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Table of Contents

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 March 31, 2021
or
¨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 or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
14 Schoolhouse Road,Somerset,NJ 08873
(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 April 27, 2021, there were 170,341,553 shares of the Registrant's common stock, par value $0.01 per share, issued and outstanding.



Table of Contents
CATALENT, INC. and Subsidiaries
Index to Form 10-Q
For the Three and Nine Months Ended March 31, 2021
 
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.

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Special Note Regarding Forward-Looking Statements
In addition to historical information, this Quarterly Report on Form 10-Q may contain “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, 2020 (the “Fiscal 2020 10-K”) and the following:
Our business, financial condition, and results of operations may be adversely affected by global health epidemics, including novel strains of virus that may exacerbate the existing coronavirus (“COVID-19”) pandemic.
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, including the market success and regulatory approval of our customers’ COVID-19 vaccines and treatments. Our business, financial condition, and results of operations may be harmed if our customers spend less on, or are less successful in, these activities. In addition, customer spending may be affected by, among other things, the COVID-19 pandemic or recessionary economic conditions caused in whole or in part by the pandemic.
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.
Failure to comply with existing and future regulatory requirements could adversely affect our results of operations and financial condition or result in claims from customers.
Failure to provide quality offerings to our customers could have an adverse effect on our business and subject us to regulatory actions or costly litigation.
The services and offerings we provide are highly exacting and complex, and, if we encounter problems providing the services or support required, our business could suffer.
Our global operations are subject to economic, political, and regulatory risks, including the risks of changing regulatory standards or changing interpretations of existing standards, that could affect the profitability of our operations or require costly changes to our procedures. In addition, changes to our procedures, or additional procedures, implemented to comply with public health orders or best practice guidelines as a result of the COVID-19 pandemic may increase our costs or reduce our productivity and thereby affect our business, financial condition, or results of operations.
The exit of the United Kingdom (the “U.K.”) from the European Union could have future adverse effects on our operations, revenues, and costs, and therefore our profitability.
If we do not enhance our existing or introduce new technology or service offerings in a timely manner, our offerings may become obsolete over time, customers may not buy our offerings or buy less of them, and our revenue and profitability may decline.
We and our customers depend on patents, copyrights, trademarks, know-how, trade secrets, and other forms of intellectual property protections, but these protections may not be adequate.
Our offering or our customers’ products may infringe on the intellectual property rights of third parties.
Our future results of operations are subject to fluctuations in the costs, availability, and suitability of the components of the products we manufacture, including active pharmaceutical ingredients, excipients,
3

