2029 are generally consistent with the terms of our Term Loan B due 2032 and Revolving Credit Facility.

Incremental Term Facility due 2031: Our Incremental Term Facility due 2031 bears interest at Term SOFR plus 1.75% and is payable in quarterly installments of principal and interest with a final balloon payment due at scheduled maturity on August 13, 2031. The terms of the Incremental Term Facility due 2031 are generally consistent with the terms of our Term Loan B due 2032 and Revolving Credit Facility.

Incremental Term Facility due 2032: On October 31, 2025, we also entered into an incremental term facility with an aggregate principal amount of $540 million. The Incremental Term Facility due 2032 bears interest at Term SOFR plus 2.25% and amortizes in quarterly required principal payments of 0.25%, with a final balloon payment due at scheduled maturity on October 31, 2032. The terms of the Incremental Term Facility due 2032 are generally consistent with the terms of our Term Loan B due 2032 and Revolving Credit Facility.

Securitization Facility

In August 2023, we entered into a secured term facility (the Securitization Facility), which is secured and collateralized by our U.S. accounts receivable, subject to certain adjustments (defined as the Net Eligible Receivables Balance within the applicable agreement). The terms of the agreement result in an amount of our U.S. accounts receivable, equivalent to the outstanding balance of the Securitization Facility at any point in time, being pledged to the lender as collateral for the borrowings. Our borrowing capacity under our Securitization Facility is subject to monthly fluctuation, based on the level of our borrowing base as reported to the lender, which is correlated to our U.S. Net Eligible Receivables Balances, with a maximum borrowing capacity not to exceed $300 million. The Securitization Facility requires monthly interest payments over its term at a variable rate based on Term SOFR plus 1.25%. On June 25, 2025, we amended our Securitization Facility, which extended its maturity through June 2028 and made other amendments to certain covenants and other terms of the agreement. The Securitization Facility also includes various covenants specific to the underlying composition of our U.S. accounts receivables portfolio, all of which we were in compliance with as of December 31, 2025. During the year ended December 31, 2025, we both borrowed and repaid $125 million on our Securitization Facility.

Senior Notes

In August 2018, we issued $750 million of 4.900% Senior Notes due August 28, 2028 (the Senior Notes due 2028). The interest rate payable on the Senior Notes due 2028 is subject to adjustment in the event of credit rating agency downgrades, which last occurred in April 2023, and as of December 31, 2025, these notes bore interest at a rate of 6.650%. The indenture that governs these notes contains covenants that limit our ability to incur liens or engage in sale-leaseback transactions. The indenture also contains restrictions on our ability to consolidate, merge or sell substantially all of our assets, in addition to other customary terms. We were in compliance with all such covenants under the indenture governing our Senior Notes due 2028 as of December 31, 2025.

Finance Lease Obligation

In June 2025, we commenced afive-year finance lease for our new corporate headquarters in Indianapolis, Indiana. The right-of-use (ROU) asset related to this finance lease is included within property and equipment, net, while the finance lease liabilities are classified within both the current and noncurrent portions of long-term debt and finance lease liability on our consolidated balance sheet. See Note 13. Leases for further information.

Scheduled Repayments

As of December 31, 2025, future required principal payments on our outstanding indebtedness, excluding our finance lease payments which are included in the future minimum lease payment schedule within Note 13. Leases, for each of the next five years and thereafter, were as follows:

As of December 31, 2025, approximately 80% of our long-term indebtedness, excluding our finance lease liability, bore interest at a fixed rate, including variable-rate debt converted to fixed-rate through the use of interest rate swaps (see Note 8. Financial Instruments for further information).

Cash payments for interest, excluding the interest component of our finance lease payments, during the years ended December 31, were as follows:

(1)Reflected within the above totals are $43 million, $31 million and $4 million of cash interest received from our net investment hedges during the years ended December 31, 2025, 2024 and 2023, respectively. See Note 8. Financial Instruments for further information on our net investment hedges.

Note 8. Financial Instruments

To manage our exposure to market risks, such as changes in foreign currency exchange rates and variable interest rates, we have entered into various derivative transactions. Our outstanding positions are discussed below.

Derivatives Not Designated as Hedges

We may enter into foreign currency exchange forward or option contracts to reduce the effects of fluctuating currency exchange rates. As of December 31, 2025 and 2024, we had outstanding foreign currency exchange contracts with aggregate notional amounts of $1,090 million and $1,016 million, respectively. The amounts of net gains (losses) on our derivative instruments not designated as hedging instruments, recorded in other expense, net for the years ended December 31, were as follows:

(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

At December 31,2024, we had 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 August and November of 2026 and February of 2027. In January 2025, we took advantage of market opportunities to restructure our net investment hedges, paying $10 million to settle these instruments. We simultaneously entered into new cross-currency fixed interest rate swaps with the same 1,000 million CHF notional amounts and covering the same tenors. These instruments were determined to be, and have been designated as, effective economic hedges of net investments in our CHF denominated net assets.

