10-Q 1 catalent-20130331x10q.htm 10-Q Catalent-2013.03.31-10Q
Table of Contents                                                            

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 ______________________________
FORM 10-Q
______________________________ 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2013
or 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
333-147871
(Commission File Number)
 _____________________________
Catalent Pharma Solutions, Inc.
(exact name of registrant as specified in its charter)
_____________________________ 
Delaware
 
13-3523163
(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  x
(Note: As a voluntary filer not subject to the filing requirements of Section 13 or 15(d) of the Exchange Act, the registrant has filed all reports pursuant to Section 13 or 15(d) of the Exchange Act during the preceding 12 months as if it were subject to such filing requirements.)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, 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 and post such files). x  Yes    ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨
 
 
Accelerated filer ¨
 
Non-accelerated filer x
 
(Do not check if a smaller reporting company)
Smaller reporting company ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
As of May 1, 2013, there were 100 shares of the Registrant’s common stock, par value $0.01 per share issued and outstanding.
 


Table of Contents                                                            

CATALENT PHARMA SOLUTIONS, INC.
INDEX TO FORM 10-Q
 
 
 
Page
 
 
 
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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PART I
Special Note Regarding Forward-Looking Statements
Certain information included in this Quarterly Report on Form 10-Q may be deemed to be “forward-looking statements.” All statements, other than statements of historical facts, included in this Form 10-Q are forward-looking statements. In particular, statements that we make regarding future market trends are forward-looking statements. When used in this document, the words “believe,” “expect,” “anticipate,” “estimate,” “project,” “plan,” “should,” “intend,” “may,” “will,” “would,” “potential” and similar expressions are intended to identify forward-looking statements.
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 statements are not guarantees of our future performance and are subject to risks and uncertainties that could cause actual results, developments and business decisions to differ materially from those contemplated by such forward-looking statements. We disclaim any duty to update any forward-looking 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 the Catalent Pharma Solution Inc.’s (“Catalent” or the “Company”) Annual Report on Form 10-K for the fiscal year ended June 30, 2012 and the following:
•
our substantial indebtedness;
•
our ability to service our outstanding indebtedness and the impact such indebtedness may have on the way we operate 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. Our business, financial condition and results of operations may be harmed if our customers spend less on or are less successful in these activities.
•
competition in the industry;
•
the continued financial viability and success of our suppliers and customers, including the research and development and other scientific endeavors of our customers;
•
product or other liability risks inherent in the design, development, manufacture and marketing of our offerings;
•
changes in government regulations or our failure to comply with those regulations or other applicable laws, including environmental, health and safety laws;
•
difficulties or delays in providing quality offerings, services and support to our customers, including manufacturing problems and difficulties or delays associated with obtaining requisite regulatory consents or approvals associated with those activities;
•
uncertainties relating to general economic, political and regulatory conditions;
•
inability to enhance our existing or introduce new technology or service offerings in a timely manner, and technological developments and products offered by our competitors;
•
increased costs for the active pharmaceutical ingredients, components, compounds and raw materials used by our manufacturing businesses or shortages in or interruptions in the supply of these materials;
•
changes in healthcare reimbursement in the United States or internationally;
•
currency risks and other risks associated with international markets;
•
tax legislation initiatives or challenges to our tax positions;
•
failure to retain or continue to attract senior management or key personnel;
•
disruption of, damage to or failure of our information systems;
•
acquisition opportunities and our ability to successfully integrate acquired businesses and realize anticipated benefits of such acquisitions;

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•
the inability to protect our trade secrets and enforce our patent, copyright and trademark rights, and successful challenges to the validity of our patents, copyrights or trademarks and the associated costs;
•
subject to environmental, health and safety and labor and employment laws and regulations, which could increase our costs and restrict our operations in the future;
•
certain liabilities in connection with our pension plans;
•
current uncertainty in global economic conditions; and
•
conflicts of interest with our controlling investors.
We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them does, what impact they will have on our results of operations and financial condition.

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PART I. FINANCIAL INFORMATION

Item 1.
FINANCIAL STATEMENTS

Catalent Pharma Solutions, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited; Dollars in millions)
 
 
Three Months Ended  
 March 31,
 
Nine Months Ended  
 March 31,
 
2013
 
2012
 
2013
 
2012
Net revenue
$
447.0

 
$
441.3

 
$
1,295.1

 
$
1,216.5

Cost of products sold
309.6

 
292.8

 
900.2

 
823.4

Gross margin
137.4

 
148.5

 
394.9

 
393.1

Selling, general, and administrative expenses
83.7

 
90.8

 
251.7

 
242.3

Impairment charges and (gain)/loss on sale of assets
2.2

 
(0.6
)
 
4.6

 
(1.4
)
Restructuring and other
3.6

 
1.4

 
12.7

 
12.6

Property and casualty (gain)/losses, net
—

 
4.1

 
—

 
(10.5
)
Operating earnings, income/(loss)
47.9

 
52.8

 
125.9

 
150.1

Interest expense, net
53.6

 
48.0

 
160.7

 
131.2

Other (income)/expense, net
8.3

 
(0.7
)
 
20.3

 
(3.1
)
Earnings/(loss) from continuing operations before income taxes
(14.0
)
 
5.5

 
(55.1
)
 
22.0

Income tax expense/(benefit)
(0.1
)
 
8.2

 
5.9

 
19.0

Earnings/(loss) from continuing operations
(13.9
)
 
(2.7
)
 
(61.0
)
 
3.0

Earnings/(loss) from discontinued operations, net of tax
(4.9
)
 
(5.6
)
 
(4.9
)
 
(4.0
)
Net earnings/(loss)
(18.8
)
 
(8.3
)
 
(65.9
)
 
(1.0
)
Net earnings/(loss) attributable to noncontrolling interest, net of tax
—

 
0.9

 
—

 
1.2

Net earnings/(loss) attributable to Catalent
$
(18.8
)
 
$
(9.2
)
 
$
(65.9
)
 
$
(2.2
)
The accompanying notes are an integral part of these unaudited consolidated financial statements.


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Catalent Pharma Solutions, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income/(Loss)
(Unaudited; Dollars in millions)
 
 
Three Months Ended  
 March 31,
 
Nine Months Ended  
 March 31,
 
2013
 
2012
 
2013
 
2012
Net earnings/(loss)
$
(18.8
)
 
$
(8.3
)
 
$
(65.9
)
 
$
(1.0
)
Other comprehensive income/(loss), net of tax
 
 
 
 
 
 
 
Foreign currency translation adjustments
(36.7
)
 
1.8

 
(25.2
)
 
(9.2
)
Defined benefit pension plan
—

 
1.6

 
—

 
1.6

Deferred compensation/(benefit)
0.4

 
0.5

 
0.8

 
0.2

Earnings/(loss) on derivatives for the period
7.2

 
3.5

 
20.7

 
9.4

Other comprehensive income/(loss), net of tax
(29.1
)
 
7.4

 
(3.7
)
 
2.0

Comprehensive earnings/(loss)
(47.9
)
 
(0.9
)
 
(69.6
)
 
1.0

Comprehensive income/(loss) attributable to noncontrolling interest
—

 
(4.1
)
 
—

 
(3.8
)
Comprehensive earnings/(loss) attributable to Catalent
$
(47.9
)
 
$
3.2

 
$
(69.6
)
 
$
4.8

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


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Catalent Pharma Solutions, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited; Dollars in millions except per share amounts)
 
 
March 31,
2013
 
June 30,
2012
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
87.5

 
$
139.0

Trade receivables, net
316.5

 
338.3

Inventories, net
143.2

 
118.7

Prepaid expenses and other
84.4

 
108.7

Total current assets
631.6

 
704.7

Property plant and equipment, net
807.0

 
809.7

Other assets:
 
 
 
Goodwill
1,023.1

 
1,029.9

Other intangibles, net
381.4

 
417.7

Deferred income taxes
136.6

 
135.2

Other
41.6

 
41.8

Total assets
$
3,021.3

 
$
3,139.0

LIABILITIES AND SHAREHOLDER’S DEFICIT
 
 
 
Current liabilities:
 
 
 
Current portion of long-term obligations and other short-term borrowings
$
29.6

 
$
43.2

Accounts payable
138.8

 
134.2

Other accrued liabilities
220.6

 
261.9

Total current liabilities
389.0

 
439.3

Long-term obligations, less current portion
2,645.6

 
2,640.3

Pension liability
142.8

 
140.3

Deferred income taxes
211.8

 
219.9

Other liabilities
49.5

 
49.9

Commitment and contingencies (see Note 12)


 


Shareholder’s equity/(deficit):
 
 
 
Common stock $0.01 par value; 1,000 shared authorized, 100 shares issued
 
 
 
Additional paid in capital
1,026.8

 
1,023.9

Accumulated deficit
(1,448.0
)
 
(1,382.1
)
Accumulated other comprehensive income/(loss)
3.8

 
7.5

Total Catalent shareholder’s equity/(deficit)
(417.4
)
 
(350.7
)
Noncontrolling interest
—

 
—

Total shareholder’s deficit
(417.4
)
 
(350.7
)
Total liabilities and shareholder’s deficit
$
3,021.3

 
$
3,139.0

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


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Catalent Pharma Solutions, Inc. and Subsidiaries
Consolidated Statement of Changes in Shareholder’s Equity/(Deficit)
(Unaudited; Dollars in millions)
 
 
Common
Stock
 
Additional
Paid in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
(Loss)/Income
 
Total
Shareholder’s
(Deficit)/Equity
Balance at June 30, 2012
$
—

 
$
1,023.9

 
$
(1,382.1
)
 
$
7.5

 
$
(350.7
)
Equity contribution
 
 
0.7

 
 
 
 
 
0.7

Equity compensation
 
 
2.2

 
 
 
 
 
2.2

Net income/(loss)
 
 
 
 
(65.9
)
 
 
 
(65.9
)
Other comprehensive income/(loss)
 
 
 
 
 
 
(3.7
)
 
(3.7
)
Balance at March 31, 2013
$
—

 
$
1,026.8

 
$
(1,448.0
)
 
$
3.8

 
$
(417.4
)
The accompanying notes are an integral part of these unaudited consolidated financial statements


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Catalent Pharma Solutions, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited; Dollars in millions)
 
Nine Months Ended 
 March 31,
 
2013
 
2012
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net earnings/(loss)
$
(65.9
)
 
$
(1.0
)
Net earnings/(loss) from discontinued operations
(4.9
)
 
(4.0
)
Earnings/(loss) from continuing operations
(61.0
)
 
3.0

Adjustments to reconcile (loss)/earnings from continued operations to net cash from operations:
 
 
 
Depreciation and amortization
114.9

 
92.8

Non-cash foreign currency transaction (gains)/losses, net
10.3

 
(1.8
)
Amortization and write off of debt financing costs
13.0

 
11.4

Asset impairments and (gain)/loss on sale of assets
4.6

 
6.1

Proceeds from insurance related to long lived assets
—

 
(21.3
)
Call premium payments and financing fees paid
7.6

 
—

Equity compensation
2.2

 
2.6

Provision/(benefit) for deferred income taxes
(7.2
)
 
(1.5
)
Provision for bad debts and inventory
7.2

 
5.0

Change in operating assets and liabilities:
 
 
 
Decrease/(increase) in trade receivables
20.8

 
(13.0
)
Decrease/(increase) in inventories
(28.0
)
 
(9.1
)
Increase/(decrease) in accounts payable
5.0

 
(13.3
)
Other accrued liabilities and operating items, net
(5.0
)
 
21.0

Net cash provided by/(used in) operating activities from continuing operations
84.4

 
81.9

Net cash provided by/(used in) operating activities from discontinued operations
(1.2
)
 
3.9

Net cash provided by/(used in) operating activities
83.2

 
85.8

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Acquisition of property and equipment and other productive assets
(84.8
)
 
(67.6
)
Proceeds from sale of property and equipment
0.3

 
2.0

Proceeds from insurance related to long lived assets
—

 
21.3

Payment for acquisitions, net
—

 
(459.2
)
Net cash provided by/(used in) investing activities from continuing operations
(84.5
)
 
(503.5
)
Net cash provided by/(used in) investing activities from discontinued operations
—

 
(3.9
)
Net cash provided by/(used in) investing activities
(84.5
)
 
(507.4
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Net change in short-term borrowings
(9.5
)
 
(1.3
)
Payments related to revolver credit facility fees
—

 
(1.6
)
Proceeds from Borrowing, net
399.3

 
386.8

Payments related to long-term obligations
(434.3
)
 
(23.6
)
Call premium payments
(7.6
)
 
—

Distribution to noncontrolling interest holder
—

 
—

Equity contribution/(redemption)
0.7

 
1.1

Net cash (used in)/provided by financing activities from continuing operations
(51.4
)
 
361.4

Net cash (used in)/provided by financing activities from discontinued operations
—

 
—

Net cash (used in)/provided by financing activities
(51.4
)
 
361.4

Effect of foreign currency on cash
1.2

 
(9.0
)
NET INCREASE/(DECREASE) IN CASH AND EQUIVALENTS
(51.5
)
 
(69.2
)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD
139.0

 
205.1

CASH AND EQUIVALENTS AT END OF PERIOD
$
87.5

 
$
135.9

SUPPLEMENTARY CASH FLOW INFORMATION:
 
 
 
Interest paid
$
132.4

 
$
101.0

Income taxes paid, net
$
10.3

 
$
13.0


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

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Catalent Pharma Solutions, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Unaudited; Dollars in millions except per share amounts)
 
1.
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Catalent Pharma Solutions, Inc. (“Catalent”, or the “Company”) is a direct wholly-owned subsidiary of PTS Intermediate Holdings LLC (“Intermediate Holdings”). Intermediate Holdings is a direct wholly-owned subsidiary of PTS Holdings Corp. (“Parent”) and Parent is 100% owned by Phoenix Charter LLC (“Phoenix”) and certain members of the Company’s senior management. Phoenix is wholly-owned by BHP PTS Holdings L.L.C., an entity controlled by affiliates of The Blackstone Group (“Blackstone”), a global private investment and advisory firm.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (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 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, 2013 are not necessarily indicative of the results that may be expected for the year ending June 30, 2013. The consolidated balance sheet at June 30, 2012 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. For further information, 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, 2012 filed with the Securities and Exchange Commission.
Reclassifications
We made certain reclassifications to conform the prior period consolidated financial statements and notes to the current period presentation including classification of the U.S. based commercial packaging operations financial results within discontinued operations. The U.S. based commercial packaging operations were previously classified in the Packaging Services segment, which, concurrent with the sale, ceased being reported as a reportable segment. In addition, the historical financial results of the non-U.S. commercial packaging services operation, formerly generated from the U.K. based packaging facility, which was destroyed by fire, have been reclassified to the Oral Technologies segment.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Such estimates include, but are not limited to, allowance for doubtful accounts, inventory and long-lived asset valuation, goodwill and other intangible asset valuation and impairment, equity-based compensation, income taxes, derivative financial instruments and pension plan asset and liability valuation. Actual amounts may differ from these estimated amounts.
Translation and Transaction of Foreign Currencies
The financial statements of the Company’s operations outside the U.S. are generally measured using the local currency as the functional currency. Adjustments to translate the assets and liabilities of these foreign operations into U.S. dollars are accumulated as a component of other comprehensive income/(loss) utilizing period-end exchange rates. In addition, the currency fluctuation associated with the portion of the Company’s euro-denominated debt designated as a net investment hedge is included as a component of other comprehensive income/(loss). Foreign currency transaction gains and losses calculated by utilizing weighted average exchange rates for the period are included in the statements of operations in “other expense, net”. Such foreign currency transaction gains and losses include inter-company loans that are not permanently reinvested.
Revenue Recognition
In accordance with Accounting Standard Codification (ASC) 605 Revenue Recognition, the Company recognizes revenue when persuasive evidence of an arrangement exists, product delivery has occurred or the services have been rendered, the price

