Management's discussion and analysis of financial condition and results of operations (MD&A) is intended to assist the reader in understanding and assessing significant changes and trends related to our results of operations and financial position. This discussion and analysis should be read in conjunction with the condensed consolidated financial statements and accompanying footnotes in Item 1 of Part I of this Form 10-Q. Certain statements in this Item 2 of Part I of this Form 10-Q constitute forward-looking statements. Various risks and uncertainties, including those discussed in "Forward-Looking Statements" of this Form 10-Q, in Item 1A, "Risk Factors" of Part II of this Form 10-Q, and in Item 1A, "Risk Factors" of Part I of our
Form 10-K for the year ended
Overview
Elanco is a global animal health company that develops products for pets and farm animals in more than 90 countries. With a heritage dating back to 1954, we rigorously innovate to improve the health of animals and to benefit our customers while fostering an inclusive, cause-driven culture for our employees. We operate our business in a single segment directed at fulfilling our vision of enriching the lives of people through food, making protein more accessible and affordable, and through pet companionship, helping pets live longer, healthier lives. OnAugust 27, 2021 , we acquired KindredBio, a biopharmaceutical company that develops innovative biologics focused on saving and improving the lives of pets. We had previously signed an agreement with KindredBio in the second quarter of 2021 to acquire exclusive global rights to KIND-030, a monoclonal antibody in development for the treatment and prevention of canine parvovirus. The acquisition of KindredBio further accelerates our opportunity for expansion in pet health, notably by expanding our research efforts in dermatology. See Note 5: Acquisitions and Divestitures to the condensed consolidated financial statements for additional information on the acquisition. Subsequent to the acquisition date, our consolidated financial statements include the assets, liabilities, operating results and cash flows of KindredBio. OnAugust 1, 2020 , we completed the acquisition ofBayer Animal Health . The acquisition expanded our pet health product category, advancing our planned portfolio mix transformation and creating a better balance between our farm animal and pet health product categories. Our product portfolio and pipeline have been enhanced by the addition ofBayer Animal Health , which complements our commercial operations and international infrastructure. See Note 5: Acquisitions and Divestitures to the condensed consolidated financial statements for additional information on the acquisition. Subsequent to the acquisition date, our consolidated financial statements include the assets, liabilities, operating results and cash flows ofBayer Animal Health . We offer a diverse portfolio of approximately 200 brands that make us a trusted partner to pet owners, veterinarians and farm animal producers. Our products are generally sold worldwide to third-party distributors and independent retailers, and directly to farm animal producers and veterinarians. With the acquisition ofBayer Animal Health , we have expanded our presence in retail and e-commerce channels in order to meet pet owners where they want to purchase. 2022 Q1 Form 10-Q | 26 [[Image Removed:
elan-20220331_g1.jpg]]
--------------------------------------------------------------------------------
Table of Contents We operate our business in a single segment directed at fulfilling our vision of food and companionship enriching life - all to advance the health of animals, people and the planet. We advance our vision by offering products in these two primary categories:Pet Health : Our pet health portfolio is focused on parasiticides, vaccines and therapeutics. We have one of the broadest parasiticide portfolios in the pet health sector based on indications, species and formulations, with products that protect pets from worms, fleas and ticks. Our Seresto and Advantage Family products are over-the-counter treatments for the elimination and prevention, respectively, of fleas and ticks, and complement our prescription parasiticide products, Credelio, Interceptor Plus, and Trifexis. Our vaccines portfolio provides differentiated prevention coverage for a number of important pet health risks and is available in theU.S. only. In therapeutics, we have a broad pain and osteoarthritis portfolio across species, modes of action, indications and disease stages. Pet owners are increasingly treating osteoarthritis in their pets, and our Galliprant product is one of the fastest growing osteoarthritis treatments in theU.S. Additionally, we have products that offer treatment for otitis (ear infections) with Claro, as well as treatments for certain cardiovascular and dermatology indications. Farm Animal: Our farm animal portfolio consists of products designed to prevent, control and treat health challenges primarily focused on cattle (beef and dairy), swine, poultry, and aquaculture (cold and warm water) production. Our products include medicated feed additives, injectable antibiotics, vaccines, insecticides, and enzymes, among others. We have a wide range of farm animal products, including Rumensin and Baytril, both of which are used extensively in ruminants (e.g., cattle, sheep and goats). In poultry, our Maxiban product, is a valuable offering for the control and prevention of intestinal disease.
