UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________

FORM 10-Q

______________________________

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2021~~2022

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

001-36587

(Commission File Number)

_____________________________

Catalent, Inc.

(Exact name of registrant as specified in its charter)

_____________________________

Delaware

20-8737688

~~(State~~ (State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

14 Schoolhouse Road

Somerset,

New Jersey

08873

~~(Address~~ (Address of principal executive offices)

_______

(Zip code)

(732) 537-6200

Registrant's telephone number, including area code

____________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes ☒ No

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbols(s)	Name of each exchange on which registered
Common Stock	CTLT	New York Stock Exchange

On October ~~26, 2021,~~27, 2022, there were ~~171,188,042~~179,963,589 shares of the Registrant's common stock, par value $0.01 per share, issued and outstanding.

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CATALENT, INC.

Index to Form 10-Q

For the Three Months Ended September 30, ~~2021~~2022


Item		Page

Part I.	Financial Information

Item 1.	Financial Statements (unaudited)	5

	Consolidated Statements of Operations for the Three Months Ended September 30, ~~2021~~2022 and September 30, ~~2020~~2021	5

	Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended September 30, ~~2021~~2022 and September 30, ~~2020~~2021	6

	Consolidated Balance Sheets as of September 30, ~~2021~~2022 and June 30, ~~2021~~2022	7

	Consolidated Statement of Changes in Shareholders' Equity for the Three Months Ended September 30, ~~2021~~2022 and ~~September~~June 30, ~~2020~~2022	8

	Consolidated Statements of Cash Flows for the Three Months Ended September 30, ~~2021~~2022 and September 30, ~~2020~~2021	9

	Notes to Unaudited Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2826

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4036

Item 4.	Controls and Procedures	4137

Part II.	Other Information	4238

Item 1.	Legal Proceedings	4238

Item 1A.	Risk Factors	4238

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4238

Item 3.	Defaults Upon Senior Securities	4238

Item 4.	Mine Safety Disclosures	4238

Item 5.	Other Information	4238

Item 6.	Exhibits	4339

Signatures		4440

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Special Note Regarding Forward-Looking Statements

In addition to historical information, this Quarterly Report on Form 10-Q ~~may contain~~of Catalent, Inc. (“Catalent” or the “Company”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. All statements, other than statements of historical facts, included in this Quarterly Report on Form 10-Q are forward-looking statements. In some cases, you can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words.

These statements are based on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments, and other factors they believe to be appropriate. Any forward-looking statement is subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements.

Some of the factors that may cause actual results, developments and business decisions to differ materially from those contemplated by such forward-looking statements include, but are not limited to, those described under the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2021~~2022 (the “Fiscal ~~2021~~2022 10-K”) and others, which are summarized below:

Risks Relating to Our Business and the Industry in Which We Operate

•Our business, financial condition, and operations may be adversely affected by global health ~~epidemics,~~developments, including the pandemic resulting from the SARS-Co-V-2 strain of coronavirus and its variants (“COVID-19”).

•The continually evolving nature of the COVID-19 pandemic and the resulting public health response, including the changing demand for various COVID-19 vaccines and treatments from both patients and governments around the world, may affect sales of our products and services, including the COVID-19 products we manufacture.

•We participate in a highly competitive market, and increased competition may adversely affect our business.

•The demand for our offerings depends in part on our customers’ research and development and the clinical and market success of their products.

•We are subject to product and other liability risks that could exceed our anticipated costs or adversely affect our results of operations, financial condition, liquidity, and cash flows.

•We are a part of the highly regulated healthcare industry, subject to stringent regulatory standards and other applicable laws and regulations, which can change unexpectedly and may adversely impact our business.

•Any failure to implement fully, monitor, and improve our quality management strategy could lead to quality or safety issues and expose us to significant costs, potential liability, and adverse publicity.

•If we cannot keep pace with rapid technological advances, our services may become uncompetitive or obsolete.

•Any failure to protect or maintain our intellectual property may adversely affect our competitive edge and result in loss of revenue and reputation.

•Future price fluctuations, material shortages of raw materials, or changes in healthcare policies may have an adverse effect on our results of operations and financial conditions.

•Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

•We may be unable to attract or retain key personnel.

•We may be unsuccessful in integrating our acquisitions, and we may expend substantial amounts of cash and incur debt in making acquisitions.

•Our global operations are subject to economic and political risks, including risks resulting from continuing inflation, from disruptions to global supply chains, or from the Ukrainian-Russian war, which could affect the profitability of our operations or require costly changes to our procedures.

•As a global enterprise, fluctuations in the exchange ~~rate~~rates of the United States ("U.S.") dollar, our reporting currency, against other currencies could have a material adverse effect on our financial performance and results of operations.

•Tax legislative or regulatory initiatives, new interpretations or developments concerning existing tax laws, or challenges to our tax positions could adversely affect our results of operations and financial condition.

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•We use advanced information and communication systems to run our operations, compile and analyze financial and operational data, and communicate among our employees, customers, and counter-parties, and the risks generally associated with information and communications systems could adversely affect our results of operations.We ~~are~~

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continuously ~~working~~work to install new, and upgrade existing systems and provide employee awareness training around phishing, malware, and other cyber security risks to enhance the protections available to us, but such protections may be inadequate to address malicious attacks or inadvertent compromises affecting data security or the operability of ~~data security.~~such systems.

•~~Cell~~We provide services incorporating various advanced modalities, including protein and plasmid production and cell and gene therapies, ~~are~~and these modalities relate to relatively new modes of treatment ~~and~~that may be subject to changing public opinion, continuing research, and increased regulatory scrutiny, each of which may affect our customers' ability to conduct their ~~business,~~businesses, or obtain regulatory approvals for their therapies, and thereby adversely affect ~~our cell or gene therapy~~these offerings.

Risks Relating to Our Indebtedness

•~~Our substantial leverage~~The size of our indebtedness and the obligations associated with it could limit our ability to operate our business and to finance future operations or acquisitions that would enhance our growth.

•Our interest expense on our variable-rate debt may continue to increase as policymakers combat inflation through interest-rate increases on benchmark financial products.

•Our debt agreements contain restrictions that may limit our flexibility in conducting certain current and future operations.

•We may not be able to pay our indebtedness when it becomes due.

•Our current and potential future use of derivative financial instruments may expose us to economic losses in the event of price or currency fluctuations.

Risks Relating to ~~Our Series A Preferred Stock~~

•The outstanding shares of our Series A Convertible Preferred Stock, par value $0.01 ("Series A Preferred Stock") reduce the relative voting power of holders of our common stock, par value $0.01 (the “Common Stock”), dilute the ownership of those holders, and may adversely affect the market price of our Common Stock.

•~~The holders of our Series A Preferred Stock have special rights to exercise influence over us and our board of directors.~~

~~Risks Relating to~~ Ownership of Our Common Stock

•Our stock price has historically been and may continue to be volatile.

•Because we have no plan to pay cash dividends on our ~~Common Stock~~common stock, par value $0.01 (the “Common Stock”) for the foreseeable future, receiving a return on an investment in our Common Stock may require a sale for a net price greater than was paid for it.

•Provisions in our organizational documents could delay or prevent a change of control.

We caution you that the risks, uncertainties, and other factors referenced above may not contain all of the risks, uncertainties, and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits, or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. There can be no assurance that (i) we have correctly measured or identified all of the factors affecting our business or the extent of these factors’ likely impact, (ii) the available information with respect to these factors on which such analysis is based is complete or accurate, (iii) such analysis is correct, or (iv) our strategy, which is based in part on this analysis, will be successful. All forward-looking statements in this report apply only as of the date of this report or as of the date they were made and we undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as required by law.

Social Media

We use our website ~~(www.catalent.com)~~(catalent.com), our corporate Facebook page (https://~~www.facebook.com/~~facebook.com/CatalentPharmaSolutions), and our corporate Twitter account (@catalentpharma) as channels for the distribution of information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, Securities and Exchange Commission (“SEC”) filings, and public conference calls and webcasts. The contents of our website and social media channels are not, however, a part of this report.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Catalent, Inc.

Consolidated Statements of Operations

(Unaudited; dollars in millions, except per share data)


		Three Months Ended September 30,				Three Months Ended September 30,
		2021		2020				2022		2021
Net revenue	Net revenue	$	1,025	$	846		Net revenue	$	1,022	$	1,025
Cost of sales	Cost of sales	701		597			Cost of sales	764		701
Gross margin	Gross margin	324		249			Gross margin	258		324
Selling, general, and administrative expenses	Selling, general, and administrative expenses	183		165			Selling, general, and administrative expenses	196		183
Gain on sale of subsidiary	Gain on sale of subsidiary	(1)		—			Gain on sale of subsidiary	—		(1)
Other operating expense		4		2
Other operating expense, net							Other operating expense, net	2		4
Operating earnings	Operating earnings	138		82			Operating earnings	60		138
Interest expense, net	Interest expense, net	26		26			Interest expense, net	32		26
Other expense (income), net		9		(11)
Other expense, net							Other expense, net	25		9
Earnings before income taxes	Earnings before income taxes	103		67			Earnings before income taxes	3		103
Income tax expense (benefit)		10		(15)
Income tax expense							Income tax expense	3		10

Net earnings	Net earnings	93		82			Net earnings	—		93

Less: Net earnings attributable to preferred shareholders	Less: Net earnings attributable to preferred shareholders	(9)		(13)			Less: Net earnings attributable to preferred shareholders	—		(9)
Net earnings attributable to common shareholders	Net earnings attributable to common shareholders	$	84	$	69		Net earnings attributable to common shareholders	$	—	$	84

Earnings per share:	Earnings per share:						Earnings per share:
Basic	Basic						Basic

Net earnings	Net earnings	$	0.49	$	0.42		Net earnings	$	—	$	0.49
Diluted	Diluted						Diluted

Net earnings	Net earnings	$	0.49	$	0.41		Net earnings	$	—	$	0.49

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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Catalent, Inc.

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited; dollars in millions)

Three Months Ended
September 30,
2021 2020
Net earnings $ 93 $ 82
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments (14) 16
Pension and other post-retirement adjustments 1 —
Derivatives and hedges 1 —
Other comprehensive income (loss), net of tax (12) 16
Comprehensive income $ 81 $ 98


	Three Months Ended September 30,
	2022		2021
Net earnings	$	—	$	93
Other comprehensive (loss) income, net of tax
Foreign currency translation adjustments	(135)		(14)
Pension and other post-retirement adjustments	—		1
Net change in marketable securities	1		—


Derivatives and hedges	14		1
Other comprehensive loss, net of tax	(120)		(12)
Comprehensive (loss) income	$	(120)	$	81

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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Catalent, Inc.

Consolidated Balance Sheets

(Unaudited; in millions, except share and per share data)


		September 30, 2021		June 30, 2021			September 30, 2022		June 30, 2022
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	1,969	$	896	Cash and cash equivalents	$	281	$	449
Trade receivables, net of allowance for credit losses of $15 and $12, respectively		831		1,012
Trade receivables, net of allowance for credit losses of $24 and $29, respectively						Trade receivables, net of allowance for credit losses of $24 and $29, respectively	989		1,051
Inventories	Inventories	622		563		Inventories	732		702
Prepaid expenses and other	Prepaid expenses and other	459		376		Prepaid expenses and other	632		625
Marketable securities	Marketable securities	50		71		Marketable securities	64		89
Total current assets	Total current assets	3,931		2,918		Total current assets	2,698		2,916
Property, plant, and equipment, net of accumulated depreciation of $1,215 and $1,179, respectively		2,581		2,524
Property, plant, and equipment, net of accumulated depreciation of $1,358 and $1,347, respectively						Property, plant, and equipment, net of accumulated depreciation of $1,358 and $1,347, respectively	3,167		3,127
Other assets:	Other assets:					Other assets:
Goodwill	Goodwill	2,531		2,519		Goodwill	2,929		3,006
Other intangibles, net	Other intangibles, net	793		817		Other intangibles, net	1,017		1,060
Deferred income taxes	Deferred income taxes	70		66		Deferred income taxes	45		49
Other long-term assets	Other long-term assets	277		268		Other long-term assets	349		349
Total assets	Total assets	$	10,183	$	9,112	Total assets	$	10,205	$	10,507

LIABILITIES, REDEEMABLE PREFERRED STOCK, AND SHAREHOLDERS' EQUITY
LIABILITIES AND SHAREHOLDERS' EQUITY						LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Current portion of long-term obligations and other short-term borrowings	Current portion of long-term obligations and other short-term borrowings	$	79	$	75	Current portion of long-term obligations and other short-term borrowings	$	106	$	31
Accounts payable	Accounts payable	363		385		Accounts payable	379		421
Other accrued liabilities	Other accrued liabilities	654		736		Other accrued liabilities	458		620
Total current liabilities	Total current liabilities	1,096		1,196		Total current liabilities	943		1,072
Long-term obligations, less current portion	Long-term obligations, less current portion	4,225		3,166		Long-term obligations, less current portion	4,098		4,171
Pension liability	Pension liability	133		137		Pension liability	98		103
Deferred income taxes	Deferred income taxes	171		164		Deferred income taxes	214		202
Other liabilities	Other liabilities	178		175		Other liabilities	152		164
Commitment and contingencies (see Note 15)
Commitment and contingencies (see Note 12)						Commitment and contingencies (see Note 12)	—		—

Total liabilities	Total liabilities	5,803		4,838		Total liabilities	5,505		5,712
Redeemable preferred stock, $0.01 par value; 1.0 million shares authorized at September 30 and June 30, 2021; 384,777 shares issued and outstanding at September 30 and June 30, 2021		359		359

Shareholders' equity:	Shareholders' equity:					Shareholders' equity:
Common stock, $0.01 par value; 1.0 billion shares authorized at September 30 and June 30, 2021; 171.0 million and 170.5 million issued and outstanding at September 30 and June 30, 2021, respectively		2		2
Preferred stock, $0.01 par value; 99 million authorized at September 30 and June 30, 2021; 0 issued and outstanding at September 30 and June 30, 2021		—		—
Common stock, $0.01 par value; 1.00 billion shares authorized at September 30 and June 30, 2022; 180 million and 179 million issued and outstanding at September 30 and June 30, 2022, respectively						Common stock, $0.01 par value; 1.00 billion shares authorized at September 30 and June 30, 2022; 180 million and 179 million issued and outstanding at September 30 and June 30, 2022, respectively	2		2
Preferred stock, $0.01 par value; 100 million shares authorized at September 30 and June 30, 2022;0 shares issued and outstanding at September 30 and June 30, 2022						Preferred stock, $0.01 par value; 100 million shares authorized at September 30 and June 30, 2022;0 shares issued and outstanding at September 30 and June 30, 2022	—		—

Additional paid in capital	Additional paid in capital	4,234		4,205		Additional paid in capital	4,674		4,649
Retained earnings	Retained earnings	114		25		Retained earnings	538		538
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(329)		(317)		Accumulated other comprehensive loss	(514)		(394)

Total shareholders' equity	Total shareholders' equity	4,021		3,915		Total shareholders' equity	4,700		4,795
Total liabilities, redeemable preferred stock, and shareholders' equity		$	10,183	$	9,112
Total liabilities and shareholders' equity						Total liabilities and shareholders' equity	$	10,205	$	10,507

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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Catalent, Inc.

Consolidated Statement of Changes in Shareholders' Equity

(Unaudited; dollars in millions, except share data in thousands)

Three Months Ended September 30, ~~2021~~2022


		Shares of Common Stock	Common Stock		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders' Equity		Redeemable Preferred Stock			Shares of Common Stock	Common Stock		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders' Equity		Redeemable Preferred Stock
Balance at June 30, 2021		170,549	$	2	$	4,205	$	25	$	(317)	$	3,915	$	359
Balance at June 30, 2022															Balance at June 30, 2022	179,302	$	2	$	4,649	$	538	$	(394)	$	4,795	$	—

Share issuances related to stock- based compensation	Share issuances related to stock- based compensation	484	—		—		—		—		—		—		Share issuances related to stock- based compensation	599	—		—		—		—		—		—

Stock-based compensation	Stock-based compensation	—	—		21		—		—		21		—		Stock-based compensation	—	—		19		—		—		19		—
Cash paid, in lieu of equity, for tax withholding		—	—		(4)		—		—		(4)		—
Net cash received, in lieu of equity, for tax withholding obligations															Net cash received, in lieu of equity, for tax withholding obligations	—	—		2		—		—		2		—
Exercise of stock options	Exercise of stock options	—	—		8		—		—		8		—		Exercise of stock options	—	—		1		—		—		1		—
Employee stock purchase plan	Employee stock purchase plan	—	—		4		—		—		4		—		Employee stock purchase plan	—	—		3		—		—		3		—

Preferred dividend ($12.50 per share of redeemable preferred stock)		—	—		—		(4)		—		(4)		—

Net earnings	Net earnings	—	—		—		93		—		93		—		Net earnings	—	—		—		—		—		—		—
Other comprehensive loss, net of tax	Other comprehensive loss, net of tax	—	—		—		—		(12)		(12)		—		Other comprehensive loss, net of tax	—	—		—		—		(120)		(120)		—
Balance at September 30, 2021		171,033	$	2	$	4,234	$	114	$	(329)	$	4,021	$	359
Balance at September 30, 2022															Balance at September 30, 2022	179,901	$	2	$	4,674	$	538	$	(514)	$	4,700	$	—

Three Months Ended September 30, ~~2020~~2021
Columns may not foot due to rounding Shares of Common Stock Common Stock Additional Paid in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Shareholders' Equity Redeemable Preferred Stock
Balance at June 30, 2020 162,788 $ 2 $ 3,819 $ (535) $ (386) $ 2,900 $ 607
Equity offering, sale of common stock 1,162 — 82 — — 82 —
Share issuances related to stock-
     based compensation
617 — — — — — —
Stock-based compensation — — 19 — — 19 —
Cash paid, in lieu of equity, for
     tax withholding — — (20) — — (20) —
Employee stock purchase plan 1 1
Preferred dividend — — — (8) — (8) —
Net earnings — — — 82 — 82 —
Other comprehensive income, net
   of tax
— — — — 16 16 —
Balance at September 30, 2020 164,567 $ 2 $ 3,901 $ (461) $ (370) $ 3,072 $ 607


	Shares of Common Stock	Common Stock		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders' Equity		Redeemable Preferred Stock
Balance at June 30, 2021	170,549	$	2	$	4,205	$	25	$	(317)	$	3,915	$	359



Share issuances related to stock- based compensation	484	—		—		—		—		—		—

Stock-based compensation	—	—		21		—		—		21		—
Cash paid, in lieu of equity, for tax withholding obligations	—	—		(4)		—		—		(4)		—
Exercise of stock options	—	—		8		—		—		8		—
Employee stock purchase plan	—	—		4		—		—		4		—
Preferred dividend ($12.50 per share of redeemable preferred stock)	—	—		—		(4)		—		(4)		—
Net earnings	—	—		—		93		—		93		—
Other comprehensive loss, net of tax	—	—		—		—		(12)		(12)		—
Balance at September 30, 2021	171,033	$	2	$	4,234	$	114	$	(329)	$	4,021	$	359

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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Catalent, Inc.

