UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________ 

FORM 10-K

______________________________ 

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

For the fiscal year ended June 30, 2019

or

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

For the transition period from to

Commission File Number: 001-36587

___________________________ 

CATALENT, INC.

(Exact name of registrant as specified in its charter)

______________________________ 

Delaware	20-8737688
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

14 Schoolhouse Road		08873
Somerset,	New Jersey
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (732) 537-6200

______________________________ 

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	CTLT	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

______________________________ 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes x     No   o 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes o     No  x

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  x    No  o

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

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

Large accelerated filer	x	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	o
		Emerging growth company	o

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

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

As of December 31, 2018, the aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates was $5.5 billion. On August 22, 2019 there were 146,024,108 shares of the Registrant’s Common Stock, par value $0.01 per share, issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement relating to the 2019 Annual Meeting of Shareholders are incorporated by reference into Part III of this report.

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CATALENT, INC.

INDEX TO ANNUAL REPORT ON FORM 10-K

For the Year Ended June 30, 2019

Item		Page
	PART I
	Special Note Regarding Forward-Looking Statements	3
Item 1.	Business	6
Item 1A.	Risk Factors	20
Item 1B.	Unresolved Staff Comments	34
Item 2.	Properties	35
Item 3.	Legal Proceedings	37
Item 4.	Mine Safety Disclosures	37
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	38
Item 6.	Selected Financial Data	40
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	65
Item 8.	Financial Statements and Supplementary Data	66
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	119
Item 9A.	Controls and Procedures	119
Item 9B.	Other Information	120
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	121
Item 11.	Executive Compensation	121
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	121
Item 13.	Certain Relationships and Related Transactions, and Director Independence	121
Item 14.	Principal Accounting Fees and Services	121
	PART IV
Item 15.	Exhibits, Financial Statement Schedules	122
Item 16.	Form 10-K Summary	127
Signatures		128

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PART I

Special Note Regarding Forward-Looking Statements

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

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

Some of the factors that may cause actual results, developments, and business decisions to differ materially from those contemplated by such forward-looking statements include, but are not limited to, those described under the section entitled “Risk Factors” in this Annual Report on Form 10-K for the fiscal year ended June 30, 2019 (this “Annual Report”) and the following:

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

•The demand for our offerings depends in part on our customers’ research and development and the clinical and market success of their products. Our business, financial condition, and results of operations may be harmed if our customers spend less on, or are less successful in, these activities.

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

•Failure to comply with existing and future regulatory requirements could adversely affect our results of operations and financial condition or result in claims from customers.

•Failure to provide quality offerings to our customers could have an adverse effect on our business and subject us to regulatory actions or costly litigation.

•The services and offerings we provide are highly exacting and complex, and, if we encounter problems providing the services or support required, our business could suffer.

•Our global operations are subject to economic, political and regulatory risks, including the risks of changing regulatory standards or changing interpretations of existing standards, that could affect the profitability of our operations or require costly changes to our procedures.

•The exit of the United Kingdom (the “U.K.”) from the European Union could have future adverse effects on our operations, revenues, and costs, and therefore our profitability.

•If we do not enhance our existing or introduce new technology or service offerings in a timely manner, our offerings may become obsolete over time, customers may not buy our offerings, and our revenue and profitability may decline.

•We and our customers depend on patents, copyrights, trademarks, know-how, trade secrets, and other forms of intellectual property protections, but these protections may not be adequate.

•Our offering or our customers’ products may infringe on the intellectual property rights of third parties.

•Our future results of operations are subject to fluctuations in the costs, availability, and suitability of the components of the products we manufacture, including active pharmaceutical ingredients, excipients, purchased components, and raw materials.

•Changes in market access or healthcare reimbursement for our customers’ products in the United States (“U.S.”) or internationally, including possible changes to the U.S. Affordable Care Act, could adversely affect our results of operations and financial condition by affecting demand for our offerings or the financial health of our customers.

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

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

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

•Changes to the estimated future profitability of the business may require that we establish an additional valuation allowance against all or some portion of our net U.S. deferred tax assets.

•We depend on key personnel whose continued employment and engagement at current levels cannot be assured.

•We use advanced information and communication systems to run our operations, compile and analyze financial and operational data, and communicate among our employees, customers, and counter-parties, and the risks generally associated with information and communications systems could adversely affect our results of operations. We are continuously working to install new, and upgrade existing, systems and provide employee awareness training around phishing, malware, and other cyber security risks to enhance the protections available to us, but such protections may be inadequate to address malicious attacks or inadvertent compromises of data security.

•We engage, from time to time, in acquisitions and other transactions that may complement or expand our business or divest of non-strategic businesses or assets. We may not be able to complete such transactions, and such transactions, if executed, pose significant risks, including risks relating to our ability to successfully and efficiently integrate acquisitions or execute on dispositions and realize anticipated benefits therefrom. The failure to execute or realize the full benefits from any such transaction could have a negative effect on our operations.

•We are subject to environmental, health, and safety laws and regulations, which could increase our costs and restrict our operations in the future.

•We are subject to labor and employment laws and regulations, which could increase our costs and restrict our operations in the future.

•Certain of our pension plans are underfunded, and additional cash contributions we may make to increase the funding level will reduce the cash available for our business, or to discharge other financial obligations.

•Our substantial leverage could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or in our industry, expose us to interest-rate risk to the extent of our variable-rate debt, and prevent us from meeting our obligations under our indebtedness.

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

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We file annual, quarterly, and current reports and other information with and furnish additional information to the U.S. Securities and Exchange Commission (the “SEC”). Our filings with the SEC are available to the public on the SEC’s website at www.sec.gov. Those filings are also available to the public on, or accessible through, our website (www.catalent.com) for free via the “Investors” section as soon as reasonably practicable after we file such material, or furnish it to, the SEC. We also use our website, corporate Facebook page (https://www.facebook.com/CatalentPharmaSolutions), corporate LinkedIn page (https://www.linkedin.com/company/catalent-pharma-solutions/) and corporate Twitter account (@catalentpharma) as channels of distribution of information concerning our activities, our offerings, our various businesses, and other related matters. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings, and public conference calls and webcasts. The information we file with or furnish to the SEC (other than the information set forth in this Annual Report) or contained on or accessible through our website, our social media channels, or any other website that we may maintain is not a part of this Annual Report.

Catalent References and Fiscal Year

Unless the context otherwise requires, in this Annual Report, the terms “Catalent,” “the company,” “we,” “us,” and “our” refer to Catalent, Inc. and its subsidiaries. All references to years in this Annual Report, unless otherwise stated, refer to fiscal years beginning July 1 and ending June 30. All references to quarters, unless otherwise stated, refer to fiscal quarters. Fiscal years are referred to by the calendar year in which they end. For example, “fiscal 2019” refers to the fiscal year ended June 30, 2019.

Trademarks and Service Marks

We have U.S. or foreign registration in the following marks, among others: Catalent^®, Clinicopia^®, CosmoPod^® ,Easyburst^®, FastChain^®, Follow the Molecule^®, Galacorin^®, GPEx^®, Liqui-Gels^®, OmegaZero^®, OptiDose^®, OptiForm^®, OptiGel^®, OptiGel^® Bio, OptiMelt^®, OptiShell^®, Paragon Bioservices^®, Pharmatek^®, RP Scherer^®, SMARTag^®, SupplyFlex^®, Vegicaps^®, and Zydis^®. This Annual Report also includes trademarks and trade names owned by other parties, and these trademarks and trade names are the property of their respective owners. We use certain other trademarks and service marks, including FlexDose™, Manufacturing Miracles™, OneBio^SM, OneBio Suite^SM, OptiPact™, PEEL-ID™, Savorgel™, Softdrop™, and Zydis Ultra™ on an unregistered basis in the United States and abroad.

Solely for convenience, the trademarks, service marks, and trade names identified in this Annual Report may appear without the ^®, ^SM, and ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks, and trade names.

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 ITEM 1. BUSINESS

Overview

We are the leading global provider of advanced delivery technologies and development solutions for drugs, biologics, and consumer health products. Our oral, injectable, gene therapy, and respiratory delivery technologies address the full diversity of the pharmaceutical industry, including small molecules, protein and gene therapy biologics, and consumer health products. Through our extensive capabilities and deep expertise in product development, we help our customers take products to market faster, including nearly half of new drug products approved by the U.S. Food and Drug Administration (the “FDA”) in the last decade. Our advanced delivery technology platforms, which include those in our Softgel Technologies, Biologics and Specialty Drug Delivery, and Oral Drug Delivery segments, our proven formulation, manufacturing, and regulatory expertise, and our broad and deep intellectual property enable our customers to develop more products and better treatments for patients and consumers. Across both development and delivery, our commitment to reliably supply our customers’ and their patients’ needs is the foundation for the value we provide; annually, we produce approximately 73 billion doses for nearly 7,000 customer products, or approximately 1 in every 20 doses of such products taken each year by patients and consumers around the world. We believe that through our investments in growth-enabling capacity and capabilities, our ongoing focus on operational and quality excellence, the sales of existing customer products, the introduction of new customer products, our innovation activities and patents, and our entry into new markets, we will continue to benefit from attractive and differentiated margins and realize the growth potential from these areas.

We continue to invest in our sales and marketing activities, leading to growth in the number of active development programs for our customers. This has further enhanced our extensive, long-duration relationships and long-term contracts with a broad and diverse range of industry-leading customers. In fiscal 2019, we conducted business with 83 of the top 100 branded drug marketers, 21 of the top 25 generics marketers, 23 of the top 25 biologics marketers, and 21 of the top 25 consumer health marketers globally. Selected key customers include Pfizer, Johnson & Johnson, GlaxoSmithKline, Novartis, Roche, and Teva. We have many long-standing relationships with our customers, particularly in advanced delivery technologies, where we tend to follow a prescription molecule through its lifecycle, from the development and launch of the original brand prescription, to generics or over-the-counter switch. A prescription pharmaceutical product relationship with an innovator will often last many years, in several cases, nearly two decades or more, extending from pre-clinical development through the end of the product’s life cycle. We serve customers who require innovative product development, superior quality, advanced manufacturing, and skilled technical services to support their development and marketed product needs. Our broad and diverse range of technologies closely integrates with our customers’ molecules and other active ingredients to yield final formulations and dose forms, and this generally results in the inclusion of Catalent in our customers’ prescription product regulatory filings. Both of these factors frequently translate to long-duration supply relationships at an individual product level.

We believe our customers value us because our depth of development solutions and advanced delivery technologies, intellectual property, consistent and reliable supply, geographic reach, and substantial expertise enable us to create a broad range of business and product solutions that can be customized to fit their individual needs. Today we employ approximately 2,400 scientists and technicians and hold more than 1,300 patents and patent applications in advanced delivery, drug and biologics formulation, and manufacturing. The aim of our offerings is to allow our customers to bring more products to market faster, and to develop and market differentiated new products that improve patient outcomes. We believe our leading market position and diversity of customers, offerings, regulatory categories, products, and geographies reduce our exposure to potential strategic and product shifts within the industry.

We provide a number of proprietary, differentiated technologies, products, and service offerings to our customers across our advanced delivery technologies and development solutions platforms. The core technologies within our advanced delivery technologies platform include softgel capsules, our Zydis orally dissolving tablets, blow-fill-seal unit-dose liquids, adeno-associated virus (“AAV”) vectors, and a range of other oral, injectable and respiratory delivery technologies. The technologies and service offerings within our development solutions platform span the drug development process, ranging from our OptiForm Solution Suite for enhancement of bioavailability and other characteristics of early-stage molecules, and Gene Product Expression (“GPEx”) and SMARTag platforms for development of biologics and antibody-drug conjugates (ADCs), to formulation, analytical services, early-stage clinical development, and clinical trials supply, including our unique FastChain demand-led clinical supply solution. Our offerings serve a critical need in the development and manufacturing of difficult-to-formulate products across a number of product types.

We have advanced our technologies and grown our service offerings over more than 85 years through internal development, strategic alliances, in-licensing, and acquisitions. We initially introduced our softgel capsule technology in the 1930s and have continued to expand our range of new, technologically enhanced offerings. Since fiscal 2013, we have launched OptiShell, OptiMelt, Zydis Nano, Zydis Bio, OptiPact, the OptiForm Solution Suite, and our FastChain demand-led clinical supply solution. Since then, our customers have obtained regulatory approval for the first-to-market product using our OptiShell

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technology. We have also augmented our portfolio through acquisitions. In fiscal 2015, we added an ADC business through the completion of our acquisition of Redwood Bioscience in October 2014; and extended our particle engineering capabilities via our November 2014 acquisition of Micron Technologies. In fiscal 2017, we expanded our early development capabilities, including the addition of spray drying technology into our drug formulation and delivery technologies, through the acquisition of Pharmatek Laboratories, Inc. (“Pharmatek”) in September 2016, and we expanded our softgel development and manufacturing network via the February 2017 acquisition of Accucaps Industries Limited (“Accucaps”). In fiscal 2018, we acquired Cook Pharmica LLC (now named “Catalent Indiana, LLC”) in order to enhance our biologics capabilities. In fiscal 2019, we acquired Juniper Pharmaceuticals, Inc. (“Juniper”), which extends to the U.K. the geographic reach of the early development capabilities we gained through Pharmatek and Paragon Bioservices, Inc. (“Paragon”), adding advanced gene therapy development and manufacturing capabilities to our biologics business and enhancing our end-to-end integrated biopharmaceutical solutions for customers. In large part due to our acquisitions of Catalent Indiana and Paragon, revenue contributions from our biologics business have grown from approximately 10% in fiscal 2014 to 29% in fiscal 2019. We also agreed to acquire Bristol-Myers Squibb Company’s oral solid, biologics, and sterile product manufacturing and packaging facility in Anagni, Italy, a transaction that we expect to close by the end of calendar 2019, and two advanced biologics clinical development and manufacturing sites in southern Maryland from Novavax, Inc., which closed during the first quarter of fiscal 2020. We believe our own internal innovation, supplemented by current and future external partnerships and acquisitions, will continue to strengthen and extend our leadership positions in the delivery and development of drugs, biologics, and consumer health products. 

History

We were formed in April 2007, when affiliates of The Blackstone Group L.P. (“Blackstone”) acquired the core of the Pharmaceutical Technologies and Services (“PTS”) segment of Cardinal Health, Inc. (“Cardinal”). Cardinal had created PTS through a series of acquisitions beginning with R.P. Scherer Corporation in 1998. We are a holding company that indirectly owns Catalent Pharma Solutions, Inc. (“Operating Company”), which owns, directly or indirectly, all of our operating subsidiaries. Since the 2007 acquisition of PTS, we have regularly reviewed our portfolio of offerings and operations in the context of our strategic growth plan, and, as a result, we have sold seven businesses and consolidated operations at five facilities, integrating them into the remaining facility network. In fiscal 2018, we agreed to sell our facility in Braeside, Australia, and we expect to close that transaction in the first half of fiscal 2020. We have also actively acquired new businesses and facilities. In July 2014, we completed the initial public offering (the “IPO”) of our common stock, par value $0.01 (the “Common Stock”), which is listed on the New York Stock Exchange (the “NYSE”) under the symbol “CTLT.” Blackstone and its minority partners sold all of the stock they held in us in a series of secondary offerings ending in September 2016.

Our Competitive Strengths

Leading Provider of Advanced Delivery Technologies and Development Solutions

We are the leading global provider of advanced delivery technologies and development solutions for drugs, biologics and consumer and animal health products. In the last decade, we have earned revenue with respect to nearly half of the drugs based on new molecular entities (“NMEs”) approved by the FDA, and over the past three years with respect to more than 80% of the top 200 largest-selling compounds globally. With approximately 2,400 scientists and technicians worldwide and more than 1,300 patents and patent applications, our expertise is in providing differentiated technologies and solutions that help our customers bring more products and better treatments to market faster. For example, in the high-value area of new chemical entities (“NCEs”), approximately 90% of NCE softgel approvals by the FDA over the last 25 years have been developed and supplied by us.

Diversified Operating Platform

We are diversified by virtue of our geographic scope, our large customer base, the extensive range of products we produce, our broad service offerings, and our ability to provide solutions at nearly every stage of a product’s lifecycle. In fiscal 2019, we produced nearly 7,000 distinct items across multiple categories; our fiscal 2019 regulatory-based classification of revenues demonstrates this: branded drugs (34%), generic prescription drugs (7%), protein and gene therapy biologics (32%), over-the-counter drugs (13%), and consumer health, veterinary products, medical devices, and diagnostics (14% combined). In fiscal 2019, our top 20 products represented approximately 20% of total revenue, with no single customer accounting for greater than 10% of revenue and with no individual product greater than 4%. We serve more than 1,000 customers in approximately 80 countries, with nearly half of our fiscal 2019 revenues coming from outside the United States. This diversity, combined with long product lifecycles and close customer relationships, has contributed to the stability of our business. It has also allowed us to reduce our exposure to potential strategic, customer, and product shifts as well as to payer-driven pricing pressures experienced by our drug and biologic customers.

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Longstanding, Extensive Relationships with Blue Chip Customers

We have longstanding, extensive relationships with leading pharmaceutical and biotechnology customers. In fiscal 2019, we did business with 83 of the top 100 branded drug marketers, 21 of the top 25 generics marketers, 23 of the top 25 biologics marketers, and 21 of the top 25 consumer health marketers globally, as well as with more than 1,000 other customers, including emerging and specialty companies, which are often more reliant on outside partners as a result of their more virtual business models. Regardless of size, our customers seek innovative product development, superior quality, advanced manufacturing, and skilled technical services to support their development and marketed product needs.

We believe our customers value us because our depth of development solutions and advanced delivery technologies, consistent and reliable supply, geographic reach, and substantial expertise enable us to create a broad range of tailored solutions, many of which are unavailable from other individual providers.

