Elanco Animal Health IncELAN
Elanco Animal Health Inc Fair Value Disclosure
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:
| Fair Value Measurements Using | ||||||||||||||||||||||||||||||||
| Financial statement line item | Carrying Amount | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Fair Value | |||||||||||||||||||||||||||
| December 31, 2025 | ||||||||||||||||||||||||||||||||
| Recurring fair value measurements | ||||||||||||||||||||||||||||||||
| $ | 20 | $ | — | $ | 20 | $ | — | $ | 20 | |||||||||||||||||||||||
| (111) | — | (111) | — | (111) | ||||||||||||||||||||||||||||
Other current liabilities – contingent consideration | (29) | — | — | (29) | (29) | |||||||||||||||||||||||||||
| (73) | — | (73) | — | (73) | ||||||||||||||||||||||||||||
| Financial instruments not carried at fair value | ||||||||||||||||||||||||||||||||
| Long-term debt, excluding finance lease liability | (3,790) | — | (3,809) | — | (3,809) | |||||||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||||||||
| Recurring fair value measurements | ||||||||||||||||||||||||||||||||
| $ | 32 | $ | — | $ | 32 | $ | — | $ | 32 | |||||||||||||||||||||||
| (54) | — | (54) | — | (54) | ||||||||||||||||||||||||||||
Other current liabilities – contingent consideration | (21) | — | — | (21) | (21) | |||||||||||||||||||||||||||
| (18) | — | (18) | — | (18) | ||||||||||||||||||||||||||||
Other noncurrent liabilities – contingent consideration | (16) | — | — | (16) | (16) | |||||||||||||||||||||||||||
| Financial instruments not carried at fair value | ||||||||||||||||||||||||||||||||
| Long-term debt | (4,349) | — | (4,362) | — | (4,362) | |||||||||||||||||||||||||||
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.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 24, 2026 | Showing above |
| 2024 | Feb 25, 2025 | |
| 2023 | Feb 26, 2024 | |
| 2022 | Mar 1, 2023 | |
| 2021 | Feb 28, 2022 | |
| 2020 | Mar 1, 2021 | |
| 2019 | Feb 28, 2020 | |
| 2018 | Feb 20, 2019 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.