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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 ______________________________
FORM 10-Q
______________________________ 
ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
or
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
001-36587
(Commission File Number)
ctlt-20220930_g1.jpg
 _____________________________
Catalent, Inc.
(Exact name of registrant as specified in its charter)
_____________________________ 
     Delaware 20-8737688
        (State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
       14 Schoolhouse Road
                   Somerset, New Jersey08873
                     (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 classTrading symbols(s)Name of each exchange on which registered
Common StockCTLTNew York Stock Exchange

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


CATALENT, INC.
Index to Form 10-Q
For the Three Months Ended September 30, 2022
 
ItemPage
Part I.
Item 1.
Item 2.
Item 3.
Item 4.
Part II.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

2

Special Note Regarding Forward-Looking Statements
In addition to historical information, this Quarterly Report on Form 10-Q 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, 2022 (the “Fiscal 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 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 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.
3

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 continuously 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 such systems.
We provide services incorporating various advanced modalities, including protein and plasmid production and cell and gene therapies, and these modalities relate to relatively new modes of treatment 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 businesses, or obtain regulatory approvals for their therapies, and thereby adversely affect these offerings.

Risks Relating to Our Indebtedness

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 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, 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 (catalent.com), our corporate Facebook page (https://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.
4

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,
20222021
Net revenue$1,022 $1,025 
Cost of sales764 701 
Gross margin258 324 
Selling, general, and administrative expenses196 183 
Gain on sale of subsidiary (1)
Other operating expense, net2 4 
Operating earnings60 138 
Interest expense, net32 26 
Other expense, net25 9 
Earnings before income taxes 3 103 
Income tax expense3 10 
Net earnings 93 
Less: Net earnings attributable to preferred shareholders (9)
Net earnings attributable to common shareholders$ $84 
Earnings per share:
Basic
Net earnings$ $0.49 
Diluted
Net earnings$ $0.49 











The accompanying notes are an integral part of these unaudited consolidated financial statements.
5

Catalent, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited; dollars in millions)


Three Months Ended  
September 30,
20222021
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 securities1  
Derivatives and hedges14 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.
6

Catalent, Inc.
Consolidated Balance Sheets
(Unaudited; in millions, except share and per share data)
 
September 30,
2022
June 30,
2022
ASSETS
Current assets:
Cash and cash equivalents $281 $449 
Trade receivables, net of allowance for credit losses of $24 and $29, respectively
989 1,051 
Inventories732 702 
Prepaid expenses and other 632 625 
Marketable securities64 89 
Total current assets 2,698 2,916 
Property, plant, and equipment, net of accumulated depreciation of $1,358 and $1,347, respectively
3,167 3,127 
Other assets:
Goodwill2,929 3,006 
Other intangibles, net1,017 1,060 
Deferred income taxes45 49 
Other long-term assets349 349 
Total assets $10,205 $10,507 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations and other short-term borrowings $106 $31 
Accounts payable 379 421 
Other accrued liabilities 458 620 
Total current liabilities 943 1,072 
Long-term obligations, less current portion 4,098 4,171 
Pension liability98 103 
Deferred income taxes214 202 
Other liabilities152 164 
Commitment and contingencies (see Note 12)— — 
Total liabilities5,505 5,712 
Shareholders' equity:
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
  
Additional paid in capital4,674 4,649 
Retained earnings538 538 
Accumulated other comprehensive loss(514)(394)
Total shareholders' equity4,700 4,795 
Total liabilities and shareholders' equity$10,205 $10,507 


The accompanying notes are an integral part of these unaudited consolidated financial statements.
7

Catalent, Inc.
Consolidated Statement of Changes in Shareholders' Equity
(Unaudited; dollars in millions, except share data in thousands)
 


Three Months Ended September 30, 2022
Shares of Common StockCommon StockAdditional Paid in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal Shareholders' EquityRedeemable Preferred Stock
Balance at June 30, 2022179,302 $2 $4,649 $538 $(394)$4,795 $ 
Share issuances related to stock-
     based compensation
599  — — —  — 
Stock-based compensation— — 19 — — 19 — 
Net cash received, in lieu of
   equity, for tax withholding
   obligations
— — 2 — — 2 — 
Exercise of stock options— — 1 — — 1 — 
Employee stock purchase plan— — 3 — — 3 — 
Net earnings— — —  —  — 
Other comprehensive loss, net
of tax
— — — — (120)(120)— 
Balance at September 30, 2022179,901 $2 $4,674 $538 $(514)$4,700 $ 