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is fixed or determinable and collectability is reasonably assured. Revenue is recognized net of sales returns and allowances, if any.
Manufacturing and packaging revenue is recognized upon delivery of the product in accordance with the terms of the contract, which specify when transfer of title and risk of loss occurs. Some of the Company’s manufacturing contracts with its customers have annual minimum purchase requirements. At the end of the contract year, revenue is recognized for the unfilled purchase obligation in accordance with the contract terms.
Non-product revenue includes service related fees, royalty and research and development product license and participation fees, annual exclusivity fees, option fees to extend exclusivity agreements and milestone payments for attaining certain regulatory approvals and are recognized at fair value. Exclusivity payments are paid by customers in return for the Company’s commitment to manufacture certain products for those customers only. The revenue related to these agreements is recognized over the term of the exclusivity agreement or the term of the option agreement unless a particular milestone is designated, in which case revenue is recognized when service obligations or performance have been completed. Service revenue is primarily driven by our Development and Clinical Services business revenue of $93.0 million and $298.1 million, respectively for the three and nine months ended March 31, 2013 and $71.1 million and $167.0 million, respectively for the three and nine months ended March 31, 2012. Cost of services associated with this revenue was $67.7 million and $212.5 million, respectively for the three and nine months ended March 31, 2013 and $48.4 million and $112.6 million, respectively for the three and nine months ended March 31, 2012. The remaining segments recorded an ancillary amount of service revenue for all periods presented.
Arrangements containing multiple revenue generating activities, including service arrangements, are accounted for in accordance with applicable accounting guidance included within the framework of U.S. GAAP. If the deliverable meets the criteria of a separate unit of accounting, the arrangement revenue is allocated to each element based upon its relative fair value. Generally, in cases where we have multiple contracts with the same customer we treat such contracts as separate arrangements.
Goodwill
The Company accounts for purchased goodwill and intangible assets with indefinite lives in accordance with Codification Statement ASC 350 Intangibles—Goodwill and Other (ASC 350). Under ASC 350, goodwill and intangible assets with indefinite lives are not amortized, but instead are tested for impairment at least annually. In September 2011, the FASB issued guidance that simplified how entities test for goodwill impairment. This guidance permits entities to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a two-step goodwill impairment test. The Company has elected to perform its annual impairment analysis during its fourth fiscal quarter each year.
Property and Equipment and Other Definite Lived Intangible Assets
Property and equipment are stated at cost. Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets, including capital lease assets that are amortized over the shorter of their useful lives or the terms of the respective leases. The Company generally uses the following range of useful lives for its property and equipment categories: buildings and improvements—5 to 50 years; machinery and equipment—3 to 10 years; and furniture and fixtures—3 to 7 years. Depreciation expense was $27.9 million and $82.6 million, respectively for the three and nine months ended March 31, 2013 and $25.7 million and $69.3 million, respectively for the three and nine months ended March 31, 2012. The Company charges repairs and maintenance costs to expense as incurred. The amount of capitalized interest was immaterial for all periods presented.
Intangible assets with finite lives, primarily including customer relationships and patents and trademarks continue to be amortized over their useful lives. The Company evaluates the recoverability of its other long-lived assets, including amortizing intangible assets, if circumstances indicate impairment may have occurred pursuant to Codification Standard ASC 360 Property, Plant and Equipment (ASC 360). This analysis is performed by comparing the respective carrying values of the assets to the current and expected future cash flows, on an un-discounted basis, to be generated from such assets. If such analysis indicates that the carrying value of these assets is not recoverable, the carrying value of such assets is reduced to fair value through a charge to the Consolidated Statements of Operations. Fair value is determined based on assumptions the Company believes marketplace participants would utilize and comparable marketplace information in similar arms length transactions.
Research and Development Costs
The Company expenses research and development costs as incurred. Costs incurred in connection with the development of new offerings and manufacturing process improvements are recorded within selling, general, and administrative

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expenses. Such research and development costs included in selling, general, and administrative expenses amounted to $3.4 million and $10.1 million, respectively for three and nine months ended March 31, 2013 and $4.5 million and $11.9 million, respectively for three and nine months ended March 31, 2012. Costs incurred in connection with research and development services we provide to customers and services performed in support of the commercial manufacturing process for customers are recorded within cost of sales. Such research and development costs included in cost of sales amounted to $9.1 million and $26.4 million, respectively for three and nine months ended March 31, 2013 and $8.9 million and $25.1 million, respectively for three and nine months ended March 31, 2012.
Recent Financial Accounting Standards
In March 2013, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update No. 2013-05, “Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity” (“ASU 2013-05”). ASU 2013-05 resolves the diversity in practice concerning the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets within a foreign entity. The guidance is effective for fiscal years and interim reporting periods within those fiscal years beginning after December 15, 2013. The amendments described in the ASU are to be applied prospectively to derecognition events occurring after the effective date; prior periods are not to be adjusted. Catalent is currently evaluating the impact of this standard on our consolidated results of operations and financial position.
In February 2013, the FASB issued Accounting Standards Update No. 2013-04, “Obligations Resulting from Joint and Several Liability Arrangements” (“ASU 2013-04”). ASU 2013-04 provides guidance for the recognition, measurement, and disclosure resulting from joint and several liability arrangements. Examples of obligations that fall within the scope of the ASU include certain debt arrangements, other contractual obligations, and settled litigation. The new guidance is effective on a retrospective basis for fiscal years and interim periods within those fiscal years beginning after December 15, 2013. Catalent is currently evaluating the impact of this standard and does not expect a material impact on the disclosures included in our consolidated financial statements.
In February 2013, the FASB issued Accounting Standards Update No. 2013-02, “Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income” (“ASU 2013-02”). ASU 2013-02 requires enhanced disclosures about items reclassified out of accumulated other comprehensive income (AOCI). For items reclassified to net income in their entirety, the ASU requires information about the effect of significant reclassification items to appear on separate line items of net income. For those items where direct reclassification to net income is not required, companies must provide cross-references to other disclosures that provide details about the effects of the reclassification out of AOCI. Expanded disclosures concerning current period changes in AOCI balances are also required for each component of OCI on the face of the financial statements or in the notes. ASU 2013-02 is effective prospectively for fiscal years beginning after December 15, 2012, and interim periods within those fiscal years. Catalent is currently evaluating the impact of this standard on the disclosures and presentation of our consolidated results of operations and financial position included in our consolidated financial statements.
In December 2011, the FASB issued Accounting Standards Update No. 2011-11, “Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). ASU 2011-11 will require disclosure of information about offsetting and related arrangements to enable users of our financial statements to understand the effect of those arrangements on our financial position. In January 2013, the FASB issued Accounting Standards Update No. 2013-01, “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” (“ASU 2013-01”). ASU 2013-01 limits the scope of the new balance sheet offsetting disclosure requirements to derivatives (including bifurcated embedded derivatives), repurchase agreements and reverse repurchase agreements, and certain securities borrowing and lending arrangements. The new guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The disclosures required are to be applied retrospectively for all comparative periods presented. Upon adoption, we do not expect that this standard will materially impact our disclosures included in our consolidated financial statements.

In June 2011, the FASB issued Accounting Standards Update No. 2011-05, "Presentation of Comprehensive Income" ("ASU 2011-05"). ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity and requires an entity to present items of net income, other comprehensive income and total comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 also initially required companies to display reclassification adjustments for each component of other comprehensive income in both net income and other comprehensive income on the face of the financial statements; however in December 2011, the FASB issued ASU 2011-12 which deferred this requirement. The amendments in the ASUs did not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. During the first quarter of fiscal 2013, the Company adopted ASU 2011-05 and ASU 2011-12 and has elected to present the items of and total other comprehensive income in a separate

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statement following the Statement of Operations. As noted above, the FASB has issued ASU 2013-02 which provides guidance and the effective date for implementation of enhanced disclosure of items reclassified out of accumulated other comprehensive income.
2.
BUSINESS COMBINATIONS
Acquisition of the Clinical Trial Supplies Operations of Aptuit, LLC
On February 17, 2012, the Company completed its acquisition of the Clinical Trial Supplies business (the “CTS Business”) of Aptuit, LLC, a Delaware limited liability company (“Aptuit”), by purchasing the outstanding shares of capital stock of Aptuit Holdings, Inc., a wholly-owned subsidiary of Aptuit (the “CTS Acquisition”). The acquisition was completed in connection with the pursuit of our strategic growth initiatives. Catalent financed the CTS Acquisition and related fees and expenses using the proceeds from a $400.0 million incremental term loan facility and cash on hand.
Purchase Price Allocation
The acquisition method of accounting is based on ASC Subtopic 805-10, “Business Combinations,” and uses the fair value concepts defined in ASC Subtopic 820-10, “Fair Value Measurements and Disclosures”. The purchase price for the CTS Business was allocated to the net tangible and intangible assets based upon their fair values as of the acquisition date. The allocation of the purchase price was based upon a valuation and the estimates and assumptions are subject to change within the measurement period. The excess of the purchase price over the fair values of the net tangible assets and intangible assets was recorded as goodwill and is generally driven by our expectations of our ability to realize synergies and achieve our strategic growth objectives.
As of March 31, 2013, the allocation of purchase price was comprised of:
(Dollars in millions)
 
Accounts receivable, net
$
27.9

Plant, property and equipment, net
80.6

Unbilled services
11.8

Other assets
0.4

Goodwill
170.4

Intangibles
177.6

Accounts payable
(10.8
)
Accrued liabilities
(7.0
)
Deferred tax liability
(39.0
)
Other liabilities
(1.6
)
Unearned revenue
(9.5
)
Total purchase price
$
400.8

The goodwill recorded to the Clinical Services reporting unit of the Development and Clinical Services segment as of March 31, 2013 was $170.4 million. In addition, the Company expects approximately $6.8 million of goodwill to be tax deductible pursuant to the provisions of ASC 740 Income taxes.
3.
GOODWILL
The following table summarizes the changes between June 30, 2012 and March 31, 2013 in the carrying amount of goodwill in total and by reporting segment:
 
(Dollars in millions)
Oral
Technologies
 
Medication
Delivery
Solutions
 
Development
& Clinical
Services
 
Total
Balance at June 30, 2012 (1)
$
839.8

 
$
—

 
$
190.1

 
$
1,029.9

Additions/(impairments)
—

 
—

 
1.0

 
1.0

Foreign currency translation adjustments
(4.6
)
 
—

 
(3.2
)
 
(7.8
)
Balance at March 31, 2013
$
835.2

 
$
—

 
$
187.9

 
$
1,023.1



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(1)
The opening balance is reflective of historical impairment charges related to the Medication Delivery Solutions segment of approximately $158.0 million.
No goodwill impairment charges were required during the current or comparable prior year period. When required, impairment charges are recorded within the Consolidated Statement of Operations as Impairment charges and (gain)/loss on sale of assets.

4.
DEFINITE LIVED LONG-LIVED ASSETS
The Company’s definite lived long-lived assets include property, plant and equipment as well as other intangible assets with definite lives.
The details of other intangible assets subject to amortization as of March 31, 2013 and June 30, 2012, are as follows:
(Dollars in millions)
Gross
Carrying
Value
 
Accumulated
Amortization
 
Net
Carrying
Value
March 31, 2013
 
 
 
 
 
Amortized intangibles:
 
 
 
 
 
Core technology
$
144.7

 
$
(42.9
)
 
$
101.8

Customer relationships
212.2

 
(45.3
)
 
166.9

Product relationships
225.6

 
(112.9
)
 
112.7

Total intangible assets
$
582.5

 
$
(201.1
)
 
$
381.4

 
(Dollars in millions)
Gross
Carrying
Value
 
Accumulated
Amortization
 
Net
Carrying
Value
June 30, 2012
 
 
 
 
 
Amortized intangibles:
 
 
 
 
 
Core technology
$
145.0

 
$
(37.5
)
 
$
107.5

Customer relationships
215.6

 
(33.4
)
 
182.2

Product relationships
227.6

 
(99.6
)
 
128.0

Total intangible assets
$
588.2

 
$
(170.5
)
 
$
417.7


Amortization expense was $11.2 million and $32.3 million, respectively for the three and nine months ended March 31, 2013 and $8.9 million and $23.5 million, respectively for the three and nine months ended March 31, 2012.
Amortization expense in future periods is estimated to be:
(Dollars in millions)
Remainder 
 Fiscal 2013
 
2014
 
2015
 
2016
 
2017
Amortization expense
$
11.7

 
$
43.9

 
$
43.5

 
$
43.5

 
$
42.8


5.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the

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Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s borrowings. The Company does not net any of its derivative positions under master netting arrangements.
The Company is exposed to fluctuations in the EUR-USD exchange rate on its investments in foreign operations in Europe. While the Company does not actively hedge against changes in foreign currency, we have mitigated the exposure of our investments in our European operations by denominating a portion of our debt in euros. At March 31, 2013, the Company had euro denominated debt outstanding of $540.9 million that qualifies as a hedge of a net investment in foreign operations. For non-derivatives designated and qualifying as net investment hedges, the effective portion of the translation gains or losses are reported in Accumulated other comprehensive income/(loss) as part of the cumulative translation adjustment. For the three and nine months ended March 31, 2013, the Company recorded a gain of $12.6 million and a loss of $13.2 million within cumulative translation adjustment. The net accumulated gain of this net investment as of March 31, 2013 included within other comprehensive income/(loss) was approximately $70.7 million. For the three and nine months ended March 31, 2013, the Company recognized an unrealized foreign exchange gain of $4.2 million and a loss of $5.4 million, respectively, in the consolidated statement of operations related to a portion of its euro-denominated debt not designated as a net investment hedge. For the three and nine months ended March 31, 2012, the Company recognized an unrealized foreign exchange loss of $2.0 million and a gain of $7.5 million, respectively.
Amounts are reclassified out of accumulated other comprehensive income/(loss) into earnings when the hedged net investment is either sold or substantially liquidated.
Credit Risk Related to Contingent Features
The Company has agreements with each of its derivative counterparties that contain a provision where the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on the indebtedness.
As of March 31, 2013, the terminal value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $1.3 million. As of March 31, 2013, the Company had minimum collateral posting thresholds with certain of its derivative counterparties and had posted collateral of $4.5 million, in the form of letters of credit. If the Company had breached any of these provisions at March 31, 2013, it could have been required to settle its obligations under the agreements at their termination value of $1.3 million.
Counterparty Credit Risk Management
The Company’s derivative financial statements present certain market and counterparty risks; however, concentration of counterparty credit risk is mitigated as the Company deals with a variety of major banks worldwide. The Company would not be materially impacted if any of the counterparties to its derivative financial instruments outstanding at March 31, 2013 failed to perform according to the terms of its agreement. At this time, the Company does not require collateral or any other security to support derivative instruments subject to credit risk by its counterparties.
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. During the period, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges for financial reporting purposes is recorded in accumulated other comprehensive income/(loss) on the balance sheet and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings.
As of March 31, 2013, the Company had three outstanding interest rate derivatives which were effective for financial accounting. Two instruments had a combined notional value of $760.0 million and one had a notional value of €240.0 million. These instruments are designated for financial accounting purposes as cash flow hedges of interest rate risk. Amounts reported in accumulated other comprehensive income/(loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the next twelve months, the Company estimates that an additional $0.7 million will be reclassified from other comprehensive income/(loss) to interest expense.

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On February 28, 2013, in connection with the refinancing of the Company’s €44.9 million Euro term loan, Catalent de-designated €35.0 million of the €240.0 million notional Euribor-based interest rate swap. Prior to de-designation, the effective portion of the change in fair value of the derivative was recorded as a component of other comprehensive income/(loss). The other comprehensive income/(loss) balance associated with the de-designated portion of the derivative will be reclassified to earnings when either the originally hedged forecasted interest payments on the hedged debt affect earnings or at the time the originally forecasted transactions become probable of not occurring. The amount of losses reclassified into earnings as a result of the discontinuance of a portion of the Euribor-based interest rate swap as a cash flow hedge for the three and nine months ended March 31, 2013 is $0.1 million.
Non-designated Hedges of Interest Rate Risk
Derivatives not designated as hedges for financial accounting purposes are not speculative and are used to manage the Company’s economic exposure to interest rate movements but, as of March 31, 2013, do not meet the hedge accounting requirements for financial reporting purposes of ASC 815 Derivatives and Hedging. Changes in the fair value of derivatives not designated as a hedge for financial accounting purposes are recorded directly into earnings as other expense, net. As of March 31, 2013, the Company had a ¥175 million notional value outstanding derivative maturing on May 15, 2013 that was not designated for financial accounting purposes as a hedge in a qualifying hedging relationship.
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheet as of March 31, 2013 and June 30, 2012.
(Dollars in millions)
Fair Values of Financial Derivatives Instruments on the  Consolidated Balance Sheets
 
Liability Derivatives 
 As of March 31, 2013
 
Liability Derivatives 
 As of June 30, 2012
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Derivatives designated as hedging instruments under ASC 815:
 
 
 
 
 
 
 
Interest rate swaps
Other accrued
liabilities and
other liabilities
 
$
1.1

 
Other accrued
liabilities and
other liabilities
 
$
23.1

Total derivatives designated as hedging instruments under ASC 815:
 
 
1.1

 
 
 
23.1

Derivatives not designated as hedging instruments under ASC 815:
 
 
 
 
 
 
 
Interest rate swaps
Other accrued
liabilities and
other liabilities
 
$
0.2

 
Other accrued
liabilities and
other liabilities
 
$
0.2

Total derivatives not designated as hedging instruments under ASC 815:
 
 
$
0.2

 
 
 
$
0.2


The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Statement of Operations for the three and nine months ended March 31, 2013 and March 31, 2012.

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(Dollars in millions)
Effect of Derivative Instruments on the Consolidated Statement of Operations
Derivatives in ASC 815 Cash
Flow Hedging Relationships
Amount of 
 (Gain) or Loss 
 Recognized in 
 AOCI on Derivative 
 (Effective Portion) 
 for the 
 Three and Nine 
 Months Ended 
 March 31,
 
Location of (Gain) or
Loss 
Reclassified from
AOCI into Income
(Effective Portion)
 
Amount of 
 (Gain) or Loss 
 Reclassified from 
 AOCI into Income 
 (Effective Portion) 
 for the 
 Three and Nine 
 Months Ended 
 March 31,
 
Location of (Gain) or
Loss Recognized in
Income on Derivative
(Ineffective Portion and
Amount Excluded from
Effectiveness Testing
 
Amount of 
 (Gain) or Loss 
 Recognized in Income 
 on Derivative 
 (Ineffective Portion 
 and Amount Excluded 
 from Effective Testing) 
 for the 
 Three and Nine  
 Months Ended 
 March 31,
 
2013
 
2012
 
 
 
2013
 
2012
 
 
 
2013
 
2012
Three Months Ended:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
$
—

 
$
3.2

 
Interest expense, net
 
$
7.2

 
$
6.7

 
Other (income)/
expense, net
 
0.1

 
—

Nine Months Ended:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
$
1.1

 
$
10.1

 
Interest 
expense, 
net
 
$
21.8

 
$
19.5

 
Other (income)/ 
expense, net
 
0.1

 
—

 
Derivatives Not Designated
as Hedging Instruments Under ASC 815
 
Location of (Gain) or
Loss Recognized in
Income on
Derivative
 
Amount of 
 (Gain) or Loss 
 Recognized in 
 Income on 
 Derivative 
 for the 
 Three and Nine 
 Months Ended 
 March 31,
 
 
 
 
2013
 
2012
Three Months Ended:
 
 
 
 
 
 
Interest rate swaps
 
Other (income)/expense, net
 
$
—

 
$
—

Nine Months Ended:
 
 
 
 
 
 
Interest rate swaps
 
Other (income)/expense, net
 
$
—

 
$
(0.1
)

6.
FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS
ASC 820 Fair Value Measurements and Disclosures (“ASC 820”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 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 the first two are considered observable and the last 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.