Deep, Broad and Growing Technology Foundation

Our breadth of proprietary and patented technologies and long track record of innovation substantially differentiate us from other industry participants. Our leading softgel platforms, including Liqui-Gels, OptiShell, and Vegicaps capsules, and our modified release technologies, including the Zydis family and our OptiPact and OptiMelt technologies, provide formulation expertise to solve complex delivery challenges for our customers. We offer advanced technologies for delivery of small molecules and biologics via respiratory, ophthalmic, and injectable routes, including the blow-fill-seal unit dose technology, and prefilled syringes. We also provide advanced biologics formulation options, including “GPEx” cell-line and SMARTag antibody-drug conjugate technologies, and AAV vectors for gene therapies. We have a market leadership position within respiratory delivery, including metered dose and dry powder inhalers and nebulized and intra-nasal forms. We have reinforced our leadership position in advanced delivery technologies over the last five years, as we have launched more than a dozen new technology platforms and applications, including the fiscal 2016 launch of our OptiForm Solution Suite, a dose form-agnostic bioavailability enhancement program for early-stage molecules, and the recent acquisitions of Catalent Indiana, which expands our biologics platform, and Paragon, which extends our biologics business into gene therapy. Our culture of creativity and innovation is grounded in our advanced delivery technologies, our scientists and engineers, and our patents and proprietary manufacturing processes throughout our global network. Our global product development team drives a focused application of resources to our highest priority opportunities for both new customer product introductions and platform technology development. As of June 30, 2019, we had approximately 1,100 product development programs in active development across our businesses.

Long-Duration Relationships Provide Sustainability

Our broad and diverse range of technologies closely integrates with our customers’ molecules to yield final formulations and dose forms, and this generally results in the inclusion of Catalent in our customers’ prescription product regulatory filings. Both of these factors translate to long-duration supply relationships at an individual product level, to which we apply our expertise in contracting to produce long-duration commercial supply agreements. These agreements typically have initial terms of three to seven years with regular renewals of one to three years (see “—Contractual Arrangements” for more detail). Approximately two-thirds of our fiscal 2019 advanced delivery technology platform revenues (comprised of our Softgel Technologies, Biologics and Specialty Drug Delivery, and Oral Drug Delivery reporting segments) were covered by such long-term contractual arrangements. We believe this base provides us with a sustainable competitive advantage.

Significant Recent Growth Investments

We have made significant investments over time to establish a manufacturing network, capable of serving customers and patients worldwide and today employ 6.4 million square feet of manufacturing and laboratory space across five continents. We have deployed approximately $815.0 million in the last five fiscal years in gross capital expenditures. Growth-related investments in facilities, capacity, and capabilities across our businesses have positioned us for future growth in areas aligned with anticipated future demand. Through our focus on operational, quality, and regulatory excellence, we drive ongoing and continuous improvements in safety, productivity, and reliable supply to customer expectations, which we believe further differentiate us. Our manufacturing network and capabilities allow us the flexibility to reliably supply the changing needs of our customers while consistently meeting their quality, delivery, and regulatory compliance expectations.

High Standards of Regulatory Compliance and Operational and Quality Excellence

We operate our plants in accordance with current good manufacturing practices (“cGMP”) or other applicable requirements, following our own high standards that are consistent with those of many of our large global pharmaceutical and biotechnology customers. We have more than 1,900 employees around the globe focused on quality and regulatory compliance. All of our facilities are registered with the FDA or other applicable regulatory agencies, such as the European Medicines

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Agency (the “EMA”). In some cases, facilities are registered with multiple regulatory agencies. In fiscal 2019, we were subject to 75 regulatory audits, and, over the last five fiscal years, we successfully completed approximately 300 regulatory audits. We also undergo more than 400 customer and internal audits annually. We believe our quality and regulatory track record to be a favorable competitive differentiator.

Strong and Experienced Management Team

Our executive leadership team collectively has more than 200 years of combined and diverse experience within the pharmaceutical and healthcare industries. With an average of more than 29 years of functional experience, this team possesses deep knowledge and a wide network of industry relationships.

Our Strategy

We are pursuing the following key growth initiatives:

“Follow the Molecule”^® Providing Solutions to our Customers across all Phases of the Product Lifecycle

We intend to use our advanced delivery technologies and development solutions across the entire lifecycle of our customers’ products to drive future growth. Our development solutions span the drug development process, starting with our platforms for early pre-clinical development of small molecules, biologics, and antibody-drug conjugates, to formulation and analytical services, through clinical development and manufacturing of clinical trial supplies, to regulatory consulting. Once a molecule is ready for therapeutic trials and subsequent commercialization, we provide our customers with a range of advanced delivery technologies and manufacturing expertise that allow them to deliver their molecules to the end-users in appropriate dosage forms. The relationship between a molecule and our advanced delivery technologies typically starts with developing and manufacturing the innovator product, then extends throughout the molecule’s commercial life, including with additional customers through potential generic launches or over-the-counter conversion. For prescription products, we are typically the sole and/or exclusive provider, and are reflected in customers’ new drug applications. Our revenues from our advanced delivery technologies are primarily driven by volumes and, as a result, the loss of an innovator drug’s market exclusivity may be mitigated if we supply both branded and generic customers.

An example of this can be found in a leading over-the-counter respiratory brand, which today uses both our Zydis fast dissolve and our Liqui-Gels softgel technologies. We originally began development of the prescription format of this product for our multinational pharmaceutical company partner in 1992 to address specific patient sub-segment needs. After four years of development, we then commercially supplied the prescription Zydis product for six years, and we have continued to provide the Zydis form since the switch to over-the-counter status in the United States and other markets in the early 2000s. Subsequently, we proactively brought a softgel product concept for the brand to the customer, which the customer elected to develop and launch as well. By following this molecule, we have built a strong, 27-year-long relationship across multiple formats and markets.

Customer Product Pipeline — Continuing to Grow Through New Projects and Product Launches

We intend to grow by supplementing our existing diverse base of commercialized advanced delivery technology products with new development programs. As of June 30, 2019, our product development teams were working on approximately 1,100 new customer programs. Our base of active development programs has expanded in recent years from growing market demand, as well as from our expanded capabilities and technologies. Although there are many complex factors that affect the development and commercialization of pharmaceutical, biological, and consumer and animal health products, we expect that a portion of these programs will reach full development and market approval in the future and thereby add to our long-duration commercial revenues under long-term contracts and grow our existing product base. In fiscal 2019, we introduced 193 new products for our customers.

Catalent continues to be the global leader in providing chemistry, manufacturing, and controls-based product development services to the global pharmaceutical, biotechnology, and consumer health industry, driven by thousands of projects annually. In fiscal 2019, we recognized approximately $653.0 million of revenue related to the development of products on behalf of customers, included in our Softgel Technologies, Biologics and Specialty Drug Delivery, and Oral Drug Delivery reporting segments, up 27% from the prior year. In addition, substantially all of the revenues associated with the Clinical Supply Services segment relate to our support of customer products in development.

Capabilities & Capacity — Expanding in Biologics and Other Attractive Markets

Recognizing the strategic importance of biologics, we began to build a differentiated biologics cell-line and formulation development platform in 2002. Since then, we have invested over $2.2 billion in our biologics business, including capital

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investments, the fiscal 2019 acquisition of Paragon for an aggregate nominal purchase price of $1.2 billion, and the fiscal 2018 acquisition of Catalent Indiana for an aggregate nominal purchase price of $950.0 million. And we have commenced a $200.0 million capital investment at our sites in Bloomington and Madison to expand drug substance manufacturing capacity and drug product fill/finish capacity due to projected growth among our existing and future customers. Today, we are a recognized leader in biologics, including AAV vectors for gene therapies; advanced cell-line development, formulation, and fill-finish into pre-filled syringes, vials, and cartridges; and increasingly in specialized manufacturing of biologic drug substance for use in clinical trials and bioanalytical analysis. The third production suite in our Madison, Wisconsin facility came on-line in fiscal 2018 taking us to commercial scale supply for biologics drug substance. We have partnered with customers from around the world to develop advanced cell expression for nearly 700 cell lines, many using our advanced GPEx technology. And we have invested in a second-generation antibody-drug conjugate technology, SMARTag, and we see continued progress in our customers’ SMARTag product-development activities.

In addition to our expansion in biologics, we have invested additional capital in several existing non-biological facilities in order to expand in attractive markets, including a recently completed significant expansion of our oral solid controlled release production capacity in Winchester, Kentucky, the scaling-up of commercial manufacturing capacity for metered-dose inhalers, and our commencement of a $27.0 million capital investment to commercialize our next-generation orally disintegrating tablet (ODT) technology, Zydis Ultra. We have also added key new capabilities in early development via our fiscal 2019 acquisition of Juniper Pharmaceuticals and our fiscal 2017 acquisition of Pharmatek, and expanded our North American consumer health softgel capacity via our fiscal 2017 Accucaps acquisition.

Advanced Technologies — Capitalize on Our Substantial Platforms

We have broad and diverse technology platforms that are supported by extensive know-how and more than 1,300 patents and patent applications in approximately 125 families across advanced delivery technologies, drug and biologics formulation, and manufacturing. For example, we have significant softgel fill and formulation know-how, databases of formulated products, and substantial softgel regulatory approval expertise, and, as a result, approximately 90% of NCE softgel approvals by the FDA over the last 25 years have been developed and supplied by us.

In addition to resolving delivery challenges for our customers’ products, for more than two decades we have applied our technology platforms and development expertise to proactively develop proof-of-concept products, whether improved versions of existing drugs, new generic formulations or innovative consumer health products. In the consumer health area, we file product dossiers with regulators in relevant jurisdictions for self-created products, which help contribute sustainable growth to our consumer health business. We expect to continue to seek proactive development opportunities and other non-traditional relationships to increase demand for and value realized from our technology platforms. These activities have provided us with opportunities to capture an increased share of end-market value through out-licensing, profit-sharing and other arrangements.

Operational Leverage — Deploy Existing Infrastructure and Operational Discipline to Drive Profitable Growth

Through our existing infrastructure, including our global network of operating locations and programs, we promote operational discipline and drive margin expansion. With our Lean Manufacturing and Lean Six Sigma programs, a global procurement function and conversion cost productivity metrics in place, we have created a culture of functional excellence and cost accountability. We intend to continue to apply this discipline to leverage further our operational network for profitable growth. Since fiscal 2009, we have expanded gross margin by over 400 basis points and Adjusted EBITDA margin by over 400 basis points. Note that “Adjusted EBITDA” is a financial metric that is not prepared in accordance with the accounting principles generally accepted in the United States (“U.S. GAAP”), and that further explanations of this metric and comparisons to the most nearly comparable U.S. GAAP metrics are set forth below at “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Historical and Adjusted EBITDA.”

Strategic Acquisitions and Licensing — Build on our Existing Platform

We operate in highly fragmented markets in both our advanced delivery technologies and development solutions businesses. Within those markets, the five top players represent approximately 35% and 10% of the total market share, respectively, by revenue. Our broad platform, global infrastructure and diversified customer base provide us with a strong foundation from which to consolidate within these markets and to generate operating leverage through such acquisitions. Since fiscal 2013, we have executed ten transactions, investing approximately $2.7 billion, and have demonstrated an ability to efficiently and effectively integrate these acquisitions.

While we are rigorously focused on driving Catalent’s organic growth, we intend to continue to opportunistically source and execute bolt-on strategic acquisitions within our existing business areas, as well as to undertake transactions that provide us with expansion opportunities within new geographic markets or adjacent market segments. We have a dedicated corporate

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development team in place to identify these opportunities and have a rigorous and financially disciplined process for evaluating, executing, and integrating such acquisitions.

Our Reportable Segments

We currently operate in four operating segments, which also constitute our four reporting segments: Softgel Technologies, Biologics and Specialty Drug Delivery, Oral Drug Delivery, and Clinical Supply Services, as further described below.

Softgel Technologies

Through our Softgel Technologies segment, we provide formulation, development, and manufacturing services for soft capsules, or “softgels,” which our predecessor first commercialized in the 1930s and which we have continually enhanced. We are the market leader in overall softgel development and manufacturing and hold the leading market position in the prescription arena. Our principal softgel technologies include traditional softgel capsules, in which the shell is made of animal-derived gelatin, and Vegicaps and OptiShell capsules, in which the shell is made from plant-derived materials. Softgel capsules are used in a broad range of customer products, including prescription drugs, over-the-counter medications, dietary supplements, unit-dose cosmetics, and animal health medicinal preparations. Softgel capsules encapsulate liquid, paste, or oil-based active compounds in solution or suspension within an outer shell. In the manufacturing process, the capsules are formed, filled, and sealed simultaneously. We typically perform encapsulation for a product within one of our softgel facilities, with active ingredients provided by customers or sourced directly by us. Softgels have historically been used to solve formulation challenges or technical issues for a specific drug, to help improve the clinical performance of compounds, to provide important market differentiation, particularly for over-the-counter medications, and to provide safe handling of hormonal, potent, and cytotoxic drugs. We also participate in the softgel vitamin, mineral and supplement business in selected regions around the world. With the 2001 introduction of our plant-derived softgel shell, Vegicaps capsules, consumer health customers have been able to extend the softgel dose form to a broader range of active ingredients and serve patient/consumer populations that were previously inaccessible due to religious, dietary, or cultural preferences. In recent years, we have extended this platform to pharmaceutical products via our OptiShell capsule offering. Our Vegicaps and OptiShell capsules are protected by patents in most major global markets. Physician and patient studies we have conducted have demonstrated a preference for softgels versus traditional tablet and hard capsule dose forms in terms of ease of swallowing, real or perceived speed of delivery, ability to remove or eliminate unpleasant odor or taste and, for physicians, perceived improved patient adherence with dosing regimens. Representative customers of Softgel Technologies include Pfizer, Novartis, Bayer, GlaxoSmithKline, Teva, Johnson & Johnson, Procter & Gamble, and Allergan.

Our Softgel Technologies segment represents 34%, 36%, and 40% of our aggregate revenue before inter-segment eliminations for fiscal 2019, 2018, and 2017, respectively.

Biologics and Specialty Drug Delivery

Our Biologics and Specialty Drug Delivery segment provides drug substance development and manufacturing, drug product clinical and commercial manufacturing, integrated clinical and commercial supply solutions for protein and gene therapy biologics and specialty small molecules administered via injection, inhalation, and ophthalmic routes, using both traditional and advanced delivery technologies. The business has extensive expertise in development, scale up and commercial manufacturing. Representative customers of Biologics and Specialty Drug Delivery include Eli Lilly, Teva, Mylan, Roche, Novartis, Sarepta, and Genentech, along with multiple innovative small and mid-tier pharmaceutical and biologics customers.

Our growing biologics offering includes cell-line development based on our advanced and patented GPEx technology, which is used to develop stable, high-yielding mammalian cell lines for both innovator and biosimilar biologic compounds. GPEx technology can provide rapid cell-line development, high biologics production yields, flexibility, and versatility. Our development and manufacturing facility in Madison, Wisconsin has the capability and capacity to produce cGMP quality biologics drug substance from 250L to 4000L scale using single-use technology to provide maximum efficiency and flexibility. Our fiscal 2018 acquisition of Catalent Indiana added a biologics-focused contract development and manufacturing organization with capabilities across biologics development, clinical, and commercial drug substance manufacturing, formulation, finished-dose drug product manufacturing, and packaging. In fiscal 2019, we continued to expand production capacity in both Madison and Bloomington, starting construction on a fourth drug substance suite in Madison, and new drug product manufacturing and packaging capacity in Bloomington. Our SMARTag next-generation antibody-drug conjugate technology enables development of antibody-drug conjugates and other protein conjugates with improved efficacy, safety, and manufacturability. In fiscal 2019, we launched our OneBio Suite, which provides customers the potential to seamlessly integrate drug substance, drug product, and clinical supply management for products in development, and for integrated commercial supply across both drug substance and product. We provide the broadest range of technologies and services

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supporting the development and launch of new biologic entities, biosimilars, and biobetters to bring a product from gene to commercialization, faster.

On May 17, 2019, we acquired Paragon, which is focused on the development and manufacture of cutting-edge biopharmaceuticals, including viral vectors used in gene therapies. For over 25 years, Paragon has partnered with some of the world’s leading biotech and pharma companies to develop and manufacture products based on transformative technologies, including gene therapies based on AAV and other modalities, next-generation vaccines, oncology immunotherapies (oncolytic viruses and CAR-T cell therapies), therapeutic proteins, and other complex biologics. Paragon brings specialized expertise in AAV vectors, the most commonly used delivery system for gene therapy, as well as capabilities in plasmids and lentivirus vectors manufactured using cGMP, which position us to capitalize on strong industry tailwinds in the market for gene therapies. Paragon also brings to Catalent its differentiated scientific, development, and manufacturing capabilities, which will fundamentally enhance our biologics business and end-to-end integrated biopharmaceutical solutions for customers. In June 2019, Paragon agreed to acquire two additional laboratory and manufacturing facilities located in southern Maryland from Novavax, Inc. The Novavax acquisition closed in late July 2019.

Our range of injectable manufacturing offerings includes filling small molecules or biologics into pre-filled syringes, cartridges, and vials, with flexibility to accommodate other formats within our existing network, increasingly focused on complex pharmaceuticals and biologics. With our range of technologies, we are able to meet a wide range of specifications, timelines, and budgets. We believe that the complexity of the manufacturing process, the importance of experience and know-how, regulatory compliance, and high start-up capital requirements provide us with a substantial competitive advantage in the market. For example, blow-fill-seal is an advanced aseptic processing technology, which uses a continuous process to form, fill with drug or biologic, and seal a plastic container in a sterile environment. Blow-fill-seal units are currently used for a variety of pharmaceuticals in liquid form, such as respiratory, ophthalmic, and otic products. Our sterile blow-fill-seal manufacturing has significant capacity and flexibility in manufacturing configurations. This business provides flexible and scalable solutions for unit-dose delivery of complex formulations such as suspensions and emulsions. Further, the business provides engineering and manufacturing solutions related to complex containers. Our regulatory expertise can lead to decreased time to commercialization, and our dedicated development production lines support feasibility, stability, and clinical runs. We plan to continue to expand our product line in existing and new markets, and in higher margin specialty products with additional respiratory, ophthalmic, injectable, and nasal applications.