The amounts of (losses) gains on net investment hedges, net of tax, recorded in accumulated other comprehensive loss for the years ended December 31, were as follows:

For the years ended December 31, 2025,2024 and 2023, these instruments also generated $45 million, $31 million and $9 million of interest income, respectively, which was included as a contra interest expense, net of capitalized interest in our consolidated statements of operations.

Derivatives Designated as Hedges – Interest rate swaps

We had outstanding interest rate swaps with aggregate notional amounts of$2,300 million and $2,800 million as of December 31, 2025 and 2024, respectively, which have scheduled maturities in 2026. In October 2025, we settled an aggregate $500 million notional amount of existing interest rate swaps, paying an immaterial amount upon settlement. As of December 31, 2025 and 2024, we also had forward-starting interest rate swap agreements with a combined notional amount of $850 million, which will become effective on August 1, 2026, and have scheduled maturities between 2028 and 2031.

The amounts of (losses) gains on interest rate swap contracts, net of tax, recorded in accumulated other comprehensive loss for the years ended December 31, were as follows:

The amounts of gains reclassified out of accumulated other comprehensive loss and recognized into earnings through interest expense, net of capitalized interest for the years ended December 31, were as follows:

Over the next 12 months, we expect to reclassify a loss of $13 million out of accumulated other comprehensive loss and into interest expense, net of capitalized interest related to our interest rate swaps, although the actual amounts reclassified may vary as a result of future changes in market conditions.

As of December 31, 2025, when factoring in the impact from our interest rate swaps, the weighted-average effective interest rate on our outstanding indebtedness, excluding our finance lease liability, was 5.76%.

Note 9. 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 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. As of December 31,2025 and 2024, contingent consideration liabilities reported within the fair value table below primarily stem from our 2023 acquisition of NutriQuest (see Note 4. Acquisitions and Divestitures for further information). The fair values of these liabilities were estimated using a Monte Carlo simulation model, consisting of Level 3 inputs not observable in the market, including estimates relating to revenue forecasts, discount rates and volatility.

The following table summarizes the fair value information at December 31,2025 and 2024, 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 excluding our finance lease liability, for which fair value is disclosed on a recurring basis:

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. Further, we had investments without readily determinable fair values, which were classified as other noncurrent assets on our consolidated balance sheets totaling $15 million and $17 million as of December 31, 2025 and 2024, 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.

We also had contingent consideration liabilities totaling $31 million and $32 million as of December 31,2025 and 2024, respectively, related to a license agreement we signed in 2022 for the development and commercialization of products related to Bexacat. These contingent consideration liabilities, which are principally recorded within other noncurrent liabilities on our consolidated balance sheets, are not included in the fair value table above, as they are not recorded at fair value on a recurring basis.

Note 10. Liability for Sale of Future Revenue

In May 2025, we executed a Purchase and Sale Agreement (PSA) with funds affiliated with Blackstone Life Sciences and Blackstone Credit & Insurance (collectively, Blackstone). Pursuant to the PSA, we received a cash payment of$295 million from Blackstone for the rights to the proceeds from (a) the future royalties we are owed from net sales in the U.S. of XDEMVY® (lotilaner ophthalmic solution)0.25%, a medical treatment for Demodex blepharitis in humans, by Tarsus Pharmaceuticals, Inc. (Tarsus) and (b) certain future sales milestone payments we are owed based on global net sales of XDEMVY, both of which are pursuant to the terms of a previously executed license agreement with Tarsus (the qualifying royalties and milestones). The PSA applies to net sales of XDEMVY in the U.S. from April 1, 2025 through August 24, 2033. We retain the rights to all royalty payments on net sales outside the U.S. and any royalties due on U.S. net sales after August 24, 2033. We also retain the rights to any future royalties or milestones earned due to the future expansion of lotilaner in other human health applications. The proceeds from Blackstone, net of transaction costs, were utilized to repay previously outstanding term loan debt.

Given our continuing involvement with the generation of net sales of XDEMVY under our license agreement with Tarsus, which includes our retention and associated defense and maintenance obligations of a portion of the intellectual property used in XDEMVY, under GAAP, the$295 million payment received from Blackstone, net of transaction costs of$5 million, was recorded as a liability for sale of future revenue. However, under the terms of the PSA, we are not obligated to make payments to Blackstone. Rather, Blackstone is only entitled to receive the qualifying royalties and milestones based on XDEMVY's net sales, as outlined within our license agreement with Tarsus. These payments are made by Tarsus to Blackstone through a third-party escrow account and, therefore, do not represent cash inflows or outflows within our consolidated statements of cash flows.