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purchased components, and raw materials. In addition, the COVID-19 pandemic may interfere with the operations of certain of our direct or indirect suppliers or with international trade for these supplies, which may either raise our costs or reduce the productivity or slow the timing of our operations.
Changes in market access or healthcare reimbursement for our customers’ products in the United States (“U.S.”) or other countries, including possible changes to the U.S. Affordable Care Act, could adversely affect our results of operations and financial condition by affecting demand for our offerings or the financial health of our customers.
As a global enterprise, fluctuations in the exchange rate of the 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.
Our ability to use our net operating loss carryforwards, foreign tax credit carryforwards, and certain other tax attributes may be limited.
Changes to the estimated future profitability of the business may require that we establish an additional valuation allowance against all or some portion of our net deferred tax assets.
We depend on key personnel whose continued employment and engagement at current levels cannot be assured.
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 continuously working 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 of data security.
We engage from time to time in acquisitions and other transactions that may complement or expand our business or divest of non-strategic businesses or assets. We may not be able to complete such transactions, and such transactions, if executed, pose significant risks, including risks relating to our ability to successfully and efficiently integrate acquisitions or execute on dispositions and realize anticipated benefits therefrom. The failure to execute or realize the full benefits from any such transaction could have a negative effect on our operations.
Cell and gene therapies are relatively new and still-developing modes of treatment, dependent on cutting-edge technologies, and our customers’ cell or gene therapies may be perceived as unsafe or may result in unforeseen adverse events. Negative public opinion, continuing research, or increased regulatory scrutiny of cell or gene therapies and their financial cost may damage public perception of the safety, utility, or efficacy of cell or gene therapies and harm our customers’ ability to conduct their business or obtain regulatory approvals for their cell or gene therapy products, and thereby have an indirect, adverse effect on our cell or gene therapy offerings.
We are subject to environmental, health, and safety laws and regulations, which could increase our costs and restrict our operations in the future.
We are subject to labor and employment laws and regulations, which could increase our costs and restrict our operations in the future.
Certain of our pension plans are underfunded, and additional cash contributions we may make to increase the funding level will reduce the cash available for our business, such as the payment of our interest expense.
Our substantial leverage could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or in our industry, expose us to interest-rate risk to the extent of our variable rate debt, and prevent us from meeting our obligations under our indebtedness. These risks may be increased in a recessionary environment, particularly as sources of capital may become less available or more expensive.
Despite our high indebtedness level, we and our subsidiaries are still capable of incurring significant additional debt, which could further exacerbate the risks associated with our substantial indebtedness.
Our debt agreements contain restrictions that limit our flexibility in operating our business.
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Despite the limitations in our debt agreements, we retain the ability to take certain actions that may interfere with our ability to pay timely our substantial indebtedness.
We are currently using and may in the future use derivative financial instruments to reduce our exposure to market risks from changes in interest rates on our variable-rate indebtedness or changes in currency exchange rates, and any such instrument may expose us to risks related to counterparty credit worthiness or non-performance of these instruments.
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), our corporate Facebook page (https://www.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. and Subsidiaries
Consolidated Statements of Operations
(Unaudited; dollars in millions, except per share data)


Three Months Ended  
March 31,
Nine Months Ended  
March 31,
2021202020212020
Net revenue$1,053.3 $760.6 $2,809.8 $2,146.7 
Cost of sales687.7 521.8 1,897.1 1,498.0 
Gross margin365.6 238.8 912.7 648.7 
Selling, general, and administrative expenses172.7 136.1 502.9 419.9 
Impairment charges and (gain) loss on sale of assets5.3 0.6 7.7 1.0 
Restructuring and other costs3.0 1.3 9.4 2.5 
(Gain) loss on sale of subsidiary(184.0) (184.0)1.1 
Operating earnings368.6 100.8 576.7 224.2 
Interest expense, net26.9 34.4 78.1 105.6 
Other expense, net24.6 36.7 5.1 37.2 
Earnings before income taxes 317.1 29.7 493.5 81.4 
Income tax expense85.3 8.8 90.9 14.9 
Net earnings231.8 20.9 402.6 66.5 
Less: Net earnings attributable to preferred shareholders(14.7)(9.1)(42.5)(27.8)
Net earnings attributable to common shareholders$217.1 $11.8 $360.1 $38.7 
Earnings per share:
Basic
Net earnings$1.27 $0.08 $2.15 $0.26 
Diluted
Net earnings$1.26 $0.08 $2.12 $0.26 










The accompanying notes are an integral part of these unaudited consolidated financial statements.
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Catalent, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited; dollars in millions)


Three Months Ended  
March 31,
Nine Months Ended  
March 31,
2021202020212020
Net earnings$231.8 $20.9 $402.6 $66.5 
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments(0.2)(43.1)55.1 (42.8)
Pension and other post-retirement adjustments0.6 0.1 1.6 3.1 
Net change in marketable securities(0.2) (0.2) 
Derivatives and hedges5.5  5.9  
Other comprehensive income (loss), net of tax5.7 (43.0)62.4 (39.7)
Comprehensive income (loss)$237.5 $(22.1)$465.0 $26.8 






















The accompanying notes are an integral part of these unaudited consolidated financial statements.
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Catalent, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited; in millions, except share and per share data)
 