Consolidated Statements of Cash Flows

(Unaudited; dollars in millions)


		Three Months Ended September 30,					Three Months Ended September 30,
		2021		2020			2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:	CASH FLOWS FROM OPERATING ACTIVITIES:					CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	Net earnings	$	93	$	82	Net earnings	$	—	$	93

Adjustments to reconcile net earnings to net cash from operations:	Adjustments to reconcile net earnings to net cash from operations:					Adjustments to reconcile net earnings to net cash from operations:
Depreciation and amortization	Depreciation and amortization	81		69		Depreciation and amortization	99		81
Non-cash foreign currency transaction (gain) loss, net		9		(4)
Non-cash foreign currency transaction loss, net						Non-cash foreign currency transaction loss, net	27		9
Amortization of debt issuance costs	Amortization of debt issuance costs	2		2		Amortization of debt issuance costs	2		2
Impairments charges and (gain) loss on sale of assets		3		2
Impairments charges and loss/gain on sale of assets, net						Impairments charges and loss/gain on sale of assets, net	(2)		3
Gain on sale of subsidiary	Gain on sale of subsidiary	(1)		—		Gain on sale of subsidiary	—		(1)
Financing-related charges	Financing-related charges	4		—		Financing-related charges	—		4
Gain on derivative instrument	Gain on derivative instrument	(2)		(9)		Gain on derivative instrument	—		(2)
Stock-based compensation	Stock-based compensation	21		19		Stock-based compensation	19		21
Benefit for deferred income taxes		(8)		(11)
Benefit from deferred income taxes						Benefit from deferred income taxes	(4)		(8)
Provision for bad debts and inventory	Provision for bad debts and inventory	10		8		Provision for bad debts and inventory	28		10
Change in operating assets and liabilities:	Change in operating assets and liabilities:					Change in operating assets and liabilities:
Decrease in trade receivables	Decrease in trade receivables	185		144		Decrease in trade receivables	31		185
Increase in inventories	Increase in inventories	(63)		(66)		Increase in inventories	(85)		(63)
(Decrease) increase in accounts payable		(6)		7
Decrease in accounts payable						Decrease in accounts payable	(52)		(6)
Other assets/accrued liabilities, net—current and non-current	Other assets/accrued liabilities, net—current and non-current	(165)		(93)		Other assets/accrued liabilities, net—current and non-current	(155)		(165)

Net cash provided by operating activities		163		150
Net cash (used in) provided by operating activities						Net cash (used in) provided by operating activities	(92)		163
CASH FLOWS USED IN INVESTING ACTIVITIES:	CASH FLOWS USED IN INVESTING ACTIVITIES:					CASH FLOWS USED IN INVESTING ACTIVITIES:
Acquisition of property, equipment, and other productive assets	Acquisition of property, equipment, and other productive assets	(154)		(150)		Acquisition of property, equipment, and other productive assets	(149)		(154)
Proceeds from maturity of marketable securities		20		—

Proceeds from sale of marketable securities						Proceeds from sale of marketable securities	24		20
Proceeds from sale of property and equipment						Proceeds from sale of property and equipment	6		—
Settlement on sale of subsidiaries, net	Settlement on sale of subsidiaries, net	(3)		—		Settlement on sale of subsidiaries, net	—		(3)

Payment for acquisitions, net of cash acquired	Payment for acquisitions, net of cash acquired	(26)		—		Payment for acquisitions, net of cash acquired	—		(26)
Payment made for investments		(4)		(1)
Proceeds from (payment for) investments						Proceeds from (payment for) investments	3		(4)

Net cash used in investing activities	Net cash used in investing activities	(167)		(151)		Net cash used in investing activities	(116)		(167)
CASH FLOWS FROM FINANCING ACTIVITIES:	CASH FLOWS FROM FINANCING ACTIVITIES:					CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in other borrowings		—		(4)

Proceeds from borrowing, net	Proceeds from borrowing, net	1,096		—		Proceeds from borrowing, net	75		1,096
Payments related to long-term obligations	Payments related to long-term obligations	(3)		(2)		Payments related to long-term obligations	(7)		(3)
Financing fees paid	Financing fees paid	(15)		—		Financing fees paid	—		(15)

Dividends paid	Dividends paid	(4)		(8)		Dividends paid	—		(4)
Proceeds from sale of common stock, net		—		82
Cash paid, in lieu of equity, for tax-withholding obligations		(4)		(20)

Cash received (paid), in lieu of equity, for tax-withholding obligations						Cash received (paid), in lieu of equity, for tax-withholding obligations	2		(4)
Exercise of stock options	Exercise of stock options	8		—		Exercise of stock options	1		8
Other financing activities	Other financing activities	4		2		Other financing activities	3		4

Net cash provided by financing activities	Net cash provided by financing activities	1,082		50		Net cash provided by financing activities	74		1,082
Effect of foreign currency exchange on cash and cash equivalents	Effect of foreign currency exchange on cash and cash equivalents	(5)		5		Effect of foreign currency exchange on cash and cash equivalents	(34)		(5)
NET INCREASE IN CASH AND CASH EQUIVALENTS		1,073		54
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS						NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(168)		1,073
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	896		953		CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	449		896
CASH AND CASH EQUIVALENTS AT END OF PERIOD	CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	1,969	$	1,007	CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	281	$	1,969
SUPPLEMENTARY CASH FLOW INFORMATION:	SUPPLEMENTARY CASH FLOW INFORMATION:					SUPPLEMENTARY CASH FLOW INFORMATION:
Interest paid	Interest paid	$	40	$	43	Interest paid	$	46	$	40
Income taxes paid, net	Income taxes paid, net	$	15	$	9	Income taxes paid, net	$	11	$	15

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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Catalent, Inc.

Notes to Unaudited Consolidated Financial Statements

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

Catalent, Inc. (“Catalent” or the “Company”) directly and wholly owns PTS Intermediate Holdings LLC (“Intermediate Holdings”). Intermediate Holdings directly and wholly owns Catalent Pharma Solutions, Inc. (“Operating Company”). The financial results of Catalent are comprised of the financial results of Operating Company and its subsidiaries on a consolidated basis.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended September 30, ~~2021~~2022 are not necessarily indicative of the results that may be expected for the year ending June 30, ~~2022.~~2023. The consolidated balance sheet at June 30, ~~2021~~2022 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. For further information on the Company's accounting policies and footnotes, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, ~~2021~~2022 filed with the Securities and Exchange Commission (the “SEC”).

Reportable Segments

Effective July 1, 2022, in connection with the appointment of a new President and Chief Executive Officer, the Company changed its operating structure and reorganized its executive leadership team accordingly. This new organizational structure includes a shift from the four operating and reportable segments the Company disclosed during fiscal 2022 to two segments: (i) Biologics and (ii) Pharma and Consumer Health. Set forth below is a summary description of the Company's two current operating and reportable segments.

Biologics—The Biologics segment provides the same services as the Biologics segment the Company reported in fiscal 2022, with some organizational adjustments and the addition of analytical development and testing services for large molecules that were previously disclosed as part of the Company's prior Oral and Specialty Delivery segment. The Biologics segment as reorganized provides development and manufacturing for biologic proteins; cell, gene, and other nucleic acid therapies; plasmid DNA; induced pluripotent stem cells (iPSCs); and vaccines. It also provides formulation, development, and manufacturing for parenteral dose forms, including vials, prefilled syringes, and cartridges; and, as noted above, analytical development and testing services for large molecules.

Pharma and Consumer Health—The Pharma and Consumer Health segment encompasses, except as noted above, the offerings of three of the Company's prior reportable segments—Softgel and Oral Technologies, Oral and Specialty Delivery, and Clinical Supply Services—and comprises the Company’s market-leading capabilities for complex oral solids, softgel formulations, Zydis® fast-dissolve technologies, and gummy, soft chew, and lozenge dosage forms; formulation, development, and manufacturing platforms for oral, nasal, inhaled, and topical dose forms; and clinical trial development and supply services.

Each segment reports through a separate management team and ultimately reports to the Company's President and Chief Executive Officer, who is designated as the Chief Operating Decision Maker for segment reportable purposes. The Company's operating segments are the same as its reportable segments. All prior-period comparative segment information has been restated to reflect the current reportable segments in accordance with Accounting Standards Codification (“ASC”) 280, Segment Reporting, promulgated by the Financial Accounting Standards Board (the “FASB”).

Reclassifications

Certain prior-period amounts ~~have been~~were reclassified to conform to the current period presentation. These reclassifications did not have a material impact on the consolidated statements of operations, consolidated balance sheets, consolidated statements of cash flows, or notes to the consolidated financial statements.

Foreign Currency Translation

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The financial statements of the Company’s operations are generally measured using the local currency as the functional currency. Adjustments to translate the assets and liabilities of operations outside the United States (“U.S.”) into U.S. dollars are accumulated as a component of other comprehensive income utilizing period-end exchange rates. Since July 1, 2018, the Company has accounted for its Argentine operations as highly inflationary.

Depreciation ~~Expense~~

Depreciation expense was ~~$58~~$66 million and ~~$46~~$58 million for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Depreciation expense includes amortization of assets related to finance leases. The Company charges repairs and maintenance costs to expense as incurred.

Amortization

Amortization expense related to other intangible assets was $33 million and $23 million for the three months ended September 30, 2022 and 2021, respectively.

Research and Development Costs

The Company expenses research and development costs as incurred. Research and development costs amounted to $5 million and $6 million for ~~both~~ the three months ended September 30, 2022 and 2021, ~~and 2020.~~respectively.

Marketable Securities

The Company classifies its marketable securities as available-for-sale, because it may sell certain of its marketable securities prior to the stated maturity for various reasons, including management of liquidity, credit risk, duration, relative return, and asset allocation. The Company determines the fair value of each marketable security in its portfolio at each period end and recognizes gains and losses in the portfolio in other comprehensive income. As of September 30, ~~2021,~~2022, the amortized cost basis of marketable securities approximates fair value and all outstanding marketable securities mature within one year.

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Recent Financial Accounting Standards

~~Recently Adopted Accounting Standards~~

~~In December 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~, which eliminates certain exceptions related to the incremental approach for intra-period allocation, deferred tax recognition requirement for changes in equity method investments and non U.S. subsidiaries, and methodology for calculating income taxes in an interim period. The guidance also simplifies certain aspects of the accounting for franchise taxes, the accounting for step-up in the tax basis of goodwill, and accounting for the change in the enacted change in tax laws or rates. The Company adopted the guidance on July 1, 2021. The adoption of this guidance did not have a material impact on the Company’s financial condition or results of operations.

In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plan, which removes certain disclosures and added additional disclosures around weighted-average interest crediting rates for cash balance plans and explanation for significant gains and losses related to change in the benefit obligation for the period. The Company adopted the guidance on July 1, 2021. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

New Accounting Standards Not Adopted as of September 30, ~~2021~~2022

In March 2020, the FASB issued ~~ASU~~Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance to ease the potential burden in accounting for the discontinuation of a reference rate such as LIBOR, formerly known as the London Interbank Offered Rate, because of reference rate reform. The expedients and exceptions provided by the guidance do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The ASU is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements.

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2. REVENUE RECOGNITION

The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. The Company generally earns its revenue by supplying goods or providing services under contracts with its customers in ~~three~~two primary revenue streams: (i) manufacturing and commercial product supply, and (ii) development ~~services,~~ and clinical supply services. The Company measures the revenue from customers based on the consideration specified in its contracts, excluding any sales incentive or amount collected on behalf of a third ~~party.~~party that the Company expects to be entitled in exchange for transferring the promised goods to and/or performing services for the customer (the “Transaction Price”). To the extent the Transaction Price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the Transaction Price utilizing either the expected value method or the most likely amount method depending on which method is expected to better predict the amount of consideration to which the Company will be entitled. The value of variable consideration is included in the Transaction Price if, and to the extent, it is probable that a significant reversal of the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. These estimates are re-assessed each reporting period, as required, and any adjustments required are recorded on a cumulative catch-up basis, which affects revenue and net income in the period of adjustment.

The Company’s customer contracts generally include provisions entitling the Company to a termination penalty when the customer invokes its contractual right to terminate prior to the contract’s nominal end date. The termination penalties in the customer contracts vary but are generally considered substantive for accounting purposes and create enforceable rights and obligations throughout the stated duration of the contract. The Company accounts for a contract cancellation as a contract modification in the period in which the customer invokes the termination provision. The determination of the contract termination penalty is based on the terms stated in the relevant customer agreement. As of the modification date, the Company updates its estimate of the transaction price using the expected value method, subject to constraints, and to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. These estimates are re-assessed each reporting period, as required, and any adjustments required are recorded on a cumulative catch-up basis, which would affect revenue and net income in the period of adjustment.

Manufacturing & Commercial Product Supply Revenue

Manufacturing and commercial product supply revenue consists of revenue earned by manufacturing products supplied to customers under long-term commercial supply arrangements. In these arrangements, the customer typically owns and supplies the active pharmaceutical ingredient, or API, that is used in the manufacturing process. The contract generally includes the terms of the manufacturing services and related product quality assurance procedures to comply with regulatory requirements. Due to the regulated nature of the Company’s business, these contract terms are highly interdependent and, therefore, are considered to be a single combined performance obligation. The transaction price is generally stated in the agreement as a fixed price per unit, with no contractual provision for a refund or price concession. Control is transferred to the customer over time, creating a corresponding right to recognize the related revenue, because there is no alternative use to the Company for the asset created and the Company has an enforceable right to payment for performance completed as of that date. Progress is measured based on the units of product that have successfully completed the contractually required product quality assurance process, as the conclusion of that process generally defines the time when the applicable contract and the related regulatory requirements permit the customer to exercise control over the product’s disposition. The customer is typically responsible for arranging the shipping and handling of product following completion of the quality assurance process. Payment is typically due 30 to 45 days after the goods are delivered as requested by the customer, based on the payment terms set forth in the applicable customer agreement.

Development Services and Clinical Supply Revenue

Development services and clinical supply contracts generally take the form of short-term, fee-for-service arrangements. Performance obligations vary, but frequently include biologic cell-line development, performing formulation, analytical stability, or other services related to product development, and providing manufacturing services for products that are under development or otherwise not intended for commercial sale. They can also include a combination of the following services: the manufacturing, packaging, storage, distribution, destruction, inventory management of customer clinical trial material and the sourcing of comparator drug products on behalf of customers to be used in clinical trials to compare performance with the drug under clinical investigation. The transaction prices for these arrangements are fixed and include amounts stated in the contracts for each promised service, and each service is generally considered to be a separate performance obligation. In most instances, the Company recognizes revenue over time because there is no alternative use to the Company for the asset created and the Company has an enforceable right to payment for performance completed as of that date.

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The Company measures progress toward the completion of its performance obligations satisfied over time based on the nature of the services to be performed. For certain types of arrangements, revenue is recognized over time and measured using an output method based on the completion of tasks and activities that are performed to satisfy a performance obligation. For certain types of arrangements, revenue is recognized over time and measured using an input method based on effort expended. Each of these methods provides an appropriate depiction of the Company’s progress toward fulfilling its performance obligations for its respective arrangement. In certain development services arrangements that require a portion of the contract consideration to be received in advance at the commencement of the contract, such advance payment is initially recorded as a contract liability. In certain clinical supply arrangements, revenue is recognized at the point in time when control transfers, which occurs upon either the delivery of the related output of the service to the customer or the completion of quality testing with respect to the product, and the Company has an enforceable right to payment based on the terms of the arrangement.

The Company allocates consideration to each performance obligation using the “relative standalone selling price” as defined under ASC 606. Generally, the Company utilizes observable standalone selling prices in its allocations of consideration. If observable standalone selling prices are not available, the Company estimates the applicable standalone selling price using a cost-plus-margin approach or an adjusted market assessment approach, in each case, representing the amount that the Company believes the market is willing to pay for the applicable service. Payment is typically due 30 to 45 days following the completion of services provided to the customer, based on the payment terms set forth in the applicable customer agreement.

The Company records revenue for comparator sourcing arrangements on a net basis because it is acting as an agent that does not control the product or service before it is transferred to the customer. Payment for comparator sourcing activity is typically received in advance at the commencement of the contract and is initially recorded as a contract liability.

The Company generally expenses sales commissions as incurred because either the amortization period is one year or less, or the balance with an amortization period greater than one year is not material.

The following tables ~~allocate~~reflect net revenue for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, by type of activity and ~~reporting~~reportable segment (in millions):

Three Months Ended September 30, 2021 Biologics Softgel and Oral Technologies Oral and Specialty Delivery Clinical Supply Services Total
Manufacturing & commercial product supply $ 134 $ 207 $ 88 $ — $ 429
Development services 412 36 58 — 506
Clinical supply services — — — 96 96
Total $ 546 $ 243 $ 146 $ 96 $ 1,031
Inter-segment revenue elimination (6)
Combined net revenue $ 1,025


Three Months Ended September 30, 2022	Biologics		Pharma and Consumer Health		Total
Manufacturing & commercial product supply	$	94	$	292	$	386
Development services & clinical supply	429		207		636
Total	$	523	$	499	$	1,022

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Three Months Ended September 30, 2020 Biologics Softgel and Oral Technologies Oral and Specialty Delivery Clinical Supply Services Total
Manufacturing & commercial product supply $ 90 $ 190 $ 104 $ — $ 384
Development services 287 31 55 — 373
Clinical supply services — — — 93 93
Total $ 377 $ 221 $ 159 $ 93 $ 850
Inter-segment revenue elimination (4)
Combined net revenue $ 846


Three Months Ended September 30, 2021	Biologics		Pharma and Consumer Health		Total
Manufacturing & commercial product supply	$	134	$	276	$	410
Development services & clinical supply	414		201		615
Total	$	548	$	477	$	1,025

The following table allocates revenue by the location where the goods were made or the service performed:


		Three Months Ended September 30,				Three Months Ended September 30,
(Dollars in millions)	(Dollars in millions)	2021		2020			(Dollars in millions)	2022		2021

United States	United States	$	630	$	517		United States	$	697	$	630
Europe	Europe	351		281			Europe	274		351
Other	Other	72		69			Other	82		72
Elimination of revenue attributable to multiple locations	Elimination of revenue attributable to multiple locations	(28)		(21)			Elimination of revenue attributable to multiple locations	(31)		(28)
Total	Total	$	1,025	$	846		Total	$	1,022	$	1,025

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Contract Liabilities

Contract liabilities relate to cash consideration that the Company receives in advance of satisfying the related performance obligations. The contract liabilities ~~balance~~balances (current and non-current) as of September 30, ~~2021~~2022 and June 30, ~~2021~~2022 are as follows:


(Dollars in millions)

Balance at June 30, ~~2021~~2022	$	~~321~~194




Balance at September 30, ~~2021~~2022	$	~~299~~145
Revenue recognized in the period from amounts included in contracts liability at the beginning of the period:	$	82 (91)

Contract liabilities that will be recognized within 12 months of September 30, ~~2021~~2022 are accounted for in Other accrued liabilities and those that will be recognized longer than 12 months after September 30, ~~2021~~2022 are accounted for within Other liabilities.