GAAP also requires us to impute interest expense associated with the liability for sale of future revenue based on our estimates of the total amount of payments due to Blackstone over the life of the PSA. The excess of the future payments received by Blackstone over and above the$295 million in proceeds we received from them will be recognized as interest expense, net of capitalized interest in our consolidated statements of operations. Our imputed interest rate is calculated based on the rate we expect would enable the liability to be amortized in full over the life of the PSA. Our effective interest rate will vary throughout the term of the arrangement depending on the amount and timing of forecasted qualifying royalties and milestones, which will affect the timing and amount of reductions to the liability. We periodically assess the forecasted qualifying royalties and milestones using a combination of historical results, internal projections and forecasts from external sources and prospectively adjust the effective interest rate and amortization of the liability for sale of future revenue as deemed appropriate.

Although we no longer receive the proceeds from the qualifying future royalties and milestones, we are required under GAAP to continue recording them within our consolidated statements of operations. As the qualifying royalties and milestones sold to Blackstone are earned, the balance of the liability is reduced, offset by the imputed interest for the period, which increases the recognized liability. The transaction costs are being amortized to interest expense, net of capitalized interest over the life of the arrangement.

The following table shows the activity during the year ended December 31, 2025, related to our liability for sale of future revenue:

Note 11. Goodwill and Intangibles

Goodwill

The following table summarizes the changes in the carrying amount of goodwill:

As previously disclosed, due principally to an increased discount rate environment, driven by a sharp increase in long-term treasury rates, we recorded a pre-tax goodwill impairment charge of $1,042 during the year ended December 31, 2023. No impairments to goodwill were recorded during either of the years ended December 31, 2025 or 2024.

Other Intangible Assets

The gross amount of intangible assets and related accumulated amortization, as of December 31, were as follows:

(1)The reduction in acquired IPR&D in 2025 is attributable to the U.S. Department of Agriculture (USDA) approval for Befrena, an anti-IL31 monoclonal antibody injection targeting canine allergic and atopic dermatitis. This asset had been included in acquired IPR&D since its acquisition from Kindred Biosciences, Inc. in 2021. Upon receiving USDA approval, we reclassified this asset to marketed products and will amortize it over its estimated economic life.

Intangible assets with finite lives are capitalized and amortized over their estimated economic lives. As of December 31, 2025, the remaining weighted-average amortization periods for finite-lived intangible assets were as follows:

In the fourth quarter of 2025, we determined one of our marketed product intangible assets was impaired due to a decline in projected future sales of the underlying product group, and recorded an impairment charge of $47 million to write the asset down to its estimated fair value. Our fair value assessment used an income approach, which incorporated Level 3 fair value inputs not observable in the market, including estimates relating to revenue and margin forecasts for the product group underlying the marketed product asset and an appropriate discount rate.

The estimated amortization expense for each of the next five years associated with our finite-lived intangible assets, as of December 31, 2025, is as follows:

For the years ended December 31, 2025, 2024 and 2023, amortization expense related to software was$31 million, $40 million and $54 million, respectively.

Note 12. Property and Equipment

At December 31, property and equipment consisted of the following:

Property and equipment, net by geographic area as of December 31, was as follows:

Depreciation and amortization expense related to property and equipment, including our finance lease ROU asset, for the years ended December 31, was as follows:

Note 13. Leases

We have operating leases forcorporate offices, R&D facilities, vehicles and equipment with lease terms generally ranging fromone to 15 years, some of which have options to extend or terminate the leases. In June 2025, we also commenced afive-year finance lease for our new corporate headquarters in Indianapolis, Indiana. We determine if an arrangement is a lease at inception, and if so, whether it represents an operating or finance lease. ROU assets represent our right to use an underlying asset for the lease term, while lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of minimum lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at lease commencement in determining the present value of lease payments. We use the implicit rate if it is readily determinable. Our lease terms may include puts or options to extend or terminate the lease or purchase the leased asset. When it is reasonably certain these puts or options will be exercised, the lease term and the purchase amount, if applicable, are considered in the calculation of the ROU assets and operating lease liabilities. We do not include leases with a lease term of 12 months or less within the determination of our ROU assets or lease liabilities.

ROU assets related to our operating leases are included within noncurrent assets on our consolidated balance sheets, while the ROU asset relating to our finance lease is included within property and equipment, net. Lease liabilities related to our operating leases are included within other current liabilities and other noncurrent liabilities on our consolidated balance sheets, while the current and noncurrent portions of our finance lease is included within long-term debt and finance lease liability, including the current portion. Operating lease expense is recognized on a straight-line basis over the lease term. For our finance lease, we recognize interest expense using the effective interest method and amortization expense on the ROU asset over the expected useful life of the asset. The principal component of our finance lease payments is classified within financing activities within our consolidated statements of cash flows, while the interest component is classified within operating activities. Variable lease payments, which represent non-lease components such as maintenance, insurance and taxes, and which vary due to changes in facts or circumstances occurring after the commencement date, are expensed in the period in which the obligation for these payments is incurred.