March 31,
2021
June 30,
2020
ASSETS
Current assets:
Cash and cash equivalents $988.1 $953.2 
Trade receivables, net 834.9 838.1 
Inventories527.9 323.8 
Prepaid expenses and other 348.9 177.9 
Marketable securities74.7  
Total current assets 2,774.5 2,293.0 
Property, plant, and equipment, net 2,358.8 1,900.8 
Other assets:
Goodwill2,515.0 2,470.6 
Other intangibles, net834.8 888.7 
Deferred income taxes44.1 49.4 
Other long-term assets241.9 174.0 
Total assets $8,769.1 $7,776.5 
LIABILITIES, REDEEMABLE PREFERRED STOCK, AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations and other short-term borrowings $73.6 $72.9 
Accounts payable 365.7 321.0 
Other accrued liabilities 699.9 499.3 
Total current liabilities 1,139.2 893.2 
Long-term obligations, less current portion 3,149.6 2,945.1 
Pension liability140.0 135.2 
Deferred income taxes100.3 94.0 
Other liabilities167.8 203.6 
Commitment and contingencies (see Note 15)
Total liabilities4,696.9 4,271.1 
Redeemable preferred stock, $0.01 par value; 1.0 million shares authorized at March 31, 2021 and June 30, 2020; 384,777 and 650,000 shares issued and outstanding at March 31, 2021 and June 30, 2020, respectively
359.0 606.6 
Shareholders' equity:
Common stock, $0.01 par value; 1.0 billion shares authorized at March 31, 2021 and June 30, 2020; 170.3 million and 162.8 million issued and outstanding at March 31, 2021 and June 30, 2020, respectively
1.7 1.6 
Preferred stock, $0.01 par value; 99 million authorized at March 31, 2021 and June 30, 2020; 0 issued and outstanding at March 31, 2021 and June 30, 2020
  
Additional paid in capital4,185.7 3,818.7 
Accumulated deficit(150.3)(535.2)
Accumulated other comprehensive loss(323.9)(386.3)
Total shareholders' equity3,713.2 2,898.8 
Total liabilities, redeemable preferred stock, and shareholders' equity$8,769.1 $7,776.5 

The accompanying notes are an integral part of these unaudited consolidated financial statements.
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Catalent, Inc. and Subsidiaries
Consolidated Statement of Changes in Shareholders' Equity
(Unaudited; dollars in millions, except share data in thousands)
 

Three Months Ended March 31, 2021
Shares of Common StockCommon StockAdditional Paid in CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal Shareholders' EquityRedeemable Preferred Stock
Balance at December 31, 2020170,133.3 $1.7 $4,160.8 $(377.4)$(329.6)$3,455.5 $359.0 
Share issuances related to
     stock-based compensation
165.9  — — —  — 
Stock-based compensation— — 8.4 — — 8.4 — 
Cash paid, in lieu of equity,
     for tax withholding
— — (1.4)— — (1.4)— 
Exercise of stock options— — 15.4 — — 15.4 — 
Employee stock purchase plan— — 2.5 — — 2.5 — 
Preferred dividend ($12.50 per
     share of redeemable preferred
     stock)
— — — (4.7)— (4.7)— 
Net earnings— — — 231.8 — 231.8 — 
Other comprehensive income, net
     of tax
— — — — 5.7 5.7 — 
Balance at March 31, 2021170,299.2 $1.7 $4,185.7 $(150.3)$(323.9)$3,713.2 $359.0 

Three Months Ended March 31, 2020
Columns may not foot due to roundingShares of Common StockCommon StockAdditional Paid in CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal Shareholders' EquityRedeemable Preferred Stock
Balance at December 31, 2019146,359.5 $1.5 $2,759.2 $(694.0)$(350.6)$1,716.1 $606.6 
Equity offering, sale of common stock8,445.9 0.1 494.1 — — 494.2 — 
Share issuances related to stock-
     based compensation
62.4   — —  — 
Stock-based compensation— — 8.6 — — 8.6 — 
Cash paid, in lieu of equity, for
     tax withholding
— — (0.9)— — (0.9)— 
Preferred dividend— — — (8.1)— (8.1)— 
Net earnings— — — 20.9 — 20.9 — 
Other comprehensive loss, net of
tax
— — — — (43.0)(43.0)— 
Balance at March 31, 2020154,867.8 $1.5 $3,261.0 $(681.2)$(393.6)$2,187.7 $606.6 