Contract Assets

Contract assets primarily relate to the Company's conditional right to receive consideration for services that have been performed for ~~a customer~~customers as of September 30, ~~2021~~2022 relating to the Company's development services but had not yet been invoiced as of September 30, ~~2021.~~2022. Contract assets are transferred to trade receivables, net when the Company’s right to receive the consideration becomes unconditional. Contract assets totaled ~~$224~~$461 million and $~~181~~441 million as of September 30, ~~2021~~2022 and June 30, ~~2021,~~2022, respectively. Contract assets expected to transfer to trade receivables within 12 months are ~~included in prepaid~~accounted for within Prepaid expenses and ~~other in the consolidated balance sheets.~~other. Contract assets expected to transfer to trade receivables longer than 12 months are accounted for within Other long-term assets.

3. ~~BUSINESS COMBINATIONS AND DIVESTITURES~~

~~Skeletal Cell Therapy Support SA Acquisition~~

In November 2020, the Company acquired 100% of the equity interest in Skeletal Cell Therapy Support SA (“Skeletal”) for $15 million, as well as related supply agreements with the seller. Skeletal operates a cell therapy manufacturing facility in Gosselies, Belgium. The operations were assigned to the Company’s Biologics segment, expanding the Company’s cell therapy capacity for clinical and commercial supply. The acquisition, when combined with the Company's other European-based facilities and capabilities in cell therapy, has created an integrated European center of excellence in cell therapy.

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GOODWILL

The ~~Company accounted for~~following table summarizes the ~~Skeletal acquisition using the acquisition method in accordance with ASC 805. The Company funded the entire purchase price with cash on hand~~changes between June 30, 2022 and allocated the purchase price among the acquired assets, recognizing goodwill of $9 million. The Company allocated the remainder of the purchase price to trade receivables, property, plant, and equipment, and other current and non-current assets and liabilities assumed in the acquisition. Results for the three months ended September 30, ~~2021 were not material to the Company’s statement of operations, financial position, or cash flows.~~

~~Acorda Therapeutics, Inc. Acquisition~~

In February 2021, the Company acquired the manufacturing and packaging operations of Acorda Therapeutics, Inc.'s (“Acorda”) dry powder inhaler and spray dry manufacturing business, including its manufacturing facility located near Boston, Massachusetts, for $83 million, subject to customary adjustments. In connection with the purchase, Acorda and the Company entered into a long-term supply agreement, under which the Company will continue the manufacture and packaging of an Acorda product at the facility. The facility and operations became part of the Company’s Oral and Specialty Delivery segment. Results of the business acquired were not material to the Company's statement of operations, financial position, or cash flows for the three months ended September 30, 2021.

The Company accounted for the Acorda transaction using the acquisition method in accordance with ASC 805. The Company funded the entire purchase price with cash on hand and preliminarily allocated the purchase price among the acquired assets, recognizing property, plant, and equipment of $79 million, inventory of $2 million, and goodwill of $2 million. The remainder of the purchase price was preliminarily allocated to other current and non-current assets and liabilities assumed in the acquisition.

The Company has not completed its analysis regarding the assets acquired and liabilities assumed. Therefore, the allocation to goodwill and inventory are preliminary and subject to finalization. The Company expects to finalize its allocation over the next several months, but, in any event, within one year from the closing.

~~Delphi Genetics SA Acquisition~~

In February 2021, the Company acquired 100% of the equity interest in Delphi Genetics SA (“Delphi”) for $50 million, subject to customary adjustments. Delphi is a plasmid DNA (pDNA) cell and gene therapy contract development and manufacturing organization based in Gosselies, Belgium. The facility and operations acquired became part of the Company’s Biologics segment. Results of the business acquired were not material to the Company's statement of operations, financial position, or cash flows for the three months ended September 30, 2021.

The Company accounted for the Delphi transaction using the acquisition method in accordance with ASC 805. The Company funded the entire purchase price with cash on hand and preliminarily allocated the purchase price recognizing property, plant, and equipment of $4 million, intangible assets of $7 million, other current assets of $3 million, assumed debt of $6 million, other current liabilities of $1 million and goodwill of $43 million.

The Company has not completed its analysis regarding the assets acquired and liabilities assumed. Therefore, the allocation to property, plant, and equipment, intangible assets, goodwill, and income taxes are preliminary and subject to finalization. The Company expects to finalize its allocation over the next several months, but, in any event, within one year from the acquisition date.

~~Hepatic Cell Therapy Support SA Asset Acquisition~~

In April 2021, the Company acquired 100% of the equity interest in Hepatic Cell Therapy Support SA (“Hepatic”) for approximately $15 million, net of cash acquired and debt assumed. Hepatic operates a manufacturing facility at the same location where Skeletal operates a cell therapy manufacturing facility in Gosselies, Belgium. The facility acquired expands the Company’s cell therapy capacity for clinical and commercial supply in its Biologics segment.

The Company accounted for the Hepatic transaction as an asset acquisition in accordance with ASC 805. The Company funded the entire purchase price with cash on hand and allocated the purchase price to the assets acquired and liabilities assumed recognizing property, plant, and equipment of $13 million, other current and non-current assets of $3 million, and assumed debt of $1 million.

~~RheinCell Therapeutics GmbH Acquisition~~

In August 2021, the Company acquired 100% of the equity interest in RheinCell Therapeutics GmbH (“RheinCell”) for approximately $26 million, net of cash acquired. RheinCell is a developer and manufacturer of cGMP-grade induced

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pluripotent stem cells (“iPSCs”) based in Lagenfeld, Germany. The operations acquired became part of the Company’s Biologics segment and builds upon Catalent’s existing custom cell therapy process development and manufacturing capabilities with proprietary cGMP cell lines for iPSC-based therapies.

The Company accounted for the RheinCell transaction using the acquisition method in accordance with ASC 805. The Company funded the entire purchase price with cash on hand and preliminarily allocated the purchase price recognizing $3 million of other assets, $4 million of other current liabilities and goodwill of $27 million. Results of the business acquired were not material to the Company's statement of operations, financial position, or cash flows for the three months ended September 30, 2021.

~~Bettera Holdings, LLC Acquisition~~

In August 2021, the Company entered into an agreement to acquire Bettera Holdings, LLC (“Bettera”) for approximately $1.00 billion, subject to customary adjustments. Bettera is a manufacturer of nutraceuticals and nutritional supplements in gummy, soft chew, and lozenge delivery formats. On October 1, 2021, the Company completed the acquisition. For further details, see Note 18, ~~Subsequent Events.~~

~~Blow-Fill-Seal Divestiture~~

In March 2021, the Company sold 100% of the shares of Catalent USA Woodstock, Inc. and certain related assets (collectively, the “Blow-Fill-Seal Business”) to a subsidiary of SK Capital Partners, LP for $300 million cash, a $50 million note receivable (estimated fair value of $47 million) as well as potential additional contingent consideration (up to $50 million) dependent upon the performance of aspects of the Blow-Fill-Seal Business. The Blow-Fill-Seal Business was part of the Oral and Specialty Delivery segment. The carrying value of the net assets sold was $149 million, which included goodwill of $54 million. As a result of the sale, the Company realized a gain from sale of subsidiary of $182 million, net of transaction costs, for the fiscal year ended June 30, 2021.

~~During three months ended September 30, 2021, the Company settled a post-closing purchase price adjustment, which resulted in a gain on sale of subsidiary of $1 million.~~

~~All consideration received was measured at its divestiture date fair value. The Company valued the total consideration received from divestiture of the Blow-Fill-Seal Business as follows:~~


~~(Dollars in millions)~~	~~Fair value of consideration received~~
~~Cash, gross~~	$	~~300~~
~~Note receivable~~ ~~(1)~~	47
~~Contingent consideration~~ ~~(2)~~	—
~~Other~~ ~~(3)~~	~~(16)~~
~~Total~~	$	~~331~~

(1) The note receivable, which provides for interest at a rate of 5.0% paid in kind, had an estimated fair value of $47 million, which is the $50 million aggregate principal amount less a $3 million discount determined using a discounted cash flow model with the market interest rate as a significant input.

(2) The Company determined that the estimated fair value of the contingent consideration from the sale of the Blow-Fill-Seal Business at September 30, 2021 is zero, and therefore, no contingent consideration was recorded as a result of the divestiture of the Blow-Fill-Seal Business. If any contingent consideration is subsequently received, it will be recorded in the period in which it is received. The Company has elected an accounting policy to recognize increases2022 in the carrying amount of ~~the contingent consideration asset using the gain contingency guidance~~goodwill in ~~ASC 450,~~ total and by segment:


(Dollars in millions)	Biologics		Pharma and Consumer Health		Total
Balance at June 30, 2022 (1)	$	1,535	$	1,471	$	3,006


Reallocation	16		(16)		—


Foreign currency translation adjustments	(33)		(44)		(77)
Balance at September 30, 2022	$	1,518	$	1,411	$	2,929

~~Contingencies~~.

~~(3) Other includes $8 million~~(1) As of ~~transaction expenses,~~result of the organizational realignments which were effective July 1, 2022, (described in Note 1, Basis of Presentation and Summary of Significant Accounting Policies), beginning balances have been reclassified to conform with the current period presentation.

As part of the business reorganization discussed in Note 1, Basis of Presentation, the goodwill from the previous Biologics, Softgel and Oral Technologies, Oral and Specialty Delivery, and Clinical Supply Services segments was reallocated between the current Biologics and Pharma and Consumer Health segments.

As a ~~working capital adjustment~~result of ~~$6 million, and a $2 million assumption~~this realignment, the Company performed an interim quantitative goodwill impairment test for all of ~~liabilities to create cumulative net cash proceeds~~its reporting units as of ~~$284 million.~~July 1, 2022, which did not result in any goodwill impairment charges.

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4. ~~GOODWILL~~

~~The following table summarizes the changes between June 30, 2021 and September 30, 2021 in the carrying amount of goodwill in total and by segment:~~

(Dollars in millions) Biologics Softgel and Oral Technologies Oral and Specialty Delivery Clinical Supply Services Total
Balance at June 30, 2021 $ 1,531 $ 516 $ 316 $ 156 $ 2,519
Additions(1)
25 — — — 25
Foreign currency translation adjustments (6) (4) (2) (1) (13)
Balance at September 30, 2021 $ 1,550 $ 512 $ 314 $ 155 $ 2,531

~~(1) The addition to goodwill in the Biologics segment relates to the RheinCell acquisition and the Delphi acquisition. For further details, see Note 3,~~ ~~Business Combinations and Divestitures~~.

~~The Company recorded no impairment charge to goodwill in the current period.~~

~~5. OTHER INTANGIBLES, NET~~

~~The details of other intangibles as of September 30, 2021 and June 30, 2021 are as follows:~~

(Dollars in millions) Weighted Average Life
Gross
Carrying
Value
Accumulated
Amortization
Net
Carrying
Value
September 30, 2021
Amortized intangibles:
Core technology 19 years $ 139 $ (95) $ 44
Customer relationships 13 years 1,018 (321) 697
Product relationships 8 years 252 (210) 42
Other 5 years 19 (9) 10
Total other intangibles $ 1,428 $ (635) $ 793

(Dollars in millions) Weighted Average Life
Gross
Carrying
Value
Accumulated
Amortization
Net
Carrying
Value
June 30, 2021
Amortized intangibles:
Core technology 19 years $ 140 $ (94) $ 46
Customer relationships 14 years 1,024 (306) 718
Product relationships 11 years 281 (237) 44
Other 5 years 17 (8) 9
Total other intangibles $ 1,462 $ (645) $ 817

~~Amortization expense related to other intangible assets was $23 million for both the three months ended September 30, 2021 and 2020.~~

~~Future amortization expense related to other intangible assets for the next five fiscal years is estimated to be:~~

(Dollars in millions) Remainder
Fiscal 2022 2023 2024 2025 2026 2027
Amortization expense $ 69 $ 92 $ 91 $ 90 $ 82 $ 69

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6. LONG-TERM OBLIGATIONS AND SHORT-TERM BORROWINGS

Long-term obligations and short-term borrowings consisted of the following at September 30, ~~2021~~2022 and June 30, ~~2021:~~2022:


(Dollars in millions)	(Dollars in millions)	Maturity	September 30, 2021		June 30, 2021		(Dollars in millions)	Maturity	September 30, 2022		June 30, 2022
Senior secured credit facilities	Senior secured credit facilities						Senior secured credit facilities

Term loan facility B-3		February 2028	$	1,444	$	997
Term loan facility B-3 (5.063% as of September 30)							Term loan facility B-3 (5.063% as of September 30)	February 2028	$	1,429	$	1,433

Revolving credit facility (1) (7.250% as of September 30)							Revolving credit facility (1) (7.250% as of September 30)	May 2024	75		—

5.000% senior notes due 2027	5.000% senior notes due 2027	July 2027	500		500		5.000% senior notes due 2027	July 2027	500		500
2.375% Euro senior notes due 2028(1)		March 2028	965		984
2.375% euro senior notes due 2028(2)							2.375% euro senior notes due 2028(2)	March 2028	794		874
3.125% senior notes due 2029	3.125% senior notes due 2029	February 2029	550		550		3.125% senior notes due 2029	February 2029	550		550
3.500% senior notes due 2030	3.500% senior notes due 2030	April 2030	650		—		3.500% senior notes due 2030	April 2030	650		650
Deferred purchase consideration		October 2021	50		50

Financing lease obligations	Financing lease obligations	2021 to 2038	188		193		Financing lease obligations	2022 to 2038	243		234
Other obligations	Other obligations	2021 to 2028	3		3		Other obligations	2022 to 2028	2		2
Unamortized discount and debt issuance costs	Unamortized discount and debt issuance costs		(46)		(36)		Unamortized discount and debt issuance costs		(39)		(41)
Total debt	Total debt		$	4,304	$	3,241	Total debt		$	4,204	$	4,202
Less: current portion of long-term obligations and other short-term borrowings	Less: current portion of long-term obligations and other short-term borrowings		79		75		Less: current portion of long-term obligations and other short-term borrowings		106		31
Long-term obligations, less current portion	Long-term obligations, less current portion		$	4,225	$	3,166	Long-term obligations, less current portion		$	4,098	$	4,171

(1) During the three months ended September 30, 2022, the Company drew down $75 million on its revolving credit facility to supplement operating cash flows.

(2) The decrease in euro-denominated debt iswas primarily due to large fluctuations in foreign currency exchange rates.

~~Senior Secured Credit Facilities and Sixth Amendment to the Credit Agreement~~

In September 2021, Operating Company entered into Amendment No. 6 (the "Sixth Amendment") to its Amended and Restated Credit Agreement, dated May 20, 2014 (as subsequently amended, the "Credit Agreement"). Pursuant to the Sixth Amendment, Operating Company incurred an additional $450 million aggregate principal amount of U.S. dollar-denominated term loans (the "Incremental Term B-3 Loans") and amended the quarterly amortization from 0.25% to 0.2506% for the Incremental Term B-3 Loans and all of the remaining U.S. dollar-denominated term loans outstanding (together with the Incremental Term B-3 Loans, the “Term B-3 Loans”). The Incremental Term B-3 Loans otherwise feature the same principal terms as the existing Term B-3 Loans, with an interest rate of one-month LIBOR (subject to a floor of 0.50%) plus 2.00% per annum and a maturity date of February 2028. The proceeds of the Incremental Term B-3 Loans, after payment of the offering fees and expenses, were used in part to fund a portion of the consideration paid at the closing of the Bettera acquisition.

~~3.500% Senior Notes due 2030~~

In September 2021, Operating Company completed a private offering of $650 million aggregate principal amount of 3.500% Senior Notes due 2030 (the "2030 Notes"). The 2030 Notes are fully and unconditionally guaranteed, jointly and severally, by all of the wholly owned U.S. subsidiaries of Operating Company that guarantee its senior secured credit facilities. The 2030 Notes were offered in the U.S. to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”) and outside the U.S. only to non-U.S. investors pursuant to Regulation S under the Securities Act. The 2030 Notes will mature on April 1, 2030 and bear interest at the rate of 3.500% per annum payable semi-annually in arrears on April 1 and October 1 of each year, beginning on April 1, 2022. The proceeds of the 2030 Notes, after payment of the offering fees and expenses, were used to fund a portion of the consideration paid at the closing of the Bettera acquisition.

~~Deferred Purchase Consideration~~

In connection with the acquisition of Catalent Indiana, LLC in October 2017, $200 million of the $950 million aggregate nominal purchase price was payable in $50 million installments on each of the first four anniversaries of the closing date. The Company made installment payments in October 2018, October 2019, and October 2020 and paid the final installment in October 2021.

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Measurement of the Estimated Fair Value of Debt

The estimated fair value of the Company’s senior secured credit facilities and other senior indebtedness is classified as a Level 2 determination (see Note ~~11,~~8, Fair Value Measurements, for a description of the method by which fair value classifications are determined) in the fair-value hierarchy and is calculated by using a discounted cash flow model with a market interest rate as a significant input. The carrying amounts and the estimated fair values of the Company’s principal categories of debt as of September 30 ~~2021~~ and June 30, ~~2021~~2022 are as follows:


			September 30, 2021				June 30, 2021						September 30, 2022				June 30, 2022
(Dollars in millions)	(Dollars in millions)	Fair Value Measurement	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value		(Dollars in millions)	Fair Value Measurement	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value

5.000% senior notes due 2027	5.000% senior notes due 2027	Level 2	$	500	$	527	$	500	$	539	5.000% senior notes due 2027	Level 2	$	500	$	461	$	500	$	483
2.375% Euro senior notes due 2028	2.375% Euro senior notes due 2028	Level 2	965		982		984		993		2.375% Euro senior notes due 2028	Level 2	794		649		874		744
3.125% senior notes due 2029	3.125% senior notes due 2029	Level 2	550		531		550		524		3.125% senior notes due 2029	Level 2	550		457		550		476
3.500% senior notes due 2030	3.500% senior notes due 2030	Level 2	650		642		—		—		3.500% senior notes due 2030	Level 2	650		552		650		561
Senior secured credit facilities & other	Senior secured credit facilities & other	Level 2	$	1,685	$	1,638	$	1,243	$	1,209	Senior secured credit facilities & other	Level 2	1,749		1,609		1,669		1,575
Subtotal	Subtotal		$	4,350	$	4,320	$	3,277	$	3,265	Subtotal		$	4,243	$	3,728	$	4,243	$	3,839
Unamortized discount and debt issuance costs	Unamortized discount and debt issuance costs		(46)		—		(36)		—		Unamortized discount and debt issuance costs		(39)		—		(41)		—
Total debt	Total debt		$	4,304	$	4,320	$	3,241	$	3,265	Total debt		$	4,204	$	3,728	$	4,202	$	3,839

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7.5. EARNINGS PER SHARE

~~The~~Effective July 1, 2022, the Company computes earnings per share of the Company’s common stock, par value $0.01 (the “Common Stock”) using the treasury stock method. Prior to fiscal 2023, the Company computed earnings per share of the Common Stock using the two-class method required due to the participating nature of the previously outstanding Series A Preferred Stock (as defined and discussed in Note ~~14,~~11, (Equity ~~Redeemable Preferred Stock~~ and Accumulated Other Comprehensive ~~Loss)~~Loss).