A summary of our 2022 revenue and net income (loss) compared with the same period in 2021 is as follows:
Three Months Ended March 31, (Dollars in millions) 2022 2021 Revenue$ 1,225 $ 1,242 Net income (loss) 48 (61) Increases or decreases in inventory levels at our channel distributors can positively or negatively impact our quarterly and annual revenue results, leading to variations in revenues. This can be a result of various factors, such as end customer demand, new customer contracts, heightened and generic competition, the need for certain inventory levels, our ability to renew distribution contracts with expected terms, our ability to implement commercial strategies, regulatory restrictions, unexpected customer behavior, proactive measures taken by us in response to shifting market dynamics, payment terms we extend, which are subject to internal policies, and procedures and environmental factors beyond our control, including weather conditions and the COVID-19 global pandemic.
Key Trends and Conditions Affecting Our Results of Operations
Industry Trends
The animal health industry, which includes both pets and farm animals, is a growing industry that benefits billions of people worldwide.
We believe that factors influencing growth in demand for pet medicines and vaccines include:
•increased pet ownership globally;
•pets living longer; and
•increased pet spending as pets are viewed as members of the family by owners.
As demand for animal protein grows, farm animal health is becoming increasingly important. We believe that factors influencing growth in demand for farm animal medicines and vaccines include:
•two in three people needing improved nutrition;
•increased global demand for protein, particularly poultry and aquaculture;
2022 Q1 Form 10-Q | 27 [[Image Removed:
elan-20220331_g1.jpg]]
--------------------------------------------------------------------------------
Table of Contents •natural resource constraints, such as scarcity of arable land, fresh water and increased competition for cultivated land, driving the need for more efficient food production;
•loss of productivity due to farm animal disease and death;
•increased focus on food safety and food security; and
•human population growth, increased standards of living, particularly in many emerging markets, and increased urbanization.
Growth in farm animal nutritional health products (enzymes, probiotics and prebiotics) is influenced, among other factors, by demand for antibiotic alternatives that can promote animal health and increase productivity.
Factors Affecting Our Results of Operations
Russia-Ukraine Conflict
InFebruary 2022 ,Russia commenced military action againstUkraine . In response, theU.S. and certain other countries imposed significant sanctions and export controls againstRussia ,Belarus and certain individuals and entities connected to Russian or Belarusian political, business, and financial organizations. TheU.S. and certain other countries could impose further sanctions, trade restrictions, and other retaliatory actions if the conflict continues or worsens. The broader consequences of the conflict, including related inflationary pressures, geopolitical tensions, additional retaliatory actions taken by theU.S. and other countries, and any counter retaliatory actions byRussia orBelarus in response, including, for example, potential cyberattacks or the disruption of energy exports, are likely to cause regional instability and could materially adversely affect global trade, currency exchange rates, regional economies and the global economy. The situation remains uncertain and it is difficult to predict the impact that the conflict and actions taken in response to the conflict will have on our business; however, they could increase our costs, disrupt our supply chain, reduce our sales and earnings, or otherwise adversely affect our business and results of operations. As a global animal health leader, we have an obligation to support the health of animals and people. At the center of that work is ensuring access and availability of food. At this time, we are limiting our business inRussia to only the essential products that support these needs, while complying with all imposed sanctions. We do not manufacture products or source any materials from companies inRussia for use in our products, nor do we conduct business with the Russian government. During the three months endedMarch 31, 2022 , revenue to Russian and Ukrainian customers represented approximately 1% of our consolidated revenue. Assets held inRussia as ofMarch 31, 2022 represented less than 1% of our consolidated assets.