We also offer bioanalytical development and testing services for large molecules, including cGMP release and stability testing. Our respiratory product capabilities include development and manufacturing services for inhaled products for delivery via metered dose inhalers, dry powder inhalers, and intra-nasal sprays. Across multiple complex dosage forms, the segment provides drug and biologic solutions from early-stage development and clinical support all the way through to scale up and commercialization.

Our Biologics and Specialty Drug Delivery segment represents 29%, 24% and 17% of our aggregate revenue before inter-segment eliminations for fiscal 2019, 2018, and 2017, respectively.

Oral Drug Delivery

Our Oral Drug Delivery segment provides various advanced formulation development and manufacturing technologies, and related integrated solutions including: clinical development and commercial manufacturing of a broad range of oral dose forms, including our proprietary fast-dissolve Zydis tablets and both conventional immediate and controlled-release tablets, capsules, and sachet products. Representative customers of Oral Drug Delivery include Pfizer, Johnson & Johnson, Bayer, Novartis, and Perrigo.

We provide comprehensive pre-formulation, development, and cGMP manufacturing at both clinical and commercial scales for traditional and advanced complex oral solid-dose formats, including coated and uncoated tablets, pellet/bead/powder-filled two-piece hard capsules, granulated powders, and other forms of immediate and modified release branded prescription, generic, and consumer products. We have substantial experience developing and scaling up products requiring accelerated development timelines, solubility enhancement, specialized handling (e.g., potent or DEA-regulated materials), complex technology transfers, and specialized manufacturing processes. We also provide micronization and particle engineering services, which may enhance a drug’s manufacturability or clinical performance. We offer comprehensive analytical testing and scientific services and stability testing for small molecules, both to support integrated development programs and on a fee-for-service basis. We provide global regulatory and support services for our customers’ clinical strategies during all stages of development. In recent years, we have expanded our network of development sites focused on earlier phase compounds, to engage with more customer molecules, earlier, with the intent to provide later stage manufacturing and supporting services as those molecules progress towards commercial approval and beyond. Demand for our offerings is driven by the need for

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scientific expertise and depth and breadth of services offered, as well as by the reliability of our supply, including quality, execution, and performance.

We launched our orally dissolving tablet business in 1986 with the introduction of Zydis tablets, a unique proprietary freeze-dried tablet that typically dissolves in the mouth, without water, in less than three seconds. Most often used for drugs and patient groups that can benefit from rapid oral disintegration, we can adapt the Zydis technology to a wide range of products and indications, including treatments for a variety of central nervous system-related conditions such as migraines, Parkinson’s disease, and schizophrenia, and consumer healthcare products targeting indications such as pain and allergy relief. We continue to develop Zydis tablets in different ways with our customers as we extend the application of the technology to new therapeutic categories, including immunotherapy, vaccines, and biologic molecule delivery and improve its drug load capacity and taste-masking properties.

Our Oral Drug Delivery segment represents 24%, 23%, and 27% of our aggregate revenue before inter-segment eliminations for fiscal 2019, 2018, and 2017, respectively.

Clinical Supply Services

Our Clinical Supply Services segment provides manufacturing, packaging, storage, distribution, and inventory management for drugs and biologics in clinical trials. We offer customers flexible solutions for clinical supplies production and provide distribution and inventory management support for both simple and complex clinical trials. This includes over-encapsulation where needed; supplying placebos, comparator drug procurement, and clinical packages and kits for physicians and patients; inventory management; investigator kit ordering and fulfillment; and return supply reconciliation and reporting. We support trials in all regions of the world through our facilities and distribution network. In fiscal 2018, we completed the second phase of our expansion program in our Kansas City, Missouri facility. Further, in fiscal 2016 and again in fiscal 2018, we expanded our Singapore facility by building additional flexible cGMP space, and we introduced clinical supply services at our existing 100,000 square foot facility in Japan, expanding our Asia Pacific capabilities. Additionally, in fiscal 2013, we established our first clinical supply services facility in China as a joint venture, assumed full ownership in fiscal 2015, and opened a second facility in China in fiscal 2019. We are the leading provider of integrated development solutions and one of the leading providers of clinical trial supplies. Representative customers of Clinical Supply Services include Merck KGaA, IQVIA, Eli Lilly, AbbVie, and Incyte Corporation.

Our Clinical Supply Services segment represents 13%, 17%, and 16% of our aggregate revenue before inter-segment eliminations for fiscal 2019, 2018, and 2017, respectively.

Integrated Development and Product Supply Chain Solutions

In addition to our proprietary offerings, we are also differentiated in the market by our ability to bring together our development solutions and advanced delivery technologies to offer innovative development and product supply solutions that can be combined or tailored in many ways to enable our customers to take their drugs, biologics, and consumer health products from laboratory to market. Once a product is on the market, we can provide comprehensive integrated product supply, from the sourcing of the bulk active ingredient to comprehensive manufacturing and packaging to the testing required for release to distribution. The customer- and product-specific solutions we develop are flexible, scalable and creative, so that they meet the unique needs of both large and emerging companies and are appropriate for products of all sizes. We believe that our development and product supply solutions such as OptiForm Solutions Suite and OneBioSuite will continue to contribute to our future growth.

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Sales and Marketing

Our target customers include large pharmaceutical and biotechnology companies, mid-size, emerging and specialty pharmaceutical and biotechnology companies, and consumer health companies, along with companies in other selected healthcare market segments such as animal health and medical devices and companies in adjacent industries, such as cosmetics. We have longstanding, extensive relationships with leading pharmaceutical and biotechnology customers. In fiscal 2019, we did business with 83 of the top 100 branded drug marketers, 21 of the top 25 generics marketers, 23 of the top 25 biologics marketers, and 21 of the top 25 consumer health marketers globally, as well as with more than 1,000 other customers. Faced with access, pricing, and reimbursement pressures as well as other market challenges, large pharmaceutical and biotechnology companies have increasingly sought partners to enhance the clinical competitiveness of their drugs and biologics and improve the productivity of their research and development activities, while reducing their fixed cost base. Many mid-size, emerging, and specialty pharmaceutical and biotechnology companies, while facing the same pricing and market pressures, have chosen not to build a full infrastructure, but rather to partner with other companies through licensing agreements or outsourcing to access the critical skills, technologies, and services required to bring their products to market. Consumer health companies require rapidly developed, innovative dose forms and formulations to keep up with the fast-paced over-the-counter medication, vitamins, and personal care markets. These market segments are all important to our growth, but require distinct solutions, marketing and sales approaches, and market strategy.

We follow a hybrid demand-generation organization model, with strategic account teams offering the full breadth of Catalent’s solutions, and technical specialist teams providing the in-depth technical knowledge and practical experience essential for each individual offering. Our sales organization currently consists of more than 150 full-time, experienced sales professionals, supported by inside sales and sales operations. We also have built a dedicated strategic marketing team, providing strategic market and product planning and management for our offerings. As part of our marketing efforts, we participate in major trade shows relevant to our offerings globally and ensure adequate visibility to our offerings and solutions through a comprehensive print and on-line advertising and publicity program. We believe that Catalent is a strong brand with high overall awareness in our established markets and universe of target customers, and that our brand identity is a competitive advantage for us.

Global Accounts

We manage selected accounts globally due to their substantial current business and growth potential. We recorded approximately 20% of our total revenue in fiscal 2019 from these global accounts. Each global account is assigned a lead business development professional with substantial industry experience. These account leaders, along with other members of the sales and executive leadership teams, are responsible for managing and extending the overall account relationship. Account leaders work closely with the rest of the sales organization to ensure alignment around critical priorities for the accounts.

Emerging, Specialty, and Virtual Accounts

Emerging, specialty, and virtual pharmaceutical and biotechnology companies are expected to be critical drivers of industry growth globally. Historically, many of these companies have chosen not to build a full infrastructure, but rather partner with other companies to produce their products. We expect them to continue to do so in the future, providing a critical source for future integrated solutions demand. We expect to continue to increase our penetration of geographic clusters of emerging companies in North America, Europe, South America, and Asia. We regularly use active pipeline and product screening and customer targeting to identify the optimal candidates for partnering based on product profiles, funding status, and relationships, to ensure that our technical sales specialists and field sales representatives develop custom solutions designed to address the specific needs of these customers.

Seasonality; Fluctuations in Operation Results

Our annual financial reporting periods end on June 30. Our revenue and net earnings are generally higher in the third and fourth quarters of each fiscal year, with our first fiscal quarter typically generating our lowest revenue of any quarter, and our last fiscal quarter typically generating our highest revenue. These fluctuations are primarily the result of the timing of our, and our customers’, annual operational maintenance periods at locations in continental Europe and the U.K., the seasonality associated with pharmaceutical and biotechnology budgetary spending decisions, clinical trial and research and development schedules, the timing of new product launches and length of time needed to obtain full market penetration, and, to a lesser extent, the time of the year some of our customers’ products are in higher demand.

Contractual Arrangements

We generally enter into a broad range of contractual arrangements with our customers, including agreements with respect to feasibility, development, supply, licenses, and quality. The terms of these contracts vary significantly depending on the

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offering and customer requirements. Some of our agreements may include a variety of revenue arrangements such as fee-for-service, minimum volume commitments, royalties, profit-sharing and fixed fees. We employ a range of capacity access approaches, from standard to completely dedicated capacity models, based on customer and product needs. We generally secure pricing and other contract mechanisms in our supply agreements to allow for periodic resetting of pricing terms, and, in some cases, these agreements permit us to renegotiate pricing in the event of certain price increases for the raw materials we use to make products. Our typical supply agreements include indemnification from our customers for product liability and intellectual property matters and caps on our contractual liabilities, subject in each case to negotiated exclusions. The terms of our manufacturing supply agreements range from three to seven years with regular renewals of one to three years, although some of our agreements are terminable upon much shorter notice periods, such as 30 or 90 days. For our development solutions offerings, we may enter into master service agreements, which provide for standardized terms and conditions and make it easier and faster for customers with multiple development needs to access our offerings.

Backlog

While we generally have long-term supply agreements that provide for a revenue stream over a period of years, our backlog represents, as of a point in time, future service revenues from work not yet completed. For our Softgel Technologies, Biologics and Specialty Drug Delivery, and Oral Drug Delivery segments, backlog represents firm orders for manufacturing services and includes minimum volumes, where applicable. For our Clinical Supply Services segment, backlog represents estimated future service revenues from work not yet completed under signed contracts. Using these methods of reporting backlog, as of June 30, 2019, our backlog was $1,349.8 million compared to $1,112.3 million as of June 30, 2018, including $366.3 million and $273.2 million, respectively, related to our Clinical Supply Services segment. We expect to recognize approximately 85% of revenue from the backlog in existence as of June 30, 2019 by the completion of fiscal year ending 2020.

To the extent projects are delayed, the timing of our revenue could be affected. If a customer cancels an order, we may be reimbursed for the costs we have incurred. For orders that are placed inside a contractual firm period, we generally have a contractual right to payment in the event of cancellation. Fluctuations in our reported backlog levels also result from the timing and order pattern of our customers who often seek to manage their level of inventory on hand. Because of customer ordering patterns, our backlog reported for certain periods may fluctuate and may not be indicative of future results.

Manufacturing Capabilities

We operate manufacturing facilities, development centers and sales offices throughout the world. As of June 30, 2019, we had thirty-nine facilities (four geographical locations operate as multiple facilities because they support more than one reporting segment) on five continents with 6.4 million square feet of manufacturing, laboratory, and related space. In addition, in May 2019, we signed an agreement to acquire a facility in Anagni, Italy that produces both oral and sterile dose forms for drugs and biologics, which is expected to close by the end of the second quarter of fiscal 2020, and, in June 2019, we signed an agreement to acquire two facilities in southern Maryland from Novavax, Inc. to supplement the capabilities of Paragon, particularly in early-stage development. This acquisition closed in late July 2019. Our manufacturing capabilities include the full suite of competencies relevant to support each site’s activities, including regulatory, quality assurance, and in-house validation.

We operate our plants in accordance with cGMP or other applicable requirements. All of our facilities are registered with the FDA or other applicable regulatory agencies, such as the EMA. In some cases, our facilities are registered with multiple regulatory agencies.

We have invested $534.4 million in our manufacturing facilities since fiscal 2017 through improvements and expansions in our facilities, including $218.1 million on capital expenditures in fiscal 2019. We believe that our facilities and equipment are in good condition, are well maintained, and are able to operate at or above present levels for the foreseeable future, in all material respects.

Our manufacturing operations are focused on employee health and safety, regulatory compliance, operational excellence, continuous improvement, and process standardization across the organization. In fiscal 2019, we achieved approximately 97% on-time shipment delivery versus customer request date across our network as a result of this focus. Our manufacturing operations are structured around an enterprise management philosophy and methodology that utilizes principles and tools common to a number of quality management programs, including Lean Six Sigma and Lean Manufacturing.

Raw Materials

We use a broad and diverse range of raw materials in the design, development, and manufacture of our products. This includes, but is not limited to, key materials such as gelatin, starch, and iota carrageenan for our Softgel Technologies segment; packaging films for our Clinical Supply Services segment; and glass vials and syringes for injectable fill-finish along with resin for our blow-fill-seal business in our Biologics and Specialty Drug Delivery segment. The raw materials that we use are sourced

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externally on a global basis. Globally, our supplier relationships could be interrupted due to natural disasters and international supply disruptions, including those caused by pandemics or geopolitical and other issues. For example, commercially usable gelatin is available from a limited number of sources. In addition, much of the gelatin we use is bovine-derived. Past concerns of contamination from Bovine Spongiform Encephalopathy (“BSE”) have narrowed the number of possible sources of particular types of gelatin. If there were a future disruption in the supply of gelatin from any one or more key suppliers, there can be no assurance that we could obtain an alternative supply from our other suppliers. Any future restriction that were to emerge on the use of bovine-derived gelatin from certain geographic sources due to concerns of contamination from BSE could hinder our ability to timely supply our customers with products and the use of alternative non-bovine-derived gelatin for specific customer products could be subject to lengthy formulation, testing and regulatory approval periods.

We work very closely with our suppliers to assure continuity of supply while maintaining excellence in material quality and reliability. We continually evaluate alternate sources of supply, although we do not frequently pursue regulatory qualification of alternative sources for key raw materials due to the strength of our existing supplier relationships, the reliability of our current supplier base, and the time and expense associated with the regulatory process. Although a change in suppliers could require significant effort or investment by us in circumstances where the items supplied are integral to the performance of our products or incorporate specialized material such as gelatin, we do not believe that the loss of any existing supply arrangement would have a material adverse effect on our business. See “Risk Factors—Risks Relating to Our Business and Industry—Our future results of operations are subject to fluctuations in the costs, availability, and suitability of the components of the products we manufacture, including active pharmaceutical ingredients, excipients, purchased components, and raw materials.”

Competition

We compete with multiple companies as to each of our offerings and in every region of the globe in which we operate, including with other companies that offer conventional and advanced delivery technologies, clinical trials support, outsourced dose form or biologics manufacturing, or development services to pharmaceutical, biotechnology, and consumer health companies based in North America, South America, Europe, and the Asia-Pacific region. We also compete in some cases with the internal operations of those pharmaceutical, biotechnology, and consumer health customers that also have manufacturing capabilities and choose to source these services internally.

Competition is driven by proprietary technologies and know-how (where relevant), capabilities, consistency of operational performance, quality, price, value, responsiveness, and speed. While we do have competitors that compete with us in our individual offerings, and a few competitors that compete across many of our offerings, we do not believe we have competition from any directly comparable company.

Research and Development Costs

Our research activities are primarily directed toward the development of new offerings and manufacturing process improvements. Costs incurred in connection with the development of new offerings and manufacturing process improvements are recorded within selling, general, and administrative expenses. Such research and development costs included in selling, general, and administrative expenses amounted to $3.3 million, $6.3 million, and $7.0 million for fiscal 2019, 2018, and 2017, respectively. 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 $51.2 million, $46.2 million, and $45.8 million for fiscal years ended 2019, 2018, and 2017, respectively.

Employees

As of June 30, 2019, we had nearly 12,300 employees in thirty-nine facilities on five continents: fifteen facilities are in the United States, with certain employees at one facility being represented by a labor organization with their terms and conditions of employment being subject to a collective bargaining agreement. National works councils and/or labor organizations are active at all thirteen of our European facilities consistent with labor environments/laws in European countries. Similar relationships with labor organizations or national works councils exist at our plants in Argentina, Australia, Brazil, and Canada. Our management believes that our employee relations are satisfactory.

	North America	Europe	South America	Asia Pacific	Total
Approximate number of employees as of June 30, 2019	6,800	3,900	900	700	12,300

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Corporate Responsibility

Responsible business practices are essential to fulfilling our mission of helping people live better, healthier lives. Our corporate values are at the foundation of our culture and everything we do. Our explicit commitment to Patient First means that we put patients at the center of our work to ensure the safety, reliable supply, and optimal performance of our products.

We ask employees at every level of our organization to uphold these values and to apply the highest ethical standards in their work. Investing in our people, managing our environmental footprint, and giving back to our communities are part of our long-term growth and sustainability strategy and guide our Corporate Responsibility (CR) program.

Governance

To manage our CR performance, we maintain a CR Council made up of executive and senior leadership to guide the implementation of our CR strategy and commitments and report to our board of directors or a designated committee on CR matters. Three committees reporting to the CR Council—the Environmental Committee, the Grant-making Committee, and the Community Engagement Ambassador Network—help drive progress in three critical areas of our overall CR commitment and embed CR deeper into our business.