Diluted net earnings per share is computed using the weighted average number of shares of Common Stock outstanding plus the weighted average number of shares of Common Stock that would be issued assuming exercise or conversion of all potentially dilutive instruments. Dilutive securities having an anti-dilutive effect on diluted net earnings per share are excluded from the calculation. The dilutive effect of the securities that are issuable under the Company’s equity incentive plans are reflected in diluted earnings per share by application of the treasury stock method. ~~The~~Prior to fiscal 2023, the Company ~~applies~~applied the if-converted method to compute the potentially dilutive effect of the previously outstanding Series A Preferred Stock. The reconciliations between basic and diluted earnings per share attributable to Catalent common shareholders for the three ~~and three~~ months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively, are as follows:


		Three Months Ended September 30,				Three Months Ended September 30,
(In millions except per share data)	(In millions except per share data)	2021		2020			(In millions except per share data)	2022		2021

Net earnings	Net earnings	$	93	$	82		Net earnings	$	—	$	93
Less: Net earnings attributable to preferred shareholders	Less: Net earnings attributable to preferred shareholders	(9)		(13)			Less: Net earnings attributable to preferred shareholders	—		(9)
Net earnings attributable to common shareholders	Net earnings attributable to common shareholders	$	84	$	69		Net earnings attributable to common shareholders	$	—	$	84

Weighted average shares outstanding - basic	Weighted average shares outstanding - basic	171		164			Weighted average shares outstanding - basic	180		171
Weighted average dilutive securities issuable - stock plans	Weighted average dilutive securities issuable - stock plans	1		2			Weighted average dilutive securities issuable - stock plans	1		1
Weighted average shares outstanding - diluted	Weighted average shares outstanding - diluted	172		166			Weighted average shares outstanding - diluted	181		172

Earnings per share:	Earnings per share:						Earnings per share:

Basic	Basic	$	0.49	$	0.42		Basic	$	—	$	0.49

Diluted	Diluted	$	0.49	$	0.41		Diluted	$	—	$	0.49

The Company's Series A Preferred Stock iswas deemed a participating security, meaning that it ~~has~~had the right to participate in undistributed earnings with the Company's Common Stock. On November 23, 2020, ~~(the “Partial Conversion Date”),~~the holders of Series A Preferred Stock converted 265,223 shares of Series A Preferred Stock and $2 million of unpaid accrued dividends into shares of Common Stock. On November 18, 2021, the holders of Series A Preferred Stock ~~(the “Partial Conversion”). The holders received 20.33~~converted the remaining 384,777 shares of Series A Preferred Stock and $2 million of unpaid accrued dividends into shares of Common ~~Stock for each converted preferred share, resulting in~~

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Stock.

~~the issuance of 5,392,280 shares of Common Stock. See Note 14,~~ ~~Equity, Redeemable Preferred Stock and Accumulated Other Comprehensive Loss~~ ~~for further details.~~

The diluted weighted average number of shares outstanding as of September 30, ~~2021~~2022 and ~~2020, respectively,~~2021 did not include the following shares of Common Stock associated with the formerly outstanding Series A Preferred Stock due to their antidilutive effect:

Three Months Ended
September 30,
(share counts in millions) 2021 2020
Stock options — —
Time-based restricted stock units — —
Performance-based restricted stock units — —
Series A Preferred Stock 8 13


	Three Months Ended September 30,
(share counts in millions)	2022	2021



Series A Preferred Stock	—	8

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6. OTHER EXPENSE, ~~(INCOME),~~ NET

The components of other expense, ~~(income),~~ net for the three months ended September 30, ~~2021~~2022 and ~~2020~~2021 are as follows:
Three Months Ended
September 30,
(Dollars in millions) 2021 2020
Other expense (income), net
Debt financing costs (1)
$ 4 $ —
Foreign currency losses (gains)(2)
9 (1)
Other (3)
(4) (10)
Total other expense (income), net $ 9 $ (11)


	Three Months Ended September 30,
(Dollars in millions)	2022		2021


Debt financing costs (1)	$	—	$	4


Foreign currency losses (2)	24		9
Other (3)	1		(4)
Total other expense, net	$	25	$	9

(1) Debt financing costs for the three months ended September 30, 2021 includes $4 million of financing charges related to $450 million of U.S. dollar-denominated term loans borrowed under the Company’s ~~Incremental~~senior secured credit facilities (the “Incremental Term B-3 ~~Loans.~~Loans”).

(2) Foreign currency remeasurement losses ~~(gains)~~ include both cash and non-cash transactions.

(3) Other, for the three months ended September 30, 2021, ~~and 2020~~ includes ~~unrealized gains~~a gain of $2 million~~and~~ ~~$9 million, respectively,~~ related to the fair value of the derivative liability associated with the formerly outstanding Series A Preferred Stock.

~~9. RESTRUCTURING COSTS~~

From time to time, the Company has implemented plans to restructure certain operations, both domestically and internationally. The restructuring plans focused on various aspects of operations, including closing and consolidating certain manufacturing operations, rationalizing headcount and aligning operations in a strategic and more cost-efficient structure. In addition, the Company may incur restructuring charges in the future in cases where a material change in the scope of operation with its business occurs. Employee-related costs consist primarily of severance costs and also include outplacement services provided to employees who have been involuntarily terminated and duplicate payroll costs during transition periods. Facility exit and other costs consist of equipment relocation costs and costs associated with planned facility expansions and closures to streamline Company operations.

During the fiscal year ended June 30, 2021, the Company adopted a plan to reduce costs and optimize its infrastructure in Europe by closing its Clinical Supply Services facility in Bolton, U.K. In connection with this restructuring plan, the Company reduced its headcount by approximately 170 employees and incurred cumulative charges of $8 million, primarily associated with employee severance benefits. For the three months ended September 30, 2021, restructuring charges associated with the Bolton facility closure were $1 million.

~~Total restructuring charges were $1 million for both the three months ended September 30, 2021 and 2020.~~

~~10.~~7. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Risk Management Objective of Using Derivatives

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The Company is exposed to fluctuations in the currency exchange rates ~~on its~~ applicable to its investments in operations outside the U.S. While the Company does not actively hedge against changes in foreign currency, the Company has mitigated ~~its~~ exposure from its investments in its European operations by denominating a portion of its debt in euros. At September 30, ~~2021,~~2022, the Company had euro-denominated debt outstanding of ~~$965~~$794 million (U.S. dollar equivalent), ~~that~~which is designated and qualifies as a hedge ~~of a~~against its net investment in its European operations. For non-derivatives designated and qualifying as net investment hedges, the effective portion of translation gains or losses are reported in accumulated other comprehensive loss as part of the cumulative translation adjustment. The ~~non-hedge~~unhedged portions of the euro-denominated debt translation gains or losses are reported in the consolidated ~~statement~~statements of operations. The following table ~~includes~~summarizes net investment hedge activity during the three months ended September 30, ~~2021~~2022 and ~~2020.~~2021.


		Three Months Ended September 30,				Three Months Ended September 30,
(Dollars in millions)	(Dollars in millions)	2021		2020			(Dollars in millions)	2022		2021
Unrealized foreign exchange gain (loss) within other comprehensive income	Unrealized foreign exchange gain (loss) within other comprehensive income	$	22	$	(32)		Unrealized foreign exchange gain (loss) within other comprehensive income	$	81	$	22
Unrealized foreign exchange loss within statement of operations		$	(3)	$	(2)
Unrealized foreign exchange gain (loss) within statement of operations							Unrealized foreign exchange gain (loss) within statement of operations	$	—	$	(3)

The net accumulated gain on the instrument designated as a hedge as of September 30, ~~2021~~2022 within other comprehensive loss was approximately ~~$28~~$208 million. Amounts are reclassified out of accumulated other comprehensive loss into earnings when the entity to which the gains and losses relate is either sold or substantially liquidated.

~~Preferred Stock Derivative Liability~~

~~As discussed in Note 14,~~ ~~Equity,Redeemable Preferred Stock, and Accumulated Other Comprehensive Loss,~~ ~~in May 2019, the Company issued shares of Series A Preferred Stock in exchange for net proceeds of $646 million after taking into account the $4 million issuance cost.~~

The dividend rate used to determine the amount of the quarterly dividend payable on shares of the Series A Preferred Stock is subject to adjustment so as to provide holders of shares of Series A Preferred Stock with certain protections against a decline in the trading price of shares of Common Stock. The Company determined that this feature should be accounted for as a derivative liability, since the feature fluctuates inversely to changes in the trading price and is also linked to the performance of the S&P 500 stock index. Accordingly, the Company bifurcated the adjustable dividend feature from the remainder of the Series A Preferred Stock and accounted for this feature as a derivative liability at fair value.

The Company recorded a total gain of $2 million and $9 million on the change in the estimated fair value of the derivative liability for the three months ended September 30, 2021 and 2020, respectively, which is reflected as other expense (income), net in the consolidated statements of operations.

A portion of the derivative liability was settled on the Partial Conversion Date due to the Partial Conversion. The fair value of the derivative liability as of the Partial Conversion Date was $9 million, of which $4 million was related to the converted portion of the outstanding shares of Series A Preferred Stock. See Note 14, ~~Equity, Redeemable Preferred Stock, and Accumulated Other Comprehensive Loss~~ ~~for details of the Partial Conversion.~~

Interest-Rate Swap

~~Pursuant~~In April 2020, pursuant to its interest rate and risk management strategy, ~~in April 2020,~~ the Company entered into an interest-rate swap agreement with Bank of America N.A. (the “2020 Rate Swap”) as a hedge against the economic effect of a portion of the variable interest obligation associated with its U.S. dollar-denominated term loans under its senior secured credit ~~facilities, so that the interest payable on that portion of the debt becomes fixed at a certain rate, thereby reducing the impact of future interest rate changes on future interest expense.~~facilities.

In February 2021, in connection with an amendment to the Credit Agreement, the Company ~~settled the interest-rate swap agreement with Bank of America N.A. The Company~~ paid $2 million in cash to Bank of America N.A to settle the ~~interest-rate swap agreement.~~2020 Rate Swap. This loss is deferred in stockholders’ equity, net of income taxes, as a component of accumulated other comprehensive loss, and amortized as an adjustment to interest expense, net over the original term of the formerly outstanding term loans. The net amount of deferred losses on cash flow hedges that is expected to be reclassified from accumulated other comprehensive loss into interest expense, net within the next twelve months is not material.

In February 2021, the Company entered into a new interest-rate swap agreement with Bank of America N.A. (the “2021 Rate Swap”) as a hedge against the economic effect of a portion of the variable interest obligation associated with its Term B-3 ~~Loans, so that~~

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Loans. The 2021 Rate Swap effectively fixed the rate of interest payable on that portion of the Term B-3 Loans, ~~becomes fixed at a certain rate,~~ thereby reducing the impact of future

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interest rate changes on future interest expense. As a result of ~~entering into~~ the ~~interest-rate swap agreement,~~2021 Rate Swap, the ~~floating~~variable portion of the applicable interest rate on $500 million of the Term B-3 Loans is now effectively fixed at 0.9985%.

The ~~new interest-rate swap agreement~~2021 Rate Swap qualifies for and is designated as a cash-flow hedge. The Company evaluates hedge effectiveness at the inception of the hedge and on an ongoing basis. The cash flows associated with the ~~interest-rate swap are~~2021 Rate Swap is reported in ~~net~~ cash provided by operating activities in the consolidated statements of cash flows. The unrealized gain ~~or loss~~recorded in stockholder's equity from marking the ~~mark-to-market of the interest rate swap valuations~~2021 Rate Swap to market during the three months ended September 30, ~~2021 and the fiscal year ended June 30, 2021~~2022 was ~~immaterial in each period.~~$18 million.

A summary of the estimated fair value of the ~~interest-rate swap~~2021 Rate Swap reported in the consolidated balance sheets is stated in the table below:
September 30, 2021 June 30, 2021
(Dollars in millions) Balance Sheet Classification Estimated Fair Value Balance Sheet Classification Estimated Fair Value
Interest-rate swap Other long-term assets $ 3 Other long-term assets $ 2

September 30, 2022

June 30, 2022

(Dollars in millions)

Balance Sheet Classification

Estimated Fair Value

Balance Sheet Classification

Estimated Fair Value

Interest-rate swap

Other long-term assets

~~11.~~8. FAIR VALUE MEASUREMENTS

ASC 820, Fair Value Measurement, defines fair value as the exit price that would be received to sell an asset or paid to transfer a liability. Fair value is a market-based measurement that should be determined using assumptions that market participants would use in pricing an asset or liability. Valuation techniques used to measure fair value should maximize the use of observable inputs and minimize the use of unobservable inputs. To measure fair value, the Company uses the following fair value hierarchy based on three levels of inputs, of which Level 1 and Level 2 are considered observable and Level 3 is considered unobservable:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data by correlation or other means.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Value is determined using pricing models, discounted cash flow methodologies, or similar techniques and also includes instruments for which the determination of fair value requires significant judgment or estimation.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses of the Company approximate fair value based on the short maturities of these instruments.

The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level of classification as of the end of each reporting period. The following table sets forth the Company’s financial assets and liabilities that were measured at fair value on a recurring basis and the fair value measurement for such assets and liabilities at September 30 ~~2021~~ and June 30, ~~2021, respectively:~~2022:

2018

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(Dollars in millions)	(Dollars in millions)	Basis of Fair Value Measurement								(Dollars in millions)	Basis of Fair Value Measurement
September 30, 2021		Total		Level 1		Level 2		Level 3
September 30, 2022										September 30, 2022	Total		Level 1		Level 2		Level 3
Assets:	Assets:									Assets:
Marketable securities	Marketable securities	$	50	$	50	$	—	$	—	Marketable securities	$	64	$	64	$	—	$	—

Interest-rate swap	Interest-rate swap	3		—		3		—		Interest-rate swap	54		—		54		—
Trading securities	Trading securities	1		1		—		—		Trading securities	4		4		—		—

Liabilities:

Series A Preferred Stock derivative liability		1		—		—		1

June 30, 2021

June 30, 2022										June 30, 2022
Assets:	Assets:									Assets:

Marketable securities	Marketable securities	$	71	$	71	$	—	$	—	Marketable securities	$	89	$	89	$	—	$	—
Interest-rate swap	Interest-rate swap	2		—		2		—		Interest-rate swap	36		—		36		—
Trading securities	Trading securities	1		1		—		—		Trading securities	2		2		—		—

Liabilities:

Series A Preferred Stock derivative liability		3		—		—		3

The fair value of the ~~interest-rate swap agreement~~2021 Rate Swap is determined at the end of each reporting period based on valuation models that use interest rate yield curves and discount rates as inputs. The discount rates are based on U.S. deposit or U.S. Treasury rates. The significant inputs used in the valuation models are readily available in public markets or can be derived from observable market transactions, and the valuation is therefore classified as Level 2 in the fair-value hierarchy.

The estimated fair value of the Series A Preferred Stock derivative is determined using an option pricing methodology, specifically both a Monte Carlo simulation and a binomial lattice model. The methodology incorporates the terms and conditions of the preferred stock arrangement, historical stock price volatility, the risk-free interest rate, a credit spread based on the yield indexes of high-yield bonds, and the trading price of shares of the Common Stock. The calculation of the estimated fair value of the derivative liability is highly sensitive to changes in unobservable inputs, such as the expected volatility and the Company’s credit spread. The estimated fair value of the Series A Preferred Stock derivative liability is classified as Level 3 in the fair-value hierarchy due to the significant management judgment required to make the assumptions underlying the calculation of value.

~~The following table sets forth a summary of changes in the estimated fair value of the Series A Preferred Stock derivative liability from June 30, 2021 to September 30, 2021:~~


~~(Dollars in millions)~~	Fair Value Measurements of Series A Preferred Stock Derivative Liability Using Significant Unobservable Inputs (Level 3)
~~Balance at June 30, 2021~~	$	3
~~Change in estimated fair value of Series A Preferred Stock derivative liability~~	~~(2)~~

~~Balance at September 30, 2021~~	$	1

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

Long-lived assets, goodwill, and other intangible assets are subject to non-recurring fair value measurement for the evaluation of potential impairment. ~~Other than the fair value estimates disclosed in Note 3,~~ T~~Business Combinations and Divestitures,~~ ~~there~~here was no non-recurring fair value measurement during the three months ended September 30, ~~2021 and 2020.~~2022.

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~~12.~~9. INCOME TAXES

The Company accounts for income taxes in accordance with ASC 740, Income Taxes. Generally, fluctuations in the effective tax rate are due to changes in relative amounts of U.S. and non-U.S. pretax income, the tax impact of special items, and other discrete tax items. Discrete items include, but are not limited to, changes in non-U.S. statutory tax rates, ~~the~~ amortization of certain assets, changes in the Company’s reserve for uncertain tax positions, and ~~the~~ tax impact of certain equity compensation.

In the normal course of business, the Company is subject to examination by taxing authorities around the world, including such major jurisdictions as the United States, Germany, and the United Kingdom. The Company is no longer subject to examinations by the relevant tax authorities for years prior to fiscal year 2009.world. The Company is presently under audit in select jurisdictions in the United States and in Europe, but no material impact is expected to the financial results once these audits are completed.

ASC 740 ~~includes~~provides guidance onfor the accounting ~~for~~of uncertain income tax positions recognized in the Company's tax filings. This ~~standard~~guidance provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that, based on technical merits, the position will be sustained upon examination, including resolution of any related appeal or litigation ~~process, based on the technical merits.~~process. As of ~~both~~ September 30 ~~2021~~ and June 30, ~~2021,~~2022, the Company's reserve against uncertain income tax positions ~~remained substantially unchanged at approximately~~was $4 million and $5 ~~million.~~million, respectively. The majority of the reduction during the quarter is attributable to the expiration of the statute of limitations on certain of the reserves. Interest and penalties related to uncertain tax positions are recognized as a component of income tax expense.