Three Months Ended September 30, 2021
Shares of Common StockCommon StockAdditional Paid in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal Shareholders' EquityRedeemable Preferred Stock
Balance at June 30, 2021170,549 $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, 2021171,033 $2 $4,234 $114 $(329)$4,021 $359 



The accompanying notes are an integral part of these unaudited consolidated financial statements.
8

Catalent, Inc.
Consolidated Statements of Cash Flows
(Unaudited; dollars in millions)
Three Months Ended September 30,
20222021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings$ $93 
Adjustments to reconcile net earnings to net cash from operations:
Depreciation and amortization99 81 
Non-cash foreign currency transaction loss, net27 9 
Amortization of debt issuance costs
2 2 
Impairments charges and loss/gain on sale of assets, net
(2)3 
Gain on sale of subsidiary (1)
Financing-related charges 4 
Gain on derivative instrument (2)
Stock-based compensation
19 21 
Benefit from deferred income taxes(4)(8)
Provision for bad debts and inventory28 10 
Change in operating assets and liabilities:
Decrease in trade receivables31 185 
Increase in inventories(85)(63)
Decrease in accounts payable(52)(6)
Other assets/accrued liabilities, net—current and non-current
(155)(165)
Net cash (used in) provided by operating activities(92)163 
CASH FLOWS USED IN INVESTING ACTIVITIES:
Acquisition of property, equipment, and other productive assets(149)(154)
Proceeds from sale of marketable securities24 20 
Proceeds from sale of property and equipment6  
Settlement on sale of subsidiaries, net (3)
Payment for acquisitions, net of cash acquired (26)
Proceeds from (payment for) investments3 (4)
Net cash used in investing activities(116)(167)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowing, net75 1,096 
Payments related to long-term obligations(7)(3)
Financing fees paid
 (15)
Dividends paid (4)
Cash received (paid), in lieu of equity, for tax-withholding obligations2 (4)
Exercise of stock options1 8 
Other financing activities3 4 
Net cash provided by financing activities74 1,082 
Effect of foreign currency exchange on cash and cash equivalents(34)(5)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS(168)1,073 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD449 896 
CASH AND CASH EQUIVALENTS AT END OF PERIOD$281 $1,969 
SUPPLEMENTARY CASH FLOW INFORMATION:
Interest paid$46 $40 
Income taxes paid, net$11 $15 

The accompanying notes are an integral part of these unaudited consolidated financial statements.
9

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, 2022 are not necessarily indicative of the results that may be expected for the year ending June 30, 2023. The consolidated balance sheet at June 30, 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, 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 were reclassified to conform to the current period presentation.

Foreign Currency Translation
10

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
Depreciation expense was $66 million and $58 million for the three months ended September 30, 2022 and 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 the three months ended September 30, 2022 and 2021, 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, 2022, the amortized cost basis of marketable securities approximates fair value and all outstanding marketable securities mature within one year.
Recent Financial Accounting Standards
New Accounting Standards Not Adopted as of September 30, 2022

In March 2020, the FASB issued 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.
11

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 two primary revenue streams: (i) manufacturing and commercial product supply, and (ii) development 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 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.

12

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 reflect net revenue for the three months ended September 30, 2022 and 2021, by type of activity and reportable segment (in millions):
Three Months Ended September 30, 2022BiologicsPharma and Consumer HealthTotal
Manufacturing & commercial product supply$94 $292 $386 
Development services & clinical supply429 207 636 
Total$523 $499 $1,022 
Three Months Ended September 30, 2021BiologicsPharma and Consumer HealthTotal
Manufacturing & commercial product supply$134 $276 $410 
Development services & clinical supply414 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,
(Dollars in millions)20222021
United States$697 $630 
Europe274351
Other8272
Elimination of revenue attributable to multiple locations(31)(28)
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 balances (current and non-current) as of September 30, 2022 and June 30, 2022 are as follows:
(Dollars in millions)
Balance at June 30, 2022$194 
Balance at September 30, 2022$145 
Revenue recognized in the period from amounts included in contracts liability at the beginning of the period:$(91)