Significant initiatives

We focus on those aspects within the overall corporate responsibility area that we believe to be most significant to our business. Our view is informed by stakeholder feedback, regulatory developments, and issues that appear to engage our constituencies. From time to time, we assess and prioritize among potential initiatives in order to focus our resources. Relevant issues on which we have focused during fiscal 2019 include:

•Community investment and philanthropy

▪Diversity and inclusion

▪Energy use and climate change

▪Occupational health and safety

▪Product innovation

▪Product quality and safety

▪Talent attraction and retention

▪Training and development

▪Waste

Business benefits

Beyond being the right thing to do, our focus on CR strengthens our business by reducing risks, meeting customer and investor expectations, and attracting top talent to join and stay with us. CR performance is an important contributor to our business success. It informs our risk management process, protects our reputation, and alerts us to regulatory, environmental, and societal threats to our business. Our CR activities also support our customers, some of which have robust CR programs and prefer suppliers with a similar commitment.

Our future success depends on our highly skilled and dedicated global team of employees, who are passionate about improving health outcomes. We compete for the top talent in our industry and recognize that our reputation as a responsible company can be a differentiator for prospective job candidates.

Progress in 2019

In fiscal 2019, we continued to introduce an expanded set of site-based CR performance metrics to measure the impact of our CR activities across our network. As part of this exercise, we conducted our most comprehensive environmental baseline assessment to date. Our environmental data, and other relevant CR metrics and targets, will be shared as part of our first CR report, which is expected in 2020. Catalent has also achieved global accreditation with respect to the international management standards for environment (ISO14001:2015) and occupational safety (OHSAS18001:2007).

In April 2019, our second annual Earth Month campaign, Catalent Unplugged, emphasized our focus on reducing CO₂ emissions linked to energy use. Our employees and sites responded enthusiastically, organizing volunteering, recycling, awareness-raising, and waste elimination initiatives across the network.

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Our Catalent Month of Service grew to include almost every site in the Catalent network. We expanded our community grant making program, focused on giving back through our diverse network of facilities worldwide. Our grants promote local organizations that support patients and encourage STEM (science, technology, engineering, and mathematics) educational and training initiatives. Catalent’s disaster response program is valued by our employees for helping people affected by natural disasters in the U.S. and beyond.

Further information on our CR program is available at https://www.catalent.com/index.php/about-us/Corporate-Responsibility, but this website is not part of our public disclosures and is not incorporated by reference into this Annual Report.

Intellectual Property

We rely on a combination of know-how, trade secrets, patents, copyrights, trademarks, and other intellectual property laws, nondisclosure and other contractual provisions, and technical measures to protect a number of our offerings, services, and intangible assets. These proprietary rights are important to our ongoing operations. Certain of our operations and products are under intellectual property licenses from third parties, and in certain instances we license our technology to third parties. We also have a long track record of innovation across our lines of business, and, to further encourage active innovation, we have developed incentive compensation systems linked to patent filings and other recognition and reward programs for scientists and non-scientists alike.

We have applied in the United States and certain foreign countries for registration of a number of trademarks, service marks, and patents, some of which have been registered and issued, and also hold common law rights in various trademarks and service marks. We hold more than 1,300 patents and patent applications worldwide relating to advanced drug delivery and biologics formulations and technologies, as well as manufacturing and other areas relevant to our business.

We hold patents and license rights relating to certain aspects of our formulations, nutritional and pharmaceutical dosage forms, mammalian cell engineering, and sterile manufacturing services. We also hold patents relating to certain processes and products. We have a number of pending patent applications in the United States and certain other countries and intend to pursue additional patents as appropriate. We have enforced and will continue to enforce our intellectual property rights in the United States and worldwide.

We do not consider any particular patent, trademark, license, franchise, or concession to be material to our overall business.

Regulatory Matters

The manufacture, distribution, and marketing of healthcare products and the provision of certain services for development-stage pharmaceutical and biotechnology products are subject to extensive ongoing regulation by the FDA, other U.S. governmental authorities, and foreign regulatory authorities. Certain of our subsidiaries are required to register for permits or licenses with, and must comply with the operating, cGMP, quality, and security standards of, applicable domestic and foreign healthcare regulators, including the FDA, the U.S. Drug Enforcement Agency (the “DEA”), the U.S. Department of Health and Human Services (the “DHHS”), the equivalent agencies of the European Union (the “E.U.”) and its member states, and various state boards of pharmacy, state health departments, and comparable foreign agencies, as well as various accrediting bodies, each depending upon the type of operations and the locations of distribution and sale of the products manufactured or services provided by those subsidiaries.

In addition, certain of our subsidiaries are subject to other healthcare laws, including the U.S. Federal Food, Drug, and Cosmetic Act, the Public Health Service Act, the Controlled Substances Act, and comparable state and foreign laws and regulations in certain of their activities.

We are also subject to various federal, state, local, foreign and transnational laws, regulations, and requirements, both in the United States and abroad, relating to safe working conditions, laboratory and distribution practices, and the use, transportation, and disposal of hazardous or potentially hazardous substances. In addition, U.S. and international import and export laws and regulations require us to abide by certain standards relating to the cross-border transit of finished goods, raw materials, and supplies and the handling of information. We are also subject to various other laws and regulations concerning the conduct of our foreign operations, including the U.S. Foreign Corrupt Practices Act, the U.K. Anti-Bribery Act, and other anti-bribery laws and laws pertaining to the accuracy of our internal books and records.

The costs associated with complying with the various applicable federal, state, local, foreign, and transnational regulations could be significant, and the failure to comply with such legal requirements could have an adverse effect on our results of operations and financial condition. See “Risk Factors—Risks Relating to Our Business and Industry—Failure to

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comply with existing and future regulatory requirements could adversely affect our results of operations and financial condition or result in claims from customers,” for additional discussion of the costs associated with complying with the various regulations.

In fiscal 2019, we were subject to 75 regulatory audits, and, over the last five fiscal years, we successfully completed approximately 300 regulatory audits.

Quality Assurance

We are committed to ensuring and maintaining the highest standard of regulatory compliance while providing high quality products to our customers. To meet these commitments, we have developed and implemented a Catalent-wide quality management system. We have more than 1,900 employees around the globe focusing on quality and regulatory compliance. Our senior management team is actively involved in setting quality policies, standards, and internal position papers as well as managing internal and external quality performance. Our quality assurance department provides quality leadership and supervises our quality systems programs. An internal audit program monitors compliance with applicable regulations, standards, and internal policies. In addition, our facilities are subject to periodic inspection by the FDA, the DEA, and other equivalent local, state, and foreign regulatory authorities as well as our customers. All FDA, DEA, and other regulatory inspectional observations have been resolved or are on track to be completed at the prescribed timeframe provided in commitments to the applicable agency in all material respects. We believe that our operations are in compliance in all material respects with the regulations under which our facilities are governed.

Environmental Matters

Our operations are subject to a variety of environmental, health, and safety laws and regulations, including those of the U.S. Environmental Protection Agency (the “EPA”) and equivalent state, local, and foreign regulatory agencies in each of the jurisdictions in which we operate. These laws and regulations govern, among other things, air emissions, wastewater discharges, the use, handling, and disposal of hazardous substances and wastes, soil and groundwater contamination, and employee health and safety. Our manufacturing facilities use, in varying degrees, hazardous substances in their processes. These substances include, among others, chlorinated solvents, and in the past chlorinated solvents were used at one or more of our facilities, including a number we no longer own or operate. As at our current facilities, contamination at such formerly owned or operated properties can result and has resulted in liability to us, for which we have recorded appropriate reserves as needed. We believe that our operations are in compliance in all material respects with the environment, health, and safety regulations applicable to our facilities.

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ITEM 1A. RISK FACTORS

If any of the following risks actually occur, our business, financial condition, operating results, or cash flow could be materially and adversely affected. Additional risks or uncertainties not presently known to us, or that we currently believe are immaterial, may also impair our business operations.

Risks Relating to Our Business and Industry

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

We operate in a market that is highly competitive. We compete with multiple companies as to each of our offerings and in every region of the globe in which we operate, including competing with other companies that offer advanced delivery technologies, outsourced dose form or biologics manufacturing, clinical trials support services, or development services to pharmaceutical, biotechnology, and consumer health companies based in North America, South America, Europe, and the Asia-Pacific region. We also compete in some cases with the internal operations of those pharmaceutical, biotechnology, and consumer health customers that also have manufacturing capabilities and choose to source these services internally.

We face substantial competition in each of our markets. Competition is driven by proprietary technologies and know-how, capabilities, consistency of operational performance, quality, price, value, responsiveness, and speed. Some competitors may have greater financial, research and development, operational, and marketing resources than we do. Competition may also increase as additional companies enter our markets or use their existing resources to compete directly with ours. Expanded competition from companies in low-cost jurisdictions, such as India and China, may in the future adversely affect our results of operations or limit our growth. Greater financial, research and development, operational, and marketing resources may allow our competitors to respond more quickly with new, alternative, or emerging technologies. Changes in the nature or extent of our customers’ requirements may render our offerings obsolete or non-competitive and could adversely affect our results of operations and financial condition.

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.

Our customers are engaged in research, development, production, and marketing of pharmaceutical, biotechnology, and consumer health products. The amount of customer spending on research, development, production, and marketing, as well as the outcomes of such research, development, and marketing activities, have a large impact on our sales and profitability, particularly the amount our customers choose to spend on our offerings. Our customers determine the amounts that they will spend based upon, among other things, available resources and their need to develop new products, which, in turn, is dependent upon a number of factors, including their competitors’ research, development, and production initiatives, and the anticipated market uptake, clinical, and reimbursement scenarios for specific products and therapeutic areas. In addition, consolidation in the industries in which our customers operate may have an impact on such spending as customers integrate acquired operations, including research and development departments and their budgets. Our customers finance their research and development spending from private and public sources. A reduction in spending by our customers could have a material adverse effect on our business, financial condition, and results of operations. If our customers are not successful in attaining or retaining product sales due to market conditions, reimbursement issues, or other factors, our results of operations may be materially adversely affected.

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

We are subject to potentially significant product liability and other liability risks that are inherent in the design, development, manufacture, and marketing of our offerings. We may be named as a defendant in product liability lawsuits, which may allege that our offerings have resulted or could result in an unsafe condition or injury to consumers. Such lawsuits could be costly to defend and could result in reduced sales, significant liabilities, and diversion of management’s time, attention, and resources. Even claims without merit could subject us to adverse publicity and require us to incur significant legal fees.

Furthermore, product liability claims and lawsuits, regardless of their ultimate outcome, could have a material adverse effect on our business operations, financial condition, and reputation and on our ability to attract and retain customers. We have historically sought to manage this risk through the combination of product liability insurance and contractual indemnities and liability limitations in our agreements with customers and vendors. The availability of product liability insurance for companies in the pharmaceutical industry is generally more limited than insurance available to companies in other industries. Insurance carriers providing product liability insurance to those in the pharmaceutical and biotechnology industries generally limit the amount of available policy limits, require larger self-insured retentions, and exclude coverage for certain products and claims.

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We maintain product liability insurance with annual aggregate limits in excess of $25.0 million. There can be no assurance that a successful product liability or other claim would be adequately covered by our applicable insurance policies or by any applicable contractual indemnity or liability limitations.

Failure to comply with existing and future regulatory requirements could adversely affect our results of operations and financial condition or result in claims from customers.

The healthcare industry is highly regulated. We, and our customers, are subject to various local, state, federal, national, and transnational laws and regulations, which include the operating, quality, and security standards of the FDA, the DEA, various state boards of pharmacy, state health departments, the DHHS, similar bodies of the E.U. and its member states, and other comparable agencies around the world, and, in the future, any change to such laws and regulations could adversely affect us. Among other rules affecting us, we are subject to laws and regulations concerning cGMP and drug safety. Our subsidiaries may be required to register for permits or licenses, and may be required to comply, with the laws and regulations of the FDA, the DEA, the DHHS, ex-U.S. agencies including the EMA, and various boards of pharmacy, health departments, or comparable agencies in various jurisdictions around the world, as well as certain accrediting bodies, depending upon the type of operations and locations of distribution and sale of the products manufactured or services provided by those subsidiaries.

The manufacture, distribution, and marketing of our offerings are subject to extensive ongoing regulation by the FDA, the DEA, the EMA, and other equivalent local, state, federal, national, and transnational regulatory authorities. Failure by us or by our customers to comply with the requirements of these regulatory authorities could result in warning letters, product recalls or seizures, monetary sanctions, injunctions to halt manufacture or distribution, restrictions on our operations, civil or criminal sanctions, or withdrawal of existing or denial of pending approvals, permits or registrations, including those relating to products or facilities. In addition, any such failure relating to the products or services we provide could expose us to contractual or product liability claims as well as claims from our customers, including claims for reimbursement for lost or damaged active pharmaceutical ingredients, which cost could be significant. Customers may also claim loss of profits due to lost or delayed sales, although our contracts generally place substantial limits on such claims. There can be no assurance that any such contractual limitation will be applicable, sufficient, or fully enforced in any given situation.

In addition, any new offering or product classified as a pharmaceutical or medical device must undergo lengthy and rigorous clinical testing and other extensive, costly and time-consuming procedures mandated by the FDA, the EMA and other equivalent local, state, federal, national and transnational regulatory authorities in the jurisdictions that regulate our offerings and products. We or our customers may elect to delay or cancel anticipated regulatory submissions for current or proposed new offerings or products for any number of reasons.

Although we believe that we comply in all material respects with applicable laws and regulations, there can be no assurance that a regulatory agency or tribunal would not reach a different conclusion concerning the compliance of our operations with applicable laws and regulations. In addition, there can be no assurance that we will be able to maintain or renew existing permits, licenses, or other regulatory approvals or obtain, without significant delay, future permits, licenses, or other approvals needed for the operation of our businesses. Any noncompliance by us or our customers with applicable law or regulation or the failure to maintain, renew, or obtain necessary permits and licenses could have an adverse effect on our results of operations and financial condition. Furthermore, loss of a permit, license, or other approval in any one portion of our business may have indirect consequences in another portion of our business if regulators or customers adjust their reviews of such other portion as a result or customers cease business with such other portion due to fears that such loss is a sign of broader concerns about our ability to deliver products or services of sufficient quality.

Failure to provide quality offerings to our customers could have an adverse effect on our business and subject us to regulatory actions or costly litigation.

Our results depend on our ability to execute and improve when necessary our quality management strategy and systems, and effectively train and maintain our employee base with respect to quality management. Quality management plays an essential role in determining and meeting customer requirements, preventing defects, and improving our offerings. While we have a network of quality systems throughout our business units and facilities that relate to the design, formulation, development, manufacturing, packaging, sterilization, handling, distribution, and labeling of the products we supply, quality and safety issues may occur with respect to any of our offerings. A quality or safety issue could have an adverse effect on our business, financial condition, and results of operations and may subject us to regulatory actions, including product recalls, product seizures, injunctions to halt manufacture or distribution, or restrictions on our operations; monetary fines; or other civil or criminal sanctions. In addition, such an issue could subject us to costly litigation, including claims from our customers for reimbursement for the cost of lost or damaged active pharmaceutical ingredients or other related losses, the cost of which could be significant.

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The services and offerings we provide are highly exacting and complex, and, if we encounter problems providing the services or support required, our business could suffer.

The offerings we provide are highly exacting and complex, particularly in our Softgel Technologies, Biologics and Specialty Drug Delivery, and Oral Drug Delivery segments, due in part to strict regulatory requirements. From time to time, problems may arise in connection with facility operations or during preparation or provision of an offering, in both cases for a variety of reasons including, but not limited to, equipment malfunction, sterility variances or failures, failure to follow specific protocols and procedures, problems with raw materials, environmental factors, and damage to, or loss of, manufacturing operations due to fire, flood, or similar causes. Such problems could affect production of a particular batch or series of batches, require the destruction of or otherwise result in the loss of product or materials used in the production of product, or could halt facility production altogether. This could, among other things, lead to increased costs, lost revenue, damage to customer relations, reimbursement to customers for lost active pharmaceutical ingredients or other related losses, time and expense spent investigating the cause, lost production time, and, depending on the cause, similar losses with respect to other batches or products. Production problems in our drug and biologic manufacturing operations could be particularly significant because the cost of raw materials is often higher than in our other businesses. If problems are not discovered before the product is released to the market, recall and product liability costs may also be incurred. In addition, such risks may be greater at facilities that are new or going through significant expansion or renovation.

Our global operations are subject to economic, political, and regulatory risks, including the risks of changing regulatory standards or changing interpretations of existing standards that could affect the profitability of our operations or require costly changes to our procedures.

We conduct our operations in various regions of the world, including North America, South America, Europe, and the Asia-Pacific region. Global and regional economic and regulatory developments affect businesses such as ours in many ways. Our operations are subject to the effects of global and regional competition, including potential competition from manufacturers in low-cost jurisdictions such as India and China. Local jurisdiction risks include regulatory risks arising from local laws. Our global operations are also affected by local economic environments, including inflation and recession. Political changes, some of which may be disruptive, and related hostilities can interfere with our supply chain, our customers, and some or all of our activities in a particular location. While some of these risks can be hedged using derivatives or other financial instruments and some are insurable, such mitigating measures may be unavailable, costly, or unsuccessful.

The exit of the U.K. from the European Union could have future adverse effects on our operations revenues, and costs, and therefore our profitability.

In June 2016, the U.K. held a referendum in which a majority of voters approved the U.K.’s exit from the E.U., and the U.K. government has invoked its right to withdraw, effective in March 2019. This deadline for withdrawal has since been extended by agreement to October 2019. There is no immediate change in either the U.K. or the E.U. as a result of either action, but the U.K. government is now engaged in both internal and external discussions with affected parties and considering additional legislation regarding the changes that will result from the decision to exit. Five of our facilities, employing hundreds of workers, are located in the U.K., and these facilities, as well as others in our network, source goods, manufacture goods, and provide services from or intended for the U.K. These facilities operate within an existing framework of trade and human capital integration with the E.U. and, by extension, the other parts of the world, with which the E.U. has trade and immigration agreements. Furthermore, some of our facilities located in other E.U. member states ship materials to and from or otherwise engage in various business interactions with the U.K., including our U.K. facilities. Due to future changes in the U.K. resulting from an eventual exit, including potentially increased trade barriers, increased tariff rates, or custom duties, or in anticipation of such changes, our suppliers, customers, or employees may change their interactions with us, including changes in imports to or exports from the U.K., changes in the requested utilization of our facilities, both within and without the U.K., and changes in our relationships with our workforce in the U.K. To the extent that our facilities operate as part of a cross-border supply and distribution chain, their operations may also be negatively affected by a decrease in the cross-border mobility of goods and services. We cannot anticipate the nature of these changes, as they largely depend on factors outside our control, but the changes may result in adverse changes in our future operations, revenues, and costs, and therefore our future profitability.