The Company recorded a provision for income taxes for the three months ended September 30, 2022 of $3 million relative to earnings before income taxes of $3 million. The Company recorded a provision for income taxes for the three months ended September 30, 2021 of $10 million relative to earnings before income taxes of $103 million. The ~~Company recorded a benefit for~~relatively higher income ~~taxes for the three months ended September 30, 2020 of $15 million relative to~~tax provision on lower earnings before income taxes ~~of $67 million. The increased income tax provision for the current period was largely the result of an increase in the amount and relative mix~~reflects a reduction of pretax income ~~across several jurisdictions. This was partially offset by discrete~~in tax ~~benefits recognized in the quarter relating to equity compensation deductions~~jurisdictions with favorable tax rates and ~~to a lesser extent non U.S.~~foreign tax credits claimed ~~on an amended U.S. federal income tax return filing. The~~in the prior-year quarter resulting from amended returns. Generally, fluctuations in the effective tax rate are due to changes in the geographic distribution of the Company's pretax income resulting from our business mix, changes in the tax benefit was largely driven by the recognition of additional non U.S. tax credits claimed on an amended U.S. federal income tax filing. The provision/benefit for income taxes in each of these periods was also impacted by the relative amount and miximpact of permanent ~~tax adjustments included in the income tax computation~~differences, restructuring, special items, certain equity related compensation, and other discrete tax items ~~recognized in~~that may have unique tax implications depending on the ~~periods.~~nature of the item.

~~13.~~

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10. EMPLOYEE RETIREMENT BENEFIT PLANS

Components of the Company’s net periodic benefit costs are as follows:
Three Months Ended
September 30,
(Dollars in millions) 2021 2020
Components of net periodic benefit cost:
Selling, general, and administrative expenses:
Service cost $ 1 $ 1
Other expense (income), net:
Interest cost 1 1
Expected return on plan assets (2) (2)
Amortization (1)
1 —
Net amount recognized $ 1 $ —


	Three Months Ended September 30,
(Dollars in millions)	2022		2021
Components of net periodic benefit cost:
Selling, general, and administrative expenses:
Service cost	$	1	$	1
Other expense, net:
Interest cost	2		1
Expected return on plan assets	(2)		(2)
Amortization (1)	—		1
Net amount recognized	$	1	$	1

(1) Amount represents the amortization of unrecognized actuarial losses.

As previously disclosed, the Company notified the trustees of a multi-employer pension plan of its withdrawal from participation in such plan in fiscal 2012. The actuarial review process administered by the plan trustees ended in fiscal 2015. The liability reported reflects the present value of the Company’s expected future long-term obligations. The estimated discounted value of the projected contributions related to such plans was $38 million as of September 30 ~~2021~~ and June 30, ~~2021,~~2022, and is included within pension liability on the consolidated balance sheets. The annual cash impact associated with the Company’s obligations in such plan is approximately $2 ~~million per year.~~million.

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~~14.~~11. EQUITY ~~REDEEMABLE PREFERRED STOCK~~ AND ACCUMULATED OTHER COMPREHENSIVE LOSS

Description of Capital Stock

The Company is authorized to issue ~~1,000,000,000~~1.00 billion shares of its Common Stock and ~~100,000,000~~100 million shares of preferred stock, par value $0.01 per share. In accordance with the Company’s amended and restated certificate of incorporation, each share of Common Stock has one vote, and the Common Stock votes together as a single class.

~~Redeemable Preferred Stock~~

In ~~May~~ 2019, the Company designated 1,000,000 shares of its preferred stock, par value $0.01, as its Series A Convertible Preferred Stock (the “Series A Preferred Stock”)~~, pursuant to a certificate of designation of preferences, rights, and limitations (as amended, the “Certificate of Designation”) filed with the Delaware Secretary of State,~~ and issued and sold 650,000 shares of the Series A Preferred Stock ~~for an aggregate purchase price of $650 million,~~ to affiliates of Leonard Green & Partners, L.P.~~, each share having an initial stated value of $1,000 (as such value may be adjusted in accordance with~~ In November 2021, the terms of the Certificate of Designation). The Series A Preferred Stock ranks senior to the Company’s Common Stock with respect to dividend rights and rights upon the voluntary or involuntary liquidation, dissolution, or winding up of the affairs of the Company.

~~Proceeds from the offering~~holders of the Series A Preferred Stock net of stock issuance costs, were $646 million, $40 million of which was allocated to the dividend-adjustment feature at its issuance and separately accounted for as a derivative liability. Any change in the fair value of derivative liability during a fiscal quarter is recorded as a non-operating expense in the consolidated statement of operations. See Note 10, ~~Derivative Instruments and Hedging Activities,~~ ~~for detail concerning the change in fair value during the three months ended September 30, 2021.~~

~~As described in Note 7,~~ ~~Earnings Per Share,~~ ~~on the Partial Conversion Date, holders~~converted all then-outstanding shares of Series A Preferred Stock ~~converted 265,223 shares (approximately 41% of their holdings)~~ and $2 million of related unpaid accrued dividends into shares of Common Stock. The holders received 20.33 shares of Common Stock for each converted preferred share, resulting in the issuance of 5,392,280 shares of Common Stock. There was no gain or loss recognized upon the Partial Conversion as it occurred in accordance with the terms of the Certificate of Designation. The Company has 384,777 shares of Series A Preferred Stock that remain outstanding at September 30, 2021.

As a result of the Partial Conversion, additional paid in capital increased $253 million, which includes $4 million related to the fair value of the portion of the derivative liability that was settled upon the Partial Conversion and $2 million related to an unpaid accrued dividend. See Note 10, ~~Derivative Instruments and Hedging Activities,~~ ~~for detail concerning the change in fair value during the three months ended September 30, 2021.~~

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Accumulated Other Comprehensive Loss

The components of the changes in the cumulative translation adjustment, derivatives and hedges, minimum pension liability, and marketable securities for the three months ended September 30, ~~2021~~2022 and ~~2020~~2021 are presented below.

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		Three Months Ended September 30,				Three Months Ended September 30,
(Dollars in millions)	(Dollars in millions)	2021		2020			(Dollars in millions)	2022		2021
Foreign currency translation adjustments:	Foreign currency translation adjustments:						Foreign currency translation adjustments:
Net investment hedge	Net investment hedge	$	22	$	(32)		Net investment hedge	$	81	$	22
Long-term intercompany loans	Long-term intercompany loans	(3)		6			Long-term intercompany loans	(41)		(3)
Translation adjustments	Translation adjustments	(28)		35			Translation adjustments	(160)		(28)
Total foreign currency translation adjustment, pretax	Total foreign currency translation adjustment, pretax	(9)		9			Total foreign currency translation adjustment, pretax	(120)		(9)
Tax expense (benefit)		5		(7)
Tax expense							Tax expense	15		5
Total foreign currency translation adjustment, net of tax	Total foreign currency translation adjustment, net of tax	$	(14)	$	16		Total foreign currency translation adjustment, net of tax	$	(135)	$	(14)

Net change in derivatives and hedges:	Net change in derivatives and hedges:						Net change in derivatives and hedges:
Net gain recognized during the period	Net gain recognized during the period	$	1	$	—		Net gain recognized during the period	$	18	$	1
Total derivatives and hedges, pretax	Total derivatives and hedges, pretax	1		—			Total derivatives and hedges, pretax	18		1
Tax expense	Tax expense	—		—			Tax expense	4		—
Net change in derivatives and hedges, net of tax	Net change in derivatives and hedges, net of tax	$	1	$	—		Net change in derivatives and hedges, net of tax	$	14	$	1

Net change in minimum pension liability:	Net change in minimum pension liability:						Net change in minimum pension liability:

Net gain recognized during the period	Net gain recognized during the period	$	1	$	—		Net gain recognized during the period	$	—	$	1

Total pension liability, pretax	Total pension liability, pretax	1		—			Total pension liability, pretax	—		1
Tax expense		—		—
Tax benefit							Tax benefit	—		—
Net change in minimum pension liability, net of tax	Net change in minimum pension liability, net of tax	$	1	$	—		Net change in minimum pension liability, net of tax	$	—	$	1

For the three months ended September 30, 2022 and 2021, the changes in accumulated other comprehensive loss, net of tax by component are as follows:


(Dollars in millions)	Foreign Exchange Translation Adjustments		Pension and Liability Adjustments		Derivatives and Hedges		Marketable Securities		Other		Total
Balance at June 30, 2022	$	(378)	$	(38)	$	27	$	(4)	$	(1)	$	(394)
Other comprehensive (loss) income before reclassifications	(135)		—		14		—		—		(121)
Amounts reclassified from accumulated other comprehensive loss	—		—		—		1		—		1
Net current period other comprehensive (loss) income	(135)		—		14		1		—		(120)
Balance at September 30, 2022	$	(513)	$	(38)	$	41	$	(3)	$	(1)	$	(514)

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(Dollars in millions)	Foreign Exchange Translation Adjustments		Pension and Liability Adjustments		Derivatives and Hedges		Marketable Securities		Other		Total
Balance at June 30, 2021	$	(268)	$	(47)	$	—	$	(1)	$	(1)	$	(317)
Other comprehensive (loss) income before reclassifications	(14)		—		1		—		—		(13)
Amounts reclassified from accumulated other comprehensive loss	—		1		—		—		—		1
Net current period other comprehensive (loss) income	(14)		1		1		—		—		(12)
Balance at September 30, 2021	$	(282)	$	(46)	$	1	$	(1)	$	(1)	$	(329)

~~15.~~12. COMMITMENTS AND CONTINGENCIES

From time to time, the Company may be involved in legal proceedings arising in the ordinary course of business, including, without limitation, inquiries and claims concerning environmental contamination as well as litigation and allegations in connection with acquisitions, product liability, manufacturing or packaging defects, and claims for reimbursement for the cost of lost or damaged active pharmaceutical ingredients, the cost of any of which could be significant. The Company intends to vigorously defend itself against any such litigation and does not currently believe that the outcome of any such litigation will have a material adverse effect on the Company’s consolidated financial statements. In addition, the healthcare industry is highly regulated and government agencies continue to scrutinize certain practices affecting government programs and otherwise.

~~Table of Contents~~

From time to time, the Company receives subpoenas or requests for information relating to the business practices and activities of customers or suppliers from various governmental agencies or private parties, including from state attorneys general, the U.S. Department of Justice, and private parties engaged in patent infringement, antitrust, tort, and other litigation. The Company generally responds to such subpoenas and requests in a timely and thorough manner, which responses sometimes require considerable time and effort and can result in considerable costs being incurred. The Company expects to incur costs in future periods in connection with future requests.

~~16.~~13. SEGMENT INFORMATION

~~The Company conducts its business within the following operating segments: Biologics, Softgel and Oral Technologies, Oral and Specialty Delivery, and Clinical Supply Services.~~ The Company evaluates the performance of its segments based on segment earnings before other (expense) income, impairments, restructuring costs, interest expense, income tax expense, ~~(benefit),~~ and depreciation and amortization (“Segment EBITDA”).

Segment EBITDA is subject to important limitations. These consolidated financial statements include information concerning Segment EBITDA (a) because Segment EBITDA is an operational measure used by management in the assessment of the operating segments, the allocation of resources to the segments, and the setting of strategic goals and annual goals for the segments, and (b) in order to provide supplemental information that the Company considers relevant for the readers of the consolidated financial statements. The Company’s presentation of Segment EBITDA may not be comparable to similarly titled measures used by other companies.

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The following tables include ~~net revenue and~~ Segment EBITDA for each of the Company's current ~~reporting~~reportable segments during the three months ended September 30, ~~2021~~2022 and ~~2020:~~2021:

(Dollars in millions) Three Months Ended
September 30,
2021 2020
Net revenue:
Biologics $ 546 $ 377
Softgel and Oral Technologies 243 221
Oral and Specialty Delivery 146 159
Clinical Supply Services 96 93
Inter-segment revenue elimination (6) (4)
Total net revenue $ 1,025 $ 846


(Dollars in millions)	(Dollars in millions)	Three Months Ended September 30,				(Dollars in millions)	Three Months Ended September 30,
		2021		2020				(Dollars in millions)	2022			2021
Segment EBITDA reconciled to net earnings:	Segment EBITDA reconciled to net earnings:
Biologics	Biologics	$	166	$	107				Biologics	$	113		$	167
Softgel and Oral Technologies		41		38
Oral and Specialty Delivery		33		21
Clinical Supply Services		26		25
Pharma and Consumer Health									Pharma and Consumer Health	108			99

Sub-Total	Sub-Total	$	266	$	191				Sub-Total	$	221		$	266
Reconciling items to net earnings	Reconciling items to net earnings								Reconciling items to net earnings
Unallocated costs (1)	Unallocated costs (1)	(56)		(29)					Unallocated costs (1)	(87)			(56)
Depreciation and amortization	Depreciation and amortization	(81)		(69)					Depreciation and amortization	(99)			(81)
Interest expense, net	Interest expense, net	(26)		(26)					Interest expense, net	(32)			(26)
Income tax (expense) benefit		(10)		15
Income tax expense									Income tax expense	(3)			(10)

Net earnings	Net earnings	$	93	$	82				Net earnings	$	—		$	93

(1) Unallocated costs include restructuring and special items, stock-based compensation, gain on sale of subsidiary, impairment charges, certain other corporate directed costs, and other costs that are not allocated to the segments as follows:

~~Table of Contents~~

(Dollars in millions) Three Months Ended
September 30,
2021 2020
Impairment charges and gain (loss) on sale of assets $ (3) $ (2)
Stock-based compensation (21) (19)
Restructuring and other special items (a)
(8) (5)
Gain on sale of subsidiary (b)
1 —
Other (expense) income, net (c)
(9) 11
Unallocated corporate costs, net (16) (14)
Total unallocated costs $ (56) $ (29)


(Dollars in millions)	Three Months Ended September 30,
	2022		2021
Impairment charges and gain/loss on sale of assets	$	2	$	(3)
Stock-based compensation	(19)		(21)
Restructuring and other special items (a)	(9)		(8)
Gain on sale of subsidiary (b)	—		1



Other expense, net (c)	(25)		(9)
Unallocated corporate costs, net	(36)		(16)
Total unallocated costs	$	(87)	$	(56)

(a) Restructuring and other special items during the three months ended September 30, 2022 include (i) transaction costs associated with the Metrics Contracts Services (“Metrics”) acquisition and (ii) warehouse exit costs for a product the Company no longer manufactures in its respiratory and specialty platform.

Restructuring and other special items during the three months ended September 30, 2021 include (i) transaction and integration costs associated with the Delphi Genetics SA, Hepatic Cell Therapy Support SA, and RheinCell Therapeutics GmbH acquisitions (ii) transaction costs associated with the Bettera Holdings, LLC acquisition, and (iii) restructuring costs associated with the closure of the Company's ~~Clinical Supply Services~~ facility in Bolton, U.K. Restructuring and other special items during the three months ended September 30, 2020 include transaction and integration costs associated with acquisitions of facilities in Italy and Belgium, the disposal of a site in Australia, and other restructuring initiatives across the Company's network of sites.

(b) Gain on sale of subsidiary for the three months ended September 30, 2021 ~~is affiliated with~~was due to the sale of the ~~Blow-Fill-Seal Business.~~facility in Woodstock, Illinois and the associated business.

(c) ~~Refer to Note 8,~~ Other ~~Expense (Income), Net~~ ~~for details of~~expense, net during the three months ended September 30, 2022 includes foreign currency remeasurement losses/gains.

Other expense, net during the three months ended September 30, 2021 includes financing charges related to the Company’s Incremental Term B-3 Loans and foreign currency ~~translation adjustments recorded within other expense (income), net.~~remeasurement losses/gains.

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The following table includes total assets for each segment, as well as reconciling items necessary to total the amounts reported in the consolidated financial statements.


(Dollars in millions)	(Dollars in millions)	September 30, 2021		June 30, 2021		(Dollars in millions)	September 30, 2022		June 30, 2022
Assets:	Assets:					Assets:
Biologics	Biologics	$	5,027	$	4,973	Biologics	$	5,651	$	5,770
Softgel and Oral Technologies		1,577		1,604
Oral and Specialty Delivery		1,241		1,269
Clinical Supply Services		482		483
Pharma and Consumer Health						Pharma and Consumer Health	4,262		4,355

Corporate and eliminations	Corporate and eliminations	1,856		783		Corporate and eliminations	292		382
Total assets	Total assets	$	10,183	$	9,112	Total assets	$	10,205	$	10,507

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~~17.~~14. SUPPLEMENTAL BALANCE SHEET INFORMATION

Supplemental balance sheet information at September 30 ~~2021~~ and June 30, ~~2021~~2022 is detailed in the following tables.

Inventories

Work-in-process and inventories include raw materials, labor, and overhead. Total inventories consist of the following:


(Dollars in millions)	(Dollars in millions)	September 30, 2021		June 30, 2021		(Dollars in millions)	September 30, 2022		June 30, 2022
Raw materials and supplies	Raw materials and supplies	$	482	$	469	Raw materials and supplies	$	705	$	651
Work-in-process	Work-in-process	203		151		Work-in-process	119		109

Total inventories, gross	Total inventories, gross	685		620		Total inventories, gross	824		760
Inventory cost adjustment	Inventory cost adjustment	(63)		(57)		Inventory cost adjustment	(92)		(58)
Total inventories	Total inventories	$	622	$	563	Total inventories	$	732	$	702

Prepaid expenses and other

Prepaid expenses and other consist of the following:


(Dollars in millions)	(Dollars in millions)	September 30, 2021		June 30, 2021		(Dollars in millions)	September 30, 2022		June 30, 2022
Prepaid expenses	Prepaid expenses	$	64	$	46	Prepaid expenses	$	72	$	61

Contract assets		224		181
Short-term contract assets						Short-term contract assets	418		398

Spare parts supplies	Spare parts supplies	31		30		Spare parts supplies	21		22
Prepaid income tax	Prepaid income tax	23		22		Prepaid income tax	28		26

Non-U.S. value-added tax	Non-U.S. value-added tax	64		50		Non-U.S. value-added tax	34		48

Other current assets	Other current assets	53		47		Other current assets	59		70
Total prepaid expenses and other	Total prepaid expenses and other	$	459	$	376	Total prepaid expenses and other	$	632	$	625

Other accrued liabilities

Other accrued liabilities consist of the following:


(Dollars in millions)	(Dollars in millions)	September 30, 2021		June 30, 2021		(Dollars in millions)	September 30, 2022		June 30, 2022
Contract liabilities						Contract liabilities	$	135	$	185
Accrued employee-related expenses	Accrued employee-related expenses	$	155	$	184	Accrued employee-related expenses	137		198
Accrued expenses						Accrued expenses	109		140
Operating lease liabilities	Operating lease liabilities	14		16		Operating lease liabilities	13		14
Restructuring accrual	Restructuring accrual	2		4		Restructuring accrual	1		1

Accrued interest	Accrued interest	11		27		Accrued interest	21		32

Contract liabilities		283		305
Accrued income tax	Accrued income tax	25		30		Accrued income tax	42		50

Other		164		170
Total other accrued liabilities	Total other accrued liabilities	$	654	$	736	Total other accrued liabilities	$	458	$	620

~~18.~~15. SUBSEQUENT EVENTS

~~Bettera Holdings, LLC~~Drawdown on Revolving Credit Facility and Metrics Contract Services Acquisition

In October ~~2021,~~2022, the Company acquired ~~Bettera~~Metrics from Mayne Pharma Group Limited for ~~approximately $1.00 billion~~$475 million in cash, subject to customary adjustments. Metrics, based in Greenville, North Carolina, is an oral solids development and manufacturing business specializing in the manufacture of drugs containing highly potent active pharmaceutical ingredients. The Company funded this acquisition ~~through~~with a ~~combination~~portion of ~~additional borrowings under~~the proceeds of an October 2022 drawdown of $500 million from its senior secured revolving credit ~~facilities and~~facility. The Company is using the ~~net proceeds~~remainder of the ~~2030 Notes. For further detail on the Company’s additional borrowings and 2030 Notes, see Note 6,~~ ~~Long-Term Obligations and Short-Term Borrowings~~.drawdown for general corporate purposes.