The impact of operating and financing leases on the consolidated statements of operations and cash flows for the years ended December 31, was as follows:

Supplemental balance sheet and other information related to our operating and finance leases is as follows:

Corporate Headquarters Finance Lease

Ourfive-year corporate headquarters lease in Indianapolis, Indiana, which commenced in June 2025, contains both an option for Elanco to purchase the headquarters facility and a put right for the landlord to put the facility to us, both of which, if exercised, would occur at the end of thefive-year lease term for $250 million. Based on our review of the terms of this lease, including our expectation to exercise our purchase option at the end of the lease, we determined classification as a finance lease to be appropriate. In addition to the required minimum lease payments, our determination of the finance lease ROU asset and lease liability amounts at commencement also included this purchase option amount.

Additionally, as previously disclosed, the land for our new corporate headquarters is located in a Tax Increment Finance District, and the project was, in part, funded through Tax Incremental Financing through an incentive agreement between the City of Indianapolis and Elanco. The agreement provided for a 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. This accrued incentive was recorded principally within other noncurrent liabilities, on our consolidated balance sheet as of December 31, 2025, and is being amortized over the period we expect to benefit from the use of the new headquarters. This amortization partially offsets the depreciation related to our ROU asset.

As of December 31, 2025, the minimum lease payments for our operating and finance lease liabilities for each of the next five years and thereafter, were as follows:

Note 14. Stock-Based Compensation

The Amended and Restated 2018 Elanco Stock Plan (Plan) provides long-term incentives to attract, motivate and retain employees and non-employee directors. The types of stock-based awards available include, but are not limited to, restricted stock units (RSUs), performance-based awards (PAs) and stock options. Our practices and policies specify that stock-based compensation awards are approved by the Compensation and Human Capital Committee of our Board of Directors. As of December 31, 2025, the total number of shares authorized for stock-based compensation awards under the plan was 40 million, out of which the aggregate number of remaining shares available for future grant was 17.3 million.

Stock-Based Compensation Expense

We measure compensation expense for stock-based awards based on grant date fair value and the estimated number of awards that are expected to vest. We include the impact of estimated forfeitures when measuring compensation expense, which are estimated based on historical experience at the time of grant and are revised in subsequent periods if actual forfeitures differ from those estimates. Stock-based compensation expense for the years ended December 31, 2025, 2024 and 2023, was$68 million, $55 million and $46 million, respectively, a majority of which related to RSUs and PAs in each year. The associated tax benefit from stock-based compensation expense was offset by a valuation allowance.

Restricted Stock Units

RSUs are granted to certain employees and are settled in shares of our common stock. RSUs are accounted for at fair value based upon the closing stock price on the date of grant. The corresponding expense is amortized on a straight-line basis over the vesting period, which is typically three years. RSUs granted to employees for the years ended December 31, were as follows:

Changes in the nonvested portion of RSUs for 2025 are summarized below:

The fair market value of RSUs vesting in 2025, 2024 and 2023 was$31 million, $29 million and $12 million, respectively. As of December 31, 2025, the total remaining unrecognized expense related to nonvested RSUs was$22 million, which is expected to amortize over a weighted-average remaining requisite service period of 17 months.

Performance-Based Awards

PAs, which are granted to eligible officers and management, represent the right to receive shares of our common stock and are subject to forfeiture until restrictions lapse, including continued employment through the end of the vesting period and achievement of certain pre-established metrics. Payouts can vary depending on achievement. PAs are accounted for at fair value based upon the closing stock price on the date of grant and fully vest at the end of the measurement period. Compensation expense for PAs is recognized only if it is deemed probable that the performance condition will be achieved.

PA activity during the year ended December 31, 2025, is summarized below:

The fair market value of PAs vesting in 2025, 2024 and 2023 was$14 million, $10 million and $8 million, respectively. As of December 31, 2025, the total remaining unrecognized expense related to nonvested PAs was$10 million, which is expected to amortize over a weighted-average remaining requisite service period of 12 months.

Stock Options

Stock options represent the right to purchase shares of our common stock within a specified period of time at a specified price. Stock options are granted to our officers and management at exercise prices equal to the fair market value of our stock at the date of the grant. Options fully vest three years from the grant date and have a term of 10 years. We value stock options at grant date using a Black-Scholes-Merton valuation model, and the corresponding expense is generally amortized on a straight-line basis over the vesting period. The weighted-average fair value of stock options granted during the years ended December 31, 2025, 2024 and 2023 was estimated to be$5.59,$7.35, and $4.93 respectively.

The Black-Scholes-Merton model incorporates a number of valuation assumptions, which are noted in the following table, shown at their weighted-average values for the years ended December 31:

(1)Determined based on the zero-coupon risk-free rate for a U.S. Treasury Constant Maturity yield curve, with a term equal to our expected term assumption.

(2)Determined based on our historical stock price volatility over the pastsix years (commensurate with our expected term assumption).

(3)Determined using SEC safe harbor approach, based on a 3-year cliff vesting schedule and 10-year contractual term.

Stock option activity during the year ended December 31, 2025, is summarized below:

As of December 31, 2025, the total remaining unrecognized expense related to nonvested stock options was$4 million, which is expected to amortize over a weighted-average remaining requisite service period of 17 months.