If we do not enhance our existing or introduce new technology or service offerings in a timely manner, our offerings may become obsolete or uncompetitive over time, customers may not buy our offerings, and our revenue and profitability may decline.

The healthcare industry is characterized by rapid technological change. Demand for our offerings may change in ways we may not anticipate because of evolving industry standards as well as a result of evolving customer needs that are increasingly sophisticated and varied and the introduction by others of new offerings and technologies that provide alternatives to our offerings. Several of our higher margin offerings are based on proprietary technologies. To the extent that such technologies are

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protected by patents, their related offerings may become subject to competition as the patents expire. Without the timely introduction of enhanced or new offerings and technologies, our offerings may become obsolete or uncompetitive over time, in which case our revenue and operating results would suffer. For example, if we are unable to respond to changes in the nature or extent of the technological or other needs of our pharmaceutical customers through enhancing our offerings, our competition may develop offerings that are more competitive than ours and we could find it more difficult to renew or expand existing agreements or obtain new agreements. Potential innovations intended to facilitate enhanced or new offerings generally will require a substantial investment before we can determine their commercial viability, and we may not have financial resources sufficient to fund all desired innovations.

The success of enhanced or new offerings will depend on several factors, including our ability to:

• properly anticipate and satisfy customer needs, including increasing demand for lower cost products;

• enhance, innovate, develop, and manufacture new offerings in an economical and timely manner;

• differentiate our offerings from competitors’ offerings;

• achieve positive clinical outcomes for our customers’ new products;

• meet safety requirements and other regulatory requirements of governmental agencies;

• obtain valid and enforceable intellectual property rights; and

• avoid infringing the proprietary rights of third parties.

Even if we succeed in creating enhanced or new offerings from these innovations, they may still fail to result in commercially successful offerings or may not produce revenue in excess of the costs of development, and they may be rendered obsolete by changing customer preferences or the introduction by our competitors of offerings embodying new technologies or features. Finally, innovations may not be accepted quickly in the marketplace because of, among other things, entrenched patterns of clinical practice, the need for regulatory clearance, and uncertainty over market access or government or third-party reimbursement.

We and our customers depend on patents, copyrights, trademarks, know-how, trade secrets, and other forms of intellectual property protections, but these protections may not be adequate.

We rely on a combination of know-how, trade secrets, patents, copyrights, trademarks, and other intellectual property laws, nondisclosure and other contractual provisions, and technical measures to protect many of our offerings and intangible assets. These proprietary rights are important to our ongoing operations. There can be no assurance that these protections will provide uniqueness or meaningful competitive differentiation in our offerings or otherwise be commercially valuable or that we will be successful in obtaining additional intellectual property or enforcing our intellectual property rights against unauthorized users. Our exclusive rights under certain of our offerings are protected by patents, some of which will expire in the near term. When patents covering an offering expire, loss of exclusivity may occur, which may force us to compete with third parties, thereby negatively affecting our revenue and profitability. We do not currently expect any material loss of revenue to occur as a result of the expiration of any patent currently protecting our business.

Our proprietary rights may be invalidated, circumvented, or challenged. We may in the future be subject to proceedings seeking to oppose or limit the scope of our patent applications or issued patents. In addition, in the future, we may need to take legal actions to enforce our intellectual property rights, to protect our trade secrets, or to determine the validity or scope of the proprietary rights of others. Legal proceedings are inherently uncertain, and the outcome of such proceedings may be unfavorable to us.

Any legal action regardless of outcome might result in substantial costs and diversion of resources and management attention. Although we use reasonable efforts to protect our proprietary and confidential information, there can be no assurance that our confidentiality and non-disclosure agreements will not be breached, our trade secrets will not otherwise become known by competitors, or that we will have adequate remedies in the event of unauthorized use or disclosure of proprietary information. Even if the validity and enforceability of our intellectual property is upheld, an adjudicator might construe our intellectual property not to cover the alleged infringement. In addition, intellectual property enforcement may be unavailable or practically ineffective in some countries. There can be no assurance that our competitors will not independently develop technologies that are substantially equivalent or superior to our technology or that third parties will not design around our intellectual property claims to produce competitive offerings. The use of our technology or similar technology by others could reduce or eliminate any competitive advantage we have developed, cause us to lose sales, or otherwise harm our business.

We have applied in the United States and certain other countries for registration of a number of trademarks, service marks, and patents, some of which have been registered or issued, and also claim common law rights in various trademarks and

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service marks. In the past, third parties have occasionally opposed our applications to register intellectual property, and there can be no assurance that they will not do so in the future. It is possible that in some cases we may be unable to obtain the registrations for trademarks, service marks, and patents for which we have applied, and a failure to obtain trademark and patent registrations in the United States or other countries could limit our ability to protect our trademarks and proprietary technologies and impede our marketing efforts in those jurisdictions.

License agreements with third parties control our rights to use certain patents, software, and information technology systems and proprietary technologies owned by third parties, some of which are important to our business. Termination of these license agreements for any reason could result in the loss of our rights to this intellectual property, causing an adverse change in our operations or the inability to commercialize certain offerings.

In addition, many of our branded pharmaceutical customers rely on patents to protect their products from generic competition. Because incentives exist in some countries, including the United States, for generic pharmaceutical companies to challenge these patents, pharmaceutical and biotechnology companies are under the ongoing threat of challenges to their patents. If the patents on which our customers rely were successfully challenged and, as a result, the affected products become subject to generic competition, the market for our customers’ products could be significantly adversely affected, which could have an adverse effect on our results of operations and financial condition. We attempt to mitigate these risks by making our offerings available to generic as well as branded manufacturers and distributors, but there can be no assurance that we will be successful in marketing these offerings.

Our offerings or our customers’ products may infringe on the intellectual property rights of third parties.

From time to time, third parties have asserted intellectual property infringement claims against us and our customers, and there can be no assurance that third parties will not assert infringement claims against either us or our customers in the future.

While we believe that our offerings do not infringe in any material respect upon proprietary rights of other parties, and that meritorious defenses would exist with respect to any assertion to the contrary, there can be no assurance that we could successfully avoid being found to infringe on the proprietary rights of others. Patent applications in the United States and certain other countries are generally not publicly disclosed until the patent is issued or published, and we and our customers may not be aware of currently filed patent applications that relate to our or their products, offerings, or processes. If patents later issue on these applications, we or they may be found liable for subsequent infringement. There has been substantial litigation in the pharmaceutical and biotechnology industries with respect to the manufacture, use, and sale of products that are the subject of conflicting patent rights.

Any claim that our offerings or processes infringe third-party intellectual property rights (including claims arising through our contractual indemnification of our customers), regardless of the claim’s merit or resolution, could be costly and may divert the efforts and attention of our management and technical personnel. We may not prevail against any such claim given the complex technical issues and inherent uncertainties in intellectual property matters. If any such claim results in an adverse outcome, we could, among other things, be required to:

•pay substantial damages (potentially including treble damages in the United States);

•cease the manufacture, use, or sale of the infringing offerings or processes;

•discontinue the use of the infringing technology;

•expend significant resources to develop non-infringing technology;

•license technology from the third party claiming infringement, which license may not be available on commercially reasonable terms, or may not be available at all; and

•lose the opportunity to license our technology to others or to collect royalty payments based upon successful protection and assertion of our intellectual property against others.

In addition, our customers’ products may be subject to claims of intellectual property infringement and such claims could materially affect our business if their products cease to be manufactured or they have to discontinue the use of the infringing technology.

Any of the foregoing could affect our ability to compete or have a material adverse effect on our business, financial condition, and results of operations.

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Our future results of operations are subject to fluctuations in the costs, availability, and suitability of the components of the products we manufacture, including active pharmaceutical ingredients, excipients, purchased components, and raw materials.

We depend on various active pharmaceutical ingredients, components, compounds, raw materials, and energy supplied primarily by others for our offerings. This includes, but is not limited to, gelatin, starch, iota carrageenan, petroleum-based products and resin. Also, our customers frequently provide to us their active pharmaceutical or biologic ingredient for formulation or incorporation in the finished product. It is possible that any of our or our customers’ supplier relationships could be interrupted due to changing regulatory requirements, import or export restrictions, natural disasters, international supply disruptions caused by pandemics, geopolitical issues, operational or quality issues at the suppliers’ facilities, and other events, or could be terminated in the future.

For example, gelatin is a critical component in most of the products produced in our Softgel Technologies segment. Gelatin is available from only a limited number of sources. In addition, much of the gelatin we use is bovine-derived. Past concerns of contamination from bovine spongiform encephalopathy, or BSE, have narrowed the number of possible sources of particular types of gelatin. If there were a future disruption in the supply of gelatin from any one or more key suppliers, we may not be able to obtain an adequate alternative supply from our other suppliers. If future restrictions were to emerge on the use of bovine-derived gelatin due to concerns of contamination from BSE or otherwise, any such restriction could hinder our ability to timely supply our customers with products and the use of alternative non-bovine-derived gelatin could be subject to lengthy formulation, testing, and regulatory approval.

Any sustained interruption in our receipt of adequate supplies could have an adverse effect on us. In addition, while we have processes intended to reduce volatility in component and material pricing, we may not be able to successfully manage price fluctuations, and future price fluctuations or shortages may have an adverse effect on our results of operations.

Changes in market access or healthcare reimbursement for, or public sentiment towards our customers’ products in the United States or internationally, or other changes in applicable policies regarding the healthcare industry, including possible changes to the Affordable Care Act (the “ACA”) in the United States, could adversely affect our results of operations and financial condition by affecting demand for our offerings.

The healthcare industry has changed significantly over time, and we expect the industry to continue to evolve. Some of these changes, such as ongoing healthcare reform, adverse changes in governmental or private funding of healthcare products and services, legislation or regulations governing patient access to care and privacy, or the delivery, pricing, or reimbursement approval of pharmaceuticals and healthcare services or mandated benefits, may cause healthcare industry participants to change the amount of our offerings that they purchase or the price they are willing to pay for these offerings. In particular, there is significant uncertainty about the likelihood of changes to the ACA and healthcare laws in general in the United States, including future legislation that may affect or put a cap on future pricing of pharmaceutical and biotechnology products. While we are unable to predict the likelihood of changes to the ACA, any substantial revision of this or other healthcare legislation could have a material adverse effect on the demand for our customers’ products, which in turn could have a negative impact on our results of operations, financial condition, or business. Changes in the healthcare industry’s pricing, selling, inventory, distribution, or supply policies or practices, or in public or government sentiment for the industry as a whole, could also significantly reduce our revenue and results of operations. In particular, volatility in individual product demand may result from changes in public or private payer reimbursement or coverage.

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

As a company with significant operations outside of the United States, certain revenues, costs, assets, and liabilities, including our euro-denominated 4.75% Senior Notes due 2024 and a portion of our senior secured credit facilities, are denominated in currencies other than the U.S. dollar, which is the currency that we use to report our financial results. As a result, changes in the exchange rates of these or any other applicable currencies to the U.S. dollar will affect our revenues, earnings and cash flows. There has been, and may continue to be, volatility in currency exchange rates affecting the various currencies in which we do business, including as a result of the U.K.’s referendum to exit from the E.U. Such volatility and other changes in exchange rates could result in unrealized and realized exchange losses, despite any effort we may undertake to manage or mitigate our exposure to fluctuations in the values of various currencies.

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

We are a large multinational corporation with operations in the United States and several international jurisdictions, including Canada, South America, Europe, and the Asia-Pacific region. As such, we are subject to the tax laws and regulations

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of the U.S. federal, state, and local governments and of many jurisdictions outside of the U.S. From time to time, various legislative initiatives may be proposed that could adversely affect our tax positions, and existing legislation, such as the 2017 U.S. Tax Cuts and Jobs Act (the “2017 Tax Act”), may be subject to additional regulatory changes or new interpretations. There can be no assurance that our effective tax rate or tax payments will not be adversely affected by these initiatives. In addition, U.S. federal, state, local, and foreign tax laws and regulations are extremely complex and subject to varying interpretations. There can be no assurance that relevant tax authorities will not challenge our tax positions or that we would succeed in defending against any such challenge.

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

We have in the past sustained net operating losses that we may use to reduce future taxable income. Utilization of our net operating loss carryforwards may be subject to a substantial limitation under Section 382 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), and comparable provisions of state, local, and foreign tax laws due to changes in ownership of our company that may occur in the future. Under Section 382 of the Code and comparable provisions of state, local, and foreign tax laws, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change by value in its equity ownership over a three-year period, the corporation’s ability to carry forward its pre-change net operating losses to reduce its post-change income may be limited. We may experience ownership changes in the future as a result of future changes in our stock ownership. As a result, our ability to use our pre-change net operating loss carryforwards to reduce U.S. federal and state taxable income we produce in the future years may be subject to limitations, which could result in increased future tax liability to us.

Changes to the estimated future profitability of the business may require that we establish an additional valuation allowance against all or some portion of our net U.S. deferred tax assets.

We have deferred tax assets for net operating loss carryforwards and other temporary differences. We currently do not maintain a valuation allowance for a portion of our U.S. net deferred tax assets. We may experience, in the future, a decline in U.S. federal taxable income, resulting from a decline in profitability of our U.S. operations, an increased level of debt in the U.S., or other factors. In assessing our ability to realize our U.S. deferred tax assets, we may conclude that it is more likely than not that some portion or all of our U.S. deferred tax assets will not be realized. As a result, we may be required to record an additional valuation allowance against our U.S. deferred tax assets, which could adversely affect our effective income tax rate and therefore our financial results.

We depend on key personnel.

We depend on our executive officers and other key personnel, including our technical personnel, to operate and grow our business and to develop new and enhanced offerings and technologies. The loss of any of these officers or other key personnel or a failure to attract and retain suitably skilled technical personnel could adversely affect our operations.

In addition to our executive officers, we rely on approximately 150 senior employees to lead and direct our business. Our senior leadership team (“SLT”) is comprised of our and our subsidiaries’ executive officers and other vice presidents and directors who hold critical positions and possess specialized talents and capabilities that give us a competitive advantage in the market. The members of the SLT hold positions such as facility general manager, vice president/general manager of business unit commercial development, vice president of quality and regulatory activities, and vice president-finance.

With respect to our technical talent, we have more than 2,400 scientists and technicians whose areas of expertise and specialization cover subjects such as advanced delivery, drug and biologics formulation and manufacturing. Many of our sites and laboratories are located in competitive labor markets like those in which our Morrisville, North Carolina; Brussels, Belgium; Woodstock, Illinois; Madison, Wisconsin; Emeryville; California, Bloomington, Indiana; Nottingham, U.K.; and Schorndorf, Germany facilities are located. Global and regional competitors and, in some cases, customers and suppliers compete for the same skills and talent as we do.

We use advanced information and communication systems to run our operations, compile and analyze financial and operational data, and communicate among our employees, customers, and counter-parties, and the risks generally associated with information and communications systems could adversely affect our results of operations. We are continuously working to install new, and upgrade existing, systems and provide employee awareness training around phishing, malware, and other cyber security risks to enhance the protections available to us, but such protections may be inadequate to address malicious attacks or inadvertent compromises of data security.

We rely on information systems in our business to obtain, process, analyze and manage data to:

•facilitate the manufacture and distribution of thousands of inventory items in, to and from our facilities;

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•receive, process and ship orders on a timely basis;

•manage the accurate billing and collections for more than one thousand customers;

•create, compile, and retain testing and other product-, manufacturing-, or facility-related data necessary for meeting our and our customers’ regulatory obligations.

•manage the accurate accounting and payment for thousands of vendors;

•schedule and operate our global network of development, manufacturing, and packaging facilities;

•document various aspects of our activities, including the agreements we make with suppliers and customers;

•compile financial and other operational data into reports necessary to manage our business and comply with various regulatory or contractual obligations, including obligations under our bank loans and other indebtedness, the federal securities laws, the Code, and other applicable state, local, and ex-U.S. tax laws; and

•communicate among our nearly 12,300 employees spread across thirty-nine facilities over five continents.

We deploy defenses against cyber-attack and work to secure the integrity of our data systems using techniques, hardware, and software typical of companies of our size and scope. Despite our security measures, however, our information technology and infrastructure may be vulnerable to attacks by increasingly sophisticated intruders or others who try to cause harm to or interfere with our normal use of our systems. They are also susceptible to breach due to employee error, malfeasance, or other disruptions. Our results of operations could be adversely affected if these systems are interrupted or damaged or fail for any extended period.

We engage from time to time in acquisitions and other transactions that may complement or expand our business or in divestments of non-strategic businesses or assets. We may not be able to complete such transactions, and such transactions, if executed, pose significant risks, including risks relating to our ability to successfully and efficiently integrate acquisitions or execute on dispositions and realize anticipated benefits therefrom. The failure to execute or realize the full benefits from any such transaction could have a negative effect on our operations.

Our future success may depend in part on opportunities to buy or otherwise acquire rights to other businesses or technologies, enter into joint ventures or otherwise enter into strategic arrangements with business partners that could complement, enhance, or expand our current business or offerings and services or that might otherwise offer us growth opportunities, or divest assets or an ongoing business. We may face competition from other companies in pursuing acquisitions and similar transactions in the pharmaceutical and biotechnology industry. Our ability to complete transactions may also be limited by applicable antitrust and trade laws and regulations in the U.S. and other jurisdictions in which we or the operations or assets we seek to acquire carry on business. To the extent that we are successful in making acquisitions, we expend substantial amounts of cash, incur debt, or assume loss-making divisions as consideration. We or the purchaser of a divested asset or business may not be able to complete a desired transaction for any number of reasons, including a failure to secure financing.