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The operations and facility acquired have become part of the Company’s ~~Softgel~~Pharma and ~~Oral Technologies~~Consumer Health segment. The initial accounting for this acquisition is pending. Significant, relevant information needed to complete the initial accounting analysis is not yet available because the valuation of the assets acquired and liabilities assumed is not complete. As a result, ~~determining~~determination of these values is not practicable, and the Company ~~is unable to~~will disclose ~~these values or provide other related disclosures at this time.~~its preliminary allocation of the assets acquired in its next quarterly report.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company

We provide differentiated development and manufacturing solutions for drugs, protein-based biologics, cell and gene therapies, vaccines, and consumer health products at over fifty facilities across four continents under rigorous quality and operational standards. Our oral, injectable, and respiratory delivery technologies, along with our state-of-the-art protein and cell and gene therapy manufacturing capacity, address a wide and growing range of modalities and therapeutic and other categories across the biopharmaceutical and consumer health industries. Through our extensive capabilities, growth-enabling capacity, and deep expertise in product development, regulatory compliance, and clinical trial supply, we can help our customers take products to market faster, ~~including~~and have done so for nearly half of new drug products approved by the U.S. Food and Drug Administration (the “FDA”) in the last decade. Our development and manufacturing platforms, ~~which include those in our Biologics, Softgel and Oral Technologies, and Oral and Specialty Delivery segments,~~ our proven formulation, supply, and regulatory expertise, and our broad and deep development and manufacturing know-how enable our customers to advance and then bring to market more products and better treatments for patients and consumers. Our commitment to reliably supply our customers’ and their patients’ needs is the foundation for the value we provide; annually, we produce more than 7080 billion of doses for nearly ~~7,000~~8,000 customer products, or approximately 1 in every 2423 doses of such products taken each year by patients and consumers around the world. We believe that through our investments in state-of-the-art facilities and capacity expansion, including investments in facilities focused on new treatment modalities and other attractive market segments, our continuous improvement activities devoted to operational and quality excellence, the sales of existing and introduction of new customer products, and, in some cases, our innovation activities and patents, we will continue to attract premium opportunities and realize the growth potential from these areas.

~~We currently operate~~

Effective July 1, 2022, in ~~four~~connection with our change in Chief Executive Officer and Chief Operating Decision Maker, we adopted a new operating ~~segments, which~~structure with two operating and reportable segments: (i) Biologics, and (ii) Pharma and Consumer Health. Our Biologics segment provides the same services as the segment we reported in fiscal 2022, with some organizational adjustments and the addition of analytical development and testing services for large molecules that we previously disclosed as part of our prior Oral and Specialty Delivery segment. The Biologics segment as reorganized provides development and manufacturing for biologic proteins; cell, gene, and other nucleic acid therapies; plasmid DNA; induced pluripotent stem cells (iPSCs); and vaccines. It also ~~constitute~~provides formulation, development, and manufacturing for parenteral dose forms, including vials, prefilled syringes, and cartridges; and, as noted above, analytical development and testing services for large molecules. Our Pharma and Consumer Health segment, except as noted above, comprises the offerings of three of our ~~four reporting segments: Biologics,~~ prior reportable segments—Softgel and Oral Technologies,, Oral and Specialty Delivery and Clinical Supply ~~Services.~~

~~The COVID-19 Pandemic~~

~~Our response to COVID-19~~

~~Since~~Services—and comprises the ~~start of the COVID-19 pandemic, we have taken~~Company’s market-leading capabilities for complex oral solids, softgel formulations, Zydis® fast-dissolve technologies, and ~~continue to take steps to protect our employees, ensure the integrity~~gummy, soft chew, and ~~quality of our products~~lozenge dosage forms; formulation, development, and ~~services,~~manufacturing platforms for oral, nasal, inhaled, and ~~to maintain business continuity for our customers~~topical dose forms; and ~~their patients who depend on us to manufacture~~clinical trial development and supply ~~critical products~~services. Prior-period segment results were reclassified to conform to the market. To address the multiple dimensions of the pandemic, senior, multi-disciplinary teams reporting directly to our Chief Executive Officer have been continuously monitoring the global situation, executing mitigation activities whenever and wherever required, and implementing a phased and structured return to our facilities as circumstances have permitted for those employees who have been working remotely.

Among other things, we implemented measures to avoid or reduce infection or contamination in line with guidelines issued by the U.S. Centers for Disease Control and Prevention, the World Health Organization, and local authorities where we operate, re-emphasized good hygiene practices, restricted non-employee access to our sites, reorganized our workflows where permitted to maximize physical distancing, limited employee travel, facilitated safer alternatives to travel to and from work, and employed remote-working strategies. We have reviewed and will continue to analyze our supply chain to identify any risk, delay, or concern that may have an impact on our ability to deliver our services and products. To date, we have not identified any significant risk, delay, or concern that would have a substantial effect on such delivery. We have adopted various procedures to minimize and manage any future disruption to our ongoing operations, including the creation and activation of new and existing business continuity plans when needed. Our existing procedures, which are consistent with current good manufacturing practices and other regulatory standards, are intended to assure the integrity of our supply against any contamination. We have a detailed response plan to manage any impact of the virus on employee health, site operations, and product supply, including immediate assessment of the health of employees reporting symptoms, comprehensive risk assessment of any impact to quality, additional cleaning protocols, and alternative shift patterns to compensate should fewer employees be available.

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~~Impact of COVID-19 on Our Business and Results of Operations~~

We continue to assess any impact the COVID-19 pandemic may have on our business and results of operations. We have seen increased demand and significant revenue increases and the potential for further revenue increases from COVID-19-related products, particularly in our Biologics segment. As part of our response to the COVID-19 pandemic, we accelerated and enhanced certain of our capital improvement plans to expand capacity for manufacturing drug substance and drug product for protein-based biologics and cell and gene therapies, particularly at our drug product facilities in Bloomington, Indiana, Anagni, Italy, and our commercial-scale viral vector manufacturing facility in Maryland. We have also implemented various strategies to protect our financial condition and results of operations should we experience a reduction in demand for COVID-19 related products, such as ensuring contractual take-or-pay and minimum volume requirements for the manufacture of certain COVID-19 related products. However, the extent and duration of revenue associated with COVID-19-related products is uncertain and dependent, in important respects, on factors outside our control.

The COVID-19-vaccines we manufacture are still pending approval from the FDA and other non-U.S. regulatory authorities and may not receive approval. The future duration and extent of the COVID-19 pandemic and the future demand for COVID-19 vaccines and therapies is unknown. Public opinion of certain COVID-19 vaccines and therapies and the product owners and manufacturers can change quickly and affect the demand for certain products and services, although they should not affect any required minimum payment for a COVID-19 related product subject to a “take-or-pay” provision. In addition, any concentration of revenue from certain COVID-19 vaccine products enhances our operational risk with respect to quality, security, regulatory inspections and business disruption resulting from any unforeseen event that affects any of the facilities and communities in which we manufacture COVID-19 vaccines. Because some of our work on COVID-19 vaccines is performed under subcontracts to U.S. government contracts, new regulations affecting U.S. federal government prime and subcontractors may affect our operations, efficiency, and ability to deliver on our obligations to customers for COVID-19 vaccines, COVID-19 related products, and other unrelated products and services. We have implemented various mechanisms to protect our customers, their material and product, and our business continuity, such as enhanced security measures at certain facilities and heightened cybersecurity controls.period presentation.

Critical Accounting Policies and Estimates

We prepare our financial statements in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). Management made certain estimates and assumptions during the preparation of the consolidated financial statements in accordance with U.S. GAAP. These estimates and assumptions affect the reported amount of assets and liabilities and disclosures of contingent assets and liabilities in the consolidated financial statements. These estimates also affect the reported amount of net earnings during the reporting periods. Actual results could differ from those estimates. Because of the size of the financial statement elements to which they relate, some of our accounting policies and estimates have a more significant impact on the consolidated financial statements than others.

There was no material change to our critical accounting policies or in the underlying accounting assumptions and estimates from those described in our Fiscal ~~2021 10-K, other than recently adopted accounting principles disclosed in Note 1,~~ 2022 10-K.

~~Basis~~Table of ~~Presentation and Summary of Significant Accounting Policies~~ to the unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q (the “Consolidated Financial Statements”), which adoptions had no material impact on our financial condition or results of operations.Contents

Non-GAAP Metrics

EBITDA from operations

Management measures operating performance based on consolidated earnings from operations before interest expense, expense ~~(benefit)~~ for income taxes, and depreciation and amortization, adjusted for the income or loss attributable to non-controlling interests (“EBITDA from operations”). EBITDA from operations is not defined under U.S. GAAP, is not a measure of operating income, operating performance, or liquidity presented in accordance with U.S. GAAP, and is subject to important limitations.

We believe that the presentation of EBITDA from operations enhances an investor’s understanding of our financial performance. We believe this measure is a useful financial metric to assess our operating performance from period to period by excluding certain items that we believe are not representative of our core business and use this measure for business planning purposes. In addition, given the significant historical investments that we have made ~~in the past~~ in property, plant, and equipment, depreciation and amortization expenses represent a meaningful portion of our cost structure. We believe that EBITDA from operations will provide investors with a useful tool for assessing the comparability between periods of our ability to generate cash from operations sufficient to pay taxes, to service debt, and to undertake capital expenditures because it eliminates depreciation and amortization expense. We present EBITDA from operations in order to provide supplemental information that

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we consider relevant for the readers of our ~~Consolidated~~unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q (the “Consolidated Financial ~~Statements,~~Statements”), and such information is not meant to replace or supersede U.S. GAAP measures. Our definition of EBITDA from operations may not be the same as similarly titled measures used by other companies. The most directly comparable measure to EBITDA from operations defined under U.S. GAAP is net earnings. Included in this Management’s Discussion and Analysis is a reconciliation of net earnings to EBITDA from operations.

In addition, we evaluate the performance of our segments based on segment earnings before non-controlling interests, other expense (income) ~~expense,~~, impairments, restructuring costs, interest expense, income tax expense, ~~(benefit),~~ and depreciation and amortization (“Segment EBITDA”).

Use of Constant Currency

As exchange rates are an important factor in understanding period-to-period comparisons, we believe the presentation of results on a constant-currency basis in addition to reported results helps improve investors’ ability to understand our operating results and evaluate our performance in comparison to prior periods. Constant-currency information compares results between periods as if exchange rates had remained constant period-over-period. We use results on a constant-currency basis as one measure to evaluate our performance. In this Quarterly Report on Form 10-Q, we compute constant currency by calculating current-year results using prior-year foreign currency exchange rates. We generally refer to such amounts calculated on a constant-currency basis as excluding the impact of foreign currency exchange. These results should be considered in addition to, not as a substitute for, results reported in accordance with U.S. GAAP. Results on a constant-currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not measures of performance presented in accordance with U.S. GAAP.

Other Non-GAAP Measures

Organic revenue growth and Segment EBITDA growth are measures we use to explain the underlying results and trends in the business. Organic revenue growth and Segment EBITDA growth are measures used to show current year sales and earnings from existing operations. Organic revenue growth and Segment EBITDA growth exclude the impact of foreign currency exchange, acquisitions of operating or legal entities, and divestitures within the year. These measures should be considered in addition to, not as a substitute for, performance measures reported in accordance with U.S. GAAP. These measures, as we present them, may not be comparable to similarly titled measures used by other companies and are not measures of performance presented in accordance with U.S. GAAP.

Three Months Ended September 30, ~~2021~~2022 Compared to the Three Months Ended September 30, ~~2020~~2021

The below tables summarize several financial metrics we use to measure performance for the three months ended September 30, ~~2021~~2022 and ~~three months ended September 30, 2020.~~2021. Refer to the discussions below regarding performance and use of key financial metrics.

~~Results for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 were as follows:~~

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Three Months Ended
September 30, FX Impact Constant Currency Increase (Decrease)
(Dollars in millions) 2021 2020 Change $ Change %
Net revenue $ 1,025 $ 846 $ 7 $ 172 20 %
Cost of sales 701 597 4 100 17 %
Gross margin 324 249 3 72 29 %
Selling, general, and administrative expenses 183 165 1 17 11 %
Gain on sale of subsidiary (1) — — (1) *
Other operating expense 4 2 1 1 19 %
Operating earnings 138 82 1 55 67 %
Interest expense, net 26 26 1 (1) *
Other expense (income), net 9 (11) — 20 (171) %
Earnings before income taxes 103 67 — 36 52 %
Income tax expense (benefit) 10 (15) — 25 (168) %
Net earnings $ 93 $ 82 $ — $ 11 12 %

Results for the three months ended September 30, 2022 compared to the three months ended September 30, 2021 were as follows:


	Three Months Ended September 30,				FX Impact		Constant Currency Increase (Decrease)
(Dollars in millions)	2022		2021				Change $		Change %
Net revenue	$	1,022	$	1,025	$	(48)	$	45	4	%
Cost of sales	764		701		(36)		99		14	%
Gross margin	258		324		(12)		(54)		(16)	%
Selling, general, and administrative expenses	196		183		(6)		19		11	%

Gain on sale of subsidiary	—		(1)		—		1		*
Other operating expense, net	2		4		1		(3)		(72)	%

Operating earnings	60		138		(7)		(71)		(52)	%
Interest expense, net	32		26		(1)		7		26	%
Other expense, net	25		9		(5)		21		256	%
Earnings before income taxes	3		103		(1)		(99)		(96)	%
Income tax expense	3		10		(2)		(5)		(57)	%




Net earnings	$	—	$	93	$	1	$	(94)	(100)	%

Change % calculations are based on amounts prior to rounding

*Percentage not meaningful

Net Revenue


	~~2021~~2022 vs. ~~2020~~2021
Year-Over-Year Change	Three Months Ended September 30,
	Net Revenue
Organic	23 (1)	%
Impact of acquisitions	—5	%
~~Impact of divestitures~~	~~(3)~~		%
~~Constant currency~~Constant-currency change	204	%
Foreign currency translation impact on reporting	1 (4)	%
Total % change	21—	%

Net revenue increased ~~$172~~$45 million, or ~~20%~~4%, excluding the impact of foreign exchange, compared to the three months ended September 30, ~~2020.~~2021. Net revenue decreased 3%1% organically primarily due to a significant decline in demand for COVID-19

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related programs and a decline in revenue from the ~~sale~~manufacture of ~~Catalent USA Woodstock, Inc. (the “Blow-Fill-Seal Business”)~~prescription products, partially offset by a strong growth in ~~March 2021.~~ non-COVID programs, in particular, our cell and gene therapy offerings, as well as growth in our clinical development services.

Net revenue increased ~~23% organically on~~5% inorganically as a ~~constant-currency basis, primarily due to (i) robust end-market demand for our drug product~~result of acquisitions. We acquired RheinCell Therapeutics GmbH (“RheinCell”) in August 2021, Bettera Holdings, LLC (“Bettera Wellness”) in October 2021, and ~~drug substance offerings for COVID-19-related programs in our Biologics segment,~~a cell therapy commercial manufacturing facility and (ii) increased demand for our customers' prescription products, a return to growth in our consumer health products, particularly in cough, cold, and over-the-counter pain relief products, and growth in development services in our Softgel and Oral Technologies segment.operations near Princeton, New Jersey (“Princeton”).

Gross Margin

Gross margin ~~increased $72~~decreased $54 million, or ~~29%~~16%, compared to the three months ended September 30, ~~2020,~~2021, excluding the impact of foreign exchange, primarily ~~as a result~~due to lower levels of utilization across the ~~strong margin profile for~~network, an unfavorable shift in product mix and the impact from remediation-related activities at our drug product and drug substance offerings for COVID-19 related programs in our Biologics segment, a decline in costs in the Oral and Specialty Delivery segment associated with the voluntary U.S. recall of a recently launched product within our respiratory specialty platform, and increased demand for our prescription products and development growth in our Softgel and Oral Technologies segment, partially offset by an $10 million increase in depreciation and amortization expense.Brussels facility. On a constant-currency basis, gross margin, as a percentage of revenue, ~~increased 210~~decreased 630 basis points to ~~31.5%~~25.2% in the three months ended September 30, ~~2021,~~2022, compared to ~~29.4%~~31.5% in the prior-year period, primarily due to the factors described ~~above.~~

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in the immediately preceding sentence.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses increased ~~by $17~~$19 million, or 11%, compared to the three months ended September 30, ~~2020,~~2021, excluding the impact of foreign exchange, which includes $1$14 million in net incremental expenses from acquired ~~and divested~~ companies. The year-over-year increase in selling, general, and administrative expenses was primarily due to ~~a $10~~an $18 million increase in employee-related costs principally incurred for wages and bonuses, $3 million in increases in information technology expenses associated with additional cyber security initiatives, $3 million in transaction costs associated with our Bettera acquisition, and a $2$3 million increase in ~~stock-based compensation,~~amortization and depreciation, which ~~was~~were partially offset by $6a $15 million decline in ~~cost savings associated with~~ our ~~health and welfare benefit programs.~~provision for bad debt.

Other Operating Expense, net

Other operating expense for the three months ended September 30, ~~2021 remained consistent~~2022 decreased by $3 million, or 72%, compared to the three months ended September 30, ~~2020~~2021, when excluding the impact of foreign exchange. The year-over-year net decrease in other operating expense was primarily due to $4 million gain from sale of our facility in Bolton, U.K. that was recorded in the three months ended September 30, 2022.

Interest Expense, net

Interest expense, net of ~~$26~~$32 million for the three months ended September 30, ~~2021 was unchanged~~2022 increased $7 million, or 26%, compared to the three months ended September 30, ~~2020,~~2021, excluding the impact of foreign exchange. The ~~savings from repayment of our formerly outstanding term loans and 4.875% senior notes due 2026 were offset by~~increase was primarily attributable to incremental interest ~~expenses~~expense on our ~~new~~most recent tranche of term loans and our ~~newly outstanding~~U.S. dollar-denominated 3.500% ~~senior notes~~Senior Notes due ~~2030 (the “2030 Notes”). The year-over-year change also includes a $4 million reduction in capitalized interest costs for the three months ended September 30, 2021.~~2030.

For additional information concerning our debt and financing arrangements, including the changing mix of debt and equity in our capital structure, see “Liquidity and Capital Resources” below and Note 6,4, Long-Term Obligations and Short-Term Borrowings to our Consolidated Financial Statements.