COVID-19 Pandemic and Resulting Operating Environment
We continue to closely monitor the impact of the COVID-19 pandemic, including its variants, and the related economic effects on all aspects of our business, including impacts on our operations, supply chain, and customer demand. The extent to which the COVID-19 pandemic may impact our financial condition and results of operations remains uncertain and is dependent on developments that are out of our control, including measures being taken by authorities to mitigate against the spread of COVID-19, such as the recent lockdowns inChina , the emergence of new variants and the availability and successful administration of effective vaccines. We cannot predict the impact that the ongoing COVID-19 pandemic will have on our customers, vendors and suppliers; however, the COVID-19 pandemic has had and may continue to have an adverse impact on our business if these parties continue to experience negative effects. 2022 Q1 Form 10-Q | 28 [[Image Removed:
elan-20220331_g1.jpg]]
--------------------------------------------------------------------------------
Table of Contents While the situation surrounding the COVID-19 pandemic remains fluid, the effects have disrupted the global supply chain across all modes of transportation, which in turn has resulted in less reliable transportation schedules and increased freight costs. This disruption, combined with increased demand for key raw materials, including those used in COVID-19 vaccine manufacturing, has also impacted our suppliers, resulting in shortages of raw materials or components required to manufacture our products. We continue to work closely with suppliers and freight partners to mitigate impacts to our operations and customers, including the addition of new transportation routes and targeted increases of certain safety stocks. Although we regularly monitor the financial health of companies in our supply chain, prolonged financial hardship on our suppliers and labor shortages could continue to disrupt our ability to obtain key raw materials, adversely affecting our operations. The global industry freight environment has experienced, and could continue to experience, lead time disruptions and increases in shipping costs, negatively impacting our profitability.
Our Acquisition of
We have incurred and expect to continue to incur expenses in connection with our acquisitions ofBayer Animal Health and KindredBio, including fees for professional services such as legal, accounting, consulting, and other advisory fees and expenses. Expenses incurred in 2021 and thus far in 2022 are primarily related to integration activities. In addition, we have incurred and expect to continue to incur costs related to the build out of processes and systems to support finance and global supply and logistics and to expand administrative functions, including, but not limited to, information technology, facilities management, distribution, human resources, and manufacturing, to replace services previously provided by the former parent company ofBayer Animal Health . We anticipate that these additional costs will be partially offset by expected synergies.
Product Development and New Product Launches
A key element of our targeted value creation strategy is to drive growth through portfolio development and product innovation. We continue to pursue the development of new chemical and biological molecules through our approach to innovation. Our future growth and success depend on both our pipeline of new products, including new products that we may develop through joint ventures and products that we are able to obtain through license or acquisition, and the expansion of the use of our existing products. We believe we are an industry leader in animal health R&D, with a track record of product innovation, business development and commercialization.
Competition
We face intense competition. Principal methods of competition vary depending on the particular region, species, product category, or individual product. Some of these methods include new product development, including generic alternatives to our products, quality, price, service and promotion. Our primary competitors include animal health medicines and vaccines companies such as Zoetis Inc.;Boehringer Ingelheim Vetmedica, Inc. , the animal health division ofBoehringer Ingelheim GmbH ; andMerck Animal Health , the animal health division of Merck & Co., Inc. We also face competition globally from manufacturers of generic drugs, as well as from producers of nutritional health products, such asDSM Nutritional Products AG and Danisco Animal Nutrition, the animal health division ofE.I. du Pont de Nemours and Company , a subsidiary of DowDuPont, Inc. There are also several new start-up companies working in the animal health area. In addition, we compete with numerous other producers of animal health products throughout the world.
Productivity
Our results during the periods presented have benefited from operational and productivity initiatives implemented following recent acquisitions and in response to changing market demand for antibiotics and other headwinds.
2022 Q1 Form 10-Q | 29 [[Image Removed:
elan-20220331_g1.jpg]]
--------------------------------------------------------------------------------
Table of Contents Prior to the acquisition ofBayer Animal Health , our acquisitions within the last six years added in the aggregate$1.4 billion in revenue, 4,600 full-time employees, and 12 manufacturing and eight R&D sites. The acquisitions ofBayer Animal Health onAugust 1, 2020 and KindredBio onAugust 27, 2021 added 3,950 full-time employees, 10 manufacturing sites, and five R&D sites (before company-wide restructuring activities initiated in 2020 and 2021). In addition, from 2015 to 2021, changing market demand for antibiotics and other headwinds, such as competition with generics and innovation, affected some of our highest gross margin products, resulting in a change to our product mix and driving operating margin lower. In response, we implemented a number of initiatives across the manufacturing, R&D and marketing, selling and administrative functions. Our manufacturing cost savings strategies included improving manufacturing processes and headcount through lean manufacturing (minimizing waste while maintaining productivity), closing and selling manufacturing sites, consolidating our CMO network, strategically insourcing certain projects, and pursuing cost savings opportunities through alternate sources of supply. Additional cost savings have resulted from reducing the number of R&D sites, sales force consolidation and reducing discretionary and other general and administrative operating expenses.