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Fair value under ASC 820 is principally applied to financial assets and liabilities which, for Catalent, include both investments in money market funds and derivative instruments—interest rate swaps. The Company is not required to apply all the provisions of ASC 820 in financial statements to the nonfinancial assets and nonfinancial liabilities. There were no changes from the previously reported classification of financial assets and liabilities. The following table provides a summary of financial assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2013, aggregated by the level in the fair value hierarchy within which those measurements fall:
 
 
 
Fair Value Measurements using:
(Dollars in millions)
Total
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
Cash equivalents - money market funds
$
9.3

 
$
9.3

 
$
—

 
$
—

Liabilities
 
 
 
 
 
 
 
Interest rate swaps
$
1.3

 
$
—

 
$
1.3

 
$
—

The following table provides a summary of financial assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2012, aggregated by the level in the fair value hierarchy in which those measurements fall:
 
 
 
Fair Value Measurements using:
(Dollars in millions)
Total
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
Cash equivalents - money market funds
$
5.9

 
$
5.9

 
$
—

 
$
—

Liabilities
 
 
 
 
 
 
 
Interest rate swaps
$
23.3

 
$
—

 
$
23.3

 
$
—


Cash and Cash Equivalents
The fair value of cash and cash equivalents is estimated on the quoted market price of the investments. The carrying amounts of the Company’s cash equivalents approximate their fair value due to the short-term maturity of these instruments.
Derivative Instruments – Interest Rate Swaps
Currently, the Company uses interest rate swaps to manage interest rate risk on its variable rate long-term debt obligations. The fair value of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on the expectation of future interest rates (forward curves) and derived from observed market interest rate curves. In addition, to comply with the provision of ASC 820, credit valuation adjustments, which consider the impact of any credit enhancements on the contracts, are incorporated in the fair values to account for potential nonperformance risk. See Footnote 5—Derivative Instruments and Hedging Activities.
Long-Term Obligations
The estimated fair value of long-term debt is based on the quoted market prices for the same or similar issues or on the current rates offered for debt of the same remaining maturities and considers collateral, if any.
The carrying amounts and the estimated fair values of financial instruments as of March 31, 2013 and June 30, 2012, are as follows:
 
March 31, 2013
 
June 30, 2012
(Dollars in millions)
Carrying
Value
 
Estimated Fair
Value
 
Carrying
Value
 
Estimated Fair
Value
Long-term debt and other
$
2,675.2

 
$
2,771.4

 
$
2,683.5

 
$
2,644.6

LIBOR interest rate swap
0.8

 
0.8

 
16.7

 
16.7

EURIBOR interest rate swap
0.3

 
0.3

 
6.4

 
6.4

TIBOR interest rate swap
$
0.2

 
$
0.2

 
$
0.2

 
$
0.2



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The estimated fair values of these Level 2 liabilities are based on quoted market prices for the same or similar instruments and/or the current interest rates offered for debt of the same remaining maturities or estimated discounted cash flows.

7.
LONG-TERM OBLIGATIONS AND OTHER SHORT-TERM BORROWINGS
Long-term obligations and other short-term borrowings consist of the following at March 31, 2013 and June 30, 2012:
(Dollars in millions)
Maturity
 
March 31, 
 2013
 
June 30, 
 2012
Senior Secured Credit Facilities
 
 
 
 
 
Term loan facility dollar-denominated
September 2016
 
$
792.2

 
$
798.9

Term loan facility dollar-denominated
September 2017
 
647.2

 
591.2

Term loan facility euro-denominated
April 2014
 
—

 
56.3

Term loan facility euro-denominated
September 2016
 
263.7

 
257.7

9 1/2 % Senior Toggle Notes
April 2015
 
269.1

 
619.1

9 3/4 % Senior Subordinated euro-denominated Notes
April 2017
 
277.2

 
268.7

7 7/8 % Senior Notes
October 2018
 
348.2

 
—

$200.3 million Revolving Credit Facility
April 2016
 
—

 
—

Other Obligations
2013 to 2032
 
77.6

 
91.6

Total
 
 
2,675.2

 
2,683.5

Less: current portion and other short-term borrowings
 
 
29.6

 
43.2

Long-term obligations, less current portion short-term borrowings
 
 
$
2,645.6

 
$
2,640.3


As noted within Footnote 5 to these financial statements, the Company also uses interest rate swaps to manage the economic effect of variable interest obligations associated with floating term loans so that the interest payable effectively becomes fixed at a certain rate, thereby reducing the impact on rate changes on interest expense.
Senior Secured Credit Facilities
On April 10, 2007, we entered into a $1.8 billion senior secured credit facility (the “Credit Agreement”) consisting of: (i) an approximately $1.4 billion term loan facility consisting of Dollar Term-1 Loans (the “Dollar Term-1 Loans”) and euro Term Loans (the “euro Term Loans”) and (ii) a $350 million revolving credit facility.
The revolving credit facility includes borrowing capacity available for letters of credit and for short-term borrowings. Borrowings under the term loan facility and the revolving credit facility bear interest, at our option, at a rate equal to an applicable margin over either (a) a base rate determined by reference to the higher of (1) the rate of interest per annum published by The Wall Street Journal from time to time, as the “prime lending rate” and (2) the federal funds rate plus one-half of 1% or (b) a LIBOR rate determined by reference to the British Bankers Association Interest Settlement Rate for deposits in dollars for the interest period relevant to such borrowing adjusted for certain additional costs.
In addition to paying interest on outstanding principal under our senior secured credit facilities, we are required to pay a commitment fee to the lenders under the revolving credit facility with respect to the unutilized commitments there under. The initial commitment fee is 0.5% per annum. The commitment fee may be reduced subject to our attaining certain leverage ratios. We are also required to pay customary letter of credit fees.
The senior secured credit facilities are subject to amortization and prepayment requirements and contain certain covenants, events of default and other customary provisions.
On June 1, 2011, the Company and certain lenders amended the Credit Agreement in order to extend the maturity for certain Revolving Credit Loans and Revolving Credit Commitments. In particular, the Company converted approximately$200.3 million of Revolving Credit Commitments and Revolving Credit Loans into new Revolving Tranche-2 Commitments and Revolving Tranche-2 Loans. The amendment set the applicable margin for the Revolving Tranche-2 Loans to a percentage per annum equal to at the Company's option (i) in the case of euro currency rate loans, 3.75%, or (ii) in the case of base rate loans, 2.75%, which may be reduced subject to our attaining certain leverage ratios. In addition, the Company extended the final maturity date of the converted facility to the ninth anniversary or April 10, 2016, subject to certain conditions regarding the refinancing or repayment of the Company’s term loans, the Senior Toggle Notes (defined below), the Senior Subordinated

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Notes (defined below), the 7.875% Notes (defined below) and certain other unsecured debt which would cause the final maturity date to be an earlier date.
On February 17, 2012, in connection with the acquisition of the CTS Business, the Company entered into Amendment No. 2 to the Credit Agreement. The amendment provided senior secured financing consisting of a $400 million incremental term loan facility (the “Dollar Term-2 Loans”) pursuant to the exercise of the accordion feature under the Credit Agreement. The Dollar Term-2 Loans have substantially similar terms as the Dollar Term-1 Loans. The Company used the proceeds from the Dollar Term-2 Loans, along with cash on hand, to finance the acquisition of the CTS Business. The amendment set the applicable margin for the Dollar Term-2 Loans to a percentage per annum equal to at the Company's option (i) in the case of euro currency rate loans, 4.00%, subject to a floor of 1.25% or (ii) in the case of base rate loans, 3.00%, subject to a floor of 2.25%. The Dollar Term-2 Loans will mature on the earlier of (i) September 15, 2017 and (ii) the 91st day prior to the maturity of Company’s Senior Subordinated Notes or any permitted refinancing thereof; provided such Senior Subordinated Notes have an outstanding aggregate principal amount in excess of $100.0 million.
On February 23, 2012, the Company entered into Amendment No. 3 to the Credit Agreement to convert approximately $796.8 million of Dollar Term-1 Loans into new Extended Dollar Term-1 Loans (the “Extended Dollar Term-1 Loans”) and approximatley €207.7 million of Euro Term Loans into new Extended Euro Term Loans (the “Extended Euro Term Loans”) with the consent solely of those lenders that agreed to convert their Dollar Term-1 Loans and/or Euro Term Loans, respectively. The Extended Dollar Term-1 Loans and the Extended Euro Term Loans have substantially similar terms as the Dollar Term-1 Loans and Euro Term Loans. The amendment set the applicable margin for the Extended Dollar Term-1 Loans and Extended Euro Term Loans to a percentage per annum equal to at the Company's option (i) in the case of euro currency rate loans, 4.00% or (ii) in the case of base rate loans, 3.00%. The final maturity date of the Extended Dollar Term-1 Loans and Extended Euro Term Loans was extended to the earlier of (i) September 15, 2016 and (ii) the 91 day prior to the maturity of the Company’s Senior Toggle Notes or any permitted refinancing thereof; provided such Senior Toggle Notes have an outstanding aggregate principal amount in excess of $100.0 million. On March 1, 2012, the Company entered into the Extension Amendment to the Credit Agreement in order to extend the maturity of an additional $11.0 million of Dollar Term-1 Loans into Extended Dollar Term-1 Loans. In addition, the borrowing capacity of the $350.0 million revolving credit facility was reduced to approximately $200.3 million in order to maintain a cost effective debt structure which is appropriate for our financing needs.
On April 27, 2012, the Company entered into Amendment No. 4 to the Credit Agreement in order to permit the Company to borrow an aggregate principal amount of up to $205.0 million of Refinancing Dollar Term-2 Loans (the “Refinancing Dollar Term-2 Loans”) with the consent of only the lenders agreeing to provide such Refinancing Dollar Term-2 Loans. The proceeds from the Refinancing Dollar Term-2 Loans were used to prepay in full all outstanding Non-Extended Dollar Term-1 Loans under the Credit Agreement. The Refinancing Dollar Term-2 Loans have identical terms with, and the same rights and obligations under the Credit Agreement as, the outstanding Dollar Term-2 Loans.
On February 28, 2013, the Company entered into Amendment No. 5 to the Credit Agreement in order to borrow an aggregate principal amount of approximately $659.5 million of Refinancing Dollar Term-2 Loans and approximately $799.3 million of Refinancing Dollar Term-1 Loans (the "Refinancing Dollar Term-1 Loans"). The proceeds from the Refinancing Dollar Term-2 Loans were used to prepay in full all outstanding Non-Extended Euro Term Loans and Dollar Term-2 Loans under the Credit Agreement; the proceeds of the Refinancing Dollar Term-1 Loans were used to prepay in full all outstanding Extended Dollar Term-1 Loans under the Credit Agreement. The Refinancing Dollar Term-2 and Refinancing Dollar Term-1 Loans have identical terms with, and the same rights and obligations under the Credit Agreement as, the previously outstanding Dollar Term-2 Loans and Extended Dollar Term-1 Loans, respectively. The amendment set the applicable margin for the Refinancing Dollar Term-2 Loans at the Company’s option, at a percentage per annum equla to (i) in the case of eurocurrency rate loans, 3.25%, subject to a floor of 1.00%, or ii) in the case of base rate loans, 2.25%, subject to a floor of 2.00%. The amendment set the applicable margin for the Refinancing Dollar Term-1 Loans, at the Company’s option, at a percent per annum equal to (i) in the case of eurocurrency rate loans, 3.50% or ii) in the case of base rate loans, 2.50%. Cash paid associated with this financing activity approximated $2.6 million.
As of March 31, 2013, there were $15.2 million in outstanding letters of credit which reduced the borrowing capacity under the approximately $200.3 million revolving line of credit.
Senior Notes
On April 10, 2007, we issued $565.0 million of 9.5%/10.25% senior PIK-election fixed rate notes due 2015 (“Senior Toggle Notes”). The Senior Toggle Notes are unsecured senior obligations of the Company. Interest on the Senior Toggle Notes is payable semi-annually in arrears on each April 15 and October 15, which commenced on October 15, 2007. We may redeem these notes at par plus specified declining premiums set forth in the indenture plus any accrued and unpaid interest to the date of redemption.

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In September 2012, Catalent announced the commencement of a tender offer to purchase for cash up to $350 million aggregate principal amount of its outstanding Senior Toggle Notes. On September 18, 2012, Catalent purchased $45.9 million aggregate principal amount of Senior Toggle Notes at a price of $47.1 million plus accrued and unpaid interest pursuant to the tender offer. On November 1, 2012, Catalent redeemed $304.1 million aggregate principal amount of Senior Toggle Notes for an aggregate price of $311.4 million plus accrued and unpaid interest. In connection with this transaction the Company paid $8.5 million of call premiums and expensed $3.3 million of unamortized deferred finance costs. These expenses are recorded within “Other Income/Expense” in our statement of operations.
On September 18, 2012, Catalent issued $350 million aggregate principal amount of 7.875% Senior Notes (the “7.875% Notes”). The 7.875% Notes will mature on October 15, 2018 and interest is payable on the 7.875% Notes on April 15 and October 15 of each year, commencing April 15, 2013. The 7.875% Notes were offered in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to non-U.S. persons in offshore transactions in accordance with Regulation S under the Securities Act. The 7.875% Notes were issued at a price of 100.0% of their principal amount. Catalent used a portion of the net proceeds from the offering of the 7.875% Notes to finance a portion of its tender offer for the Senior Toggle Notes and partial redemption of the Senior Toggle Notes as described above. We may redeem these notes at par plus specified declining premiums set forth in the senior subordinated indenture plus any accrued and unpaid interest to the date of redemption.
Senior Subordinated Notes
On April 10, 2007, we issued €225.0 million 9.75% euro-denominated ($300.3 million dollar equivalent at the exchange rate effective on the issue date) Senior Subordinated Notes due 2017 (the “Senior Subordinated Notes”). The Senior Subordinated Notes are unsecured senior subordinated obligations of the Company and are subordinated in right of payment to all existing and future senior indebtedness of the Company (including the senior credit facilities and the Senior Toggle Notes). Interest on the Senior Subordinated Notes is payable semi-annually in cash in arrears on each April 15 and October 15, which commences on October 15, 2007. We may redeem these notes at par plus specified declining premiums set forth in the senior subordinated indenture plus any accrued and unpaid interest to the date of redemption.
Debt Covenants
The Credit Agreement and the indentures governing the notes contain a number of covenants that, among other things, restrict, subject to certain exceptions, the Company’s (and the Company’s restricted subsidiaries’) ability to incur additional indebtedness or issue certain preferred shares; create liens on assets; engage in mergers and consolidations; sell assets; pay dividends and distributions or repurchase capital stock; repay subordinated indebtedness; engage in certain transactions with affiliates; make investments, loans or advances; make certain acquisitions; and in the case of the Company’s Credit Agreement, enter into sale and leaseback transactions, amend material agreements governing the Company’s subordinated indebtedness (including the senior subordinated notes) and change the Company’s lines of business.
As of March 31, 2013, the Company was in compliance with all covenants related to its long-term obligations. The Company’s long-term debt obligations do not contain any financial maintenance covenants.

8.
INCOME TAXES
The Company accounts for income taxes in accordance with the provision of ASC 740 Income Taxes. Generally, fluctuations in the effective tax rate are primarily due to changes in the U.S. and non-U.S. pretax income resulting from the Company’s business mix and changes in the tax impact of special items and other discrete tax items, which may have unique tax implications depending on the nature of the item. Such discrete items include, but are not limited to, changes in foreign statutory tax rates, the amortization of certain assets and the tax impact of changes in our FIN 48 reserves. In the normal course of business, we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as the United States, Germany, France, and the United Kingdom. We are no longer subject to non-U.S. income tax examinations for years prior to 2001. Under the terms of the purchase agreement related to the 2007 acquisition, the Company is indemnified by its former owner for tax liabilities that may arise in the future that relate to tax periods prior to April 10, 2007. The indemnification agreement includes, among other taxes, any and all federal, state and international income based taxes as well as interest and penalties that may be related thereto. As of March 31, 2013 and June 30, 2012, approximately $6 million and $8.3 million of unrecognized tax benefit is subject to indemnification by our former owner, respectively.
As of March 31, 2013 and June 30, 2012, the Company had a total of $36.0 million and $33.4 million of unrecognized tax benefits, respectively. As of these dates, $9.5 million and $8.9 million, respectively, represent the amount of unrecognized tax benefits, which, if recognized, would favorably impact the effective income tax rate. The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense. As of March 31, 2013 and June 30, 2012, the

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Company has approximately $4.9 million and $6.0 million of accrued interest and penalties related to uncertain tax positions, respectively. As of these dates, the portion of such interest and penalties subject to indemnification by our former owner is $4.0 million and $5.3 million, respectively.