The accompanying notes are an integral part of these unaudited consolidated financial statements.
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Catalent, Inc. and Subsidiaries
Consolidated Statement of Changes in Shareholders' Equity
(Unaudited; dollars in millions, except share data in thousands)

Nine Months ended March 31, 2021
Shares of Common StockCommon StockAdditional Paid in CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal Shareholders' EquityRedeemable Preferred Stock
Balance at June 30, 2020162,788.0 $1.6 $3,818.7 $(535.2)$(386.3)$2,898.8 $606.6 
Equity offering, sale of common
     stock
1,162.5 — 81.8 — — 81.8 — 
Share issuances related to stock-
     based compensation
956.4 — — — —  — 
Conversion of redeemable
     preferred stock
5,392.3 0.1 252.9 — — 253.0 (247.6)
Stock-based compensation— — 38.5 — — 38.5 — 
Cash paid, in lieu of equity, for
     tax withholding
— — (27.8)— — (27.8)— 
Exercise of stock options— — 15.4 — — 15.4 — 
Employee stock purchase plan— — 6.2 — — 6.2 — 
Preferred dividend ($12.50 per
      share of redeemable preferred
      stock)
— — — (17.7)— (17.7)— 
Net earnings— — — 402.6 — 402.6 — 
Other comprehensive income, net
of tax
— — — — 62.4 62.4 — 
Balance at March 31, 2021170,299.2 $1.7 $4,185.7 $(150.3)$(323.9)$3,713.2 $359.0 

Nine Months Ended March 31, 2020
Columns may not foot due to roundingShares of Common StockCommon StockAdditional Paid in CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal Shareholders' EquityRedeemable Preferred Stock
Balance at June 30, 2019145,738.3 $1.5 $2,757.4 $(723.4)$(353.9)$1,681.6 $606.6 
Equity offering, sale of common
     stock
8,445.9 0.1 494.1 — — 494.2 — 
Share issuances related to stock-
     based compensation
683.6 — — — —  — 
Stock-based compensation— — 35.5 — — 35.5 — 
Cash paid, in lieu of equity, for
     tax withholding
— — (25.3)— — (25.3)— 
Non-qualified stock— — (0.7)— — (0.7)— 
Preferred dividend— — — (24.3)— (24.3)— 
Net earnings— — — 66.5 — 66.5 — 
Other comprehensive loss, net of
tax
— — — — (39.7)(39.7)— 
Balance at March 31, 2020154,867.8 $1.5 $3,261.0 $(681.2)$(393.6)$2187.7 $606.6 