Contract liabilities that will be recognized within 12 months of September 30, 2022 are accounted for in Other accrued liabilities and those that will be recognized longer than 12 months after September 30, 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 customers as of September 30, 2022 relating to the Company's development services but had not yet been invoiced as of September 30, 2022. Contract assets are transferred to trade receivables, net when the Company’s right to receive the consideration becomes unconditional. Contract assets totaled $461 million and $441 million as of September 30, 2022 and June 30, 2022, respectively. Contract assets expected to transfer to trade receivables within 12 months are accounted for within Prepaid expenses and other. Contract assets expected to transfer to trade receivables longer than 12 months are accounted for within Other long-term assets.
3.    GOODWILL
The following table summarizes the changes between June 30, 2022 and September 30, 2022 in the carrying amount of goodwill in total and by segment:
(Dollars in millions)BiologicsPharma and Consumer HealthTotal
Balance at June 30, 2022 (1)
$1,535 $1,471 $3,006 
Reallocation16 (16) 
Foreign currency translation adjustments(33)(44)(77)
Balance at September 30, 2022$1,518 $1,411 $2,929 

(1) As of 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 result of this realignment, the Company performed an interim quantitative goodwill impairment test for all of its reporting units as of July 1, 2022, which did not result in any goodwill impairment charges.


14

4.    LONG-TERM OBLIGATIONS AND SHORT-TERM BORROWINGS
Long-term obligations and short-term borrowings consisted of the following at September 30, 2022 and June 30, 2022:
(Dollars in millions)MaturitySeptember 30, 2022June 30, 2022
Senior secured credit facilities
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)
May 202475  
5.000% senior notes due 2027July 2027500 500 
2.375% euro senior notes due 2028(2)
March 2028794 874 
3.125% senior notes due 2029February 2029550 550 
3.500% senior notes due 2030April 2030650 650 
Financing lease obligations2022 to 2038243 234 
Other obligations2022 to 20282 2 
Unamortized discount and debt issuance costs(39)(41)
Total debt$4,204 $4,202 
Less: current portion of long-term obligations and other short-term
     borrowings
106 31 
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 was primarily due to large fluctuations in foreign currency exchange rates.
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 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 and June 30, 2022 are as follows:

September 30, 2022June 30, 2022
(Dollars in millions)Fair Value Measurement
Carrying
Value
Estimated Fair
Value
Carrying
Value
Estimated Fair
Value
5.000% senior notes due 2027Level 2$500 $461 $500 $483 
2.375% Euro senior notes due 2028Level 2794 649 874 744 
3.125% senior notes due 2029Level 2550 457 550 476 
3.500% senior notes due 2030Level 2650 552 650 561 
Senior secured credit facilities & otherLevel 21,749 1,609 1,669 1,575 
Subtotal$4,243 $3,728 $4,243 $3,839 
Unamortized discount and debt issuance costs(39) (41) 
Total debt$4,204 $3,728 $4,202 $3,839 

15

5.    EARNINGS PER SHARE
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 11, (Equity and Accumulated Other Comprehensive 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. Prior to fiscal 2023, the Company 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 months ended September 30, 2022 and 2021, respectively, are as follows:

Three Months Ended  
September 30,
(In millions except per share data)20222021
Net earnings$ $93 
Less: Net earnings attributable to preferred shareholders (9)
Net earnings attributable to common shareholders$ $84 
Weighted average shares outstanding - basic180 171 
Weighted average dilutive securities issuable - stock plans1 1 
Weighted average shares outstanding - diluted181 172 
Earnings per share: 
Basic$ $0.49 
Diluted$ $0.49 

The Company's Series A Preferred Stock was deemed a participating security, meaning that it had the right to participate in undistributed earnings with the Company's Common Stock. On November 23, 2020, 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 converted the remaining 384,777 shares of Series A Preferred Stock and $2 million of unpaid accrued dividends into shares of Common Stock.

The diluted weighted average number of shares outstanding as of September 30, 2022 and 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)20222021
Series A Preferred Stock 8 
16

6.    OTHER EXPENSE, NET
The components of other expense, net for the three months ended September 30, 2022 and 2021 are as follows:
Three Months Ended  
September 30,
(Dollars in millions)20222021
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 senior secured credit facilities (the “Incremental Term B-3 Loans”).
(2)    Foreign currency remeasurement losses include both cash and non-cash transactions.
(3)    Other, for the three months ended September 30, 2021, includes a gain of $2 million related to the fair value of the derivative liability associated with the formerly outstanding Series A Preferred Stock.
7.    DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Risk Management Objective of Using Derivatives
The Company is exposed to fluctuations in the currency exchange rates 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 exposure from its investments in its European operations by denominating a portion of its debt in euros. At September 30, 2022, the Company had euro-denominated debt outstanding of $794 million (U.S. dollar equivalent), which is designated and qualifies as a hedge 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 unhedged portions of the euro-denominated debt translation gains or losses are reported in the consolidated statements of operations. The following table summarizes net investment hedge activity during the three months ended September 30, 2022 and 2021.
Three Months Ended  
September 30,
(Dollars in millions)20222021
Unrealized foreign exchange gain (loss) within other comprehensive income
$81 $22 
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, 2022 within other comprehensive loss was approximately $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.
Interest-Rate Swap
In April 2020, pursuant to its interest rate and risk management strategy, 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.
In February 2021, in connection with an amendment to the Credit Agreement, the Company paid $2 million in cash to Bank of America N.A to settle the 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
17