Note 15. Income Taxes

The composition of (loss) income before income tax expense for the years ended December 31, was as follows:

The composition of income tax expense for the years ended December 31, was as follows:

We treat taxes due on future Net Controlled Foreign Corporation Tested Income (NCTI, formerly known as Global Intangible Low-Taxed Income, or GILTI) inclusions in U.S. taxable income as a current period expense when incurred. Certain countries in which we have operations have adopted legislation influenced by the Organization for Economic Co-operation and Development (OECD) Pillar Two rules, including a minimum tax rate of 15%. As of December 31, 2025, the U.S. has not yet enacted legislation to adopt the Pillar Two framework. We are continuing to evaluate additional guidance released by the OECD and the pending legislative adoption by additional individual countries. The adoption of Pillar Two was not material to income tax expense for the years ended December 31, 2025 and 2024.

We recognize deferred taxes for the future tax effects of temporary differences between financial and income tax reporting based on enacted tax laws and rates. The tax benefit from an uncertain tax position is recognized only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. Deferred taxes are not provided on substantially all of the unremitted earnings of subsidiaries outside of the U.S., except where required, because it is expected that these earnings will be reinvested indefinitely. Deferred taxes, including U.S. or foreign withholding taxes, would be provided when we no longer consider our subsidiary earnings to be permanently reinvested, although the determination of taxes that would be incurred upon the future remittance of such earnings is not practicable.

Significant components of our deferred tax assets and liabilities as of December 31, were as follows:

The deferred tax assets and related valuation allowance amounts for net operating losses and tax credits shown above have been adjusted for differences between prior provisional estimates and tax return filings.

At December 31, 2025, we had foreign tax credit carryovers of$6 million available to reduce future income taxes which will begin to expire in 2034 if unused. The U.S. federal credits totaled$23 million while state credits totaled$16 million. If unused, both the U.S. federal and state credits will begin to expire in 2029. The U.S. federal credits were subject to a partial valuation allowance and the state credits were subject to a full valuation allowance.

At December 31, 2025, we also had net operating loss carryovers for foreign, U.S. federal and state income tax purposes of$153 million. Of this total,$99 million will expire between 2026 and 2044, and$54 million of the carryovers had an indefinite carryforward period. Net operating losses and other carryovers for foreign, U.S. federal and state income tax purposes were subject to full and partial valuation allowances.

Movements in the valuation allowance for the years ended December 31, were as follows:

The net decreases in the valuation allowance recorded in income tax expense in 2025 and 2024 were $17 million and$77 million, respectively, while the net increase in the valuation allowance recorded in income tax expense in 2023 was $93 million. The remaining changes during these years were primarily recorded through accumulated other comprehensive loss. The decrease in the valuation allowance during 2024 was primarily attributable tothe sale of our aqua business, which generated U.S. federal taxable income, allowing us to realize certain net operating loss carryforwards and other tax attributes which were historically offset by a valuation allowance. The increase in the valuation allowance during 2023 was primarily attributable to the deemed likelihood of not realizing the benefit of U.S. federal and state deferred tax assets because of U.S. pre-tax losses.

A reconciliation of the U.S. federal statutory tax rate to our effective tax rate for the year ended December 31, 2025, is as follows:

(1)State taxes in California made up greater than 50% of the tax effect in this category.

The following is a reconciliation of the income tax expense applying the U.S. federal statutory tax rate to income (loss)before income taxes to reported income tax expense for the years ended December 31, 2024 and 2023:

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits for the years ended December 31, was as follows:

We recognize both accrued interest and penalties related to unrecognized tax benefits in income tax expense. Interest and penalties related to income tax matters were not material for the years ended December 31, 2025, 2024 and 2023.

Net cash payments (refunds) of income taxes by jurisdiction for the year ended December 31, 2025, were as follows:

Net cash payments of income taxes during the years ended December 31, 2024 and 2023, were $140 million and $95 million, respectively. The increase in cash paid for income taxes in 2025 was primarily driven by required tax payments associated with the taxable gain from the 2024 divestiture of our aqua business.

Income taxes receivable of$113 million and $121 million, respectively, were included in prepaid expenses and other on our consolidated balance sheets as of December 31, 2025 and 2024. Income taxes payable of$14 million and $127 million, respectively, were included within other current liabilities on our consolidated balance sheets as of December 31, 2025 and 2024.

On July 4, 2025, the One Big Beautiful Bill Act (Act) was enacted into law in the U.S. The Act includes significant provisions, including tax cut extensions and modifications to the U.S. and international tax frameworks. Based on our current analysis of these provisions, we do not believe these provisions will have a material impact on our consolidated financial statements, including our analysis of our U.S. valuation allowance position. Further, the Act did not have a material impact on our income tax expense during the year ended December 31, 2025.