Any acquisition that we are able to identify and complete may involve a number of risks, including, but not limited to, the diversion of management’s attention to integrate the acquired businesses or joint ventures, the possible adverse effects on our operating results during the integration process, the potential loss of customers or employees in connection with the acquisition, delays or reduction in realizing expected synergies, unexpected liabilities and our potential inability to achieve our intended objectives for the transaction. In addition, we may be unable to maintain uniform standards, controls, procedures and policies, which may lead to operational inefficiencies.

To the extent that we are not successful in completing desired divestitures, as such may be determined by future strategic plans and business performance, we may have to expend substantial amounts of cash, incur debt, or continue to absorb the costs of loss-making or under-performing divisions. Any divestiture, whether we are able to complete it or not, may involve a number of risks, including diversion of management’s attention, a negative impact on our customer relationships, costs associated with maintaining the business of the targeted divestiture during the disposition process, and the costs of closing and disposing of the affected business or transferring remaining portions of the operations of the business to other facilities.

Gene therapy is a relatively new and still-developing mode of treatment, dependent on cutting-edge technologies, and our customers’ gene therapies may be perceived as unsafe or may result in unforeseen adverse events. Negative public opinion, continuing research, or increased regulatory scrutiny of gene therapy and its financial cost may damage public perception of the safety, utility, or efficacy of gene therapies and harm our customers’ ability to conduct their business or obtain regulatory approvals for their gene therapy products, and thereby have an indirect, adverse effect on our gene therapy offerings.

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Gene therapy remains a relatively new means for treating disease and other medical conditions, with only a few gene therapies approved to date in the U.S., the E.U., or elsewhere. Public perception may be influenced by claims that gene therapy is unsafe, and gene therapy may not gain the acceptance of the public or the medical community. In addition, ethical, social, legal, and cost-benefit concerns about gene therapy, genetic testing, and genetic research could result in additional regulations or limitations or even outright prohibitions on certain gene therapies or gene-therapy-related products. Various regulatory and legislative bodies have expressed an interest in, or have taken steps towards, further regulation of various biotechnologies, including gene therapies. More restrictive regulations or claims that certain gene therapies are unsafe or pose a hazard could reduce our customers’ use of our services. We can provide no assurance whether legislative changes will be enacted, regulations, policies, or guidance changed, or interpretations of existing strictures by agencies or courts changed, or what the impact of such changes, if any, may be.

We are subject to environmental, health, and safety laws and regulations, which could increase our costs and restrict our operations in the future.

Our operations are subject to a variety of environmental, health, and safety laws and regulations, including those of the EPA and the U.S. Occupational Safety & Health Administration and equivalent local, state, national, and transnational regulatory agencies in each of the jurisdictions in which we operate. These laws and regulations govern, among other things, air emissions, wastewater discharges, the use, handling, and disposal of hazardous substances and wastes, soil and groundwater contamination, and employee health and safety. Any failure by us to comply with environmental, health, and safety requirements could result in the limitation or suspension of production or subject us to monetary fines, civil or criminal sanctions, or other future liabilities in excess of our reserves. We are also subject to laws and regulations governing the destruction and disposal of raw materials and non-compliant products, the handling of regulated material included in our offerings, and the disposal of our products or their components at the end of their useful lives. In addition, compliance with environmental, health, and safety requirements could restrict our ability to expand our facilities or require us to acquire costly environmental or safety control equipment, incur other significant expenses, or modify our manufacturing processes. Our manufacturing facilities may use, in varying degrees, hazardous substances in their processes. These substances include, among others, chlorinated solvents, and in the past chlorinated solvents were used at one or more of our facilities, including a number we no longer own or operate. As at our current facilities, contamination at such formerly owned or operated properties can result and has resulted in liability to us. In the event of the discovery of new or previously unknown contamination either at our facilities or at third-party locations, including facilities we formerly owned or operated, the issuance of additional requirements with respect to existing contamination, or the imposition of other cleanup obligations for which we are responsible, we may be required to take additional, unplanned remedial measures for which we have not recorded reserves. We are conducting monitoring and cleanup of contamination at certain facilities currently or formerly owned or operated by us, and such activities may result in unanticipated costs or management distraction.

We are subject to labor and employment laws and regulations, which could increase our costs and restrict our operations in the future.

We employ nearly 12,300 individuals worldwide, including approximately 6,800 employees in North America, 3,900 in Europe, 900 in South America, and 700 in the Asia-Pacific region. Certain employees at one of our North American facilities are represented by a labor organization, and national works councils or labor organizations are active at all of our European facilities and certain of our other facilities consistent with local labor environments and laws. Our management believes that our employee relations are satisfactory. However, further organizing activities, collective bargaining, or changes in the regulatory framework for employment may increase our employment-related costs or may result in work stoppages or other labor disruptions. Moreover, as employers are subject to various employment-related claims, such as individual and class actions relating to alleged employment discrimination and wage-hour and labor standards issues, such actions, if brought against us and successful in whole or in part, may affect our ability to compete or have a material adverse effect on our business, financial condition, and results of operations.

Certain of our pension plans are underfunded, and additional cash contributions we may make to increase the funding level will reduce the cash available for our business or to discharge our financial obligations.

Certain of our current and former employees in the U.S., the U.K., Germany, France, Japan, Belgium, Switzerland, and Australia are participants in defined benefit pension plans that we sponsor. As of June 30, 2019, the underfunded amount of our pension plans on a worldwide basis was $77.4 million, primarily related to our pension plans in the U.K. and Germany. In addition, we have an estimated obligation of $38.8 million, as of June 30, 2019, related to our withdrawal from a multiemployer pension plan in which we formerly participated. In general, the amount of future contributions to the underfunded plans will depend upon asset returns, applicable actuarial assumptions, prevailing and expected interest rates, and other factors, and, as a result, the amount we may be required to contribute in the future to fund the obligations associated with such plans may vary.

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Such cash contributions to the plans will reduce the cash available for our business, including the funds available to pursue strategic growth initiatives or the payment of interest expense on our indebtedness.

 Risks Relating to Our Indebtedness

Our substantial leverage could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or in our industry or to deploy capital to grow our business, expose us to interest-rate risk to the extent of our variable-rate debt, or prevent us from meeting our obligations under our indebtedness.

We are highly leveraged. As of June 30, 2019, we had $2,959.3 million (U.S. dollar equivalent) of total indebtedness outstanding, consisting of $1,283 million (U.S. dollar equivalent) of secured indebtedness under our senior secured credit facilities; $1,365 million of senior unsecured indebtedness, including $500.0 million aggregate principal amount of Senior Notes due 2027 (the “USD 2027 Notes”), $450.0 million aggregate principal amount of Senior Notes due 2026 (the “USD 2026 Notes” and, together with the USD 2027 Notes, the “USD Notes”), €380.0 million aggregate principal amount of Senior Notes due 2024 (the “Euro Notes” and, together with the USD Notes, the “Senior Notes”); $143.9 million representing the fair value of the remaining deferred purchase consideration related to the acquisition of Catalent Indiana, and $167.3 million of capital lease and other obligations. In addition, we had $543.4 million of unutilized capacity and $6.6 million of outstanding letters of credit under our $550.0 million secured revolving credit facility, which is part of our senior secured credit facilities (the “Revolving Credit Facility”).

Our high degree of leverage could have important consequences for us, including:

•increasing our vulnerability to adverse economic, industry, or competitive developments;

•exposing us to the risk of increased interest rates because certain of our borrowings, including borrowings under our senior secured credit facilities, are at variable rates of interest;

•exposing us to the risk of fluctuations in exchange rates because certain of our borrowings, including the Euro Notes and certain borrowings under our senior secured credit facilities, are denominated in euros;

•making it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations of any of our debt instruments, including restrictive covenants and borrowing conditions, could result in one or more events of default under the agreements governing such indebtedness;

•restricting us from making strategic acquisitions or capital investments or causing us to make non-strategic divestitures;

•limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions, and general corporate or other purposes; and

•limiting our flexibility in planning for, or reacting to, changes in our business or market conditions and placing us at a competitive disadvantage compared to our competitors who are less highly leveraged and who, therefore, may be able to take advantage of opportunities that our leverage prevents us from exploiting.

Our total interest expense, net was $110.9 million, $111.4 million, and $90.1 million for fiscal years 2019, 2018, and 2017, respectively. After taking into consideration our ratio of fixed-to-floating-rate debt, and assuming that our revolving credit facility is undrawn and LIBOR is above any applicable minimum floor, each change of 100 basis points in interest rates would result in a change of approximately $9.5 million in annual interest expense on the indebtedness under our senior secured credit facilities.

Despite our high indebtedness level, we and our subsidiaries will still be able to incur significant additional debt, which could further exacerbate the risks associated with our substantial indebtedness.

We and our subsidiaries may be able to incur substantial additional indebtedness in the future. Although the agreements governing our indebtedness contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and, under certain circumstances, the amount of indebtedness that we may incur while remaining in compliance with these restrictions could be substantial. As of June 30, 2019, we would have had approximately $543.4 million available to us for borrowing, subject to certain conditions, under our Revolving Credit Facility. If new debt is added to our subsidiaries’ existing debt levels, the risks associated with debt we currently face would increase.

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Our debt agreements contain restrictions that limit our flexibility in operating our business.

The agreements governing our outstanding indebtedness contain various covenants that limit our ability to engage in specified types of transactions. These covenants limit the ability of Operating Company and those of its subsidiaries to which these covenants apply (which Operating Company’s Amended and Restated Credit Agreement, dated as of May 20, 2014 (as amended, the “Credit Agreement”) calls “restricted subsidiaries”) to, among other things:

•incur additional indebtedness and issue certain preferred stock;

•pay certain dividends on, repurchase, or make distributions in respect of capital stock or make other restricted payments;

•pay distributions from restricted subsidiaries;

•issue or sell capital stock of restricted subsidiaries;

•guarantee certain indebtedness;

•make certain investments;

•sell or exchange certain assets;

•enter into transactions with affiliates;

•create certain liens; and

•consolidate, merge, or transfer all or substantially all of our assets and the assets of our subsidiaries on a consolidated basis.

A breach of any of these covenants could result in a default under one or more of these agreements, including as a result of cross-default provisions, and, in the case of our Revolving Credit Facility, permit the lenders to cease making loans to us.

Despite the limitations in our debt agreements, we retain the ability to take certain actions that may interfere with our ability timely to pay our substantial indebtedness.

The covenants in the Credit Agreement and the indentures governing our Senior Notes contain various exceptions to the limitations they otherwise impose on our ability and the ability of our restricted subsidiaries to take the various actions described in the prior risk factor. For example, if the notes have investment-grade ratings and we are not in default under these agreements, certain of these covenants will not apply, including the covenants restricting certain dividends and other payments, the covenants concerning the incurrence of indebtedness, and the covenants limiting guarantees of indebtedness by our restricted subsidiaries. In addition, the covenants restricting dividends and other distributions by us, purchases or redemption of certain equity securities, and prepayment, redemption, or repurchase of any subordinated indebtedness are subject to various exceptions.

We may use derivative financial instruments to reduce our exposure to market risks from changes in interest rates on our variable-rate indebtedness or changes in currency exchange rates, and any such instrument may expose us to risks related to counterparty credit worthiness or non-performance of these instruments.

We may enter into interest-rate swap agreements, currency swap agreements, or other hedging transactions in an attempt to limit our exposure to adverse changes in variable interest rates and currency exchange rates. Such instruments may result in economic losses if, for example, prevailing interest rates decline to a point lower than any applicable fixed-rate commitment. Any such swap will expose us to credit-related risks that, if realized, could adversely affect our results of operations or financial condition.

Risks Relating to Our Series A Preferred Stock.

The issuance of shares of our Series A Preferred Stock reduces the relative voting power of holders of our Common Stock, dilutes the ownership of such holders, and may adversely affect the market price of our Common Stock.

On May 16, 2019, we filed with the Delaware Secretary of State a certificate of designation of preferences, rights, and limitations (the “Certificate of Designation”) with respect to 1,000,000 shares of our preferred stock, par value $0.01 per share, designating such shares as our Series A Convertible Preferred Stock (the “Series A Preferred Stock”), and, on May 17, 2019, we completed the sale of 650,000 shares of our Series A Preferred Stock to affiliates (the “Preferred Stock Investors”) of Leonard Green & Partners, L.P. pursuant to an equity commitment and investment agreement, dated as of April 14, 2019, between us and certain of the Preferred Stock Investors (the “Investment Agreement”). As of August 22, 2019, these shares represented approximately 8.3% of our outstanding Common Stock, on an as-converted basis. Holders of Series A Preferred

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Stock are entitled to a cumulative dividend at the rate of 5.0% per annum, subject to adjustment and payable quarterly in arrears. See Note 13 to the Consolidated Financial Statements. The dividends are to be paid in cash or in-kind through an increase in the stated value of each share of Series A Preferred Stock. Such holders are also entitled to receive, on an as-converted basis, whatever holders of each share of Common Stock may be entitled to receive as a result of any declaration of a dividend on the Common Stock.

As holders of our Series A Preferred Stock are entitled to vote, on an as-converted basis, together with holders of our Common Stock on all matters submitted to a vote of the holders of our Common Stock, the issuance of the Series A Preferred Stock to the Preferred Stock Investors, and any subsequent increase in the stated value of those shares by a payment-in-kind of the dividends payable thereon, effectively reduces the relative voting power of the holders of our Common Stock.

Under various circumstances defined in the Certificate of Designation, (a) holders of shares of our Series A Preferred Stock may be entitled to convert such shares to shares of our Common Stock, (b) we may require all holders of such shares to convert such shares to shares of our Common Stock, or (c) we may redeem all such shares for, at our election, cash or shares of our Common Stock. Any conversion of shares of the Series A Preferred Stock to shares of our Common Stock or redemption of shares of Series A Preferred Stock for shares of our Common Stock would dilute the ownership interest of existing holders of our Common Stock, and any sale in the public market of shares of our Common Stock issuable upon conversion or redemption of the Series A Preferred Stock could adversely affect prevailing market prices of our Common Stock. We granted the Preferred Stock Investors customary registration rights in respect of their shares of Series A Preferred Stock and any share of our Common Stock issued upon any conversion or redemption of the Series A Preferred Stock. These registration rights would facilitate the resale of such securities into the public market, and any such resale would increase the number of shares of our Common Stock available for public trading. Sales by the Preferred Stock Investors of a substantial number of shares of our Common Stock in the public market, or the perception that such sales might occur, could have a material adverse effect on the trading price of our Common Stock.

The Preferred Stock Investors may exercise significant influence over us, including through their ability to designate, and the ability of the holders of Series A Preferred Stock to elect, a member of our board of directors.

As of August 22, 2019, the outstanding shares of our Series A Preferred Stock represented approximately 8.3% of our outstanding Common Stock, on an as-converted basis. In addition, the terms of the Series A Preferred Stock grant the Preferred Stock Investors consent rights with respect to certain actions by us, including:

•amending our organizational documents in a manner that would have an adverse effect on the Series A Preferred Stock;

•issuing securities that are senior to, or equal in priority with, the Series A Preferred Stock; and

•incurrence of indebtedness to the extent such incurrence would cause our Total Leverage Ratio for any applicable Test Period to exceed 6:00:1:00, determined on a Pro-Forma Basis (as such terms are defined in our Credit Agreement).

As a result, the Preferred Stock Investors have the ability to influence the outcome of certain matters affecting our governance and capitalization. The sponsors of the Preferred Stock Investors are in the business of making or advising on investments in companies, including businesses that may directly or indirectly compete with certain portions of our business, and they may have interests that diverge from, or even conflict with, those of our other shareholders. They may also pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us.

In addition, the terms of that certain stockholders’ agreement we entered into with the Preferred Stock Investors (the “Stockholders’ Agreement”) and of the Certificate of Designation grant the Preferred Stock Investors certain rights to designate a director to serve on our board of directors, which director is elected by a separate class vote of the holders of shares of the Series A Preferred Stock. For so long as the Preferred Stock Investors beneficially own shares of Series A Preferred Stock (or shares of our Common Stock issued upon conversion of Series A Preferred Stock) that have an aggregate value of $250.0 million, the Preferred Stock Investors have the right to designate one director for election to our board of directors. In addition, for so long as the Preferred Stock Investors beneficially own shares of Series A Preferred Stock (or shares of our Common Stock issued upon conversion of Series A Preferred Stock) that have an aggregate value of $500.0 million, the Preferred Stock Investors have the right to designate one observer to our board of directors.

The director designated by the Preferred Stock Investors is entitled to serve on committees of our board of directors, subject to applicable law and stock exchange rules. Notwithstanding the fact that all directors will be subject to fiduciary duties to us and to applicable law, the interests of the director designated by the Preferred Stock Investors may differ from the interests of our security holders as a whole or of our other directors.

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Our Series A Preferred Stock has rights, preferences, and privileges that are not held by, and are preferential to, the rights of holders of our Common Stock, which could adversely affect our liquidity and financial condition, and may result in the interests of the Preferred Stock Investors differing from holders of our Common Stock.

As holders of Series A Preferred Stock, the Preferred Stock Investors have the right under the Certificate of Designation to receive a liquidation preference entitling them to be paid out of our assets available for distribution to stockholders before any payment may be made to holders of any other class or series of capital stock, an amount equal to the greater of (a) the stated value of their preferred shares plus all accrued and unpaid dividends or (b) the amount that such holders would have been entitled to receive upon our liquidation, dissolution, and winding up if all outstanding shares of Series A Preferred Stock had been converted into shares of our Common Stock immediately prior to such liquidation, dissolution, or winding up.