Seasonality
The results of our pet health business may fluctuate due to seasonality. For example, based upon historical results, approximately 70% and 60% of total annual revenue contributed by our higher-margin parasiticide products Seresto and Advantage Family, respectively, has occurred during the first half of the year, which is reflective of the flea and tick season in the Northern Hemisphere. Therefore, a period-to-period comparison of our historical results may not be meaningful and fluctuations in total revenue for our pet health products are not necessarily an indication of future performance.
Foreign Exchange Rates
Significant portions of our revenue and costs are exposed to changes in foreign exchange rates. Our products are sold in more than 90 countries and, as a result, our revenue is influenced by changes in foreign exchange rates. During the three months endedMarch 31, 2022 and 2021, approximately 54% of our revenue was denominated in foreign currencies. As we operate in multiple foreign currencies, including the Euro, British pound, Swiss franc, Brazilian real, Australian dollar, Japanese yen, Canadian dollar, Chinese yuan, and other currencies, changes in those currencies relative to theU.S. dollar impact our revenue, cost of sales and expenses, and consequently, net income. These fluctuations may also affect the ability to buy and sell our products between markets impacted by significant exchange rate variances. Currency movements decreased revenue by 3% during the three months endedMarch 31, 2022 . Currency movements had a limited impact on revenue during the three months endedMarch 31, 2021 . 2022 Q1 Form 10-Q | 30 [[Image Removed:
elan-20220331_g1.jpg]]
--------------------------------------------------------------------------------
Table of Contents Results of Operations The following discussion and analysis of our results of operations should be read along with our condensed consolidated financial statements and the notes thereto. Three Months Ended March 31, (Dollars in millions) 2022 2021 % Change Revenue$ 1,225 $ 1,242 (1) % Costs, expenses and other: Cost of sales 509 569 (11) % % of revenue 42 % 46 % (4) % Research and development 81 89 (9) % % of revenue 7 % 7 % - % Marketing, selling and administrative 320 348 (8) % % of revenue 26 % 28 % (2) % Amortization of intangible assets 137 147 (7) % % of revenue 11 % 12 % (1) % Asset impairment, restructuring and other special charges 46 108 (57) % Interest expense, net of capitalized interest 52 61 (15) % Other expense, net 9 - NM Income (loss) before income taxes 71 (80) 189 % % of revenue 6 % (6) % 12 % Income tax expense (benefit) 23 (19) 221 % Net income (loss) $ 48$ (61) 179 %
Certain amounts and percentages may reflect rounding adjustments.
NM - Not meaningful
Disaggregated Revenue
On a global basis, our revenue by product category for the three months ended
Revenue % of Total Revenue Increase (Decrease) (Dollars in millions) 2022 2021 2022 2021 $ Change % Change CER (1) Pet Health$ 639 $ 645 52 % 52 % $ (6) (1) % 2 % Farm Animal 569 578 46 % 47 % (9) (2) % 1 % Subtotal 1,208 1,223 99 % 98 % (15) (1) % 2 % Contract Manufacturing(2) 17 19 1 % 2 % (2) (11) % (8) % Total$ 1,225 $ 1,242 100 % 100 % (17) (1) % 2 %
Note: Numbers may not add due to rounding
(1)Constant exchange rate (CER), a non-GAAP measure, is defined as revenue growth excluding the impact of foreign exchange. The calculation assumes the same foreign currency exchange rates that were in effect for the comparable prior-year period were used in translation of the current period results. We believe this metric provides a useful comparison to previous periods.