We were included in Lilly's U.S. tax examinations by the Internal Revenue Service (IRS) 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 by the IRS of tax years 2016 to 2018 began in 2019 and is ongoing. Final resolution of certain matters is dependent upon several factors, including the potential for formal administrative proceedings.

Note 16. Commitments and Contingencies

Legal Matters

We are party to various legal actions that oftentimes arise in the normal course of business. The most significant of these matters are described below. Under GAAP, loss contingency provisions are recorded when we deem it probable that we will incur a loss and are able to formulate a reasonable estimate of that loss. For the legal matters discussed below, we either believe material loss is not probable or are unable to reasonably 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 December 31, 2025 and 2024, we hadno 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 U.S. District Court for the District of Maryland against Elanco andtwo of its executives. Barpar alleged claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the Exchange Act) and specifically alleged that Elanco and thetwo 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 purported to represent purchasers of Elanco securities between November 7, 2023 and June 26, 2024. On March 21, 2025, plaintiff filed an amended complaint that extended the time period for which the plaintiff purported to represent purchasers of Elanco securities to between May 9, 2023 and June 26, 2024. The amended complaint also removed allegations concerning the approval and launch timelines for our Credelio Quattro product. On May 20, 2025, we filed a motion to dismiss this case.

Following the filing of Barpar, several derivative cases were filed, all of which have been stayed pending the outcome of the Barpar motion to dismiss. On November 1, 2024, a shareholder derivative action captioned Lawrence Hollin v. Lawrence E. Kurzius, et al. (Hollin) was filed in the U.S. District Court for the District of Maryland against current members of Elanco's Board of Directors and senior management, alleging claims under Sections 10(b) and 20(a) of the Exchange Act 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. On March 11, 2025, a shareholder derivative action captioned James Habermehl v. Jeffrey N. Simmons, et al. was filed in Hancock County Circuit Court of Indiana, against the same parties named in Hollin, alleging claims under Indiana state law for breach of fiduciary duty and unjust enrichment, based on allegations substantially similar to the allegations in the putative class action complaint in Barpar. On April 28, 2025, a shareholder derivative action captioned Christopher Dougherty v. Elanco Animal Health, Inc., et al. (Dougherty), was filed in the District of Maryland, naming certain Elanco executives and 13 Elanco Board members as defendants. Dougherty alleges the defendants engaged in conspiratorial and individually culpable conduct based on materially false or misleading statements and omissions alleged in, referenced or related to, in large part, the putative class action complaint in Barpar, as well as breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, waste of corporate assets, and as to the certain executives, contribution under Section 15, U.S.C. § 78j(b) and Section 21D of the Exchange Act. On June 11, 2025, a shareholder derivative action captioned Mike Sexton v. Jeffrey N. Simmons, et al. (Sexton) was filed in Hancock County Circuit Court of Indiana against largely the same parties as in Hollin, alleging claims under Indiana state law for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement and waste of corporate assets. We are vigorously defending our positions in connection with each of these actions.

On May 20, 2020, a shareholder class action lawsuit captioned Hunter v. Elanco Animal Health Inc., et al. (Hunter) was filed in the U.S. 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 U.S. Court of Appeals for the Seventh Circuit. 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 tangible equity units 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. On or about October 4, 2024, the plaintiffs appealed the dismissal to the Indiana Court of Appeals. Subsequently, on or about March 20, 2025, the plaintiffs' motion for oral argument was denied, and on August 1, 2025, the Indiana Court of Appeals affirmed the trial court’s order granting our motion to dismiss. On September 17, 2025, the plaintiff petitioned the court for a rehearing, which was subsequently denied. On October 23, 2025, the plaintiff appealed dismissal to the Indiana Supreme Court. We intend to continue 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 Advantixand 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 January 2025, Tevra's motion for a new trial was denied, and in February 2025, Tevra filed its notice of appeal. Following the initial Tevra trial, three additional matters have been filed against us, both in the Northern District of California and in the Southern District of Indiana, most recently in January 2025: Tracy Spradlin v. Elanco Animal Health, Inc. (Spradlin), Tevra Brands, LLC v. Elanco Animal Health, Inc. (Tevra v. Elanco), and Susan Kraus-Silfen v. Elanco Animal Health, Inc. et. al. (Kraus-Silfen). While there are substantive and statutory differences, the allegations underpinning these matters are similar in some respects to the initial Tevra matter including, but not limited to, the family of pet health products and sales tactics and agreements alleged to drive a monopoly within the market. Spradlin and Kraus-Silfen are putative class actions, and allthree of these additional matters seek injunctive relief and an unspecified amount of monetary relief. On March 31, 2025, our motion to dismiss Tevra v. Elancowas granted by the court without prejudice to plaintiff's right to file an amended claim. We filed motions to dismiss Spradlinand Kraus-Silfenon October 25, 2024 and April 25, 2025, respectively. On October 7, 2025, the court granted our motion to dismiss the federal antitrust claims and denied our motion to dismiss the state antitrust claims. On February 18, 2026, we reached a settlement in principle with the Kraus-Silfen and Spradlin plaintiffs which remains subject to execution of definitive documentation and court approval. Additionally, this proposed settlement does not constitute an admission of liability. We continue to vigorously defend against each of the remaining claims in thetwo Tevra matters.