The accompanying notes are an integral part of these unaudited consolidated financial statements.
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Catalent, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited; dollars in millions)
Nine Months Ended March 31,
20212020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings$402.6 $66.5 
Adjustments to reconcile net earnings to net cash from operations:
Depreciation and amortization216.0 187.3 
Non-cash foreign currency transaction (gain) loss, net(6.7)2.5 
Amortization of debt issuance costs
9.4 10.7 
Impairments charges and (gain) loss on sale of assets
7.7 1.0 
(Gain) loss on sale of subsidiary(184.0)1.1 
Financing-related charges
17.2 10.0 
(Gain) loss on derivative instrument(16.4)24.9 
Stock-based compensation
38.5 35.5 
Provision for deferred income taxes17.8 5.4 
Provision for bad debts and inventory40.0 11.4 
Change in operating assets and liabilities:
Increase in trade receivables(1.2)(15.5)
Increase in inventories(240.0)(54.7)
Increase in accounts payable36.6 29.9 
Other assets/accrued liabilities, net—current and non-current
(38.8)(48.4)
Net cash provided by operating activities298.7 267.6 
CASH FLOWS USED IN INVESTING ACTIVITIES:
Acquisition of property, equipment, and other productive assets(497.1)(303.5)
Purchases of marketable securities(74.9) 
Proceeds from sale of property and equipment0.5  
Proceeds from sale of subsidiaries, net286.8 20.8 
Payment for acquisitions, net of cash acquired(147.1)(379.7)
Payment made for investments(4.1)(2.4)
Net cash used in investing activities(435.9)(664.8)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in other borrowings1.6 (45.2)
Proceeds from borrowing, net166.6 1,109.1 
Payments related to long-term obligations(54.8)(808.9)
Financing fees paid
(18.7)(25.1)
Dividends paid(17.7)(28.1)
Proceeds from sale of common stock, net81.8 494.2 
Cash paid, in lieu of equity, for tax-withholding obligations(27.8)(25.3)
Exercise of stock options22.1  
Other financing activities6.2  
Net cash provided by financing activities159.3 670.7 
Effect of foreign currency exchange on cash and cash equivalents12.8 (10.5)
NET INCREASE IN CASH AND CASH EQUIVALENTS34.9 263.0 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD953.2 345.4 
CASH AND CASH EQUIVALENTS AT END OF PERIOD$988.1 $608.4 
SUPPLEMENTARY CASH FLOW INFORMATION:
Interest paid$97.0 $88.7 
Income taxes paid, net$24.8 $38.9 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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Catalent, Inc. and Subsidiaries
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 nine months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending June 30, 2021. The consolidated balance sheet at June 30, 2020 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, 2020 filed with the Securities and Exchange Commission.

Reclassifications
Certain prior period balances have been 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
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 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.
Allowance for Credit Losses
Trade receivables and contract assets are primarily comprised of amounts owed to the Company through its operating activities and are presented net of an allowance that includes an assessment of expected credit losses. The Company determines its allowance methodology by considering various factors, including the Company’s previous loss history, significant changes in a geographic location's economic conditions, and the current and anticipated future condition of the general economy and the industries in which the Company's customers operate. To the extent that any individual payer is identified whose credit quality has deteriorated, the Company establishes allowances based on the individual risk characteristics of such customer. The Company makes concerted efforts to collect all outstanding balances due from customers; however, trade receivables and contract assets are written off against the allowance when the related balances are no longer deemed collectible.
Marketable Securities
The Company classifies its liquid debt investments with original maturities greater than ninety days as marketable securities. The Company invests in highly rated corporate debt securities, with the primary objective of minimizing the potential risk of principal loss. The Company’s investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any single issuer. The Company regularly reviews its investments and utilizes quantitative and qualitative evidence to evaluate potential impairments. If the cost of an investment exceeds its fair value, the Company evaluates, among other factors, general market conditions, the credit quality of debt instrument issuers, and the duration and extent to which the cost of the investment exceeds its fair value.
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The Company 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, and therefore, has classified its marketable securities as available-for-sale. 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 (loss), net. As of March 31, 2021, the amortized cost basis of marketable securities approximates fair value and all outstanding marketable securities mature within one year.
Research and Development Costs
The Company expenses research and development costs as incurred. Research and development costs amounted to $3.4 million and $5.9 million for the three months ended March 31, 2021 and 2020, respectively. Research and development costs amounted to $15.0 million and $15.4 million for the nine months ended March 31, 2021 and 2020, respectively.
Recent Financial Accounting Standards
Recently Adopted Accounting Standards
In August 2018, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted the guidance on July 1, 2020. The guidance did not have a material impact on the Company’s financial condition or results of operations.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirement for Fair Value Measurement, which changes the disclosure requirements on fair value measurements in Accounting Standards Codification (ASC”) 820, Fair Value Measurement. The guidance eliminates certain disclosure requirements that are no longer considered cost beneficial and adds new disclosure requirements for Level 3 fair value measurements. The Company adopted the guidance on July 1, 2020. The guidance did not have a material impact on the Company’s financial condition or results of operations.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduces a new accounting model known as Credit Expected Credit Losses (“CECL”). CECL requires earlier recognition of credit losses on financial assets, while also providing additional transparency about credit risk. The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses for financial assets at the time they are originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. This model replaces the multiple existing impairment models in current U.S. GAAP, which generally require that a loss be incurred before it is recognized. The new standard applies to receivables arising from revenue transactions such as contract assets and accounts receivables. The Company adopted the amended guidance using a modified retrospective approach on July 1, 2020. The amended guidance did not have a material impact on the Company’s financial condition or results of operations.
New Accounting Standards Not Adopted as of March 31, 2021
In March 2020, the FASB issued 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.
In December 2019, the FASB issued 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 foreign 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 ASU will be effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. 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 primary revenue streams: manufacturing and commercial product supply, 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.
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 revenue, for the three and nine months ended March 31, 2021 and March 31, 2020, by type of activity and reporting segment (in millions):