Loans. The 2021 Rate Swap effectively fixed the rate of interest payable on that portion of the Term B-3 Loans, thereby reducing the impact of future interest rate changes on future interest expense. As a result of the 2021 Rate Swap, the variable portion of the applicable interest rate on $500 million of the Term B-3 Loans is now effectively fixed at 0.9985%.
The 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 2021 Rate Swap is reported in cash provided by operating activities in the consolidated statements of cash flows. The unrealized gain recorded in stockholder's equity from marking the 2021 Rate Swap to market during the three months ended September 30, 2022 was $18 million.
A summary of the estimated fair value of the 2021 Rate Swap reported in the consolidated balance sheets is stated in the table below:
September 30, 2022June 30, 2022
(Dollars in millions)Balance Sheet ClassificationEstimated Fair ValueBalance Sheet ClassificationEstimated Fair Value
Interest-rate swapOther long-term assets$54 Other long-term assets$36 

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 and June 30, 2022:

18

(Dollars in millions)Basis of Fair Value Measurement
September 30, 2022TotalLevel 1Level 2Level 3
Assets:
Marketable securities$64 $64 $ $ 
Interest-rate swap54  54  
Trading securities4 4   
June 30, 2022
Assets:
Marketable securities$89 $89 $ $ 
Interest-rate swap36  36  
Trading securities2 2   
The fair value of the 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.
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. There was no non-recurring fair value measurement during the three months ended September 30, 2022.
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, amortization of certain assets, changes in the Company’s reserve for uncertain tax positions, and tax impact of certain equity compensation.

In the normal course of business, the Company is subject to examination by taxing authorities around the 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 provides guidance for the accounting of uncertain income tax positions recognized in the Company's tax filings. This 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. As of September 30 and June 30, 2022, the Company's reserve against uncertain income tax positions was $4 million and $5 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 relatively higher income tax provision on lower earnings before income taxes reflects a reduction of pretax income in tax jurisdictions with favorable tax rates and foreign tax credits claimed 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 impact of permanent differences, restructuring, special items, certain equity related compensation, and other discrete tax items that may have unique tax implications depending on the nature of the item.
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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)20222021
Components of net periodic benefit cost:
Selling, general, and administrative expenses:
Service cost$1 $1 
Other expense, net:
Interest cost2 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 and June 30, 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.    
11.    EQUITY AND ACCUMULATED OTHER COMPREHENSIVE LOSS
Description of Capital Stock

The Company is authorized to issue 1.00 billion shares of its Common Stock and 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. In 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”) and issued and sold 650,000 shares of the Series A Preferred Stock to affiliates of Leonard Green & Partners, L.P. In November 2021, the holders of the Series A Preferred Stock converted all then-outstanding shares of Series A Preferred Stock and $2 million of related unpaid accrued dividends into shares of Common Stock.
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, 2022 and 2021 are presented below.
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Three Months Ended  
September 30,
(Dollars in millions)20222021
Foreign currency translation adjustments:
Net investment hedge$81 $22 
Long-term intercompany loans(41)(3)
Translation adjustments(160)(28)
Total foreign currency translation adjustment, pretax(120)(9)
Tax expense15 5 
Total foreign currency translation adjustment, net of tax$(135)$(14)
Net change in derivatives and hedges:
Net gain recognized during the period$18 $1 
Total derivatives and hedges, pretax18 1 
Tax expense4  
Net change in derivatives and hedges, net of tax$14 $1 
Net change in minimum pension liability:
Net gain recognized during the period$ $1 
Total pension liability, pretax 1 
Tax benefit  
Net change in minimum pension liability, net of tax$ $1 
For the three months ended September 30, 2022 and 2021, the changes in accumulated other comprehensive loss, net of tax by component are as follows:    
(Dollars in millions)Foreign Exchange Translation AdjustmentsPension and Liability AdjustmentsDerivatives and HedgesMarketable SecuritiesOtherTotal
Balance at June 30, 2022$(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 AdjustmentsPension and Liability AdjustmentsDerivatives and HedgesMarketable SecuritiesOtherTotal
Balance at June 30, 2021