In addition, regular dividends on the Series A Preferred Stock accrue and are cumulative at the rate of 5.0% per annum, subject to adjustment and payable quarterly in arrears. The dividend on each share of Series A Preferred Stock is to be paid in cash or in-kind through an increase in the stated value of such share.

We are also required to redeem all shares of Series A Preferred Stock upon certain change of control events at a value per share equal to the greater of (a) the sum of (1) the product of (A) the applicable Mandatory Redemption Multiplier (as defined in the Certificate of Designation), multiplied by (B) the stated value of each such share, plus (2) all accrued but unpaid dividends on such share, and (b) the consideration holders would have received if they had converted their shares of Series A Preferred Stock into shares of Common Stock immediately prior to the change of control event.

These dividend and share redemption obligations could adversely affect our liquidity and reduce the amount of cash available for working capital, capital expenditures, growth opportunities, acquisitions, and other general corporate purposes. Our obligations to the holders of Series A Preferred Stock could also limit our ability to obtain additional financing or increase our borrowing costs, which could have an adverse effect on our financial condition. The preferential rights could also result in divergent interests between the Preferred Stock Investors and holders of shares of our Common Stock.

Risks Relating to Ownership of Our Common Stock

Our stock price may change significantly, and a holder of shares of our Common Stock may not be able to resell such shares at or above the price such stockholder paid, or at all, and could lose all or part of such investment as a result.

The trading price of our Common Stock has been and continues to be volatile. Since shares of our Common Stock were offered for sale in our initial public offering on July 31, 2014 through June 30, 2019, our Common Stock price as quoted on the NYSE ranged from $18.92 to $54.91. The trading price of our Common Stock may be adversely affected due to a number of factors, such as those listed above in “Risks Relating to Our Business and Our Industry” and the following:

•results of operations that vary from the expectations of securities analysts or investors;

•results of operations that vary from those of our competitors;

•changes in expectations as to our future financial performance, including financial estimates and investment recommendations by securities analysts or investors;

•declines in the market prices of stocks generally, or those of pharmaceutical or other healthcare companies;

•strategic actions by us or our competitors;

•announcements by us or our competitors of significant contracts, new products, acquisitions, joint marketing relationships, joint ventures, other strategic relationships, or capital commitments;

•changes in general economic or market conditions or trends in our industry or markets;

•changes in business or regulatory conditions or regulatory actions taken with respect to our business or the business of any of our competitors or customers;

•future sales of our Common Stock or other securities;

•investor perceptions of the investment opportunity associated with our Common Stock relative to other investment alternatives;

•the public response to press releases or other public announcements by us or third parties, including our filings with or information furnished to the SEC;

•announcements relating to or developments in litigation;

•guidance, if any, that we provide to the public, any change in this guidance, or any failure to meet this guidance;

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•the availability of an active trading market for our Common Stock;

•changes in the accounting principles we use to record our or our application of these principles to our business; and

•other events or factors, including those resulting from natural disasters, hostilities, acts of terrorism, geopolitical activity, or responses to these events.

Broad market and industry fluctuations may adversely affect the market price of our Common Stock, regardless of our actual operating performance. In addition, price volatility may be greater if the public float or trading volume of our Common Stock is low, and the amount of public float on any given day can vary depending on the individual actions of our stockholders.

Following periods of market volatility, stockholders have been known to institute securities class action litigation in order to recover their resulting losses. If we become involved in securities litigation, it could have a substantial cost and divert resources and the attention of senior management from our business regardless of the outcome of such litigation.

Because we have no plan to pay cash dividends on our Common Stock for the foreseeable future, a stockholder may not receive any return on an investment in our Common Stock unless it is sold for a net price greater than that which was paid for it.

We currently intend to retain future earnings, if any, for future operations, expansion, and debt repayment and have no current plan to pay any cash dividend on our Common Stock for the foreseeable future. Our board of directors has also authorized a stock buyback program that we may use from time to time to purchase shares of our Common Stock. Any future decision to pay a dividend in respect of our Common Stock, and the amount and timing of any such dividend, will be at the sole discretion of our board of directors. Our board of directors may take into account, when deciding whether or how to pay a dividend, such factors as they may deem relevant, including general and economic conditions, our financial condition and results of operations, our available cash and current and anticipated cash needs, possible future alternative deployments of our cash, our future capital requirements, and contractual, legal, tax, and regulatory restrictions and implications on the payment of dividends by us to our holders of shares of our Common Stock or by our subsidiaries to us. In addition, our ability to pay dividends is limited by covenants in the agreements governing our outstanding indebtedness and may be limited by covenants of any future indebtedness we or our subsidiaries incur. As a result, a holder of a share of our Common Stock may not receive any return on such investment unless it is sold for a price greater than that which was paid for it, taking into account any applicable commission or other costs of acquisition or sale.

If securities analysts do not publish research or reports about our business or if they downgrade our stock or our sector, our stock price and trading volume could decline.

The trading market for our Common Stock has been affected in part by the research and reports that industry and financial analysts publish about us or our business. We do not control these analysts. Furthermore, if one or more of the analysts who cover us downgrade our stock or our industry, change their views regarding the stock of any of our competitors or other healthcare sector companies, or publish inaccurate or unfavorable research about our business, the market price of our Common Stock could decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.

Future sales, or the perception of future sales, of our Common Stock, by us or our existing stockholders could cause the market price for our Common Stock to decline.

The sale of shares of our Common Stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of our Common Stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

As of August 22, 2019, 13,926,458 shares of our Common Stock (including (a) the 13,213,408 shares of Common Stock into which outstanding shares of Series A Preferred Stock can be converted at any time after May 17, 2020 (the “As-Converted Shares”) and (b) 699,503 shares of restricted stock and performance-based restricted stock issued pursuant to the equity incentive plans we have established for our employees and non-employee directors), representing approximately 8.7% of the sum of our total outstanding shares of Common Stock and the As-Converted Shares, are “restricted securities” within the meaning of the SEC’s Rule 144 under the Securities Act (“Rule 144”) and subject to certain restrictions on resale. Restricted securities may be sold in the public market only if they are registered under the Securities Act or are sold pursuant to an exemption from registration such as Rule 144. We are obliged to use our reasonable best efforts to prepare, file, and obtain the effectiveness of a registration statement in respect of the offer and sale of the shares of Series A Preferred Stock and As-Converted Shares by the holders of the Series A Preferred Stock by September 14, 2019.

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In addition, as of August 22, 2019, 2,537,207 shares of our Common Stock may become eligible for sale upon exercise of vested options. A total of 15,600,000 shares of our Common Stock were reserved for issuance under our 2018 Omnibus Incentive Plan, subject to adjustment for retired and post-June 30, 2018 awards under the prior 2014 Omnibus Incentive Plan. As of August 22, 2019, 11,159,256 shares of our Common Stock remain available for future issuance under the 2018 Omnibus Incentive Plan. These shares can be sold in the public market upon issuance, subject to restrictions under the securities laws applicable to resales by affiliates.

The market price of shares of our Common Stock could drop significantly if the holders of these shares sell them or are perceived by the market as intending to sell them. These factors could also make it more difficult for us to raise additional funds through future offerings of shares of our equity securities that we wish to issue. In the future, we may also issue our securities in connection with investments or acquisitions. The number of shares of our Common Stock issued or issuable in connection with an investment or acquisition could constitute a material portion of then-outstanding shares of our Common Stock, subject to limitations on issuance of new shares without stockholder approval imposed by the NYSE or to restrictions set forth in the agreements governing our indebtedness, the Certificate of Designation, and the Stockholders’ Agreement. Any issuance of additional securities in connection with investments, acquisitions, or otherwise may result in dilution to the holders of shares of our Common Stock.

Anti-takeover provisions in our organizational documents could delay or prevent a change of control.

Certain provisions of our current certificate of incorporation and bylaws may have an anti-takeover effect and may delay, defer, or prevent a merger, acquisition, tender offer, takeover attempt, or other change of control transaction that may otherwise be in the best interests of our stockholders, including transactions that might otherwise result in the payment of a premium over the market price for the shares held by our stockholders.

These provisions provide for, among other things:

•until the provision completely sunsets at our annual meeting in respect of fiscal 2021, a classified board of directors with staggered three-year terms;

•the ability of our board of directors to issue one or more series of preferred stock;

•advance notice for nominations of directors by stockholders and for stockholders to include matters to be considered at our annual meetings (though our board of directors has implemented shareholder proxy access);

•certain limitations on convening special stockholder meetings;

•the removal of directors serving multi-year terms only for cause; and

•any amendment of certain provisions of our certificate of incorporation only by the affirmative vote of at least 66-2/3% of the shares of Common Stock entitled to vote generally in the election of directors.

Provisions such as those just described, to the extent that they remain in effect, could make it more difficult for a third party to acquire us, even if the third-party’s offer may be considered beneficial by many of our stockholders. As a result, our stockholders may be limited in their ability to obtain a premium for their shares.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

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ITEM 2. PROPERTIES

Our principal executive offices are located at 14 Schoolhouse Road, Somerset, New Jersey. We have thirty-nine facilities (four geographical locations operate as multiple facilities because they support more than one reporting segment), comprising manufacturing operations, development centers, and sales offices contained in approximately 6.4 million square feet of manufacturing, laboratory and related space. Our manufacturing capabilities include all required regulatory, quality assurance and in-house validation space. The following table sets forth our manufacturing and laboratory facilities as of June 30, 2019:

	Facility Sites	Country	Region	Segment	Total Square Footage	Leased/Owned
1	Eberbach	Germany	Europe	Softgel	370,580	Leased
2	St. Petersburg, FL	USA	North America	Softgel	328,073	Owned
3	Buenos Aires	Argentina	South America	Softgel	265,000	Owned
4	Braeside	Australia	Asia-Pacific	Softgel	163,100	Owned
5	Windsor	Canada	North America	Softgel	125,892	Owned
6	Sorocaba	Brazil	South America	Softgel	124,685	Owned
7	Strathroy	Canada	North America	Softgel	118,009	Owned
8	Kakegawa (1)	Japan	Asia-Pacific	Softgel	104,500	Owned
9	Aprilia	Italy	Europe	Softgel	156,020	Leased/Owned
10	Beinheim	France	Europe	Softgel	78,100	Owned
11	Indaiatuba	Brazil	South America	Softgel	53,800	Owned
12	Bloomington, IN	USA	North America	Biologics and Specialty Drug Delivery	876,561	Owned
13	Woodstock, IL	USA	North America	Biologics and Specialty Drug Delivery	352,260	Owned
14	Brussels	Belgium	Europe	Biologics and Specialty Drug Delivery	265,287	Owned
15	Morrisville, NC (1)	USA	North America	Biologics and Specialty Drug Delivery	186,406	Leased
16	Limoges	France	Europe	Biologics and Specialty Drug Delivery	179,000	Owned
17	Madison, WI	USA	North America	Biologics and Specialty Drug Delivery	157,955	Leased
18	Emeryville, CA	USA	North America	Biologics and Specialty Drug Delivery	10,323	Leased
19	Baltimore, MD	USA	North America	Biologics and Specialty Drug Delivery	96,072	Leased
20	Harmans, MD	USA	North America	Biologics and Specialty Drug Delivery	289,560	Leased
21	Kansas City, MO (1)	USA	North America	Oral Drug Delivery / Biologics and Specialty Drug Delivery	329,394	Owned
22	Somerset, NJ	USA	North America	Oral Drug Delivery / Corporate HQ	265,000	Owned
23	Swindon	United Kingdom	Europe	Oral Drug Delivery	253,314	Owned
24	Winchester, KY	USA	North America	Oral Drug Delivery	180,000	Owned
25	Schorndorf (1)	Germany	Europe	Oral Drug Delivery	166,027	Owned
26	Malvern, PA	USA	North America	Oral Drug Delivery	84,000	Leased
27	San Diego, CA	USA	North America	Oral Drug Delivery	66,244	Leased
28	Dartford	United Kingdom	Europe	Oral Drug Delivery	20,250	Leased
29	Nottingham	United Kingdom	Europe	Oral Drug Delivery	37,428	Owned
30	Paris	France	Europe	Oral Drug Delivery	150	Leased

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	Facility Sites	Country	Region	Segment	Total Square Footage	Leased/Owned
31	Philadelphia, PA	USA	North America	Clinical Supply Services	212,833	Leased/Owned
32	Bathgate	United Kingdom	Europe	Clinical Supply Services	191,000	Owned
33	Kansas City, MO (1)	USA	North America	Clinical Supply Services	80,606	Owned
34	Bolton	United Kingdom	Europe	Clinical Supply Services	60,830	Owned
35	Schorndorf (1)	Germany	Europe	Clinical Supply Services	54,693	Owned
36	Shanghai	China	Asia-Pacific	Clinical Supply Services	30,052	Leased
37	Shanghai	China	Asia-Pacific	Clinical Supply Services	27,562	Leased
38	Singapore	Singapore	Asia-Pacific	Clinical Supply Services	26,023	Leased
39	Kakegawa (1)	Japan	Asia-Pacific	Clinical Supply Services	2,800	Owned
	Total				6,389,389

(1) Represents sites where multiple segments operate.

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ITEM 3. LEGAL PROCEEDINGS

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

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

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The principal market for trading of our Common Stock is the NYSE. Our Common Stock trades under the symbol “CTLT.”

As of August 22, 2019 we had 17 holders of record and 4 holders of record of outstanding shares of our Common Stock and Preferred Stock, respectively. This number does not include beneficial owners whose shares were held in street name.

We did not declare or pay any dividend on our Common Stock in fiscal 2019 or fiscal 2018. We have no current plan to pay any dividend on our Common Stock. Any decision to declare and pay dividends in the future will be made at the sole discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restriction, and other factors that our board of directors may deem relevant. Because we are a holding company and have no direct operations, we will only be able to pay dividends from funds we receive from our subsidiaries. In addition, our ability to pay dividends will be limited by covenants in our existing indebtedness and the Certificate of Designation and may be limited by the agreements governing other indebtedness we or our subsidiaries incur in the future. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Debt Covenants.”

Recent Sales of Unregistered Equity Securities

On May 17, 2019, we issued to the Preferred Stock Investors 650,000 shares of Series A Preferred Stock for an aggregate purchase price of $650.0 million, or $1,000 per share, pursuant to the Investment Agreement. This issuance and sale were exempt from registration pursuant to Section 4(a)(2) of the Securities Act. The Preferred Stock Investors represented to us that each was an “accredited investor” as defined in Rule 501 under the Securities Act and that the shares of Series A Preferred Stock were acquired for investment purposes and not with a view to or for sale in connection with any distribution thereof, and appropriate legends have been affixed to our book-entry records in respect of all such shares of Series A Preferred Stock. Further information concerning this issuance and sale is available in the Current Report on Form 8-K that we filed on May 22, 2019.

Purchases of Equity Securities

In October 2015, our Board of Directors authorized a share repurchase program to use up to $100.0 million to repurchase outstanding shares of our Common Stock. We may repurchase shares under the program through open market purchases, privately negotiated transactions, or otherwise as permitted by applicable federal securities laws. There was no purchase by us, on our behalf, or on behalf of any affiliate of our registered equity securities during the period covered by this Annual Report.

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Performance Graph

Set forth below is a line graph comparing the cumulative total shareholder return on our Common Stock since July 31, 2014 (the date our Common Stock commenced trading on the NYSE) through June 30, 2019, based on the market price of our Common Stock and assuming reinvestment of dividends, with the cumulative total shareholder return of companies on the S&P Composite 1500 Index and S&P Composite 1500 Healthcare Index. The graph assumes that $100 was invested in our Common Stock and in each index at the market close on July 31, 2014. The stock price performance of the following graph is not necessarily indicative of future stock performance.

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ITEM 6.  SELECTED FINANCIAL DATA

The following table sets forth our selected historical financial and operating data for, or as of the end of, each of the five years ended June 30, 2019. The selected financial data as of June 30, 2019 and 2018, and for the fiscal years ended June 30, 2019, 2018, and 2017, have been derived from our audited Consolidated Financial Statements. The financial data as of June 30, 2017, 2016, and 2015 and for the fiscal years ended June 30, 2016 and 2015 have been derived from our audited consolidated financial statements not included in this Annual Report. This table should be read in conjunction with the Consolidated Financial Statements and the notes thereto.