9.
EMPLOYEE RETIREMENT BENEFIT PLANS
Components of the Company’s net periodic benefit costs are as follows:
 
Three Months Ended  
 March 31,
 
Nine Months Ended  
 March 31,
(Dollars in millions)
2013
 
2012
 
2013
 
2012
Components of net periodic benefit cost:
 
 
 
 
 
 
 
Service cost
$
0.7

 
$
0.6

 
$
2.2

 
$
1.9

Interest cost
3.0

 
3.2

 
9.1

 
9.9

Expected return on plan assets
(2.4
)
 
(2.7
)
 
(7.4
)
 
(8.1
)
Amortization (1)
0.2

 
—

 
0.7

 
0.1

Net amount recognized
$
1.5

 
$
1.1

 
$
4.6

 
$
3.8

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

10.
RELATED PARTY TRANSACTIONS
Advisor Transaction and Management Fees
The Company is party to a transaction and advisory fee agreement with Blackstone and certain other Investors in BHP PTS Holdings L.L.C. (the “Investors”), the investment entity controlled by affiliates of Blackstone that was formed in connection with the Investors’ investment in Phoenix. The Company pays an annual sponsor advisory fee to Blackstone and the Investors for certain monitoring, advisory and consulting services to the Company. During the three and nine months ended March 31, 2013 this management fee was approximately $2.9 million and $9.4 million, respectively and was approximately $2.9 million and $8.5 million, respectively for the three and nine months ended March 31, 2012 and is recorded within selling, general, and administrative expenses in the Consolidated Statements of Operations.

11.
EQUITY-BASED COMPENSATION
The following table summarizes the impact of the equity-based compensation expense recorded in the Company’s Statement Operations:
 
Three Months Ended  
 March 31,
 
Nine Months Ended  
 March 31,
(Dollars in millions)
2013
 
2012
 
2013
 
2012
Stock compensation expense in selling, general, and administrative
$
0.6

 
$
0.9

 
$
2.2

 
$
2.6


STOCK OPTIONS
The activity of the equity-based compensation program for the three and nine months ended March 31, 2013 is presented below:

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Time Based
Awards
Number of
Shares
 
Performance
Based
Awards
Number of
Shares
 
Market Based
Awards
Number of
Shares
Balance at June 30, 2012
38,577

 
11,614

 
23,203

Granted
1,400

 
468

 
932

Exercised
(75
)
 
—

 
—

Forfeited/Canceled
(1,414
)
 
(478
)
 
(1,006
)
Balance at March 31, 2013
38,488

 
11,604

 
23,129


RESTRICTED STOCK UNITS
In addition to nonqualified stock options, as of March 31, 2013 the Company had 3,500 outstanding restricted stock units, with respect to compensation for participants, to receive shares of common stock equal to the units vested upon settlement. As of March 31, 2013, there were 1,133 non-vested restricted stock units.

12.
COMMITMENTS AND CONTINGENCIES
On March 24, 2011, a manufacturing operation located in Corby, United Kingdom was damaged by a fire. All employees and contractors on site were safely evacuated with no injuries reported. The Company recorded expenses for inventory that was damaged and additional costs associated with transition activities and the associated insurance recoveries in the income statement line item property and casualty (gains)/losses within continuing operations. Given the inherent nature of property damage and insurance claims, expenses may be recognized in different periods than the associated insurance recoveries. During the three and nine month prior year period ended March 31, 2012, the company recorded property and casualty losses of $4.1 million and net insurance recoveries of $10.5 million, respectively. The Company has made appropriate provisions for cost of property damage and site decommissioning costs within its financial statements.
As has been previously disclosed with regard to the Company’s participation in a multi employer pension plan, the Company notified the plan trustees of its withdrawal from such plan in fiscal 2012. The withdrawal from the plan resulted in the recognition of liabilities associated with the Company’s long term obligations in both the prior and current year periods, which were primarily recorded as an expense within discontinued operations. The actuarial review process, which is administered by the plan trustees, is ongoing and we await final determination as to the company’s ultimate liability. The annual cash impact associated with our long term obligation approximates $1.2 million per year.
The Company, along with several pharmaceutical companies, is currently named as a defendant in fifty-eight civil lawsuits filed by individuals allegedly injured by their use of the prescription acne medication Amnesteem®, a branded generic form of isotretinoin, and in some instances of isotretinoin products made and/or sold by other firms as well. While it is not possible to determine with any degree of certainty the ultimate outcome of these legal proceedings, including making a determination of liability, the Company believes that it has meritorious defenses with respect to the claims asserted against it and intends to vigorously defend its position.
From time to time the Company may be involved in legal proceedings arising in the ordinary course of business, including, without limitation, inquiries and claims concerning environmental contamination as well as litigation and allegations in connection with acquisitions, product liability, manufacturing or packaging defects, and claims for reimbursement for the cost of lost or damaged active pharmaceutical ingredients, the cost of which could be significant. The Company intends to vigorously defend ourselves against such other litigation and does not currently believe it is reasonably possible that the outcome of any such legal proceeding will have a material adverse effect on the Company’s financial statements.

13.
DISCONTINUED OPERATIONS
In the fourth fiscal quarter of 2012, the Company sold its U.S. based commercial packaging operations and concluded the elimination of cash flows qualified the component as a discontinued operation. No material gain or loss was recognized on the sale. In addition, during fiscal year 2011, the Company concluded that its printed components facilities qualified as a component entity, the operations of which were then classified as held for sale and discontinued. In conjunction with the exit of these operations the Company incurred expenses related to long term pension obligations in the current and prior year periods. During the three and nine month period the Company recorded approximately $3.8 million of expense associated with such pension obligations.

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The domestic commercial packaging and printed component entities were previously reported in the Company’s Packaging Services segment.
Summarized Consolidated Statements of Operations data for discontinued operations are as follows:
 
Three Months Ended  
 March 31,
 
Nine Months Ended  
 March 31,
(Dollars in millions)
2013
 
2012
 
2013
 
2012
Net revenue
$
—

 
$
23.9

 
$
—

 
$
76.6

Earnings/(loss) before income taxes
(4.9
)
 
(5.6
)
 
(4.9
)
 
(4.0
)
Income tax (benefit)/expense
—

 
—

 
—

 
—

Earnings/(loss) from discontinued operations, net of tax
$
(4.9
)
 
$
(5.6
)
 
$
(4.9
)
 
$
(4.0
)
 
14.
SEGMENT INFORMATION
The Company conducts its business within the following operating segments: Softgel Technologies, Modified Release Technologies, Medication Delivery Solutions and Development & Clinical Services. The Softgel Technologies and Modified Release Technologies segments are aggregated into one reportable operating segment – Oral Technologies. The Company evaluates the performance of its segments based on segment earnings before noncontrolling interest, other (income) expense, impairments, restructuring costs, interest expense, income tax (benefit)/expense, and depreciation and amortization (“Segment EBITDA”). EBITDA from continuing operations is consolidated earnings from continuing operations before interest expense, income tax (benefit)/expense, depreciation and amortization and is adjusted for the income or loss attributable to non controlling interest. The Company’s presentation of Segment EBITDA and EBITDA from continuing operations may not be comparable to similarly-titled measures used by other companies.
The following tables include net revenue and Segment EBITDA during the three and nine months ended March 31, 2013 and March 31, 2012:
 
Three Months Ended  
 March 31,
 
Nine Months Ended  
 March 31,
(Dollars in millions)
2013
 
2012
 
2013
 
2012
Oral Technologies
 
 
 
 
 
 
 
Net revenue
$
303.1

 
$
315.9

 
$
853.0

 
$
897.2

Segment EBITDA
76.5

 
91.4

 
214.9

 
236.8

Medication Delivery Solutions
 
 
 
 
 
 
 
Net revenue
53.9

 
59.6

 
151.2

 
166.5

Segment EBITDA
8.3

 
8.1

 
17.1

 
18.8

Development and Clinical Services
 
 
 
 
 
 
 
Net revenue
93.0

 
71.1

 
298.1

 
167.0

Segment EBITDA
15.9

 
15.5

 
55.5

 
33.7

Inter-segment revenue elimination
(3.0
)
 
(5.3
)
 
(7.2
)
 
(14.2
)
Unallocated Costs (1)
(22.0
)
 
(27.8
)
 
(67.0
)
 
(44.5
)
Combined Total
 
 
 
 
 
 
 
Net revenue
447.0

 
441.3

 
1,295.1

 
1,216.5

EBITDA from continuing operations
$
78.7

 
$
87.2

 
$
220.5

 
$
244.8

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


24
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Three Months Ended  
 March 31,
 
Nine Months Ended  
 March 31,
(Dollars in millions)
2013
 
2012
 
2013
 
2012
Impairment charges and gain/(loss) on sale of assets
$
(2.2
)
 
$
0.6

 
$
(4.6
)
 
$
1.4

Equity compensation
(0.6
)
 
(0.9
)
 
(2.2
)
 
(2.6
)
Restructuring and other special items
(6.7
)
 
(14.0
)
 
(21.3
)
 
(32.6
)
Property and casualty losses
—

 
(4.1
)
 
—

 
10.5

Sponsor advisory fee
(2.9
)
 
(2.9
)
 
(9.4
)
 
(8.5
)
Noncontrolling interest
—

 
(0.9
)
 
—

 
(1.2
)
Other income (expense)(2) , net
(8.3
)
 
0.7

 
(20.3
)
 
3.1

Non-allocated corporate costs, net
(1.3
)
 
(6.3
)
 
(9.2
)
 
(14.6
)
Total unallocated costs
$
(22.0
)
 
$
(27.8
)
 
$
(67.0
)
 
$
(44.5
)
 
(2)
Primarily relates to realized and unrealized gains/(losses) related to foreign currency translation and expenses related to financing transactions during the period
Provided below is a reconciliation of earnings/(loss) from continuing operations to EBITDA from continuing operations:
 
Three Months Ended  
 March 31,
 
Nine Months Ended  
 March 31,
(Dollars in millions)
2013
 
2012
 
2013
 
2012
Earnings/(loss) from continuing operations
$
(13.9
)
 
$
(2.7
)
 
$
(61.0
)
 
$
3.0

Depreciation and amortization
39.1

 
34.6

 
114.9

 
92.8

Interest expense, net
53.6

 
48.0

 
160.7

 
131.2

Income tax (benefit)/expense
(0.1
)
 
8.2

 
5.9

 
19.0

Noncontrolling interest
—

 
(0.9
)
 
—

 
(1.2
)
EBITDA from continuing operations
$
78.7

 
$
87.2

 
$
220.5

 
$
244.8


The following table includes total assets for each segment, as well as reconciling items necessary to total the amounts reported in the Consolidated Financial Statements:
 
(Dollars in millions)
March 31, 
 2013
 
June 30, 
 2012
Assets
 
 
 
Oral Technologies
$
2,501.9

 
$
2,589.6

Medication Delivery Solutions
281.4

 
251.7

Development and Clinical Services
638.5

 
671.5

Corporate and eliminations
(400.5
)
 
(373.8
)
Total assets
$
3,021.3

 
$
3,139.0


15.
SUPPLEMENTAL BALANCE SHEET INFORMATION
Supplementary balance sheet information at March 31, 2013 and June 30, 2012, is detailed in the following tables.

25
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(Dollars in millions)
March 31, 
 2013
 
June 30, 
 2012
Raw materials and supplies
$
80.9

 
$
69.8

Work-in-process
30.4

 
25.1

Finished goods
43.8

 
32.3

Total inventory, gross
155.1

 
127.2

Inventory reserves
(11.9
)
 
(8.5
)
Total inventory, net
$
143.2

 
$
118.7


Prepaid and other assets
Prepaid and other assets consist of the following:
(Dollars in millions)
March 31, 
 2013
 
June 30, 
 2012
Prepaid expenses
$
11.9

 
$
24.2

Spare parts supplies
11.8

 
11.7

Deferred taxes
18.2

 
18.6

Other current assets
42.5

 
54.2

Total prepaid and other assets
$
84.4

 
$
108.7


Property and equipment
Property and equipment consists of the following:
(Dollars in millions)
March 31, 
 2013
 
June 30, 
 2012
Land, buildings and improvements
$
550.6

 
$
527.3

Machinery and equipment
619.0

 
586.2

Furniture and fixtures
9.6

 
8.5

Construction in progress
69.9

 
54.2

Property and equipment, at cost
1,249.1

 
1,176.2

Accumulated depreciation
(442.1
)
 
(366.5
)
Property and equipment, net
$
807.0

 
$
809.7


Included within our Property and equipment is approximately $4.0 million of assets which are held for sale.

Other assets
Other assets consist of the following:
(Dollars in millions)
March 31, 
 2013
 
June 30, 
 2012
Deferred long term debt financing costs
$
21.0

 
$
22.6

Other
20.6

 
19.2

Total other assets
$
41.6

 
$
41.8


Other accrued liabilities
Other accrued liabilities consist of the following:

26
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(Dollars in millions)
March 31, 
 2013
 
June 30, 
 2012
Accrued employee-related expenses
$
65.7

 
$
86.8

Restructuring accrual
8.3

 
9.8

Deferred income tax
1.6

 
1.6

Accrued interest
39.8

 
18.3

Interest rate swaps
1.3

 
23.2

Deferred revenue and fees
32.1

 
25.4

Accrued income tax
23.7

 
31.4

Other accrued liabilities and expenses
48.1

 
65.4

Total other accrued liabilities
$
220.6

 
$
261.9


16.
SUBSEQUENT EVENTS
On April 29, 2013, the Company entered into a senior unsecured term loan facility, in order to borrow an aggregate principal amount of $275 million of unsecured term loans (the "Unsecured Loans") due December 31, 2017. The proceeds from the Unsecured Loans will be used to redeem all $269.1 million of the remaining principal outstanding of the Company's Senior Toggle Notes at par plus accrued and unpaid interest as of May 29, 2013, the date of redemption. The Unsecured Loans bear interest, at the Company’s option, at a rate equal to the Eurocurrency Rate plus 5.25%, subject to a floor of 1.25%, or the "Base Rate" plus 4.25%, subject to a floor of 2.25%. The "Base Rate" is equal to the higher of either the Federal Funds Rate plus 0.5% or the rate of interest per annum published by the Wall Street Journal from time to time, as the “prime lending rate.” The "Eurocurrency Rate" is determined by reference to the British Bankers Association Interest Settlement rate for deposits in dollars for the interest period relevant to such borrowing adjusted for certain additional costs. The Company is not required to repay installments on the Unsecured Loans and is only required to repay the Unsecured Loans on the date of maturity.
In the preparation of its consolidated financial statements, the Company completed an evaluation of the impact of any subsequent events and determined there were no other subsequent events requiring disclosure in or adjustment to these financial statements.

17.
GUARANTOR AND NON-GUARANTOR FINANCIAL STATEMENTS
All obligations under the Credit Agreement, the Senior Toggle Notes, the Senior Subordinated Notes and the 7.875% Notes are unconditionally guaranteed by each of the Company’s existing U.S. wholly-owned domestic material subsidiaries, other than the Company’s Puerto Rico subsidiaries, subject to certain exceptions.
The following condensed financial information presents the Company’s Consolidating Balance Sheet as of March 31, 2013 and June 30, 2012, the Consolidating Statements of Operations for the three and nine months ended March 31, 2013 and March 31, 2012 and Cash Flows for the three and nine months ended March 31, 2013 and March 31, 2012 detailing: (a) Catalent Pharma Solutions, Inc. (“Issuer” and/or “Parent”); (b) the guarantor subsidiaries; (c) the non-guarantor subsidiaries; and (d) elimination and adjustment entries necessary to combine the Issuer/Parent with the guarantor and non-guarantor subsidiaries on a consolidated basis, respectively.