Note 17. Retirement Benefits

Pension Plans

We sponsor various defined benefit pension plans, which cover certain employees worldwide. Our plans in Switzerland and Germany represent approximately 92% of our global benefit obligation and approximately 91% of our total plan assets for all pension plans. We use a measurement date of December 31 to develop the change in benefit obligation, change in plan assets, funded status and amounts recorded on the consolidated balance sheets at December 31 for our defined benefit pension plans, which were as follows:

The unrecognized net actuarial gain and unrecognized prior service cost for these pension plans have not yet been recognized in net periodic pension expense and were included in accumulated other comprehensive loss at December 31, 2025. We do not expect any plan assets to be returned to us in 2026.

The following represents our weighted-average assumptions related to these pension plans as of and for the years ended December 31:

These assumptions were used to estimate both our pension benefit obligations at year-end, as well as in the determination of applicable pension benefit costs for the years presented. These assumptions are reviewed on at least an annual basis and are revised based on a yearly evaluation of long-term trends and market conditions that may impact the cost of providing retirement benefits. The weighted-average discount rates for our defined benefit plans are set by benchmarking against investment grade corporate bonds where available, including, when there is sufficient data, a yield curve approach. In evaluating the expected rate of return, we consider many factors, with a primary analysis of current and projected market conditions, asset returns and asset allocations and the views of leading financial advisers and economists. We may also review our historical assumptions compared with actual results, as well as the assumptions and trend rates utilized by similar plans, where applicable.

Future benefit payments as of December 31, 2025, which reflect expected future service, as appropriate, are expected to be as follows:

We also expect to contribute $14 million to our pension plans in 2026.

Amounts relating to pension plans with projected benefit obligations in excess of plan assets at December 31, were as follows:

Amounts relating to pension plans with accumulated benefit obligations in excess of plan assets at December 31, were as follows:

The total accumulated benefit obligation for our defined benefit pension plans was$360 million and $340 million at December 31, 2025 and 2024, respectively.

Net pension benefit expense for the years ended December 31, included the following components:

The above components, with the exception of service cost, were included within other expense, net in the consolidated statements of operations.

The following represents the pre-tax amounts recognized for defined benefit plans in other comprehensive income (loss) for the years ended December 31:

Income tax expense recognized in other comprehensive income (loss) related to our defined benefit plans was not material during any of the years ended December 31, 2025, 2024 or 2023.

Benefit Plan Investments

Our benefit plan investment policies are set with specific consideration of return and risk requirements in relation to the respective liabilities. Given the long-term nature of our liabilities, our plans have the flexibility to manage an above-average degree of risk in the asset portfolios. At the investment-policy level, there are no specifically prohibited investments; however, individual investment manager mandates, restrictions and limitations are contractually set to align with our investment objectives, ensure risk control and limit concentrations.

We manage our portfolio to minimize concentration of risk by allocating funds within asset categories. In addition, within a category we use different managers with various management objectives to eliminate any significant concentration of risk. Our investment strategy is to diversify our plan assets with a designated percentage invested in fixed-income securities, equity securities, real estate and other investments.

Each category is diversified and comprised of the following:

•Fixed-income securities – Swiss bonds, global aggregates, global aggregate corporates, global government bonds, global high-yield bonds, emerging market local currencies and emerging markets hard currencies.

•Equity securities – Swiss equities, global equities, low volatility equities (to reduce risk) and emerging market equities.

•Real estate – Swiss real estate and global real estate funds.

•Other – cash, cash equivalents and investments in senior secured loans, insurance contracts and other alternative investments.

We determine the fair value of our plan investments based on a market approach using quoted market values and/or significant other observable inputs for identical or comparable assets or liabilities. Certain investments measured at fair value using the Net Asset Value (NAV) per share, or its equivalent, as a practical expedient have not been classified in the fair value hierarchy. No material transfers between Level 1, Level 2 or Level 3 occurred during the years ended December 31, 2025 or 2024.

The fair values of pension plan assets as of December 31, 2025, by asset category were as follows:

The fair values of pension plan assets as of December 31, 2024, by asset category were as follows:

Defined Contribution Plans

Elanco has defined contribution savings plans that include certain employees worldwide. Our contributions to these plans are based on our employee contributions and the level of our match. Expenses under the plans totaled$42 million, $36 million and $40 million for the years ended December 31, 2025, 2024 and 2023, respectively.