(2)Represents revenue from arrangements in which we act as a contract
manufacturer, including supply agreements associated with divestitures of
products related to the acquisition of
2022 Q1 Form 10-Q | 31 [[Image Removed:
elan-20220331_g1.jpg]]
--------------------------------------------------------------------------------
Table of Contents On a global basis, the effect of price, foreign exchange rates and volumes on changes in revenue for the three months endedMarch 31, 2022 and 2021 was as follows: First quarter of 2022 (Dollars in millions) Revenue Price FX Rate Volume Total CER Pet Health$ 639 2% (3)% -% (1)% 2% Farm Animal 569 1% (3)% -% (2)% 1% Subtotal 1,208 2% (3)% -% (1)% 2% Contract Manufacturing 17 -% (3)% (8)% (11)% (8)% Total$ 1,225 2% (3)% -% (1)% 2% First quarter of 2021 (Dollars in millions) Revenue Price FX Rate
Volume (1) Total CER Pet Health$ 645 2% 2% 210% 213% 211% Farm Animal 578 2% -% 31% 33% 34% Subtotal 1,223 2% -% 89% 91% 91% Contract Manufacturing 19 -% -% -% -% -% Total$ 1,242 2% -% 86% 89% 88%
Note: Numbers may not add due to rounding
(1)Impact of 2021 revenue from
Revenue
Pet Health revenue decreased by$6 million , or less than 1%, for the quarter, driven by an unfavorable impact from foreign exchange rates, partially offset by an increase in price. On a constant currency basis, an increase in international pet health revenue was partially offset by a decline inU.S. pet health revenue. In addition, growth in newer generation parasiticides and pain products was partially offset by declines in older generation parasiticides. Farm Animal revenue decreased by$9 million , or 2%, for the quarter, driven by an unfavorable impact from foreign exchange rates, partially offset by an increase in price. Improved producer demand and innovation in poultry as well as strong aqua demand was partially offset by a decline in demand in the swine market, particularly inChina , as compared to the first quarter of 2021. Additionally, cattle declined in the quarter primarily driven by generic competition impacting price on several key brands. Cost of Sales Three Months Ended March 31, (Dollars in millions) 2022 2021 % Change Cost of sales$ 509 $ 569 (11) % % of revenue 42 % 46 % Costs of sales as a percentage of revenue decreased for three months endedMarch 31, 2022 , primarily due to amortization of the fair value adjustment of$62 million recorded from the acquisition ofBayer Animal Health in the first quarter of 2021 and improvements in manufacturing productivity, partially offset by unfavorable inflationary impacts on input costs, freight and conversion costs. Excluding the$62 million fair value adjustment for the three months endedMarch 31, 2021 , cost of sales as a percentage of revenue would have been approximately 41%. 2022 Q1 Form 10-Q | 32 [[Image Removed:
elan-20220331_g1.jpg]]
--------------------------------------------------------------------------------
Table of Contents Research and Development Three Months Ended March 31, (Dollars in millions) 2022 2021 % Change Research and development$ 81 $ 89 (9) % % of revenue 7 % 7 % R&D expenses decreased$8 million for the three months endedMarch 31, 2022 . R&D expenses were favorably impacted by cost savings realized as a result of 2021 restructuring activities.
Marketing, Selling and Administrative
Three Months Ended March 31, (Dollars in millions) 2022 2021 % Change Marketing, selling and administrative$ 320 $ 348 (8) % % of revenue 26 % 28 % Marketing, selling and administrative expenses decreased$28 million for the three months endedMarch 31, 2022 , primarily driven by disciplined cost management across the business and cost savings realized as a result of 2021 restructuring activities.
Amortization of Intangible Assets
Three Months Ended March 31, (Dollars in millions) 2022 2021 % Change Amortization of intangible assets $ 137$ 147 (7) % Amortization of intangible assets decreased$10 million for the three months endedMarch 31, 2022 , primarily due to the timing of finalizing the valuation of intangible assets acquired from theBayer Animal Health acquisition and the impact of foreign exchange rates.