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Catalent Pharma Solutions, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three Months Ended March 31, 2013
(Unaudited; Dollars in millions)
 
 
Issuer
 
Guarantor
 
Non-
Guarantor
 
Eliminations
 
Consolidated
Net revenue
$
—

 
$
174.1

 
$
276.5

 
$
(3.6
)
 
$
447.0

Cost of products sold
—

 
103.2

 
210.0

 
(3.6
)
 
309.6

Gross margin
—

 
70.9

 
66.5

 
—

 
137.4

Selling, general, and administrative expenses
0.6

 
54.0

 
29.1

 
—

 
83.7

Impairment charges and (gain)/loss on sale of assets
—

 
0.5

 
1.7

 
—

 
2.2

Restructuring and other
—

 
1.6

 
2.0

 
—

 
3.6

Property and casualty (gain)/losses, net
—

 
—

 
—

 
—

 
—

Operating earnings/(loss)
(0.6
)
 
14.8

 
33.7

 
—

 
47.9

Interest expense, net
42.3

 
0.4

 
10.9

 
—

 
53.6

Other (income)/expense, net
(23.9
)
 
(17.4
)
 
24.0

 
25.6

 
8.3

Earnings/(loss) from continuing operations before income taxes
(19.0
)
 
31.8

 
(1.2
)
 
(25.6
)
 
(14.0
)
Income tax (benefit)/expense
(0.2
)
 
2.0

 
(1.9
)
 
—

 
(0.1
)
Earnings/(loss) from continuing operations
(18.8
)
 
29.8

 
0.7

 
(25.6
)
 
(13.9
)
Earnings/(loss) from discontinued operations, net of tax
—

 
(4.9
)
 
—

 
—

 
(4.9
)
Net earnings/(loss)
(18.8
)
 
24.9

 
0.7

 
(25.6
)
 
(18.8
)
Net earnings/(loss) attributable to noncontrolling interest, net of tax
—

 
—

 
—

 
—

 
—

Net earnings/(loss) attributable to Catalent
(18.8
)
 
24.9

 
0.7

 
(25.6
)
 
(18.8
)
Other comprehensive income/(loss) attributable to Catalent, net of tax
(29.1
)
 
0.4

 
(40.2
)
 
39.8

 
(29.1
)
Comprehensive income/(loss) attributable to Catalent
$
(47.9
)
 
$
25.3

 
$
(39.5
)
 
$
14.2

 
$
(47.9
)

28
Table of Contents                                                            

Catalent Pharma Solutions, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three Months Ended March 31, 2012
(Unaudited; Dollars in millions)
 
 
Issuer
 
Guarantor
 
Non-
Guarantor
 
Eliminations
 
Consolidated
Net revenue
$
—

 
$
148.1

 
$
299.1

 
$
(5.9
)
 
$
441.3

Cost of products sold
—

 
86.0

 
212.7

 
(5.9
)
 
292.8

Gross margin
—

 
62.1

 
86.4

 
—

 
148.5

Selling, general, and administrative expenses
1.3

 
61.4

 
28.1

 
—

 
90.8

Impairment charges and (gain)/loss on sale of assets
—

 
—

 
(0.6
)
 
—

 
(0.6
)
Restructuring and other
—

 
0.7

 
0.7

 
—

 
1.4

Property and casualty losses
—

 
—

 
4.1

 
—

 
4.1

Operating earnings/(loss)
(1.3
)
 
—

 
54.1

 
—

 
52.8

Interest expense, net
42.3

 
0.4

 
5.3

 
—

 
48.0

Other (income)/expense, net
(35.5
)
 
(12.5
)
 
15.7

 
31.6

 
(0.7
)
Earnings/(loss) from continuing operations before income taxes
(8.1
)
 
12.1

 
33.1

 
(31.6
)
 
5.5

Income tax (benefit)/expense
1.1

 
1.4

 
5.7

 
—

 
8.2

Earnings/(loss) from continuing operations
(9.2
)
 
10.7

 
27.4

 
(31.6
)
 
(2.7
)
Loss from discontinued operations
—

 
(5.7
)
 
0.1

 
—

 
(5.6
)
Net earnings/(loss)
(9.2
)
 
5.0

 
27.5

 
(31.6
)
 
(8.3
)
Net earnings/(loss) attributable to noncontrolling interest
—

 
—

 
0.9

 
—

 
0.9

Net earnings/(loss) attributable to Catalent
(9.2
)
 
5.0

 
26.6

 
(31.6
)
 
(9.2
)
Other comprehensive income/(loss) attributable to Catalent, net of tax
12.4

 
0.5

 
13.3

 
(13.8
)
 
12.4

Comprehensive income/(loss) attributable to Catalent
$
3.2

 
$
5.5

 
$
39.9

 
$
(45.4
)
 
$
3.2


29
Table of Contents                                                            

Catalent Pharma Solutions, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Nine Months Ended March 31, 2013
(Unaudited; Dollars in millions)
 
 
Issuer
 
Guarantor
 
Non-
Guarantor
 
Eliminations
 
Consolidated
Net revenue
$
—

 
$
482.5

 
$
827.2

 
$
(14.6
)
 
$
1,295.1

Cost of products sold
—

 
293.2

 
621.6

 
(14.6
)
 
900.2

Gross margin
—

 
189.3

 
205.6

 
—

 
394.9

Selling, general, and administrative expenses
2.2

 
168.1

 
81.4

 
—

 
251.7

Impairment charges and (gain)/loss on sale of assets
—

 
3.0

 
1.6

 
—

 
4.6

Restructuring and other
—

 
4.1

 
8.6

 
—

 
12.7

Property and casualty (gain)/losses, net
—

 
—

 
—

 
—

 
—

Operating earnings/(loss)
(2.2
)
 
14.1

 
114.0

 
—

 
125.9

Interest expense, net
139.1

 
0.7

 
20.9

 
—

 
160.7

Other (income)/expense, net
(76.6
)
 
(86.1
)
 
66.2

 
116.8

 
20.3

Earnings/(loss) from continuing operations before income taxes
(64.7
)
 
99.5

 
26.9

 
(116.8
)
 
(55.1
)
Income tax (benefit)/expense
1.2

 
5.2

 
(0.5
)
 
—

 
5.9

Earnings/(loss) from continuing operations
(65.9
)
 
94.3

 
27.4

 
(116.8
)
 
(61.0
)
Earnings/(loss) from discontinued operations, net of tax
—

 
(4.9
)
 
—

 
—

 
(4.9
)
Net earnings/(loss)
(65.9
)
 
89.4

 
27.4

 
(116.8
)
 
(65.9
)
Net earnings/(loss) attributable to noncontrolling interest, net of tax
—

 
—

 
—

 
—

 
—

Net earnings/(loss) attributable to Catalent
(65.9
)
 
89.4

 
27.4

 
(116.8
)
 
(65.9
)
Other comprehensive income/(loss) attributable to Catalent, net of tax
(3.7
)
 
0.8

 
(3.2
)
 
2.4

 
(3.7
)
Comprehensive income/(loss) attributable to Catalent
$
(69.6
)
 
$
90.2

 
$
24.2

 
$
(114.4
)
 
$
(69.6
)

30
Table of Contents                                                            

Catalent Pharma Solutions, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Nine Months Ended March 31, 2012
(Unaudited; Dollars in millions)
 
 
Issuer
 
Guarantor
 
Non-
Guarantor
 
Eliminations
 
Consolidated
Net revenue
$
—

 
$
406.8

 
$
823.8

 
$
(14.1
)
 
$
1,216.5

Cost of products sold
—

 
230.6

 
606.9

 
(14.1
)
 
823.4

Gross margin
—

 
176.2

 
216.9

 
—

 
393.1

Selling, general, and administrative expenses
3.0

 
159.3

 
80.0

 
—

 
242.3

Impairment charges and (gain)/loss on sale of assets
—

 
(0.5
)
 
(0.9
)
 
—

 
(1.4
)
Restructuring and other
—

 
2.9

 
9.7

 
—

 
12.6

Property and casualty losses
—

 
—

 
(10.5
)
 
—

 
(10.5
)
Operating earnings/(loss)
(3.0
)
 
14.5

 
138.6

 
—

 
150.1

Interest expense, net
115.6

 
0.2

 
15.4

 
—

 
131.2

Other (income)/expense, net
(114.4
)
 
(58.5
)
 
24.7

 
145.1

 
(3.1
)
Earnings/(loss) from continuing operations before income taxes
(4.2
)
 
72.8

 
98.5

 
(145.1
)
 
22.0

Income tax (benefit)/expense
(2.0
)
 
4.3

 
16.7

 
—

 
19.0

Earnings/(loss) from continuing operations
(2.2
)
 
68.5

 
81.8

 
(145.1
)
 
3.0

Loss from discontinued operations
—

 
(3.9
)
 
(0.1
)
 
—

 
(4.0
)
Net earnings/(loss)
(2.2
)
 
64.6

 
81.7

 
(145.1
)
 
(1.0
)
Net earnings/(loss) attributable to noncontrolling interest
—

 
—

 
1.2

 
—

 
1.2

Net earnings/(loss) attributable to Catalent
(2.2
)
 
64.6

 
80.5

 
(145.1
)
 
(2.2
)
Other comprehensive income/(loss) attributable to Catalent, net of tax
7.0

 
0.2

 
(45.8
)
 
45.6

 
7.0

Comprehensive income/(loss) attributable to Catalent
$
4.8

 
$
64.8

 
$
34.7

 
$
(99.5
)
 
$
4.8


31
Table of Contents                                                            

Catalent Pharma Solutions, Inc. and Subsidiaries
Consolidating Balance Sheet
March 31, 2013
(Unaudited; Dollars in millions)
 
 
Issuer
 
Guarantor
 
Non-
Guarantor
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and equivalents
$
1.4

 
$
13.3

 
$
72.8

 
$
—

 
$
87.5

Trade receivables, net
—

 
121.6

 
194.9

 
—

 
316.5

Intercompany receivables
368.9

 
9.7

 
183.5

 
(562.1
)
 
—

Inventories
—

 
31.5

 
111.7

 
—

 
143.2

Prepaid expenses and other
4.7

 
32.6

 
47.1

 
—

 
84.4

Total current assets
375.0

 
208.7

 
610.0

 
(562.1
)
 
631.6

Property and equipment, net
—

 
365.0

 
442.0

 
—

 
807.0

Goodwill
—

 
332.0

 
691.1

 
—

 
1,023.1

Other intangibles, net
—

 
95.2

 
286.2

 
—

 
381.4

Investment in subsidiaries
2,896.1

 
—

 
—

 
(2,893.4
)
 
2.7

Deferred income taxes asset
4.0

 
68.0

 
64.6

 
—

 
136.6

Other assets
21.0

 
15.3

 
2.6

 
—

 
38.9

Total assets
$
3,296.1

 
$
1,084.2

 
$
2,096.5

 
$
(3,455.5
)
 
$
3,021.3

Liabilities and Shareholder’s Deficit
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
Current portion of long-term obligations & other short-term borrowings
$
18.2

 
$
1.5

 
$
9.9

 
$
—

 
$
29.6

Accounts payable
—

 
42.8

 
96.0

 
—

 
138.8

Intercompany accounts payable
1,164.4

 
—

 
47.0

 
(1,211.4
)
 
—

Other accrued liabilities
38.1

 
77.4

 
105.1

 
—

 
220.6

Total current liabilities
1,220.7

 
121.7

 
258.0

 
(1,211.4
)
 
389.0

Long-term obligations, less current portion
2,579.4

 
25.4

 
40.8

 
—

 
2,645.6

Intercompany long-term debt
(110.7
)
 
2.4

 
633.4

 
(525.1
)
 
—

Pension liability
—

 
60.1

 
82.7

 
—

 
142.8

Deferred income taxes liability
11.6

 
112.0

 
88.2

 
—

 
211.8

Other liabilities
—

 
28.6

 
20.9

 
—

 
49.5

Shareholder’s Deficit:
 
 
 
 
 
 
 
 
 
Total Catalent shareholder’s deficit
(404.9
)
 
734.0

 
972.5

 
(1,719.0
)
 
(417.4
)
Noncontrolling interest
—

 
—

 
—

 
—

 
—

Total shareholder’s deficit
(404.9
)
 
734.0

 
972.5

 
(1,719.0
)
 
(417.4
)
Total liabilities and shareholder’s deficit
$
3,296.1

 
$
1,084.2

 
$
2,096.5

 
$
(3,455.5
)
 
$
3,021.3


32
Table of Contents                                                            

Catalent Pharma Solutions, Inc. and Subsidiaries
Consolidating Balance Sheet
June 30, 2012
(Dollars in millions)
 
 
Issuer
 
Guarantor
 
Non-
Guarantor
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and equivalents
$
2.7

 
$
49.5

 
$
86.8

 
$
—

 
$
139.0

Trade receivables, net
—

 
112.4

 
225.9

 
—

 
338.3

Intercompany receivables
(406.6
)
 
1,070.5

 
784.7

 
(1,448.6
)
 
—

Inventories
—

 
24.0

 
94.7

 
—

 
118.7

Prepaid expenses and other
19.1

 
32.6

 
57.0

 
—

 
108.7

Total current assets
(384.8
)
 
1,289.0

 
1,249.1

 
(1,448.6
)
 
704.7

Property and equipment, net
—

 
353.8

 
455.9

 
—

 
809.7

Goodwill
—

 
331.4

 
698.5

 
—

 
1,029.9

Other intangibles, net
—

 
104.1

 
313.6

 
—

 
417.7

Investment in subsidiaries
3,632.1

 
—

 
—

 
(3,630.5
)
 
1.6

Deferred income taxes asset
4.0

 
68.0

 
63.2

 
—

 
135.2

Other assets
22.7

 
15.3

 
2.2

 
—

 
40.2

Total assets
$
3,274.0

 
$
2,161.6

 
$
2,782.5

 
$
(5,079.1
)
 
$
3,139.0

Liabilities and Shareholder’s Deficit
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
Current portion of long-term obligations & other short-term borrowings
$
17.8

 
$
7.7

 
$
17.7

 
$
—

 
$
43.2

Accounts payable
—

 
42.6

 
91.6

 
—

 
134.2

Intercompany accounts payable
1,080.4

 
—

 
79.0

 
(1,159.4
)
 
—

Other accrued liabilities
49.4

 
95.7

 
116.8

 
—

 
261.9

Total current liabilities
1,147.6

 
146.0

 
305.1

 
(1,159.4
)
 
439.3

Long-term obligations, less current portion
2,574.1

 
20.9

 
45.3

 
—

 
2,640.3

Intercompany long-term debt
(106.5
)
 
2.4

 
391.7

 
(287.6
)
 
—

Pension liability
—

 
55.7

 
84.6

 
—

 
140.3

Deferred income taxes liability
9.5

 
107.5

 
102.9

 
—

 
219.9

Other liabilities
—

 
29.5

 
20.4

 
—

 
49.9

Shareholder’s Deficit:
 
 
 
 
 
 
 
 
 
Total Catalent shareholder’s deficit
(350.7
)
 
1,799.6

 
1,832.5

 
(3,632.1
)
 
(350.7
)
Noncontrolling interest
—

 
—

 
—

 
—

 
—

Total shareholder’s deficit
(350.7
)
 
1,799.6

 
1,832.5

 
(3,632.1
)
 
(350.7
)
Total liabilities and shareholder’s deficit
$
3,274.0

 
$
2,161.6

 
$
2,782.5

 
$
(5,079.1
)
 
$
3,139.0


33
Table of Contents                                                            

Catalent Pharma Solutions, Inc. and Subsidiaries
Consolidating Statements of Cash Flows
For the Nine Months Ended March 31, 2013
(Unaudited; Dollars in millions)
 
 
Issuer
 
Guarantor
Subsidiaries
 
Non-
Guarantor
 
Eliminations
 
Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
Net cash provided by/(used in) operating activities from continuing operations
$
(145.9
)
 
$
119.1

 
$
111.2

 
—

 
$
84.4

Net cash provided by/(used in) operating activities from discontinued operations
—

 
(1.2
)
 
—

 
—

 
(1.2
)
Net cash provided by/(used in) operating activities
(145.9
)
 
117.9

 
111.2

 
—

 
83.2

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
Acquisition of property, equipment and other productive assets
—

 
(53.7
)
 
(31.1
)
 
—

 
(84.8
)
Proceeds from sale of property and equipment
—

 
0.2

 
0.1

 
—

 
0.3

Net cash provided by/(used in) investing activities from continuing operations
—

 
(53.5
)
 
(31.0
)
 
—

 
(84.5
)
Net cash provided by/(used in) investing activities from discontinued operations
—

 
—

 
—

 
—

 
—

Net cash provided by/(used in) investing activities
—

 
(53.5
)
 
(31.0
)
 
—

 
(84.5
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
Intercompany
174.8

 
(93.5
)
 
(81.3
)
 
—

 
—

Net change in short-term borrowings
—

 
(5.3
)
 
(4.2
)
 
—

 
(9.5
)
Proceeds from Borrowing, net
399.3

 
—

 
—

 
—

 
399.3

Payments related to long-term obligations
(422.6
)
 
(1.8
)
 
(9.9
)
 
—

 
(434.3
)
Reclassification of call premium payment
(7.6
)
 
—

 
—

 
—

 
(7.6
)
Equity contribution/(redemption)
0.7

 
—

 
—

 
—

 
0.7

Net cash (used in)/provided by financing activities from continuing operations
144.6

 
(100.6
)
 
(95.4
)
 
—

 
(51.4
)
Net cash (used in)/provided by financing activities from discontinued operations
—

 
—

 
—

 
—

 
—

Net cash (used in)/provided by financing activities
144.6

 
(100.6
)
 
(95.4
)
 
—

 
(51.4
)
Effect of foreign currency on cash
—

 
—

 
1.2

 
—

 
1.2

NET INCREASE/(DECREASE) IN CASH AND EQUIVALENTS
(1.3
)
 
(36.2
)
 
(14.0
)
 
—

 
(51.5
)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD
2.7

 
49.5

 
86.8

 
—

 
139.0

CASH AND EQUIVALENTS AT END OF PERIOD
$
1.4

 
$
13.3

 
$
72.8

 
$
—

 
$
87.5


34
Table of Contents                                                            

Catalent Pharma Solutions, Inc. and Subsidiaries
Consolidating Statements of Cash Flows
For the Nine Months Ended March 31, 2012
(Unaudited; Dollars in millions)
 
 
Issuer
 
Guarantor
Subsidiaries
 
Non-
Guarantor
 
Eliminations
 
Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
Net cash provided by/(used in) operating activities from continuing operations
$
(99.3
)
 
$
99.3

 
$
81.9

 
$
—

 
$
81.9

Net cash provided by/(used in) operating activities from discontinued operations
—

 
4.1

 
(0.2
)
 
—

 
3.9

Net cash provided by/(used in) operating activities
(99.3
)
 
103.4

 
81.7

 
—

 
85.8

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
Acquisition of property and equipment and other productive assets
—

 
(23.5
)
 
(44.1
)
 
—

 
(67.6
)
Proceeds from sale of property and equipment
—

 
1.3

 
0.7

 
—

 
2.0

Proceeds from insurance related to long lived assets
—

 
—

 
21.3

 
—

 
21.3

Payment for acquisitions, net of cash
(459.2
)
 
—

 
—

 
—

 
(459.2
)
Net cash provided by/(used in) investing activities from continuing operations
(459.2
)
 
(22.2
)
 
(22.1
)
 
—

 
(503.5
)
Net cash provided by/(used in) investing activities from discontinued operations
—

 
(3.9
)
 
—

 
—

 
(3.9
)
Net cash provided by/(used in) investing activities
(459.2
)
 
(26.1
)
 
(22.1
)
 
—

 
(507.4
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
Intercompany
187.6

 
(95.9
)
 
(91.7
)
 
—

 
—

Net change in short-term borrowings
—

 
(1.3
)
 
—

 
—

 
(1.3
)
Payments related to revolver credit facility fees
(1.6
)
 
—

 
—

 
—

 
(1.6
)
Proceeds from Borrowing, net
386.8

 
—

 
—

 
—

 
386.8

Repayments of long-term obligations
(12.3
)
 
—

 
(11.3
)
 
—

 
(23.6
)
Equity contribution (redemption)
1.1

 
—

 
—

 
—

 
1.1

Net cash (used in)/provided by financing activities from continuing operations
561.6

 
(97.2
)
 
(103.0
)
 
—

 
361.4

Net cash (used in)/provided by financing activities from discontinued operations
—

 
—

 
—

 
—

 
—

Net cash provided by/(used in) financing activities
561.6

 
(97.2
)
 
(103.0
)
 
—

 
361.4

Effect of foreign currency on cash
—

 
—

 
(9.0
)
 
—

 
(9.0
)
NET INCREASE/(DECREASE) IN CASH AND EQUIVALENTS
3.1

 
(19.9
)
 
(52.4
)
 
—

 
(69.2
)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD
3.6

 
33.4

 
168.1

 
—

 
205.1

CASH AND EQUIVALENTS AT END OF PERIOD
$
6.7

 
$
13.5

 
$
115.7

 
$
—

 
$
135.9


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

The Company
We are the leading global provider of development solutions and advanced delivery technologies for drugs, biologics and consumer health products. Through our extensive capabilities and deep expertise in product development, we help our customers bring more products to market, faster. Our advanced delivery technology platforms, the broadest and most diverse combination of intellectual property and proven formulation, manufacturing and regulatory expertise available to the industry, enable our customers to bring more products and better treatments to the market. Across both development and delivery, our commitment to reliably supply our customers’ needs serves as the foundation for the value we provide. We operate through four operating segments: Development & Clinical Services, Softgel Technologies, Modified Release Technologies, and Medication Delivery Solutions. We believe that through our prior and ongoing investments in growth-enabling capacity and capabilities, our entry into new markets, our ongoing focus on operational and quality excellence, our innovation activities, the sales of existing customer products, and the introduction of new customer products, we will continue to benefit from attractive margins and realize the growth potential from these areas.
For financial reporting purposes, we present three distinct financial reporting segments based on criteria established by U.S. generally accepted accounting principles (“GAAP”): Development & Clinical Services, Oral Technologies and Medication Delivery Solutions. The Oral Technologies segment includes the Softgel Technologies and Modified Release Technologies businesses.