Other Expense, ~~(Income),~~ net

Other expense, net of $25 million for the three months ended September 30, 2022 was primarily driven by $24 million of foreign currency losses.

Other expense, net of $9 million for the three months ended September 30, 2021 was primarily driven by $9 million of non-cash foreign currency translation losses and $4$4 million of financing charges related to our outstanding term loans, partially offset by a $2 million gain related to the change in fair value of the derivative liability arising from the dividend-adjustment mechanism of our ~~Series A Preferred Stock.~~

~~Other income, net~~formerly outstanding series of $11 million for the three months ended September 30, 2020 was primarily driven by a gain of $9 million related to the change in fair value of the derivative liability arising from the dividend-adjustment mechanism of our Series A Preferred Stock.preferred stock.

Income Tax Expense ~~(Benefit)~~

Our provision for income taxes for the three months ended September 30, 2022 was $3 million relative to earnings before taxes of $3 million. Our provision for income taxes for the three months ended September 30, 2021 ~~was~~of $10 million relative to earnings before income taxes of $103 million. ~~Our benefit for~~The relatively higher income ~~taxes for the three months ended September 30, 2020 was $15 million relative to~~tax provision on lower earnings before income taxes ~~of $67 million. The increased income tax provision for the current period was largely the result of an increase in the amount and relative mix~~reflects a reduction of pretax income ~~across several jurisdictions. This was partially offset by discrete~~in tax ~~benefits recognized in the quarter relating to equity compensation deductions~~jurisdictions with favorable tax rates and ~~to a lesser extent non-U.S.~~foreign tax credits claimed ~~on an amended U.S. federal income tax return filing. The~~in the prior-year quarter resulting from amended returns. Generally, fluctuations in the effective tax rate are due to changes in the geographic distribution of our pretax income resulting from our business mix, changes in the tax benefit was largely driven by the recognition of additional non-U.S. tax credits claimed on an amended U.S. federal income tax filing. The provision (benefit) for income taxes in each of these periods was also impacted by the relative amount and miximpact of permanent ~~tax adjustments included in the income tax computation~~differences, restructuring, special items, certain equity related compensation, and other discrete tax items ~~recognized in~~that may have unique tax implications depending on the ~~periods.~~nature of the item.

Segment Review

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The following charts depict the percentages of net revenue from each of our ~~four reporting~~two reportable segments for the three months ended September 30, ~~2021~~2022 compared to the three months ended September 30, ~~2020.~~2021. Refer below for discussions regarding each segment’s net revenue and EBITDA performance and to “Non-GAAP Metrics” for a discussion of our use of Segment EBITDA, a measure that is not defined under U.S. GAAP.

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Our results on a segment basis for the three months ended September 30, ~~2021~~2022 compared to the three months ended September 30, ~~2020~~2021 were as follows:


		Three Months Ended September 30,				FX Impact		Constant Currency Increase (Decrease)					Three Months Ended September 30,				FX Impact		Constant Currency Increase (Decrease)
(Dollars in millions)	(Dollars in millions)	2021		2020				Change $		Change %		(Dollars in millions)	2022		2021				Change $		Change %
Biologics	Biologics											Biologics
Net revenue	Net revenue	$	546	$	377	$	1	$	168	44	%	Net revenue	$	523	$	548	$	(15)	$	(10)	(2)	%
Segment EBITDA	Segment EBITDA	166		107		1		58		55	%	Segment EBITDA	113		167		1		(55)		(33)	%
Softgel and Oral Technologies
Pharma Consumer Health												Pharma Consumer Health
Net revenue	Net revenue	243		221		1		21		9	%	Net revenue	499		477		(34)		56		11	%
Segment EBITDA	Segment EBITDA	41		38		—		3		9	%	Segment EBITDA	108		99		(10)		19		20	%
Oral and Specialty Delivery
Net revenue		146		159		3		(16)		(10)	%
Segment EBITDA		33		21		1		11		48	%
Clinical Supply Services
Net revenue		96		93		2		1		2	%
Segment EBITDA		26		25		1		—		—	%
Inter-segment revenue elimination		(6)		(4)		—		(2)		(60)	%

Unallocated Costs (1)	Unallocated Costs (1)	(56)		(29)		(1)		(26)		(90)	%	Unallocated Costs (1)	(87)		(56)		5		(36)		67	%
Combined totals	Combined totals											Combined totals
Net revenue	Net revenue	$	1,025	$	846	$	7	$	172	20	%	Net revenue	$	1,022	$	1,025	$	(48)	$	45	4	%

EBITDA from operations	EBITDA from operations	$	210	$	162	$	2	$	46	29	%	EBITDA from operations	$	134	$	210	$	(4)	$	(72)	(34)	%

Change % calculations are based on amounts prior to rounding

(1) Unallocated costs include restructuring and special items, stock-based compensation, ~~gain on sale of subsidiary,~~ impairment charges, certain other corporate directed costs, and other costs that are not allocated to the segments as follows:

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		Three Months Ended September 30,					Three Months Ended September 30,
(Dollars in millions)	(Dollars in millions)	2021		2020		(Dollars in millions)	2022		2021
Impairment charges and gain (loss) on sale of assets		$	(3)	$	(2)
Impairment charges and gain/loss on sale of assets						Impairment charges and gain/loss on sale of assets	$	2	$	(3)
Stock-based compensation	Stock-based compensation	(21)		(19)		Stock-based compensation	(19)		(21)
Restructuring and other special items (a)	Restructuring and other special items (a)	(8)		(5)		Restructuring and other special items (a)	(9)		(8)
Gain on sale of subsidiary (b)	Gain on sale of subsidiary (b)	1		—		Gain on sale of subsidiary (b)	—		1

Other (expense) income, net (c)		(9)		11
Other expense, net (c)						Other expense, net (c)	(25)		(9)
Unallocated corporate costs, net	Unallocated corporate costs, net	(16)		(14)		Unallocated corporate costs, net	(36)		(16)
Total unallocated costs	Total unallocated costs	$	(56)	$	(29)	Total unallocated costs	$	(87)	$	(56)

(a) Restructuring and other special items during the three months ended September 30, ~~2021~~2022 include (i) transaction ~~and integration~~ costs associated with ~~the acquisitions of Delphi, Hepatic, and RheinCell, (ii) transaction costs relating to the Bettera~~our Metrics Contracts Services (“Metrics”) acquisition and ~~(iii) restructuring~~(ii) warehouse exit costs ~~associated with~~for a product the ~~closure of our Clinical Supply Services facility~~Company no longer manufactures in ~~Bolton, U.K.~~its respiratory and specialty platform. Restructuring and other special items during the three months ended September 30, ~~2020~~2021 include (a) transaction and integration costs associated with the acquisitions of ~~facilities~~Delphi Genetics SA, Hepatic Cell Therapy Support SA, and RheinCell, (b) transaction costs relating to the Bettera Wellness acquisition, and (c) restructuring costs associated with the closure of our facility in ~~Italy and Belgium, the disposal of a site in Australia, and other restructuring initiatives across our network of sites.~~Bolton, U.K.

(b) For the three months ended September 30, 2021, gain on sale of subsidiary ~~is affiliated with~~was due to the divestiture of our facility in Woodstock, Illinois and the ~~Blow-Fill-Seal Business.~~associated business.

(c) Refer to Note 8,6, Other Expense, ~~(Income),~~ Net for details ~~of financing charges and foreign currency translation adjustments~~ recorded within other expense, ~~(income),~~ net in our Consolidated Financial Statements.

Provided below is a reconciliation of net earnings to EBITDA from operations:


		Three Months Ended September 30,					Three Months Ended September 30,
(Dollars in millions)	(Dollars in millions)	2021		2020		(Dollars in millions)	2022		2021
Net earnings	Net earnings	$	93	$	82	Net earnings	$	—	$	93
Depreciation and amortization	Depreciation and amortization	81		69		Depreciation and amortization	99		81
Interest expense, net	Interest expense, net	26		26		Interest expense, net	32		26
Income tax expense (benefit)		10		(15)
Income tax expense						Income tax expense	3		10

EBITDA from operations	EBITDA from operations	$	210	$	162	EBITDA from operations	$	134	$	210

Biologics segment


		2021 vs. 2020					2022 vs. 2021
Year-Over-Year Change	Year-Over-Year Change	Three Months Ended September 30,				Year-Over-Year Change	Three Months Ended September 30,
		Net Revenue		Segment EBITDA			Net Revenue		Segment EBITDA
Organic	Organic	44	%	56	%	Organic	(2)	%	(31)	%
Impact of acquisitions	Impact of acquisitions	—	%	(1)	%	Impact of acquisitions	—	%	(2)	%
Constant currency change		44	%	55	%
Foreign exchange fluctuation		1	%	—	%
Constant-currency change						Constant-currency change	(2)	%	(33)	%
Foreign exchange translation impact on reporting						Foreign exchange translation impact on reporting	(3)	%	—	%
Total % change	Total % change	45	%	55	%	Total % change	(5)	%	(33)	%

Biologics net revenue increased by $168 million, or 44%, excluding the impact of foreign exchange, compared to the three months ended September 30, 2020. The increase was driven by robust end-market demand for our global drug product, and drug substance offerings, primarily related to demand for COVID-19 related programs.

Biologics Segment EBITDA increased by $58 million, or 55%, excluding the impact of foreign exchange, compared to the three months ended September 30, 2020. The increase was driven by robust end-market demand for our global drug product, and drug substance offerings, primarily related to demand for COVID-19 related programs.

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~~Softgel and Oral Technologies segment~~
2021 vs. 2020
Year-Over-Year Change Three Months Ended
September 30,
Net Revenue Segment EBITDA
Organic 9 % 9 %
Constant currency change 9 % 9 %
Foreign currency translation impact on reporting 1 % — %
Total % change 10 % 9 %

Softgel and Oral Technologies net revenue increased by $21 million, or 9%, excluding the impact of foreign exchange, compared to the three months ended September 30, 2020. The increase was driven by strong end-market demand for prescription products, a return to growth in our consumer health products, particularly in cough, cold, and over-the-counter pain relief products, and growth in development services within North America.

Softgel and Oral Technologies Segment EBITDA increased $3 million, or 9%, excluding the impact of foreign exchange, compared to the three months ended September 30, 2020. The increase, similar to that of net revenue, was driven by an increase in end-market demand in prescription products, a return to growth in our consumer health products, particularly in cough, cold, and over-the-counter pain relief products, and strong development growth.

~~Oral and Specialty Delivery segment~~

2021 vs. 2020
Year-Over-Year Change Three Months Ended
September 30,
Net Revenue Segment EBITDA
Organic 3 % 104 %
Impact of acquisitions 1 % (22) %
Impact of divestitures (14) % (34) %
Constant currency change (10) % 48 %
Foreign currency translation impact on reporting 2 % 7 %
Total % change (8) % 55 %

~~Oral and Specialty Delivery net revenue~~ decreased by $16 million, or 10%, excluding the impact of foreign exchange, compared to the three months ended September 30, 2020. Net revenue increased 3%, compared to the three months ended September 30, 2020, excluding the impact of acquisitions and divestitures, primarily driven by demand for early-phase development programs.

Oral and Specialty Delivery Segment EBITDA increased by $11 million, or 48%, excluding the impact of foreign exchange, compared to the three months ended September 30, 2020. Segment EBITDA increased 104%, compared to the three months ended September 30, 2020, excluding the impact of acquisitions and divestitures. The increase from prior-year period was primarily driven by the decrease in voluntary recall costs from a previously launched product in our respiratory and specialty platform and increased demand for early-phase development programs.

We completed the Acorda acquisition in February 2021, which increased net revenue and unfavorably impacted Segment EBITDA on an inorganic basis by 1% and 22%, respectively, in the three months ended September 30, 2021, compared to the corresponding prior-year period.

We completed the Blow-Fill-Seal divestiture in March 2021, which decreased net revenue and unfavorably impacted Segment EBITDA on an inorganic basis by 14% and 34%, respectively, in the three months ended September 30, 2021, compared to the corresponding prior-year period.

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~~Clinical Supply Services segment~~
2021 vs. 2020
Year-Over-Year Change Three Months Ended
September 30,
Net Revenue Segment EBITDA
Organic 2 % — %
Constant currency change 2 % — %
Foreign currency translation impact on reporting 1 % 3 %
Total % change 3 % 3 %

~~Clinical Supply Services net revenue increased by $1~~$10 million, or 2%, excluding the impact of foreign exchange, compared to the three months ended September 30, ~~2020.~~2021. The ~~increase~~decrease was primarily driven by a significant decline in demand for COVID-19 related programs, partially offset by strong growth in non-COVID programs, in particular, our ~~manufacturing~~cell and ~~packaging and storage and distribution offerings in North America.~~gene therapy offerings.

~~Clinical Supply Services~~Biologics Segment EBITDA ~~was unchanged when~~decreased by $55 million, or 33%, excluding the impact of foreign exchange, compared to the three months ended September 30, ~~2020. Strong~~2021. The decrease was primarily driven by a significant decline in demand infor COVID-19 related programs, lower levels of utilization across the Biologics network, as well as an unfavorable impact from

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remediation-related activities at our ~~manufacturing and packaging and storage and distribution offerings in North America was~~Brussels facility, partially offset by ~~initialization costs at new facilities~~strong growth in ~~North America~~non-COVID programs, in particular, for our cell and ~~Asia.~~gene therapy offerings.

We completed the acquisition of RheinCell in August 2021 and Princeton in April 2022. For the three months ended September 30, 2022, these acquisitions had an immaterial impact on our net revenue and Segment EBITDA compared to the corresponding prior-year period.

Pharma and Consumer Health segment


	2022 vs. 2021
Year-Over-Year Change	Three Months Ended September 30,
	Net Revenue		Segment EBITDA
Organic	1	%	8	%
Impact of acquisitions	10	%	12	%
Constant-currency change	11	%	20	%
Foreign currency translation impact on reporting	(7)	%	(11)	%
Total % change	4	%	9	%

Pharma and Consumer Health net revenue increased by $56 million, or 11%, excluding the impact of foreign exchange, compared to the three months ended September 30, 2021. The increase in organic revenue was primarily driven by growth in our clinical development services, partially offset by a decline in revenue from the manufacture of prescription products.

Pharma and Consumer Health Segment EBITDA increased $19 million, or 20%, excluding the impact of foreign exchange, compared to the three months ended September 30, 2021. The organic portion of the increase, similar to that of net revenue was driven by growth in our clinical development services, partially offset by a decline in prescription products revenue.

We completed the Bettera Wellness acquisition in October 2021, which increased net revenue and Segment EBITDA on an inorganic basis by 10% and 12%, respectively, in the three months ended September 30, 2022, compared to the corresponding prior-year period.

Liquidity and Capital Resources

Sources and Uses of Cash

Our principal sources of liquidity have been cash flows generated from operations and occasional capital market activities. The principal uses of cash are to fund operating and capital expenditures, business or asset acquisitions, interest payments on debt, the payment of the last portion of deferred purchase consideration from the Catalent Indiana, LLC acquisition, which we paid in October 2021, the payment of the quarterly dividend on the Series A Preferred Stock, and any mandatory or discretionary principal payment on our debt. At the current stated value of the Series A Preferred Stock outstanding as of September 30, 2021, the aggregate amount of each regular quarterly dividend, if paid in cash, is approximately $5 million. As of September 30, ~~2021,~~2022, Catalent Pharma Solutions, Inc., our principal operating subsidiary (“Operating Company”), following the September 2021 execution of Amendment No. 6 to the amended and restated credit agreement, dated as of May 20, 2014, governing our senior secured credit facilities (as amended, the “Credit Agreement”), had available a $725 million revolving credit facility that matures in May 2024, the capacity of which was reduced by $5$75 million in short-term borrowings and $4 million in letters of credit outstanding as of September 30, ~~2021.~~2022. The revolving credit facility includes borrowing capacity available for ~~letter~~sletters of credit and for short-term borrowings, referred to as swing-line borrowings.

OnIn October ~~1, 2021,~~2022, we acquired ~~Bettera Holdings, LLC ("Bettera") and paid approximately $1.00 billion~~Metrics for $475 million in ~~cash. Bettera is a manufacturer~~cash, funded with $500 million of ~~nutraceuticals specializing in gummy, soft chew, and lozenge delivery systems. We funded this acquisition through a combination of additional borrowings under~~incremental proceeds from our senior secured revolving credit ~~facilities and the net proceeds of the 2030 Notes.~~facility subsequent to September 30, 2022, subject to customary adjustments.

We believe that our cash on hand, cash from operations, and available borrowings under our revolving credit facility will be adequate to meet our ~~future~~ liquidity needs for at least the next ~~twelve~~12 months, ~~including our quarterly regular dividend on the Series A Preferred Stock, if paid in cash,~~ as well as the amounts expected to become due with respect to our pending capital projects. We have no significant maturity under any of our bank or note debt until the July 2027 maturity of our 5.000% senior notes due 2027 (the "2027 Notes”). As of September 30, 2021, we had only one remaining payment of $50 million, which was paid in October 2021, on the deferred purchase consideration for the acquisition of Catalent Indiana, LLC.

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Cash Flows

The following table summarizes our consolidated statements of cash flows:


		Three Months Ended September 30,							Three Months Ended September 30,
(Dollars in millions)	(Dollars in millions)	2021		2020		$ Change		(Dollars in millions)	2022		2021		$ Change
Net cash provided by (used in):	Net cash provided by (used in):							Net cash provided by (used in):
Operating activities	Operating activities	$	163	$	150	$	13	Operating activities	$	(92)	$	163	$	(255)
Investing activities	Investing activities	$	(167)	$	(151)	$	(16)	Investing activities	$	(116)	$	(167)	$	51
Financing activities	Financing activities	$	1,082	$	50	$	1,032	Financing activities	$	74	$	1,082	$	(1,008)

Operating Activities

For the three months ended September 30, ~~2021,~~2022, cash used in operations was $92 million compared to $163 million in cash provided by ~~operating activities was $163 million, compared to $150 million for the corresponding prior-year period. The increase in cash flow from~~ operating activities for the three months ended September 30, ~~2021 is~~2021. The year over year change was primarily due to ~~an increase~~a decrease in operating earnings, ~~which increased from $82 million in the corresponding prior-year period to $138 million for the three months ended September 30, 2021 and a favorable~~an unfavorable impact from ~~the~~inventory, and an unfavorable timing ofimpact on the collection of trade receivables ~~which was partially offset by an unfavorable impact from the increase in contract assets.~~and disbursements of accounts payable.

Investing Activities

For the three months ended September 30, ~~2021,~~2022, cash used in investing activities was ~~$167~~$116 million, compared to ~~$151~~$167 million for the three months ended September 30, ~~2020.~~2021. The ~~increase~~decrease in cash used in investing activities was primarily driven by athe decrease in payment for acquisitions, as no acquisitions were completed in the three months ended September 30, 2022, compared to $26 million ~~increase~~ in ~~cash used~~payments for ~~business acquisition activities and a $4 million increase in cash used for purchases of property, plant, and equipment, partially offset by $20 million in proceeds from~~acquisitions made during the ~~maturity of marketable securities.~~three months ended September 30, 2021.