Asset Impairment, Restructuring and Other Special Charges
Three Months Ended March 31, (Dollars in millions) 2022 2021 % Change
Asset impairment, restructuring and other special charges $ 46
(57) % For additional information regarding our asset impairment, restructuring and other special charges, see Note 6: Asset Impairment, Restructuring and Other Special Charges to the condensed consolidated financial statements. Asset impairment, restructuring and other special charges decreased$62 million for the three months endedMarch 31, 2022 , primarily due to a period over period decrease in overall acquisition-related charges, which include transaction costs related to acquisitions and costs associated with the implementation of new systems, programs, and processes due to both our separation from Lilly and the integration ofBayer Animal Health . The decrease was also driven by lower severance charges as compared to 2021. These decreases were partially offset by a$28 million asset write-down charge recorded upon the final sale of our Speke site during the first quarter of 2022.
Interest Expense, Net of Capitalized Interest
Three Months Ended March 31, (Dollars in millions) 2022 2021 % Change Interest expense, net of capitalized interest $ 52$ 61 (15) % Interest expense, net of capitalized interest decreased for the three months endedMarch 31, 2022 , primarily due to the favorable impact of refinancing at lower interest rates. 2022 Q1 Form 10-Q | 33 [[Image Removed:
elan-20220331_g1.jpg]]
--------------------------------------------------------------------------------
Table of Contents Other Expense, Net Three Months Ended March 31, (Dollars in millions) 2022 2021 % Change Other expense, net $ 9 $ - NM Other expense recorded during the three months endedMarch 31, 2022 primarily consisted of mark-to-market adjustments on equity investments and foreign exchange losses, partially offset by certain components of net periodic benefit cost. See Note 14: Retirement Benefits to the condensed consolidated financial statements for further discussion related to net periodic benefit cost (income) recorded during the period. Other expense recorded during the three months endedMarch 31, 2021 consisted of losses recorded in relation to divestitures. This was fully offset by up-front payments received, milestones earned, and equity issued to us in relation to a license agreement.
Income Tax Expense (Benefit)
Three Months Ended March
31,
(Dollars in millions) 2022 2021 % Change Income tax expense (benefit)$ 23 $ (19) (221) % Effective tax rate 32.1 % 23.5 % Income tax expense increased for the three months endedMarch 31, 2022 , primarily due to positive pre-tax earnings. The effective tax rate increased for the three months endedMarch 31, 2022 and differs from the statutory income tax rate largely due to certain research and experimentation costs being capitalized beginningJanuary 1st, 2022 , as provided under the Tax Cuts and Jobs Act. This has increased the expected profits in jurisdictions with higher statutory tax rates as well as expectedU.S. international tax inclusions, which are partially offset by utilization of net operating losses and valuation allowance release in theU.S. See Note 11: Income Taxes to the condensed consolidated financial statements.
Liquidity and Capital Resources
Our primary sources of liquidity are cash on hand, cash flows from operations and funds available under our credit facilities. As a significant portion of our business is conducted internationally, we hold a significant portion of cash outside of theU.S. We monitor and adjust the amount of foreign cash based on projected cash flow requirements. Our ability to use foreign cash to fund cash flow requirements in theU.S. may be impacted by local regulations and, to a lesser extent, followingU.S. tax reforms, the income taxes associated with transferring cash to theU.S. We intend to indefinitely reinvest foreign earnings for continued use in our foreign operations. As our structure evolves as a standalone company, we may change that strategy, particularly to the extent we identify tax efficient reinvestment alternatives for our foreign earnings or change our cash management strategy. We believe our primary sources of liquidity are sufficient to fund our short-term and long-term existing and planned capital requirements, which include working capital obligations, funding existing marketed and pipeline products, capital expenditures, business development in our targeted areas, short-term and long-term debt obligations which include principal and interest payments as well as interest rate swaps, operating lease payments, purchase obligations, and costs associated with the integrations ofBayer Animal Health and KindredBio. In addition, we have the ability to access capital markets to obtain debt refinancing for longer-term funding, if required, to service our long-term debt obligations. Further, we believe we have sufficient cash flow and liquidity to remain in compliance with our debt covenants. Our ability to meet future funding requirements may be impacted by macroeconomic, business and financial volatility. As markets change, we will continue to monitor our liquidity position. However, a challenging economic environment or an economic downturn may impact our liquidity or ability to obtain future financing. See "Item 1A. Risk Factors - We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful" in Part I of our Form 10-K for the year endedDecember 31, 2021 . 2022 Q1 Form 10-Q | 34 [[Image Removed:
elan-20220331_g1.jpg]]
--------------------------------------------------------------------------------
Table of Contents Cash Flows
The following table provides a summary of cash flows from operating, investing and financing activities for the periods presented:
(Dollars in millions) Three Months Ended March 31, Net cash provided by (used for): 2022 2021 $ Change Operating activities$ (62) $ 22 $ (84) Investing activities (29) 10 (39) Financing activities (200) 2 (202) Effect of exchange-rate changes on cash and cash equivalents (5) (25) 20 Net increase (decrease) in cash and cash equivalents$ (296) $ 9 $ (305) Operating activities Operating cash flows decreased$84 million , to a use of$62 million for the three months endedMarch 31, 2022 as compared to cash provided by operating activities of$22 million for the three months endedMarch 31, 2021 . Cash used in operating activities during the period was negatively impacted by changes in operating assets and liabilities, particularly changes in accounts receivable, accounts payable and other liabilities as compared to the three months endedMarch 31, 2021 , partially offset by an increase in net income after excluding non-cash operating activities. In the past, we have extended our payment terms for distributors on occasion. Although we presently have no plans to do so in the future, it is possible that we will need to extend payment terms in certain situations as a result of the COVID-19 global health pandemic, competitive pressures and the need for certain inventory levels at our channel distributors to avoid supply disruptions. If so, such extensions of customer payment terms could result in additional uses of our cash flow.
Investing activities
Our cash used for investing activities was$29 million for three months endedMarch 31, 2022 as compared to cash provided by investing activities of$10 million for the three months endedMarch 31, 2021 . The change was primarily driven by cash received for the three months endedMarch 31, 2021 due to the finalization of the working capital adjustment for the acquisition ofBayer Animal Health , partially offset by the purchase of intangible assets during that same period. Financing activities Our cash used for financing activities was$200 million for three months endedMarch 31, 2022 as compared to cash provided by financing activities of$2 million for the three months endedMarch 31, 2021 . Cash used in financing activities during the three months endedMarch 31, 2022 reflected the repayment of indebtedness outstanding under our Term Loan B credit facility and net repayments on our revolving credit facility. Cash provided by financing activities during the three months endedMarch 31, 2021 reflected net proceeds from our revolving credit facility, partially offset by the repayment of indebtedness outstanding under our Term Loan B credit facility.
Description of Indebtedness
For a complete description of our debt and available credit facilities as of
Contractual Obligations
Our contractual obligations and commitments as ofMarch 31, 2022 are primarily comprised of long-term debt obligations, operating leases, and purchase obligations. Our long-term debt obligations are comprised of our expected principal and interest obligations and our interest rate swaps. Purchase obligations consist of open purchase orders as ofMarch 31, 2022 and contractual payment obligations with significant vendors which are noncancelable and are not contingent. These obligations are primarily short-term in nature. 2022 Q1 Form 10-Q | 35 [[Image Removed:
elan-20220331_g1.jpg]]
--------------------------------------------------------------------------------
Table of Contents As ofMarch 31, 2022 , we also have an additional lease commitment that has not yet commenced for our new corporate headquarters inIndianapolis, Indiana . Total minimum lease payments are estimated to be approximately$310 million over a term of 25 years, excluding extensions. Final lease payments may vary depending on the actual cost of certain construction activities. Lease commencement is expected in 2024.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance withU.S. GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Certain of our accounting policies are considered critical because these policies are the most important to the depiction of our financial statements and require significant, difficult or complex judgments by us, often requiring the use of estimates about the effects of matters that are inherently uncertain. Actual results that differ from our estimates could have an unfavorable effect on our financial position and results of operations. We apply estimation methodologies consistently from year to year. Such policies are summarized in Item 7, "Management's Discussion & Analysis of Results of Financial Condition and Results of Operations," of our Form 10-K for the year endedDecember 31, 2021 . There have been no significant changes in the application of our critical accounting policies during the three months endedMarch 31, 2022 .
© Edgar Online, source