Critical Accounting Policies and Estimates
The preparations of financial statements are in conformity with U.S. GAAP. These standards require management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Such estimates include, but are not limited to, allowance for doubtful accounts, inventory and long-lived asset valuation, goodwill and other intangible asset impairment, equity-based compensation, income taxes, derivative financial instruments, self insurance accruals, loss contingencies and restructuring charge reserves. Actual amounts may differ from these estimated amounts.
There were no material changes to the critical accounting policies or in the underlying accounting assumptions and estimates from those described in the Company’s fiscal year 2012 Annual Report on Form 10-K, other than recently adopted accounting principles, none of which had a material impact.

Results of Operations
Use of EBITDA from continuing operations and Adjusted EBITDA
Management measures operating performance based on consolidated earnings from continuing operations before interest expense, expense/(benefit) for income taxes and depreciation and amortization and is adjusted for the income or loss attributable to noncontrolling interest (“EBITDA from continuing operations”). EBITDA from continuing operations is not defined under U.S. GAAP and is not a measure of operating income, operating performance or liquidity presented in accordance with U.S. GAAP and is subject to important limitations.
We believe that the presentation of EBITDA from continuing operations enhances an investor’s understanding of our financial performance. We believe this measure is a useful financial metric to assess our operating performance from period to period by excluding certain items that we believe are not representative of our core business and use this measure for business planning purposes. In addition, given the significant investments that we have made in the past in property, plant and equipment, depreciation and amortization expenses represent a meaningful portion of our cost structure. We believe that EBITDA from continuing operations will provide investors with a useful tool for assessing the comparability between periods of our ability to generate cash from operations sufficient to pay taxes, to service debt and to undertake capital expenditures because it eliminates depreciation and amortization expense. We present EBITDA from continuing operations in order to provide supplemental information that we consider relevant for the readers of the Consolidate Financial Statements, and such information is not meant to replace or supersede U.S. GAAP measures. Our definition of EBITDA from continuing operations may not be the same as similarly titled measures used by other companies.

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In addition, the Company evaluates the performance of its segments based on segment earnings before minority interest, other (income)/expense, impairments, restructuring costs, interest expense, income tax expense/(benefit), and depreciation and amortization (“Segment EBITDA”).
Under the indentures governing the notes and the credit agreement governing the senior unsecured term loan facility, the Company’s ability to engage in certain activities such as incurring certain additional indebtedness, making certain investments and paying certain dividends is tied to ratios based on Adjusted EBITDA (which is defined as “EBITDA” in the indentures and the credit agreement governing the senior unsecured term loan facility). Adjusted EBITDA is based on the definitions in the Company’s indentures and the credit agreement governing the senior unsecured term loan facility, is not defined under U.S. GAAP, and is subject to important limitations. We have included the calculations of Adjusted EBITDA for the periods presented. Adjusted EBITDA is the covenant compliance measure used in certain covenants under the indentures governing the notes and the credit agreement governing the senior unsecured term loan facility, particularly those governing debt incurrence and restricted payments. Because not all companies use identical calculations, the Company’s presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.
The most directly comparable GAAP measure to EBITDA from continuing operations and Adjusted EBITDA is earnings/(loss) from continuing operations. Included in this report is a reconciliation of earnings/(loss) from continuing operations to EBITDA from continuing operations and to Adjusted EBITDA.
Use of Constant Currency
As exchange rates are an important factor in understanding period-to-period comparisons, we believe the presentation of results on a constant currency basis in addition to reported results helps improve investors’ ability to understand our operating results and evaluate our performance in comparison to prior periods. Constant currency information compares results between periods as if exchange rates had remained constant period-over-period. We use results on a constant currency basis as one measure to evaluate our performance. In this Quarterly Report on Form 10-Q, we calculate constant currency by calculating current-year results using prior-year foreign currency exchange rates. We generally refer to such amounts calculated on a constant currency basis as excluding the impact of foreign exchange. These results should be considered in addition to, not as a substitute for, results reported in accordance with U.S. GAAP. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not measures of performance presented in accordance with U.S. GAAP.
Three Months Ended March 31, 2013 compared to the Three Months Ended March 31, 2012
 
Three Months Ended  
 March 31,
 
Increase/(Decrease)
(Dollars in millions)
2013
 
2012
 
Change $
 
Change %
Net revenue
$
447.0

 
$
441.3

 
$
5.7

 
1
 %
Cost of products sold
309.6

 
292.8

 
16.8

 
6
 %
Gross margin
137.4

 
148.5

 
(11.1
)
 
(7
)%
Selling, general, and administrative expense
83.7

 
90.8

 
(7.1
)
 
(8
)%
Impairment charges and (gain)/loss on sale of assets
2.2

 
(0.6
)
 
2.8

 
*

Restructuring and other
3.6

 
1.4

 
2.2

 
*

Property and casualty (gain)/losses, net
—

 
4.1

 
(4.1
)
 
*

Operating earnings/(loss)
47.9

 
52.8

 
(4.9
)
 
(9
)%
Interest expense, net
53.6

 
48.0

 
5.6

 
12
 %
Other (income)/expense, net
8.3

 
(0.7
)
 
9.0

 
*

Earnings/(loss) from continuing operations before income taxes
(14.0
)
 
5.5

 
(19.5
)
 
*

Income tax expense/(benefit)
(0.1
)
 
8.2

 
(8.3
)
 
*

Earnings/(loss) from continuing operations
(13.9
)
 
(2.7
)
 
(11.2
)
 
*

Earnings/(loss) from discontinued operations
(4.9
)
 
(5.6
)
 
0.7

 
(12
)%
Net earnings/(loss)
(18.8
)
 
(8.3
)
 
(10.5
)
 
*

Net earnings/(loss) attributable to noncontrolling interest
—

 
0.9

 
(0.9
)
 
*

Net earnings/(loss) attributable to Catalent
$
(18.8
)
 
$
(9.2
)
 
$
(9.6
)
 
*


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*
Percentage not meaningful
Net Revenue
Net revenue increased $5.7 million, or 1%, for the third quarter of fiscal year 2013 compared to the same period a year ago. Excluding the unfavorable impact from foreign exchange fluctuation of $4.8 million, or 1%, net revenue increased by $10.4 million, or 2%, as compared to the same period in the prior year. The increase was primarily due to the inclusion of a full quarter of revenue from the acquired CTS business within our Development and Clinical Services segment as compared to a partial quarter in the prior year period. The increase noted above was offset by research and development profit participation revenue within the Oral Technologies segment which occurred in the prior year period but not in the current year period.
Gross Margin
Gross margin decreased $11.1 million, or 7%, for the third quarter of fiscal year 2013. Excluding the unfavorable impact from foreign exchange fluctuation of $1.7 million, or 1%, gross margin decreased by $9.3 million, or 6%, as compared to the same period in the prior year. This decrease in gross margin was primarily attributable to revenue mix changes in our Oral Technologies segment as the prior year period included research and development product participation revenue, which generally provides a higher gross margin as compared to product or service revenue. The decrease in gross margin was partially offset by gross margin increases in our Development and Clinical Services segment attributable to the inclusion of a full quarter of gross margin generated by the acquired CTS business.
Selling, General, and Administrative Expense
Selling, general, and administrative expense decreased by $7.1 million, or 8%, for the third quarter of fiscal year 2013. Excluding the favorable impact from foreign exchange fluctuation of $0.5 million, or 1%, selling, general, and administrative expense decreased $6.5 million, or 7%, as compared to the same period in the prior year, primarily due to cost savings initiatives from our Corporate functions, including lower employee related expenses, the lower transaction and consulting expenses associated with the CTS acquisition and other inorganic initiatives.
Restructuring and Other
Restructuring and other charges of $3.6 million for the three months ended March 31, 2013 increased $2.2 million compared to the period ended March 31, 2012. The current period included a higher level of restructuring initiatives across several of our operations which were enacted to improve cost efficiency, including site consolidation and employee related severance expenses.
Interest Expense, net
Interest expense, net of $53.6 million for the three months ended March 31, 2013 increased by $5.6 million, or 12%, compared to the period ended March 31, 2012, primarily driven by the increased interest associated with the extended portion of our U.S. dollar and euro denominated term loans. The increase was also attributable to the full three month impact of the $400 million incremental borrowing required to fund the CTS acquisition as compared to the partial quarter impact in the prior fiscal year.
Other (Income)/Expense, net
Other (income)/expense, net of $8.3 million for the three months ended March 31, 2013 increased $9.0 million compared to the period ended March 31, 2012. The increased expense was primarily driven by the level of unrealized loss related to foreign currency translation which was recorded in the current period as compared to gains or losses from foreign currency translation occurring in the prior year period.
Provision/(Benefit) for Income Taxes
Our provision/(benefit) for income taxes for the three months ended March 31, 2013 was $(0.1) million relative to losses before income taxes of $14.0 million. Our provision/(benefit) for income taxes for the three months ended March 31, 2012 was $8.2 million relative to earnings before income taxes of $5.5 million. The income tax provision for the current period is not comparable to the same period of the prior year due to changes in pretax income over many jurisdictions and the impact of discrete items. Generally, fluctuations in the effective tax rate are primarily due to changes in our geographic pretax income resulting from our business mix and changes in the tax impact of permanent differences, restructuring, other special items and other discrete tax items, which may have unique tax implications depending on the nature of the item. The reduction in our

38
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effective tax rate for the period ended March 31, 2013 versus our effective tax rate for the period ended March 31, 2012 was primarily due to the result of lower pre-tax book income in foreign jurisdictions in the current fiscal year. Our effective tax rate reflects benefits derived from operations outside the United States, which are generally taxed at lower rates than the U.S. statutory rate of 35%.
Segment Review
The Company’s results on a segment basis for the three months ended March 31, 2013 compared to the three months ended March 31, 2012 are as follows:
 
Three Months Ended  
 March 31,
 
Increase/(Decrease)
(Dollars in millions)
2013
 
2012
 
Change $
 
Change %
Oral Technologies
 
 
 
 
 
 
 
Net revenue
$
303.1

 
$
315.9

 
$
(12.8
)
 
(4
)%
Segment EBITDA
76.5

 
91.4

 
(14.9
)
 
(16
)%
Medication Delivery Solutions
 
 
 
 
 
 
 
Net revenue
53.9

 
59.6

 
(5.7
)
 
(10
)%
Segment EBITDA
8.3

 
8.1

 
0.2

 
2
 %
Development and Clinical Services
 
 
 
 
 
 
 
Net revenue
93.0

 
71.1

 
21.9

 
31
 %
Segment EBITDA
15.9

 
15.5

 
0.4

 
3
 %
Inter-segment revenue elimination
(3.0
)
 
(5.3
)
 
2.3

 
*

Unallocated Costs (1)
(22.0
)
 
(27.8
)
 
5.8

 
*

Combined Total
 
 
 
 
 
 
 
Net revenue
447.0

 
441.3

 
5.7

 
1
 %
EBITDA from continuing operations
$
78.7

 
$
87.2

 
$
(8.5
)
 
(10
)%
 
*
Percentage not meaningful
(1)
Unallocated costs includes equity-based compensation, impairment charges, certain other corporate directed costs, and other costs that are not allocated to the segments as follows:
 
Three Months Ended  
 March 31,
(Dollars in millions)
2013
 
2012
Impairment charges and gain/(loss) on sale of assets
$
(2.2
)
 
$
0.6

Equity compensation
(0.6
)
 
(0.9
)
Restructuring and other special items
(6.7
)
 
(14.0
)
Property and casualty losses
—

 
(4.1
)
Sponsor advisory fee
(2.9
)
 
(2.9
)
Noncontrolling interest
—

 
(0.9
)
Other income (expense)(2) , net
(8.3
)
 
0.7

Non-allocated corporate costs, net
(1.3
)
 
(6.3
)
Total unallocated costs
$
(22.0
)
 
$
(27.8
)
 
(2)
Primarily relates to realized and unrealized gains/(losses) related to foreign currency translation and expenses related to financing transactions during the period

39
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Provided below is a reconciliation of earnings/(loss) from continuing operations to EBITDA from continuing operations:
 
Three Months Ended  
 March 31,
(Dollars in millions)
2013
 
2012
Earnings/(loss) from continuing operations
$
(13.9
)
 
$
(2.7
)
Depreciation and amortization
39.1

 
34.6

Interest expense, net
53.6

 
48.0

Income tax (benefit)/expense
(0.1
)
 
8.2

Noncontrolling interest
—

 
(0.9
)
EBITDA from continuing operations
$
78.7

 
$
87.2


Oral Technologies segment
Net revenue decreased by $12.8 million, or 4%, for the third quarter of fiscal year 2013. Excluding the unfavorable impact from foreign exchange fluctuation of $4.7 million, or 1%, Oral Technologies' net revenue decreased by $8.1 million, or 3%, compared to the same period a year ago. This decrease was primarily attributable to research and development profit participation revenue which occurred in the prior year three month period but not in the current year period. The remaining decrease was attributable to lower demand for certain customer products using our Zydis technology platform.
Oral Technologies’ EBITDA decreased by $14.9 million, or 16%, for the third quarter of fiscal year 2013. Excluding the unfavorable impact from foreign exchange fluctuation of $1.5 million, or 1%, the Oral Technologies' Segment EBITDA decreased by $13.4 million, or 15%, compared to the same period a year ago. This decrease was primarily related to the absence of the research and development profit participation revenue in the current year period, as discussed above, and the lower demand during the period for certain customer products using our Zydis technology platform.
Medication Delivery Solutions segment
Net revenue decreased by $5.7 million, or 10%, for the third quarter of fiscal year 2013. Lower demand for injectable products from our European pre-filled syringe facilities was partially offset by demand increases during the quarter for products and services from our biologic and blow fill seal offerings. The impact of foreign exchange fluctuations did not materially impact the segment's revenue.
Medication Delivery Solutions' Segment EBITDA increased by $0.2 million, or 2%, for the third quarter of fiscal year 2013. This increase was attributable to the demand increases within our biologics and blow fill seal offerings, as noted above, and lower selling, general, and administrative expenses across the segment. The impact of foreign exchange fluctuations did not materially impact Segment EBITDA.
Development and Clinical Services segment
Net revenues increased by $21.9 million, or 31%, for the third quarter of fiscal year 2013. The increase was primarily due to the inclusion of a full quarter of revenue from the acquired CTS business, which only partially contributed to revenue in the comparable prior year period. The revenue increase was mitigated by lower demand for clinical services in Europe. The impact of foreign exchange fluctuations did not materially impact the segment’s revenue.
Development and Clinical Services' Segment EBITDA increased by $0.4 million, or 3%, for the third quarter of fiscal year 2013. The increase was primarily due to the acquisition of the CTS business; partially offset by the lower demand for clinical services in Europe, as discussed above. The impact of foreign exchange fluctuations did not materially impact Segment EBITDA.