Three Months Ended March 31, 2021BiologicsSoftgel and Oral TechnologiesOral and Specialty DeliveryClinical Supply ServicesTotal
Manufacturing & commercial product supply$147.5 $212.0 $118.3 $ $477.8 
Development services396.2 31.7 53.4  481.3 
Clinical supply services   100.0 100.0 
Total$543.7 $243.7 $171.7 $100.0 $1,059.1 
Inter-segment revenue elimination(5.8)
Combined net revenue$1,053.3 

Three Months Ended March 31, 2020BiologicsSoftgel and Oral TechnologiesOral and Specialty DeliveryClinical Supply ServicesTotal
Manufacturing & commercial product supply$85.2 $217.6 $127.2 $ $430.0 
Development services164.8 24.7 54.2  243.7 
Clinical supply services   88.9 88.9 
Total$250.0 $242.3 $181.4 $88.9 $762.6 
Inter-segment revenue elimination(2.0)
Combined net revenue$760.6 

Nine Months Ended March 31, 2021BiologicsSoftgel and Oral TechnologiesOral and Specialty DeliveryClinical Supply ServicesTotal
Manufacturing & commercial product supply$361.8 $616.4 $335.3 $ $1,313.5 
Development services962.9 95.0 164.6  1,222.5 
Clinical supply services   286.2 286.2 
Total$1,324.7 $711.4 $499.9 $286.2 $2,822.2 
Inter-segment revenue elimination(12.4)
Combined net revenue$2,809.8 

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Nine Months Ended March 31, 2020BiologicsSoftgel and Oral TechnologiesOral and Specialty DeliveryClinical Supply ServicesTotal
Manufacturing & commercial product supply$229.6 $701.5 $294.5 $ $1,225.6 
Development services434.2 69.3 162.7  666.2 
Clinical supply services   261.4 261.4 
Total$663.8 $770.8 $457.2 $261.4 $2,153.2 
Inter-segment revenue elimination(6.5)
Combined net revenue$2,146.7 

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

Three Months Ended
March 31,
Nine Months Ended 
March 31,
(Dollars in millions)2021202020212020
United States$670.0 $438.9 $1,722.2 $1,215.9 
Europe344.9 258.7 954.8 690.1 
Other61.9 83.5 200.6 299.8 
Elimination of revenue attributable to multiple locations(23.5)(20.5)(67.8)(59.1)
Total$1,053.3 $760.6 $2,809.8 $2,146.7 

Contract Liabilities
Contract liabilities relate to cash consideration that the Company receives in advance of satisfying the related performance obligations. The contract liabilities balance (current and non-current) as of March 31, 2021 and June 30, 2020 are as follows:
(Dollars in millions)
Balance at June 30, 2020$218.4 
Balance at March 31, 2021$300.6 
Revenue recognized in the period from July 1 through March 31, 2021:
Amounts included in contract liability at the beginning of the period$147.5 