Multiemployer Plans

We also participate in certain multiemployer plan arrangements which provide basic pension benefits to the majority of our employees in Germany. Up to a certain salary level, the benefit obligations are covered by our contributions and the contributions from employees to the plans. The Company-specific plan information for these plans is not publicly available, and the plans are not subject to a collective-bargaining agreement. The plans provide fixed, monthly retirement payments on the basis of the credits earned by the participating employees. To the extent these plans become underfunded, our future required contributions may increase and may be used to fund retirement benefits for employees related to other employers, although as of December 31, 2024 and 2023, the plans' total assets exceeded the total actuarial present value of accumulated plan benefits. Our plan contributions to these plans are expensed as incurred andwere not material in any of the years ended December 31, 2025, 2024 and 2023, nor did they exceed 5% of the total contributions to the plans.

Contributing to these types of plans creates risk that differs from providing benefits under our sponsored plans, in that if another participating employer ceases to contribute to a multiemployer plan, additional unfunded obligations may need to be funded over time by remaining participating employers.

Note 18. Earnings Per Share

We compute basic earnings (loss) per share by dividing net income (loss) by the 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. 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. 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 (or reducing loss per share) were considered to be anti-dilutive and as such, these shares were not included in the calculation of diluted earnings (loss) per share.

Basic and diluted weighted-average shares outstanding for the years ended December 31, were as follows:

(1)For the years ended December 31, 2025, 2024 and 2023, approximately 7.5 million,1.4 million, and 2.9 million, respectively, of potential common shares were excluded from the calculation of diluted earnings per share because their effect was anti-dilutive.

Note 19. Business Segment Information

We operate our business as a single segment engaged in the development, manufacturing, marketing and sales of animal health products for both pets and farm animals. Consistent with our operational structure, our Chief Executive Officer (CEO), as the chief operating decision maker, makes resource allocation and business process decisions globally across our consolidated business. Strategic and resource allocation decisions are managed globally, with global functional leaders responsible for determining significant costs and investments and with regional leaders responsible for overseeing the execution of our global strategy. Managing and allocating resources at the global corporate level enables our CEO to assess the overall level of resources available and how to best deploy these resources across functions, product types, regional commercial organizations and R&D projects in line with our overarching long-term, corporate-wide strategic goals, rather than on a product or geographic basis. Consistent with this decision-making process, our CEO considers consolidated net income (loss), which is our single segment’s principal measure of segment profit and loss, when evaluating performance. Our CEO also considers these measures, as well as other factors, such as an assessment of a new product’s future market potential, when determining how to allocate company-wide resources.

Significant segment expenses are amounts that are regularly provided to our CEO and included in consolidated net income (loss), our primary measure of our single segment’s profit or loss. Our CEO regularly reviews reported consolidated revenue, gross profit, other significant segment expenses and consolidated net income (loss), in addition to forecasted revenue, significant segment expenses and net income (loss) amounts for future periods. A summary of our consolidated net (loss) income for the years ended December 31, is as follows, including the significant segment expenses provided to and regularly reviewed by our CEO, as well as other expenses, which are included in consolidated net (loss) income, but are not regularly provided to and/or reviewed by our CEO:

(1)Other expenses include amortization of intangible assets; asset impairment, restructuring and other special charges; goodwill impairment; and gain on divestiture.

Given our single reporting segment structure, we manage our assets on a total company basis. Cash paid for acquisitions, intangible assets and property and equipment and software, and cash proceeds from divestitures, are all summarized in the Investing Activities section of our consolidated statements of cash flows.

Note 20. Subsequent Event

On February 19, 2026, we signed a definitive purchase agreement to acquire 100% of the outstanding equity interests of AHV International B.V. (AHV), along with selected assets of AHV's affiliates necessary for the on-going operations of the business. AHV is an innovative, farm animal health company incorporated in the Netherlands focused on solutions to improve animal welfare and productivity, while reducing the need for antibiotics. The acquisition of AHV is expected to accelerate our strategy to grow our industry leadership in farm animal products, particularly for cattle, by expanding our product portfolio, primarily throughout Europe and the U.S.

Aggregate consideration for this acquisition will include (1) $170 million of guaranteed payments through 2030, with $70 million of this amount due upon closing, which we currently anticipate during the second quarter of 2026, and (2) up to $140 million of contingent payments due upon the achievement of significant performance-based and time-limited milestones through 2032.

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Elanco Animal Health Incorporated

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Elanco Animal Health Incorporated (the Company) as of December 31, 2025 and 2024, the related consolidated statements of operations, comprehensive income (loss), equity and cash flows for each of the three years in the period ended December 31, 2025, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 24, 2026, expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

/s/Ernst & Young LLP

We have served as the Company’s auditor since 2017.

Indianapolis, Indiana

February 24, 2026

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Elanco Animal Health Incorporated

Opinion on Internal Control Over Financial Reporting

We have audited Elanco Animal Health Incorporated’s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Elanco Animal Health Incorporated (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2025 and 2024, the related consolidated statements of operations, comprehensive income (loss), equity and cash flows for each of the three years in the period ended December 31, 2025, and the related notes and our report dated February 24, 2026 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Indianapolis, Indiana

February 24, 2026