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Nine Months Ended March 31, 2013 compared to the Nine Months Ended March 31, 2012
 
Nine Months Ended  
 March 31,
 
Increase/(Decrease)
(Dollars in millions)
2013
 
2012
 
Change $
 
Change %
Net revenue
$
1,295.1

 
$
1,216.5

 
$
78.6

 
6
 %
Cost of products sold
900.2

 
823.4

 
76.8

 
9
 %
Gross margin
394.9

 
393.1

 
1.8

 
*

Selling, general, and administrative expense
251.7

 
242.3

 
9.4

 
4
 %
Impairment charges and (gain)/loss on sale of assets
4.6

 
(1.4
)
 
6.0

 
*

Restructuring and other
12.7

 
12.6

 
0.1

 
1
 %
Property and casualty (gain)/losses, net
—

 
(10.5
)
 
10.5

 
*

Operating earnings/(loss)
125.9

 
150.1

 
(24.2
)
 
(16
)%
Interest expense, net
160.7

 
131.2

 
29.5

 
22
 %
Other (income)/expense, net
20.3

 
(3.1
)
 
23.4

 
*

Earnings/(loss) from continuing operations before income taxes
(55.1
)
 
22.0

 
(77.1
)
 
*

Income tax expense/(benefit)
5.9

 
19.0

 
(13.1
)
 
(69
)%
Earnings/(loss) from continuing operations
(61.0
)
 
3.0

 
(64.0
)
 
*

Earnings/(loss) from discontinued operations
(4.9
)
 
(4.0
)
 
(0.9
)
 
23
 %
Net earnings/(loss)
(65.9
)
 
(1.0
)
 
(64.9
)
 
*

Net earnings/(loss) attributable to noncontrolling interest
—

 
1.2

 
(1.2
)
 
*

Net earnings/(loss) attributable to Catalent
$
(65.9
)
 
$
(2.2
)
 
$
(63.7
)
 
*

 
*
Percentage not meaningful
Net Revenue
Net revenue increased $78.6 million, or 6%, for the first nine months of fiscal year 2013. Excluding the unfavorable impact from foreign exchange fluctuation of $30.5 million, or 3%, net revenue increased by $109.1 million, or 9%, as compared to the same period a year ago. The increase was primarily due to the inclusion of a full nine months of revenue from the acquired CTS business within our Development and Clinical Services segment, partially offset by volume declines within the Oral Technologies segment related to certain customer products utilizing our Zydis delivery technology platforms and the impact of certain concessions granted to secure long term arrangements with regard to certain products and customers.
Gross Margin
Gross margin increased $1.8 million, or less than 1%, for the first nine months of fiscal year 2013. Excluding the unfavorable impact from foreign exchange fluctuation of $9.0 million, or 2%, gross margin increased by $10.8 million, or approximately 3%, as compared to the same period a year ago. This increase in gross margin was due to the CTS acquisition within Development and Clinical Services and research and development profit participation revenue recorded within the Oral Technologies segment during the first six months of the current fiscal year, partially offset by unfavorable product mix and volume declines in both the Oral Technologies and Medication Delivery Solutions segments.
Selling, General, and Administrative Expense
Selling, general, and administrative expense increased $9.4 million, or 4%, for the first nine months of fiscal year 2013. Excluding the favorable impact from foreign exchange fluctuation of $3.0 million, or 1%, selling, general, and administrative expense increased by $12.4 million, or 5%, as compared to the same period a year ago. The increase was primarily due to increased depreciation and amortization and the integration costs associated with the CTS acquisition.

41
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Restructuring and Other
Restructuring and other charges of $12.7 million for the first nine months of fiscal year 2013 were relatively consistent compared to the comparable period of the prior fiscal year. The prior period charges primarily related to closure of an Oral Technology Softgel facility in the U.K. during the second quarter of the prior year. The current period charges related to restructuring initiatives across several of our operations which were enacted to improve cost efficiency, including both site consolidation and employee related severance charges undertaken to achieve acquisitions related synergies.
Interest Expense, net
Interest expense, net of $160.7 million for the first nine months of fiscal year 2013 increased by $29.5 million or 22%, compared to the period ended March 31, 2012 and was primarily driven by the incremental term loan borrowing of $400 million used to finance the CTS acquisition, which closed during the third quarter of fiscal year 2012, and the increased interest associated with the extension of the majority of our U.S. dollar and euro denominated term loans.
Other (Income)/Expense, net
Other expense of $20.3 million increased by $23.4 million for the first nine months of fiscal year 2013 compared to the to the period ended March 31, 2012. The increased expense was primarily driven by unrealized loss related to foreign currency translation which was recorded in the current period, whereas no such loss was recorded in the prior year period. In addition, the current year expense was impacted by both cash and non-cash expenses associated with financing related expenses occurring during the period.
Provision/(Benefit) for Income Taxes
Our provision/(benefit) for income taxes for the first nine months of fiscal year 2013 was $5.9 million relative to losses before income taxes of $55.1 million. Our provision/(benefit) for income taxes for the nine months ended March 31, 2012 was $19.0 million relative to earnings before income taxes of $22.0 million. The income tax provision for the current period is not comparable to the same period of the prior year due to changes in pretax income over many jurisdictions and the impact of discrete items. Generally, fluctuations in the effective tax rate are primarily due to changes in our geographic pretax income resulting from our business mix and changes in the tax impact of permanent differences, restructuring, other special items and other discrete tax items, which may have unique tax implications depending on the nature of the item. Our effective tax rate reflects benefits derived from operations outside the United States, which are generally taxed at lower rates than the U.S. statutory rate of 35%. Our effective tax rate at March 31, 2013 is primarily impacted by the deferred tax benefit of a reduction in the UK statutory tax rate that occurred in fiscal 2013 and the deferred tax impact of current year tax amortization on goodwill and debt finance costs. In addition to these items, which were both recorded as discrete items in the March 31, 2013 tax provision, there were additional discrete items related to unrecognized tax benefits recorded under FIN48, withholding taxes accrued during the year, and state income taxes for jurisdictions which assess tax on a gross receipts basis.
Segment Review
The Company’s results on a segment basis for the nine months ended March 31, 2013 compared to the nine months ended March 31, 2012 are as follows:

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Nine Months Ended  
 March 31,
 
Increase/(Decrease)
(Dollars in millions)
2013
 
2012
 
Change $
 
Change %
Oral Technologies
 
 
 
 
 
 
 
Net revenue
$
853.0

 
$
897.2

 
$
(44.2
)
 
(5
)%
Segment EBITDA
214.9

 
236.8

 
(21.9
)
 
(9
)%
Medication Delivery Solutions
 
 
 
 
 
 
 
Net revenue
151.2

 
166.5

 
(15.3
)
 
(9
)%
Segment EBITDA
17.1

 
18.8

 
(1.7
)
 
(9
)%
Development and Clinical Services
 
 
 
 
 
 
 
Net revenue
298.1

 
167.0

 
131.1

 
79
 %
Segment EBITDA
55.5

 
33.7

 
21.8

 
65
 %
Inter-segment revenue elimination
(7.2
)
 
(14.2
)
 
7.0

 
*

Unallocated Costs (1)
(67.0
)
 
(44.5
)
 
(22.5
)
 
*

Combined Total
 
 
 
 
 
 
 
Net revenue
1,295.1

 
1,216.5

 
78.6

 
6
 %
EBITDA from continuing operations
$
220.5

 
$
244.8

 
$
(24.3
)
 
(10
)%
 
*
Percentage not meaningful
(1)
Unallocated costs includes equity-based compensation, impairment charges, certain other corporate directed costs, and other costs that are not allocated to the segments as follows:
 
Nine Months Ended  
 March 31,
(Dollars in millions)
2013
 
2012
Impairment charges and gain/(loss) on sale of assets
$
(4.6
)
 
$
1.4

Equity compensation
(2.2
)
 
(2.6
)
Restructuring and other special items
(21.3
)
 
(32.6
)
Property and casualty losses
—

 
10.5

Sponsor advisory fee
(9.4
)
 
(8.5
)
Noncontrolling interest
—

 
(1.2
)
Other income (expense)(2) , net
(20.3
)
 
3.1

Non-allocated corporate costs, net
(9.2
)
 
(14.6
)
Total unallocated costs
$
(67.0
)
 
$
(44.5
)
 
(2)
Primarily relates to realized and unrealized gains/(losses) related to foreign currency translation and expenses related to financing transactions during the period
Provided below is a reconciliation of earnings/(loss) from continuing operations to EBITDA from continuing operations:
 
Nine Months Ended  
 March 31,
(Dollars in millions)
2013
 
2012
Earnings/(loss) from continuing operations
$
(61.0
)
 
$
3.0

Depreciation and amortization
114.9

 
92.8

Interest expense, net
160.7

 
131.2

Income tax (benefit)/expense
5.9

 
19.0

Noncontrolling interest
—

 
(1.2
)
EBITDA from continuing operations
$
220.5

 
$
244.8



43
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Oral Technologies segment
Net revenue decreased by $44.2 million, or 5%, for the first nine months of fiscal year 2013. Excluding the unfavorable impact from foreign exchange fluctuation of $26.6 million, or 3%, Oral Technologies’ net revenue decreased by $17.6 million, or 2% as compared to the same period a year ago. This decrease was primarily related to decreased demand for certain customer products utilizing our Zydis technology platform and the impact of certain concessions granted to secure long term arrangements with regard to certain products and customers. This decrease was offset by revenue related to research and development product participation income recognized in the first six months of the current year period.
Oral Technologies' EBITDA decreased by $21.9 million, or 9%, for the first nine months of fiscal year 2013. Excluding the unfavorable impact from foreign exchange fluctuation of $7.8 million, or 3%, the Oral Technologies' Segment EBITDA decreased by $14.1 million, or 6%, as compared to the same period a year ago. The decrease was primarily related to decreased product demand as noted above and unfavorable product mix within the segment, partially offset by the research and development product participation income recorded in the current fiscal year period.
Medication Delivery Solutions segment
Net revenue decreased by $15.3 million, or 9%, for the first nine months of fiscal year 2013. Excluding the unfavorable impact from foreign exchange fluctuation of $3.5 million, or 2%, Medication Delivery Solutions' net revenue decreased by $11.8 million, or 7%, as compared to the same period a year ago. Reduced demand for injectable products at our European pre-filled syringe facilities was partially offset by increased demand for biologics services.
Medication Delivery Solutions' Segment EBITDA decreased by 9%, or $1.7 million, for the nine months of fiscal year 2013. The decrease was primarily attributable to the decreased demand for injectable products as noted above, partially offset by cost saving initiatives executed within the segment and increased demand for biologics services. The impact of foreign exchange fluctuations did not materially impact Segment EBITDA.
Development and Clinical Services segment
Net revenues increased by $131.1 million, or 79%, for the first nine months of fiscal year 2013. Excluding the unfavorable impact from foreign exchange fluctuation of $0.4 million, or less than 1%, Development and Clinical Services' net revenue increased by $131.5 million. The CTS acquisition, which closed in the third quarter of the previous fiscal year, accounted for the majority of the revenue increase.
Development and Clinical Services' Segment EBITDA increased by $21.8 million, or 65%, for the first nine months of fiscal year 2013. This increase was primarily due to the acquisition of the CTS business, and cost savings initiatives across the segment, partially offset by an unfavorable mix shift to lower margin services. The impact of foreign exchange fluctuations did not materially impact Segment EBITDA.

Liquidity and Capital Resources
Sources and Uses of Cash
The Company’s principal source of liquidity has been cash flow generated from operations. The principal uses of cash are to fund planned operating and capital expenditures, interest payments on debt and any mandatory or discretionary principal payments on debt issuances. As of March 31, 2013, the Company’s financing needs were supported by a $200.3 million revolving credit facility, which was reduced by $15.2 million of outstanding letters of credit. The revolving credit facility matures April 10, 2016. The April 10, 2016 maturity date is subject to certain conditions regarding the refinancing or repayment of the Company’s term loans, the Senior Toggle Notes, the 7.875% Notes, the Senior Subordinated Notes and certain other unsecured debt. As of March 31, 2013, we had no outstanding borrowings under the Company’s revolving credit facility.
On April 29, 2013, the Company entered into a senior unsecured term loan facility, in order to borrow an aggregate principal amount of $275 million of unsecured term loans (the "Unsecured Loans") due December 31, 2017. The proceeds from the Unsecured Loans will be used to redeem all $269.1 million remaining principal outstanding of the Companys Senior Toggle Notes at par plus accrued and unpaid interest as of May 29, 2013, the date of redemption. The Unsecured Loans bear interest, at the Company’s option, at a rate equal to the Eurocurrency Rate plus 5.25%, subject to a floor of 1.25%, or the "Base Rate" plus 4.25%, subject to a floor of 2.25%. The Base Rate is equal to the higher of either the Federal Funds Rate plus 0.5% or the rate of interest per annum published by the Wall Street Journal from time to time, as the “prime lending rate.” The "Eurocurrency Rate" is determined by reference to the British Bankers Association Interest Settlement rate for deposits in dollars for the interest period relevant to such borrowing adjusted for certain additional costs. The Company is not required to repay installments on the Unsecured Loans and is only required to repay the Unsecured Loans on the date of maturity.

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We continue to believe that the Company’s cash from operations and available borrowings under the revolving credit facility will be adequate to meet the Company’s future liquidity needs for at least the next twelve months.
Cash Flows
The following table summarizes the Company’s consolidated statement of cash flows from continuing operations:
 
Nine Months Ended  
 March 31,
 
 
(Dollars in millions)
2013
 
2012
 
$ Change
Net cash provided by/(used in):
 
 
 
 
 
Operating activities
$
84.4

 
$
81.9

 
$
2.5

Investing activities
$
(84.5
)
 
$
(503.5
)
 
$
419.0

Financing activities
$
(51.4
)
 
$
361.4

 
$
(412.8
)

Operating activities
For the nine months ended March 31, 2013, cash provided by operating activities was $84.4 million compared to $81.9 million for the comparable prior year period. Cash provided by operating activities was largely consistent with the comparable prior year period with higher cash interest expense on borrowings being offset by favorable changes in working capital.
Investing activities
For the nine months ended March 31, 2013, cash used in investing activities was $84.5 million, which primarily related to acquisitions of property, plant and equipment of $84.8 million. Cash used in investing activities for the the comparable prior year period was $503.5 million, including $459.2 million of cash paid to acquire Aptuit's Clinical Trial Supplies Business and the remaining 49% of the Company's Eberbach, Germany operation in February 2012. Acquisitions of property, plant and equipment totaled $67.6 million in the nine months ended March 31, 2012. the prior year period also included the $21 million of cash received from our insurance provider related to property damage claims resulting from the March 2011 plant fire at the Corby, U.K. facility. Excluding this insurance recovery and the acquisition related investments, cash used in investing activities for property, plant and equipment was approximately $89 million in the comparable prior year period.
Financing activities
For the nine months ended March 31, 2013, cash used in financing activities was $51.4 million compared to cash provided by financing activities of $361.4 million in the same period a year ago. The significant year-over-year fluctuation was primarily driven by borrowings, net of financing fees, related to the Aptuit CTS acquisition in the prior year period of $386.8 million. In the current year period, cash flows used in financing activities consisted largely of fees paid related to financing activity during the period, normal term loan principal payments and payment of other long term obligations.

Debt and Financing Arrangements
The Company uses interest rate swaps to manage the economic effect of variable rate interest obligations associated with our floating rate term loans so that the interest payable on the term loans effectively becomes fixed at a certain rate, thereby reducing the impact of future interest rate changes on our future interest expense. As of March 31, 2013, we had four interest rate swap agreements that have the economic effect of modifying the variable interest obligations associated with our floating rate term loans. These agreements include two U.S dollar-denominated agreements, one euro-denominated agreement and one yen-denominated interest rate swap agreement. The unrealized losses on our interest rate swaps that are designated as effective cash flow hedges for accounting purposes were $0.7 million, net of tax and are recorded within accumulated other comprehensive income/(loss) on our balance sheet at March 31, 2013.
The current Japanese yen interest rate swap was designed as an effective economic hedge but not designated as effective for financial reporting purposes and is included in the Consolidated Statements of Operations as other (income)/expense, net. Conversely, unrealized gains/losses on the U.S. dollar and euro interest rate swaps are designated as effective hedges and are included in accumulated other comprehensive income/(loss) and the corresponding payables are included in other current liabilities in our Consolidated Balance Sheet.
As of March 31, 2013, the Company was in compliance with all restrictive covenants related to its long-term obligations.

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Guarantees and Security
All obligations under the Credit Agreement, the senior unsecured term loan facility the Senior Toggle Notes, the 7.875% Notes and the Senior Subordinated Notes (together, the “notes”) are unconditionally guaranteed by each of the Company’s existing U.S. wholly-owned subsidiaries, other than the Company’s Puerto Rico subsidiaries, subject to certain exceptions.
All obligations under the senior secured credit facilities, and the guarantees of those obligations, are secured by substantially all of the following assets of the Company and each guarantor, subject to certain exceptions:
•
a pledge of 100% of the capital stock of the Company and 100% of the equity interests directly held by the Company and each guarantor in any wholly-owned material subsidiary of the Company or any guarantor (which pledge, in the case of any non-U.S. subsidiary of a U.S. subsidiary, will not include more than 65% of the voting stock of a first tier non-U.S. subsidiary); and
•
a security interest in, and mortgages on, substantially all tangible and intangible assets of the Company and of each guarantor, subject to certain limited exceptions.
Debt Covenants
The Credit Agreement, the senior unsecured term loan facility and the indentures governing the notes contain a number of covenants that, among other things, restrict, subject to certain exceptions, the Company’s (and the Company’s restricted subsidiaries’) ability to incur additional indebtedness or issue certain preferred shares; create liens on assets; engage in mergers and consolidations; sell assets; pay dividends and distributions or repurchase capital stock; repay subordinated indebtedness; engage in certain transactions with affiliates; make investments, loans or advances; make certain acquisitions; and in the case of the Company’s Credit Agreement, enter into sale and leaseback transactions, amend material agreements governing the Company’s subordinated indebtedness (including the senior subordinated notes) and change the Company’s lines of business.
The Credit Agreement, the senior unsecured term loan facility, and the indentures governing the notes also contain change of control provisions and certain customary affirmative covenants and events of default. As of March 31, 2013, the Company was in compliance with all covenants related to its long-term obligations. The Company’s long-term debt obligations do not contain any financial maintenance covenants.
Subject to certain exceptions, the Credit Agreement, the senior unsecured term loan facility and the indentures governing the notes will permit the Company and its restricted subsidiaries to incur certain additional indebtedness, including secured indebtedness. None of the Company’s non-U.S. subsidiaries or Puerto Rico subsidiaries is a guarantor of the loans or notes.
As market conditions warrant and subject to the Company’s contractual restrictions and liquidity position, we, the Company’s affiliates and/or the Company’s major equity holders, including Blackstone and its affiliates, may from time to time repurchase the Company’s outstanding debt securities, including the notes and/or the Company’s outstanding bank loans in privately negotiated or open market transactions, by tender or otherwise. Any such repurchases may be funded by incurring new debt, including additional borrowings under the Company’s existing Credit Agreement. Any new debt may also be secured debt. We may also use available cash on the Company’s balance sheet. The amounts involved in any such transactions, individually or in the aggregate, may be material. Further, any such purchases may result in the Company’s acquiring and retiring a substantial amount of any particular series, with the attendant reduction in the trading liquidity of any such series.