Contract Assets
Contract assets primarily relate to the Company's conditional right to receive consideration for services that have been performed for a customer as of March 31, 2021 relating to the Company's development services but had not yet been invoiced as of March 31, 2021. Contract assets are transferred to trade receivables, net when the Company’s right to receive the consideration becomes unconditional. Contract assets totaled $177.4 million and $61.4 million as of March 31, 2021 and June 30, 2020, respectively. Contract assets are included in prepaid expenses and other in the consolidated balance sheets.
3.    BUSINESS COMBINATIONS AND DIVESTITURES
Anagni Acquisition
In January 2020, the Company acquired an oral solid, biologics, and sterile product manufacturing and packaging facility in Anagni, Italy (“Anagni”) from a unit of Bristol-Myers Squibb Company (“BMS”). The Company paid to BMS $55.3 million in cash as part of the purchase consideration and as consideration for the provision of certain services to facilitate the transition from BMS to Company ownership. At the closing of this acquisition, BMS also entered into a five-year agreement for continuing supply by the Company of certain products formerly produced by BMS at the Anagni facility. Due to the variety of activities performed at Anagni, the results of the Anagni facility are allocated between the Oral and Specialty Delivery and Biologics segments.
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The total cash consideration was allocated between the facility purchase and the transitional services arrangement, with $52.2 million assigned to the purchase consideration and the balance to transitional services. The Company funded the entire purchase price with cash on hand and has allocated the purchase price among the acquired assets, recognizing property, plant, and equipment of $34.2 million, inventory of $6.5 million, and prepaid expenses and other of $12.2 million. The remainder of the value was allocated to deferred tax assets and certain employee-related liabilities assumed in the acquisition.
During the measurement period that ended in January 2021, the Company obtained information to finalize the fair values of the net assets acquired, which were not materially different from the original estimates.
Masthercell Global Inc. Acquisition
In February 2020, the Company acquired 100% of the equity interest in Masthercell Global Inc. (“MaSTherCell”) for an aggregate purchase price of $323.3 million, which was funded with the net proceeds of the Company’s February 2020 public offering (the “February 2020 Equity Offering”) of its common stock, par value $0.01 (“Common Stock”). See Note 14, Equity, Redeemable Preferred Stock and Accumulated Other Comprehensive Loss. MaSTherCell is a contract development and manufacturing organization focused on the development and manufacture of autologous and allogeneic cell therapies for third parties, as well as a variety of related analytical services.
The Company accounted for the MaSTherCell acquisition using the acquisition method in accordance with ASC 805, Business Combinations. The operating results of MaSTherCell have been included in the Company’s consolidated financial statements for the period following the acquisition date.
The Company estimated fair values at the date of acquisition for the allocation of consideration to the net tangible and intangible assets acquired and liabilities assumed as part of the MaSTherCell acquisition. The Company recognized, property, plant and equipment of $25.5 million, $51.0 million for identifiable intangible assets, $1.2 million for other net assets, and $7.7 million for deferred income tax liabilities. The remainder of the fair value, $253.3 million, was allocated to goodwill. Goodwill is mainly comprised of the growth from an expected increase in capacity utilization, potential new customers, and advanced cell therapy development and manufacturing capabilities.
During the measurement period that ended in February 2021, the Company obtained information to finalize the fair values of the net assets acquired, which were not materially different from the original estimates.
Skeletal Cell Therapy Support SA Acquisition
In November 2020, the Company acquired 100% of the equity interest in Skeletal Cell Therapy Support SA (“Skeletal”) from Bone Therapeutics SA for $14.8 million, subject to customary adjustments, as well as related supply agreements with Bone Therapeutics SA. Skeletal operates a cell therapy manufacturing facility in Gosselies, Belgium. The operations are part of 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.
The Company accounted for the Skeletal acquisition 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 an investment in affiliate of $2.6 million and goodwill of $11.6 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 and nine months ended March 31, 2021 were not material to the Company’s statement of operations, financial position, or cash flows.
The Company has not completed its analysis regarding the assets acquired and liabilities assumed. Therefore, the allocation to investment in affiliate, 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.
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 $82.5 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 INBRIJA® 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 and nine months ended March 31, 2021.

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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 $79.3 million, inventory of $2.1 million, and goodwill of $1.8 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. 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 $50.0 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 and nine months ended March 31, 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 $4.2 million, intangible assets of $3.0 million, other current assets of $