Financing Activities

For the three months ended September 30, ~~2021,~~2022, cash provided by financing activities was ~~$1.08 billion,~~$74 million, compared to ~~$50 million~~cash provided by financing activities of $1.08 billion for the three months ended September 30, ~~2020.~~2021. The ~~increase~~decrease in cash provided by financing activities was primarily driven by a ~~$1.1~~$1.02 billion ~~increase net cash received~~decline in proceeds from the issuance of the 2030 Notes and incurrence of our new tranche of term loans. Cash provided by financing activities for the three months ended September 30, 2020 was primarily driven by the July 2020 exercise of an over-allotment option on 1.2 million additional shares by the underwriter for the equity offering in June 2020, resulting in net proceeds of $82 million.borrowings.

~~Guarantees and Security~~

~~The Senior Notes~~

All obligations under Operating Company's 2027 Notes, 2.375% euro-denominated senior notes due 2028, 3.125% senior notes due 2029, and 2030 Notes (collectively, the "Senior Notes") are general, unsecured, and subordinated to all existing and future secured indebtedness of the guarantors to the extent of the value of the assets securing such indebtedness. Each of the Senior Notes is separately guaranteed by all of our wholly owned U.S. subsidiaries that guarantee the senior secured credit facilities. None of the Senior Notes is guaranteed by either PTS Intermediate Holdings LLC or Catalent, Inc.

Debt Covenants

Senior Secured Credit Facilities

The Credit Agreement contains a number of covenants that, among other things, restrict, subject to certain exceptions, our (and our restricted subsidiaries’) ability to incur additional indebtedness or issue certain preferred shares; create liens on assets; engage in mergers and consolidations; sell assets; pay dividends and distributions or repurchase capital stock; repay subordinated indebtedness; engage in certain transactions with affiliates; make investments, loans, or advances; make certain acquisitions; enter into sale and leaseback transactions; amend material agreements governing our subordinated indebtedness; and change our lines of business.

The Credit Agreement also contains change-of-control provisions and certain customary affirmative covenants and events of default. The revolving credit facility requires compliance with a net leverage covenant when there is a 30% or more draw outstanding at a period end. As of September 30, ~~2021,~~2022, we were in compliance with all material covenants under the Credit Agreement.

~~Table of Contents~~

Subject to certain exceptions, the Credit Agreement permits us and our restricted subsidiaries to incur certain additional indebtedness, including secured indebtedness. None of our non-U.S. subsidiaries or our Puerto Rico subsidiary is a guarantor of the loans.

Under the Credit Agreement, our ability to engage in certain activities such as incurring certain additional indebtedness, making certain investments, and paying certain dividends is tied to ratios based on Adjusted EBITDA (which is defined as “Consolidated EBITDA” in the Credit Agreement). Adjusted EBITDA is based on the definitions in the Credit Agreement, is not defined under U.S. GAAP, and is subject to important limitations.

Table of cash on hand or the incurrence of new secured or unsecured debt. The amounts involved in any such purchase transaction, individually or in the aggregate, may be material. Any such purchase may be with respect to a substantial amount of a particular class or series of debt, with the attendant reduction in the trading liquidity of such class or series. In addition, any such purchase made at prices below the “adjusted issue price” (as defined for U.S. federal income tax purposes) may result in taxable cancellation of indebtedness income to us, which amounts may be material, or in related adverse tax consequences to us.Contents

The Senior Notes

The several indentures governing each series of the Senior Notes (collectively, the “Indentures”) contain certain covenants that, among other things, limit our ability to incur or guarantee more debt or issue certain preferred shares; pay dividends on, repurchase, or make distributions in respect of their capital stock or make other restricted payments; make certain investments; sell certain assets; create liens; consolidate, merge, sell; or otherwise dispose of all or substantially all of their assets; enter into certain transactions with their affiliates, and designate their subsidiaries as unrestricted subsidiaries. These covenants are subject to a number of exceptions, limitations, and qualifications as set forth in the Indentures. The Indentures also contain customary events of default, including, but not limited to, nonpayment, breach of covenants, and payment or acceleration defaults in certain other indebtedness of Operating Company or certain of its subsidiaries. Upon an event of default, either the holders of at least 30% in principal amount of each of the then-outstanding series of Senior Notes, or the applicable Trustee under the Indentures, may declare the applicable Senior Notes immediately due and payable; or in certain circumstances, the applicable Senior Notes will become automatically immediately due and payable. As of September 30, ~~2021,~~2022, Operating Company was in compliance with all material covenants under the Indentures.

Capital Resources

As market conditions warrant, we and our affiliates may from time to time seek to purchase our outstanding debt in privately negotiated or open-market transactions, by tender offer or otherwise. Subject to any applicable limitation contained in the Credit Agreement, any purchase made by us may be funded by the use of cash on hand or the incurrence of new secured or unsecured debt. The amounts involved in any such purchase transaction, individually or in the aggregate, may be material. Any such purchase may be with respect to a substantial amount of a particular class or series of debt, with the attendant reduction in the trading liquidity of such class or series. In addition, any such purchase made at prices below the “adjusted issue price” (as defined for U.S. federal income tax purposes) may result in taxable cancellation of indebtedness income to us, which amounts may be material, or in related adverse tax consequences to us.

Geographic Allocation of Cash

As of September 30 ~~2021~~ and June 30, ~~2021,~~2022, our non-U.S. subsidiaries held cash and cash equivalents of ~~$311~~$187 million and ~~$351~~$377 million, respectively, out of the total consolidated cash and cash equivalents of ~~$1.97 billion~~$281 million and ~~$896~~$449 million, respectively. These balances are dispersed across many locations around the world.

Interest Rate Risk Management

A portion of the debt used to finance our operations is exposed to interest-rate fluctuations. We may use various hedging strategies and derivative financial instruments to create an appropriate mix of fixed- and floating-rate assets and liabilities. In February 2021, we ~~replaced one~~entered into an interest-rate swap agreement with Bank of America N.A. ~~with another, and each~~that acts ~~or acted~~ as a hedge against the economic effect of a portion of the variable-interest obligation associated with our U.S. dollar-denominated term loans under our senior secured credit facilities, so that the interest payable on that portion of the debt becomes fixed at a certain rate, thereby reducing the impact of future interest-rate changes on future interest expense. The applicable rate for the U.S. dollar-denominated term loan under the Credit Agreement was LIBOR (subject to a floor of 0.50%) plus 2.00% as of September 30, ~~2021;~~2022; however, as a result of ~~the~~this interest-rate swap agreement, the ~~floating~~variable portion of the applicable rate on $500 million of the term loan was effectively fixed at 0.9985% as of ~~September 30,~~February 2021.

Currency Risk Management

We are exposed to fluctuations in the euro-U.S. dollar exchange rate on our investments in our operations in Europe. While we do not actively hedge against changes in foreign currency, we have mitigated the exposure of our investments in our European operations by denominating a portion of our debt in euros. At September 30, ~~2021,~~2022, we had ~~$965~~$794 million of euro-denominated debt outstanding that qualifies as a hedge of a net investment in European operations. Refer to Note ~~10,~~7, Derivative Instruments and Hedging Activities, to our Consolidated Financial Statements for further discussion of net investment hedge activity in the period.

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From time to time, we may use forward foreign currency exchange contracts to manage our exposure to the variability of cash flows primarily related to the foreign exchange rate changes of future foreign currency transaction costs. In addition, we may use such contracts to protect the value of existing foreign currency assets and liabilities. Currently, we do not use any forward foreign currency exchange contracts. We continue to evaluate hedging opportunities for foreign currency in the future.

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Off-Balance Sheet Arrangements

Other than short-term operating leases and outstanding letters of credit as discussed above, we do not have any material off-balance sheet arrangement as of September 30, ~~2021.~~2022.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~We are exposed to cash flow~~For a discussion of our quantitative and ~~earnings fluctuations as a result of certain market risks. These~~qualitative disclosures about market risks, ~~primarily relate to changes~~see the section titled Quantitative and Qualitative Disclosures About Market Risks in ~~interest rates associated with~~ our ~~long-term debt obligations and foreign exchange rate changes.~~

~~Interest Rate Risk~~

We have historically used interest-rate swaps to manage the economic effect of variable-rate interest obligations associated with our floating-rate term loans so that the interest payable on the term loans effectively becomes fixed at a certain rate, thereby reducing the impact of future interest-rate changes on our future interest expense.

In February 2021, we replaced one interest-rate swap agreement with Bank of America N.A. with another, and each acts or acted as a hedge against the economic effect of a portion of the variable-interest obligation associated with our term loans under our senior secured credit facilities, so that the interest payable on that portion of the debt becomes fixed at a certain rate, thereby reducing the impact of future interest-rate changes on future interest expense. The applicable rate for the U.S. dollar-denominated term loan under our Credit Agreement was LIBOR (subject to a floor of 0.50%) plus 2.00% asFiscal 2022 10-K. As of September 30, ~~2021; however, as a result of the interest-rate swap agreement, the floating portion of the applicable rate on $500 million of the term loan was effectively fixed at 0.9985% as of September 30, 2021.~~

~~Foreign Currency Exchange Risk~~

~~By the nature of our global operations, we are exposed to cash flow and earnings fluctuations resulting from foreign exchange rate variation. These exposures are transactional and translational~~2022, there has been no material change in ~~nature. Since we manufacture and sell our products throughout the world, our foreign-currency risk is diversified. Principal drivers of~~ this diversified foreign-exchange exposure include the European euro, British pound, Argentinean peso, and Brazilian real. Our transactional exposure arises from the purchase and sale of goods and services in currencies other than the functional currency of our operational units. We also have exposure related to the translation of financial statements of our non-U.S. subsidiaries into U.S. dollars, our functional currency. The financial statements of our operations outside the U.S. are measured using the local currency as the functional currency, except in Argentina. Adjustments to translate the assets and liabilities of these non U.S. operations in U.S. dollars are accumulated as a component of accumulated other comprehensive income (loss) utilizing period-end exchange rates. Foreign-currency transaction gains and losses calculated by utilizing weighted average exchange rates for the period are included in the statements of operations in other expense (income), net. Such foreign-currency transaction gains and losses include inter-company loans denominated in non-U.S. dollar currencies.information.

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ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Senior Vice President and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any control or procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management, with the participation of our Chief Executive Officer and our Senior Vice President and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Chief Executive Officer and our Senior Vice President and Chief Financial Officer concluded that, as of September 30, ~~2021,~~2022, our disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

~~During the three months ended September 30, 2021, there have been~~There was no ~~changes in the Company’s~~change that materially affected, or is reasonably likely to materially affect, Catalent’s internal control over financial reporting that ~~have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.~~occurred during the period covered by this Quarterly Report on Form 10-Q.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may be involved in legal proceedings arising in the ordinary course of business, including, without limitation, inquiries and claims concerning environmental contamination as well as litigation and allegations in connection with acquisitions, product liability, manufacturing or packaging defects, and claims for reimbursement for the cost of lost or damaged active pharmaceutical ingredients, the cost of any of which could be significant. We intend to vigorously defend ourselves against any such litigation and do not currently believe that the outcome of any such litigation will have a material adverse effect on our consolidated financial statements. In addition, the healthcare industry is highly regulated, and government agencies continue to scrutinize certain practices affecting government programs and otherwise.

From time to time, we receive subpoenas or requests for information relating to the business practices and activities of customers or suppliers from various governmental agencies or private parties, including from state attorneys general, the U.S. Department of Justice, and private parties engaged in patent infringement, antitrust, tort, and other litigation. We generally respond to such subpoenas and requests in a timely and thorough manner, which responses sometimes require considerable time and effort and can result in considerable costs being incurred. We expect to incur costs in future periods in connection with future requests.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in the section entitled “Risk Factors” in our Fiscal ~~2021~~2022 10-K, which could materially affect our business, financial condition, or future results. The risks described in such report are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, or operating results.

Other than what was disclosed in the Special Note Regarding Forward-Looking Statements, there has been no material change to the risk factors disclosed in our Fiscal ~~2021~~2022 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

Purchase of Equity Securities

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

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ITEM 6. EXHIBITS

Exhibits:




~~2.1~~						Membership Interest Purchase Agreement, dated August 29, 2021, by and among Catalent Pharma Solutions, Inc., Bettera Holdings, LLC, the members of Bettera Holdings, LLC, and Highlander Partners Candy, LLC (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on August 30, 2021).

4.1						Indenture, dated September 29, 2021, by and among Catalent Pharma Solutions, Inc., the subsidiary guarantors named therein, and Deutsche Bank Trust Company Americas, as trustee (incorporated by reference to exhibit 4.1 toDescription of the Company’s ~~Current Report on Form 8-K filed on September 29, 2021).~~

~~4.1.1~~						~~Form of 3.500% Senior Notes due 2030 (included as part of Exhibit 4.1 above).~~Common Stock, par value $0.01 per share. *

10.1						~~Amendment No. 6 to Amended and Restated Credit Agreement, dated as of September 29, 2021, by and among~~ Catalent, ~~Pharma Solutions,~~ Inc., PTS Intermediate Holdings LLC, JP Morgan Chase Bank, N.A., as the administrative agent, collateral agent, swing line lender, and letter of credit issuer, and the lenders and other parties thereto, which amends that certain Amended and Restated Credit Agreement, dated as of May 20, 2014 (as amended), by and among Catalent Pharma Solutions, Inc., PTS Intermediate Holdings LLC, JP Morgan Chase Bank, N.A., as the successor administrative agent, collateral agent, swing line lender, and letter of credit issuer, and the lenders and other parties thereto 2018 Omnibus Incentive Plan (incorporated by reference to ~~exhibit~~Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on ~~September 29,~~November 6, 2018). †

10.2						Management Incentive Plan Summary for the fiscal year ending June 30, 2022 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on November 2, 2021). †














~~10.2~~10.3						~~Form of~~ Management Incentive Plan Summary for the fiscal year ending June 30, 2023 †*

10.4						Offer letter, dated July 7, 2022, between Catalent, Inc. and Steven Fasman (incorporated by reference to Exhibit 10.12.1 to the Company’s Annual Report on Form 10-K filed on August 29, 2022). †

10.5						Offer Letter, dated July 27, 2022, by and between Catalent, Inc. and Thomas Castellano. †*

10.6						Catalent Pharma Solutions, Inc. Deferred Compensation Plan, as amended and restated effective October 1, 2022. † †

10.7						Form of Restricted Stock Unit Agreement for U.S. Non-Employee Directors (fiscal 2023) †*

10.7-1						Form of Restricted Stock Unit Agreement for non-U.S. Non-Employee Directors (fiscal 2023) †*

10.7-2						Form of 2018 Omnibus Incentive Plan Restricted Stock Unit Agreement for U.S. Employees (fiscal 2023) †*

10.7-3						Form of 2018 Omnibus Incentive Plan Restricted Stock Unit Agreement for non-U.S. Employees (fiscal 2023) †*

10.7-4						Form of 2018 Omnibus Incentive Plan Option Agreement for U.S. Employees (fiscal 2023) †*

10.7-5						Form of 2018 Omnibus Incentive Plan Option Agreement for non-U.S. Employees (fiscal 2023) †*

10.7-6						Form of 2018 Omnibus Incentive Plan Performance Share Unit Agreement for U.S. Employees (fiscal 2023) †*

10.7-7						Form of 2018 Omnibus Incentive Plan Performance Share Unit Agreement for Non-U.S. Employees (fiscal 2023) †*



31.1						Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended. *

31.2						Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended. *

32.1						Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **

32.2						Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **

101						The following financial information from Catalent, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2021~~2022 formatted in inline XBRL: (i) Consolidated Statements of Operations for the Three Months Ended September 30, ~~2021~~2022 and ~~2020;~~2021; (ii) Consolidated Statements of Comprehensive Income for the Three Months Ended September 30, ~~2021~~2022 and ~~2020~~2021 (iii) Consolidated Balance Sheets as of September 30, ~~2021~~2022 and June 30, ~~2021;~~2022; (iv) Consolidated Statement of Changes in Shareholders’ Equity ~~as of~~for the Three Months Ended September 30, ~~2021~~2022 and ~~2020;~~2021; (v) Consolidated Statements of Cash Flows for the Three Months Ended September 30, ~~2021~~2022 and ~~2020;~~2021; and (vi) Notes to Unaudited Consolidated Financial Statements.

104						The cover page of this Quarterly Report on Form 10-Q, formatted as Inline XBRL and contained in Exhibit 101.


*						Filed herewith
**						Furnished herewith
†						Represents a management contract, compensatory plan or arrangement in which directors and/or executive officers are eligible to participate.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CATALENT, INC.

(Registrant)

Date:

November ~~2, 2021~~1, 2022

By:

/s/ ~~RICKY HOPSON~~KAREN SANTIAGO

~~Ricky Hopson~~Karen Santiago

Vice President and Chief Accounting Officer

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Columns may not foot due to rounding	Shares of Common Stock	Common Stock		Additional Paid in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Shareholders' Equity		Redeemable Preferred Stock
Balance at June 30, 2020	162,788	$	2	$	3,819	$	(535)	$	(386)	$	2,900	$	607



Equity offering, sale of common stock	1,162	—		82		—		—		82		—
Share issuances related to stock- based compensation	617	—		—		—		—		—		—
Stock-based compensation	—	—		19		—		—		19		—
Cash paid, in lieu of equity, for tax withholding	—	—		(20)		—		—		(20)		—

Employee stock purchase plan				1						1
Preferred dividend	—	—		—		(8)		—		(8)		—
Net earnings	—	—		—		82		—		82		—
Other comprehensive income, net of tax	—	—		—		—		16		16		—
Balance at September 30, 2020	164,567	$	2	$	3,901	$	(461)	$	(370)	$	3,072	$	607


Three Months Ended September 30, 2020	Biologics		Softgel and Oral Technologies		Oral and Specialty Delivery		Clinical Supply Services		Total
Manufacturing & commercial product supply	$	90	$	190	$	104	$	—	$	384
Development services	287		31		55		—		373
Clinical supply services	—		—		—		93		93
Total	$	377	$	221	$	159	$	93	$	850
			Inter-segment revenue elimination						(4)
					Combined net revenue				$	846


(Dollars in millions)	Weighted Average Life	Gross Carrying Value		Accumulated Amortization		Net Carrying Value
September 30, 2021
Amortized intangibles:
Core technology	19 years	$	139	$	(95)	$	44
Customer relationships	13 years	1,018		(321)		697
Product relationships	8 years	252		(210)		42
Other	5 years	19		(9)		10


Total other intangibles		$	1,428	$	(635)	$	793


(Dollars in millions)	Remainder Fiscal 2022		2023		2024		2025		2026		2027
Amortization expense	$	69	$	92	$	91	$	90	$	82	$	69