Historical and Adjusted EBITDA
Under the indentures governing the notes and the credit agreement governing the senior unsecured term loan facility, the Company’s ability to engage in certain activities such as incurring certain additional indebtedness, making certain investments and paying certain dividends is tied to ratios based on Adjusted EBITDA (which is defined as “EBITDA” in the indentures and the credit agreement governing the senior unsecured term loan facility).
Adjusted EBITDA is based on the definitions in the Company’s indentures and the credit agreement governing the senior unsecured term loan facility, is not defined under U.S. GAAP, and is subject to important limitations. We have included the calculations of Adjusted EBITDA for the period presented below as Adjusted EBITDA is the covenant compliance measure used in certain covenants under the indentures governing the notes and the credit agreement governing the senior unsecured term loan facility, particularly those governing debt incurrence and restricted payments. Because not all companies use identical calculations, the Company’s presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.

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In calculating Adjusted EBITDA, we add back certain non-cash, non-recurring and other items that are included in the definitions of EBITDA and consolidated net income as required in the credit agreement governing the notes. Adjusted EBITDA, among other things:
•
does not include non-cash stock-based employee compensation expense and certain other non-cash charges;
•
does not include cash and non-cash restructuring, severance and relocation costs incurred to realize future cost savings and enhance our operations;
•
adds back noncontrolling interest expense, which represents minority investors’ ownership of certain of our consolidated subsidiaries and is, therefore, not available to us; and
•
includes estimated cost savings which have not yet been fully reflected in our results.
The Company’s Adjusted EBITDA for the last twelve months ended March 31, 2013 based on the definitions in the Company’s indentures and the credit agreement governing the senior unsecured term loan facility is calculated as follows:
(Dollars in millions)
Twelve Months Ended 
 March 31, 2013
Earnings/(loss) from continuing operations
$
(61.9
)
Interest expense, net
212.8

Income tax (benefit)/provision
3.4

Depreciation and amortization
151.8

Noncontrolling interest
—

EBITDA from continuing operations
306.1

 
 
Equity compensation (1)
3.3

Impairment charges and (gain)/loss on sale of assets (2)
7.9

   Financing related expenses
11.2

U.S. GAAP Restructuring (3)
19.6

Acquisition, integration and other special items (4)
22.9

Property and casualty losses (5)
1.7

Foreign Exchange loss(gain) (included in other, net) (6)
8.9

   Other adjustments
2.0

Sponsor monitoring fee (7)
12.8

Subtotal
396.4

Estimated cost savings
—

Adjusted EBITDA
$
396.4

 
(1)
Reflects non-cash stock-based compensation expense under the provisions of ASC 718 Compensation – Stock Compensation.
(2)
Reflects non-cash asset impairment charges or gains and losses from the sale of assets not included in U.S. GAAP Restructuring discussed below.
(3)
Reflects U.S. GAAP restructuring charges which were primarily attributable to activities which focus on various aspects of operations, including consolidating certain operations, rationalizing headcount and aligning operations in a more strategic and cost-efficient structure to optimize our business.
(4)
Primarily reflects acquisition and ongoing integration related costs attributable to the acquisition of the Aptuit CTS business and the purchase of the remaining 49% non-controlling interest in our joint venture in Eberbach, Germany.
(5)
Primarily reflects property and casualty (gains)/losses resulting from fire damage to a U.K. packaging services operation and the associated insurance reimbursements.

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(6)
The twelve months ended March 31, 2013 included $8.3 million of unrealized foreign currency exchange rate losses primarily driven by inter-company loans denominated in a currency different from the functional currency of either the borrower or the lender. The foreign exchange adjustment was also impacted by the exclusion of realized foreign currency exchange rate losses from the non-cash and cash settlement of inter-company loans of $0.6 million. Inter-company loans are between Catalent entities and do not reflect the ongoing results of the companies trade operations.
(7)
Represents amount of sponsor advisory fee. See Related Party Transactions (Note 10) of the unaudited Consolidated Financial Statements.

Interest Rate Risk Management
A portion of the debt used to finance the Company’s operations is exposed to interest rate fluctuations. We may use various hedging strategies and derivative financial instruments to create an appropriate mix of fixed and floating rate assets and liabilities. The primary interest rate exposure as of March 31, 2013 is to interest rate fluctuations in the United States and Europe, especially USD LIBOR and EURIBOR interest rates. We currently use interest rate swaps as the derivative instruments in these hedging strategies. The derivatives used to manage the risk associated with the Company’s floating USD LIBOR and EURIBOR rate debt were designated as effective cash flow hedges. The derivative used to manage the risk associated with the Company’s floating TIBOR (Tokyo inter-bank Domestic Yen Offered rate) rate debt is an effective economic hedge but is not designated as an effective cash flow hedge for financial reporting purposes.

Currency Risk Management
The Company is exposed to fluctuations in the EUR-USD exchange rate on its investments in foreign operations in Europe. While the Company does not actively hedge against changes in foreign currency, we have mitigated the exposure of our investments in our European operations by denominating a portion of our debt in euros. At March 31, 2013, the Company had euro denominated debt outstanding of $540.9 million that qualifies as a hedge of a net investment in foreign operations. For non-derivatives designated and qualifying as net investment hedges, the effective portion of the translation gains or losses are reported in accumulated other comprehensive income/(loss) as part of the cumulative translation adjustment. For the nine months ended March 31, 2013, the Company recorded $13.2 million as a loss within cumulative translation adjustment. The net accumulated gain of this net investment as of March 31, 2013 included within other comprehensive income/(loss) was approximately $70.7 million. For the three and nine months ended March 31, 2013, the Company recognized an unrealized foreign exchange gain of $4.2 million and a loss of $5.4 million, respectively, in the consolidated statement of operations related to portion of its euro-denominated debt not designated as a net investment hedge. For the three and nine months ended March 31, 2012, the Company recognized an unrealized foreign exchange loss of $2.0 million and a gain of $7.5 million, respectively. Amounts are reclassified out of accumulated other comprehensive income/(loss) into earnings when the hedged net investment is either sold or substantially liquidated.
Periodically, we may utilize forward currency exchange contracts to manage the Company’s exposures to the variability of cash flows primarily related to the foreign exchange rate changes of future foreign currency transaction costs. In addition, we may utilize foreign currency forward contracts to protect the value of existing foreign currency assets and liabilities. Currently, we do not utilize foreign currency exchange contracts. We expect to continue to evaluate hedging opportunities for foreign currency in the future.

Contractual Obligations
There have been no other material changes outside the ordinary course of business since June 30, 2012 with respect to the contractual obligations disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2012.

Off-Balance Sheet Arrangements
Other than operating leases, we do not have any material off-balance sheet arrangements as of March 31, 2013.

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Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to cash flow and earnings fluctuations as a result of certain market risks. These market risks primarily relate to changes in interest rates associated with our long-term debt obligations and foreign exchange rate changes. We utilize derivative financial instruments, such as interest rate swaps, in order to mitigate risk associated with our variable rate debt.
Interest Rate Risk
The Company uses interest rate swaps to manage the economic effect of variable rate interest obligations associated with our floating rate term loans and so that the interest payable on the term loans effectively becomes fixed at a certain rate, thereby reducing the impact of future interest rate changes on our future interest expense. As of March 31, 2013, we had four interest rate swap agreements that have the economic effect of modifying the variable interest obligations associated with our floating rate term loans due in April and May 2013. These agreements include two U.S dollar-denominated, one euro-denominated and one yen-denominated interest rate swap agreements.
As of March 31, 2013, the Company had three outstanding interest rate derivatives which were designated as effective hedges for accounting purposes, with a combined notional value of $760.0 million and €240.0 million. These instruments are designated for financial accounting purposes as cash flow hedges of interest rate risk. Amounts reported in accumulated other comprehensive income/(loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. In addition, the Company has a Japanese yen interest rate swap which is economically effective but is not designated as an effective hedge for financial reporting and is included in the Consolidated Statements of Operations as other (income)/expense.
On February 28, 2013, in connection with the refinancing of the Company’s €44.9 million Euro term loan, Catalent de-designated €35.0 million of the €240.0 million notional Euribor-based interest rate swap. Prior to de-designation, the effective portion of the change in fair value of the derivative was recorded as a component of other comprehensive income/(loss). The other comprehensive income/(loss) balance associated with the de-designated portion of the derivative will be reclassified to earnings when either the originally hedged forecasted interest payments on the hedged debt affect earnings or at the time the originally forecasted transactions become probable of not occurring.
Foreign Currency Exchange Risk
By nature of our global operations, we are exposed to cash flow and earnings fluctuations resulting from foreign exchange rate variation. These exposures are transactional and translational in nature. Since we manufacture and sell our products throughout the world, our foreign currency risk is diversified. Principal drivers of this diversified foreign exchange exposure include the European euro, British pound, Argentinean peso, Brazilian real and Australian dollar. Our transactional exposure arises from the purchase and sale of goods and services in currencies other than the functional currency of our operational units. We also have exposure related to the translation of financial statements of our foreign divisions into U.S. dollars, the functional currency of the parent. The financial statements of our operations outside the U.S. are measured using the local currency as the functional currency. Adjustments to translate the assets and liabilities of these foreign operations in U.S. dollars are accumulated as a component of other comprehensive income/(loss) utilizing period-end exchange rates. Foreign currency transaction gains and losses calculated by utilizing weighted average exchange rates for the period are included in the statements of operations in “other expense, net”. Such foreign currency transaction gains and losses include inter-company loans denominated in non-U.S. dollar currencies.

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Item 4.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934, as amended (“Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s (“SEC”) rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s President and Chief Executive Officer, and the Company’s Senior Vice President and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. The Company’s management, with the participation of the Company’s President and Chief Executive Officer, and the Company’s Senior Vice President and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this Form 10-Q. Based upon that evaluation, the Company’s President and Chief Executive Officer and the Company’s Senior Vice President and Chief Financial Officer concluded that, as of March 31, 2013, the Company’s disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.
On February 17, 2012, the Company completed its acquisition of the CTS Business of Aptuit by purchasing the outstanding shares of capital stock of Aptuit Holdings, Inc. (as discussed in Note 2 to the Consolidated Financial Statements). Aptuit Holdings, Inc.’s had total assets of approximately $474.8 million as of March 31, 2013 (of which approximately $322.8 million represented goodwill and identifiable intangible assets). The Company continues to evaluate the internal control over financial reporting of the acquired business. As permitted by the SEC Staff interpretive guidance for newly acquired businesses, the internal control over financial reporting of Aptuit Holdings, Inc. was excluded from a formal evaluation of the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2013.
Changes in Internal Control over Financial Reporting
There was no change in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1.
LEGAL PROCEEDINGS
Beginning in November 2006, the Company, along with several pharmaceutical companies, has been named in civil lawsuits filed by individuals allegedly injured by their use of the prescription acne medication Amnesteem®, a branded generic form of isotretinoin, and in some instances of isotretinoin products made and/or sold by other firms as well. Currently, the Company is a named defendant in fifty-eight pending isotretinoin lawsuits. Plaintiffs allege that they suffer from inflammatory bowel disease and other disorders as a result of their ingestion of Amnesteem. The geographic distribution of these fifty-eight lawsuits is as follows: fifty-six in the Superior Court, Atlantic County, New Jersey, one in the Superior Court, County of Orange, California and one in the Superior Court, County of Sacramento, California. The New Jersey cases and several of the other cases have been brought by a consortium of plaintiffs' law firms, including Seeger Weiss. The following discussion contains more detail about the lawsuits.
Fifty-six lawsuits are pending in the Superior Court of New Jersey, Law Division, Atlantic County by individual plaintiffs who claim to have ingested Amnesteem, and, in some cases, one or more competing branded generic isotretinoin products, including Sotret® (Ranbaxy) and/or Claravis® (Barr), as well as Accutane (the innovator isotretinoin product sold by Hoffmann-La Roche). Thirty-three of these cases allegedly involve the use of both Accutane and one or more of the branded generic forms of isotretinoin. Such cases, which include one or more Roche entities as defendants, are filed as part of the New Jersey consolidated mass tort proceeding set up in 2005 for all Accutane lawsuits pending in New Jersey state courts. The remaining twenty-three cases do not involve the use of Accutane, but allegedly involve the use of one or more branded generic isotretinoin products, including Amnesteem. These cases are not part of the Accutane mass tort litigation; these non-mass tort, generics-only cases have been consolidated for discovery purposes but not for trial. All fifty-six of the cases pending in New Jersey, both mass tort and non-mass tort, are assigned to the same judge. In addition to the Company, these lawsuits name the pharmaceutical companies whose respective isotretinoin products each plaintiff allegedly ingested.
On June 26, 2012 a motion to Dismiss with Prejudice was filed in the Superior Court of New Jersey, Atlantic County, Law Division, dismissing two hundred and twenty-nine cases filed against the Company. To date, a total of three hundred and twenty-three cases have either been dismissed or settled.
Although expressed in various terms, generally speaking, all fifty-eight lawsuits set forth some or all of the standard array of product liability claims, including strict liability for defective design, strict liability for failure to warn, negligence (in both design and warnings), fraud and misrepresentation, and breach of warranty. The lawsuits seek unspecified amounts of compensatory and punitive damages. The Company believes it has valid defenses to these lawsuits and intends to vigorously defend them.
From time to time, we may be involved in legal proceedings arising in the ordinary course of business, including, without limitation, inquiries and claims concerning environmental contamination as well as litigation and allegations in connection with acquisitions, product liability, manufacturing or packaging defects and claims for reimbursement for the cost of lost or damaged active pharmaceutical ingredients, the cost of which could be significant. We intend to vigorously defend ourselves against such other litigation and do not currently believe that the outcome of any such other litigation will have a material adverse effect on our financial statements. In addition, the healthcare industry is highly regulated and government agencies continue to scrutinize certain practices affecting government programs and otherwise.
From time to time, we receive subpoenas or requests for information from various government agencies, including from state attorneys general and the U.S. Department of Justice relating to the business practices of customers or suppliers. We generally respond to such subpoenas and requests in a timely and thorough manner, which responses sometimes require considerable time and effort and can result in considerable costs being incurred by us. We expect to incur additional costs in the future in connection with existing and future requests.

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Item 1A.
RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the factors discussed in the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2012 which could materially affect the Company’s business, financial condition or future results. The risks described in the Company’s Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results. There have been no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K.

Item 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.

Item 3.
DEFAULTS UPON SENIOR SECURITIES
None.

Item 4.
MINE SAFETY DISCLOSURES
Not Applicable.

Item 5.
OTHER INFORMATION
Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (“ITRSHRA”), which added Section 13(r) of the Exchange Act, the Company hereby incorporates by reference herein Exhibit 99.1 of this report, which includes disclosures publicly filed and/or provided to Blackstone by Hilton Worldwide, Inc., SunGard Capital Corp., SunGard Capital Corp. II and SunGard Data Systems Inc. (collectively referred to herein as “SunGard”), Travelport Limited and TRW Automotive Holdings Corp., which may be considered our affiliates.





Item 6.
EXHIBITS
Exhibits:

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10.1
 
Amendment No. 5, dated as of February 28, 2013 relating to the Credit Agreement, dated as of April 10, 2007, as amended, among the Company, PTS Intermediate Holdings LLC, Morgan Stanley Senior Fund, Inc., as the administrative agent, collateral agent and swing line leader and to the partners thereto (incorporated by reference to Exhibit 10.1 to Catalent Pharma Solutions, Inc.'s Current Report on Form 8-K filed on March 6, 2013, File No. 333-147871)
 
 
31.1
  
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended*
 
 
31.2
  
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended*
 
 
32.1
  
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
 
 
32.2
  
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
 
 
99.1
 
Section 13(r) Disclosure*
 
 
 
101.1
  
The following financial information from Catalent Pharma Solutions, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 formatted in XBRL: (i) Consolidated Statement of Operations for the Three and Nine Months Ended March 31, 2013 and 2012; (ii) Condensed Consolidated Statements of Comprehensive Income at March 31, 2013 and March 31, 2012 (iii) Consolidated Balance Sheets at March 31, 2013 and June 30, 2012; (iv) Consolidated Statement of Changes in Shareholders’ Deficit as of March 31, 2013; (v) Consolidated Statement of Cash Flows for the Three and Nine Months Ended March 31, 2013 and 2012; and (vi) Notes to unaudited Consolidated Financial Statements.
 
*
Filed herewith
**
Furnished herewith.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
CATALENT PHARMA SOLUTIONS, INC.
(REGISTRANT)
 
 
 
 
Date:
May 13, 2013
By:
 
/s/ John R. Chiminski
 
 
 
 
John R. Chiminski
 
 
 
 
President & Chief Executive Officer
 
 
 
 
Date:
May 13, 2013
By:
 
/s/ Matthew M. Walsh
 
 
 
 
Matthew M. Walsh
 
 
 
 
Senior Vice President & Chief Financial Officer

54