	Year Ended June 30,
(Dollars in millions, except per share data)	2019		2018		2017		2016		2015
Statement of Operations Data:
Net revenue	$	2,518.0	$	2,463.4	$	2,075.4	$	1,848.1	$	1,830.8
Cost of sales	1,712.9		1,710.8		1,420.8		1,260.5		1,215.5
Gross margin	805.1		752.6		654.6		587.6		615.3
Selling, general, and administrative expenses	512.0		464.8		402.6		358.1		337.3
Impairment charges loss on sale of assets	5.1		8.7		9.8		2.7		4.7
Restructuring and other	14.1		10.2		8.0		9.0		13.4
Operating earnings	273.9		268.9		234.2		217.8		259.9
Interest expense, net	110.9		111.4		90.1		88.5		105.0
Other (income)/expense, net	2.7		5.5		8.5		(15.6)		42.4
Earnings from continuing operations before income taxes	160.3		152.0		135.6		144.9		112.5
Income tax expense/(benefit)	22.9		68.4		25.8		33.7		(97.7)
Earnings from continuing operations	137.4		83.6		109.8		111.2		210.2
Earnings from discontinued operations, net of tax	—		—		—		—		0.1
Net earnings	137.4		83.6		109.8		111.2		210.3
Less: Net (loss)/earnings attributable to non-controlling interest, net of tax	—		—		—		(0.3)		(1.9)
Net earnings attributable to Catalent	$	137.4	$	83.6	$	109.8	$	111.5	$	212.2
Basic earnings per share attributable to Catalent common shareholders:
Earnings from continuing operations	$	0.92	$	0.64	$	0.88	$	0.89	$	1.77
Net earnings	0.92		0.64		0.88		0.89		1.77
Diluted earnings per share attributable to Catalent common shareholders:
Earnings from continuing operations	$	0.90	$	0.63	$	0.87	$	0.89	$	1.75
Net earnings	0.90		0.63		0.87		0.89		1.75

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	Year Ended June 30,
(Dollars in millions)	2019		2018		2017		2016		2015
Balance Sheet Data (at period end):
Cash and cash equivalents	$	345.4	$	410.2	$	288.3	$	131.6	$	151.3
Goodwill	2,220.9		1,397.2		1,044.1		996.5		1,061.5
Total assets	6,184.0		4,531.1		3,454.3		3,091.1		3,138.3
Long-term debt, including current portion and other short-term borrowing	2,959.3		2,721.3		2,079.7		1,860.5		1,880.8
Total liabilities	3,895.8		3,444.4		2,730.8		2,455.2		2,498.5
Total shareholders’ equity/(deficit)	$	1,681.6	$	1,086.7	$	723.5	$	635.9	$	634.0

(Dollars in millions)	2019		2018		2017		2016		2015
Other Financial Data:
Capital expenditures	$	218.1	$	176.5	$	139.8	$	139.6	$	141.0
Net cash provided by/(used in) continuing operations:
Operating activities	247.7		374.5		299.5		155.3		171.7
Investing activities	(1,510.4)		(919.3)		(309.0)		(137.7)		(271.8)
Financing activities	1,201.4		669.1		161.3		(30.8)		196.5
Net cash provided by/(used in) discontinued operations:			—		—		—		0.1
Effect of foreign currency on cash	$	(3.5)	$	(2.4)	$	4.9	$	(6.5)	$	(19.6)

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Item 6. Selected Financial Data” and our Consolidated Financial Statements and related notes, which appear elsewhere in this Annual Report. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. You should carefully read “Special Note Regarding Forward-Looking Statements” in this Annual Report. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report, particularly in “Item 1A. Risk Factors.”

Overview

We are the leading global provider of advanced delivery technologies and development solutions for drugs, biologics, and consumer health products. Our oral, injectable, and respiratory delivery technologies provide delivery solutions across the full diversity of the pharmaceutical industry, including small molecules, protein and gene therapy biologics, and consumer health products. Through our extensive capabilities and deep expertise in product development, we help our customers take products to market faster, including nearly half of new drug products approved by the FDA in the last decade. Our advanced delivery technology platforms, which include those in our Softgel Technologies, Biologics and Specialty Drug Delivery, and Oral Drug Delivery segments, our proven formulation, manufacturing, and regulatory expertise, and our broad and deep intellectual property enable our customers to develop more products and better treatments for patients and consumers. Across both development and delivery, our commitment to reliably supply our customers’ and their patients’ needs is the foundation for the value we provide; annually, we produce approximately 73 billion doses for nearly 7,000 customer products, or approximately 1 in every 20 doses of such products taken each year by patients and consumers around the world. We believe that, through our investments in growth-enabling capacity and capabilities, our ongoing focus on operational and quality excellence, the sales of existing customer products, the introduction of new customer products, our innovation activities and patents, and our entry into new markets, we will continue to benefit from attractive and differentiated margins and realize the growth potential from these areas.

Our Reportable Segments

We currently operate in four operating segments, which also constitute our four reporting segments: Softgel Technologies, Biologics and Specialty Drug Delivery, Oral Drug Delivery, and Clinical Supply Services.

Each of our segments reports through a separate management team. Our offerings and services are summarized below by reporting segment.

Softgel Technologies

Through our Softgel Technologies segment, we provide formulation, development, and manufacturing services for soft capsules, or “softgels,” which our predecessor first commercialized in the 1930s and which we have continually enhanced. We are the market leader in overall softgel development and manufacturing and hold the leading market position in the prescription arena. Our principal softgel technologies include traditional softgel capsules, in which the shell is made of animal-derived gelatin, and Vegicaps and OptiShell capsules, in which the shell is made from plant-derived materials. Softgel capsules are used in a broad range of customer products, including prescription drugs, over-the-counter medications, dietary supplements, unit-dose cosmetics, and animal health medicinal preparations. Softgel capsules encapsulate liquid, paste, or oil-based active compounds in solution or suspension within an outer shell. In the manufacturing process, the capsules are formed, filled, and sealed simultaneously. We typically perform encapsulation for a product within one of our softgel facilities, with active ingredients provided by customers or sourced directly by us. Softgels have historically been used to solve formulation challenges or technical issues for a specific drug, to help improve the clinical performance of compounds, to provide important market differentiation, particularly for over-the-counter medications, and to provide safe handling of hormonal, potent, and cytotoxic drugs. We also participate in the softgel vitamin, mineral, and supplement business in selected regions around the world. With the 2001 introduction of our plant-derived softgel shell, Vegicaps capsules, consumer health customers have been able to extend the softgel dose form to a broader range of active ingredients and serve patient/consumer populations that were previously inaccessible due to religious, dietary, or cultural preferences. In recent years, we have extended this platform to pharmaceutical products via our OptiShell capsule offering. Our Vegicaps and OptiShell capsules are protected by patents in most major global markets. Physician and patient studies we have conducted have demonstrated a preference for softgels versus traditional tablet and hard capsule dose forms in terms of ease of swallowing, real or perceived speed of delivery, ability to remove or eliminate unpleasant odor or taste, and, for physicians, perceived improved patient adherence with dosing regimens. Representative customers of Softgel Technologies include Pfizer, Novartis, Bayer, GlaxoSmithKline, Teva, Johnson & Johnson, Procter & Gamble, and Allergan.

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As of June 30, 2019, we had eleven Softgel Technologies manufacturing facilities in nine countries, including three in North America, three in Europe, three in South America, and two in the Asia-Pacific region, as well as additional sales offices. Our Softgel Technologies segment represents 34% of our aggregate revenue for fiscal 2019 before inter-segment eliminations.

Biologics and Specialty Drug Delivery

Our Biologics and Specialty Drug Delivery segment provides drug substance development and manufacturing, drug product clinical and commercial manufacturing, integrated clinical and commercial supply solutions for protein and gene therapy biologics, and specialty small molecules administered via injection, inhalation, and ophthalmic routes, using both traditional and advanced delivery technologies. The business has extensive expertise in development, scale up, and commercial manufacturing. Representative customers of Biologics and Specialty Drug Delivery include Eli Lilly, Teva, Mylan, Roche, Novartis, Sarepta, and Genentech, along with multiple innovative small and mid-tier pharmaceutical and biologics customers.

Our growing biologics offering includes cell-line development based on our advanced and patented GPEx technology, which is used to develop stable, high-yielding mammalian cell lines for both innovator and biosimilar biologic compounds. GPEx technology can provide rapid cell-line development, high biologics production yields, flexibility, and versatility. Our development and manufacturing facility in Madison, Wisconsin has the capability and capacity to produce cGMP quality biologics drug substance from 250L to 4000L scale using single-use technology to provide maximum efficiency and flexibility. Our fiscal 2018 acquisition of Catalent Indiana added a biologics-focused contract development and manufacturing organization with capabilities across biologics development, clinical, and commercial drug substance manufacturing, formulation, finished-dose drug product manufacturing, and packaging. In fiscal 2019, we continued to expand production capacity in both Madison and Bloomington, Indiana, starting construction on fourth and fifth drug substance suites in Madison and new drug product manufacturing and packaging capacity in Bloomington. Our SMARTag next-generation antibody-drug conjugate technology enables development of antibody-drug conjugates and other protein conjugates with improved efficacy, safety, and manufacturability. In fiscal 2019, we launched our OneBio Suite, which provides customers the potential to seamlessly integrate drug substance, drug product, and clinical supply management for products in development, and for integrated commercial supply across both drug substance and product. We provide the broadest range of technologies and services supporting the development and launch of new biologic entities, biosimilars, and biobetters to bring a product from gene to commercialization, faster.

On May 17, 2019, we acquired Paragon, which is focused on the development and manufacture of cutting-edge biopharmaceuticals, including viral vectors used in gene therapies. For over 25 years, Paragon has partnered with some of the world’s leading biotech and pharma companies to develop and manufacture products based on transformative technologies, including gene therapies based on AAV and other modalities, next-generation vaccines, oncology immunotherapies (oncolytic viruses and CAR-T cell therapies), therapeutic proteins, and other complex biologics. Paragon brings specialized expertise in AAV vectors, the most commonly used delivery system for gene therapy, as well as capabilities in plasmids and lentivirus vectors manufactured using cGMP. By adding Paragon’s specialized expertise in AAV vectors, we believe we are positioned to capitalize on strong industry tailwinds in the market for gene therapies. Paragon also brings to Catalent its differentiated scientific, development, and manufacturing capabilities, which we believe will fundamentally enhance our biologics business and end-to-end integrated biopharmaceutical solutions for customers. In June 2019, Paragon agreed to acquire two additional laboratory and manufacturing facilities located in southern Maryland from Novavax, Inc. The Novavax transaction closed in late July 2019.

Our range of injectable manufacturing offerings includes filling small molecules or biologics into pre-filled syringes, cartridges, and vials, with flexibility to accommodate other formats within our existing network, increasingly focused on complex pharmaceuticals and biologics. With our range of technologies, we are able to meet a wide range of specifications, timelines, and budgets. We believe that the complexity of the manufacturing process, the importance of experience and know-how, regulatory compliance, and high start-up capital requirements provide us with a substantial competitive advantage in the market. For example, blow-fill-seal is an advanced aseptic processing technology, which uses a continuous process to form, fill with drug or biologic, and seal a plastic container in a sterile environment. Blow-fill-seal units are currently used for a variety of pharmaceuticals in liquid form, such as respiratory, ophthalmic, and otic products. Our sterile blow-fill-seal manufacturing has significant capacity and flexibility in manufacturing configurations. This business provides flexible and scalable solutions for unit-dose delivery of complex formulations such as suspensions and emulsions. Further, the business provides engineering and manufacturing solutions related to complex containers. Our regulatory expertise can lead to decreased time to commercialization, and our dedicated development production lines support feasibility, stability, and clinical runs. We plan to continue to expand our product line in existing and new markets, and in higher margin specialty products with additional respiratory, ophthalmic, injectable, and nasal applications.

We also offer bioanalytical development and testing services for large molecules, including cGMP release and stability testing. Our respiratory product capabilities include development and manufacturing services for inhaled products for delivery

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via metered dose inhalers, dry powder inhalers, and intra-nasal sprays. Across multiple complex dosage forms, the segment provides drug and biologic solutions from early-stage development and clinical support all the way through to scale up and commercialization. 

As of June 30, 2019, we had ten BSDD manufacturing facilities, including eight in North America and two in Europe. Our BSDD segment represents 29% of our aggregate revenue for fiscal 2019 before inter-segment eliminations.

Oral Drug Delivery

Our Oral Drug Delivery segment provides various advanced formulation development and manufacturing technologies, and related integrated solutions including: clinical development and commercial manufacturing of a broad range of oral dose forms, including our proprietary fast-dissolve Zydis tablets and both conventional immediate and controlled-release tablets, capsules, and sachet products. Representative customers of Oral Drug Delivery include Pfizer, Johnson & Johnson, Bayer, Novartis, and Perrigo.

We provide comprehensive pre-formulation, development, and cGMP manufacturing at both clinical and commercial scales for traditional and advanced complex oral solid-dose formats, including coated and uncoated tablets, pellet/bead/powder-filled two-piece hard capsules, granulated powders, and other forms of immediate and modified release branded prescription, generic, and consumer products. We have substantial experience developing and scaling up products requiring accelerated development timelines, solubility enhancement, specialized handling (e.g., potent or DEA-regulated materials), complex technology transfers, and specialized manufacturing processes. We also provide micronization and particle engineering services, which may enhance a drug’s manufacturability or clinical performance. We offer comprehensive analytical testing and scientific services and stability testing for small molecules, both to support integrated development programs and on a fee-for-service basis. We provide global regulatory and support services for our customers’ clinical strategies during all stages of development. In recent years, we have expanded our network of development sites focused on earlier phase compounds, to engage with more customer molecules, earlier, with the intent to provide later stage manufacturing and supporting services as those molecules progress towards commercial approval and beyond. Demand for our offerings is driven by the need for scientific expertise and depth and breadth of services offered, as well as by the reliability of our supply, including quality, execution, and performance.

We launched our orally dissolving tablet business in 1986 with the introduction of Zydis tablets, a unique proprietary freeze-dried tablet that typically dissolves in the mouth, without water, in less than three seconds. Most often used for drugs and patient groups that can benefit from rapid oral disintegration, we can adapt the Zydis technology to a wide range of products and indications, including treatments for a variety of central nervous system-related conditions such as migraines, Parkinson’s disease, and schizophrenia, and consumer healthcare products targeting indications such as pain and allergy relief. We continue to develop Zydis tablets in different formats with our customers as we extend the application of the technology to new therapeutic categories, including immunotherapy, vaccines, and biologic molecule delivery.

As of June 30, 2019, we had nine ODD manufacturing facilities, including four in North America and five in Europe. Our ODD segment represents 24% of our aggregate revenue for fiscal 2019 before inter-segment eliminations.

Clinical Supply Services

Our Clinical Supply Services segment provides manufacturing, packaging, storage, distribution, project management, and inventory management for drugs and biologics in clinical trials. We offer customers flexible solutions for clinical supplies production and provide distribution and inventory management support for both simple and complex clinical trials. This includes over-encapsulation where needed; supplying placebos, comparator drug procurement, and clinical packages and kits for physicians and patients; inventory management; investigator kit ordering and fulfillment; and return supply reconciliation and reporting. We support trials in all regions of the world through our facilities and distribution network. In fiscal 2018, we completed the second phase of our expansion program in our Kansas City, Missouri facility. Further, in fiscal 2016 and again in fiscal 2018, we expanded our Singapore facility by building additional flexible cGMP space, and we introduced clinical supply services at our existing 100,000 square foot facility in Japan, expanding our Asia-Pacific capabilities. Additionally, in fiscal 2013, we established our first clinical supply services facility in China as a joint venture, assumed full ownership in fiscal 2015, and opened a second facility in China in fiscal 2019. We are the leading provider of integrated development solutions and one of the leading providers of clinical trial supplies. Representative customers of Clinical Supply Services include Merck KGaA, IQVIA, Eli Lilly, AbbVie, and Incyte Corporation.

As of June 30, 2019, we had nine Clinical Supply Service facilities, including two in North America, three in Europe, and four in the Asia-Pacific region. Our Clinical Supply Services segment represents 13% of our aggregate revenue for fiscal 2019 before inter-segment eliminations.

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Critical Accounting Policies and Recent Accounting Pronouncements

The following disclosure supplements the descriptions of our accounting policies contained in Note 1 to our Consolidated Financial Statements in regard to significant areas of judgment. Management made certain estimates and assumptions during the preparation of the Consolidated Financial Statements in accordance with generally accepted accounting principles. These estimates and assumptions affect the reported amount of assets and liabilities and disclosures of contingent assets and liabilities in the Consolidated Financial Statements. These estimates also affect the reported amount of net earnings during the reporting periods. Actual results could differ from those estimates. Because of the size of the financial statement elements to which they relate, some of our accounting policies and estimates have a more significant impact on the Consolidated Financial Statements than others.

Management has discussed the development and selection of these critical accounting policies and estimates with the audit committee of our board of directors. A discussion of some of our more significant accounting policies and estimates follows.

Revenue

We sell products and services directly to our pharmaceutical, biotechnology, and consumer health customers. The majority of our business is conducted through manufacturing and commercial product supply, development services, and clinical supply services. On July 1, 2018, we adopted Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), codified as Accounting Standards Codification (“ASC”) 606, using the modified retrospective method of adoption. Prior period amounts have not been restated and continue to be reported in accordance with our historical accounting policies. For discussion on the impact of adopting ASC 606 on our accounting, refer to Note 1 to our Consolidated Financial Statements.

Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require judgment. For our manufacturing and commercial product supply revenue, the contract generally includes the terms of the manufacturing services and related product quality assurance procedures to comply with regulatory requirements. Due to the regulated nature of our business, these contract terms are highly interdependent and, therefore, are considered to be a single combined performance obligation. For our development services and clinical supply services revenue, our performance obligations vary per contract and are accounted for as separate performance obligations. If a contract contains a single performance obligation, we allocate the entire transaction price to the single performance obligation. If a contract contains multiple performance obligations, we allocate consideration to each performance obligation using the “relative standalone selling price” as defined under ASC 606. Generally, we utilize observable standalone selling prices in our allocations of consideration. If observable standalone selling prices are not available, we estimate the applicable standalone selling price using an adjusted market assessment approach, representing the amount that we believe the market is willing to pay for the applicable service. Revenue is recognized over time using an appropriate method of measuring progress towards fulfilling our performance obligation for the respective arrangement. Determining the measure of progress that consistently depicts our satisfaction of performance obligations within each of our revenue streams across similar arrangements requires judgment.

Licensing revenue

We occasionally enter into arrangements with customers that include licensing of functional intellectual property, including drug formulae, or other intangible property (“out-licensing”). We do not have any material license arrangement that contains more than one performance obligation. Our out-licensing generally entitles us to nonrefundable, up-front fees or royalties. Nonrefundable, up-front license fees are recognized as revenue when the licensed property is made available for the customer’s use and benefit, provided there is no unsatisfied performance obligation included in the arrangement. Royalty payments from such arrangements are recognized when subsequent sale or usage of an item subject to the royalty occurs and the performance obligation to which royalty relates is satisfied.

Long-lived and Other Definite-Lived Intangible Assets

We allocate the cost of an acquired company to the tangible and identifiable intangible assets and liabilities acquired, with the remaining amount being recorded as goodwill. Intangible assets primarily include customer relationships and trademarks. Valuing the identifiable intangible assets requires judgment. We applied a discounted cash flow model in measuring the customer relationships in relation to the Paragon acquisition, which included certain assumptions such as revenue growth, forecasted revenue and related margin, and customer contract attrition and renewal rates. Intangibles assets are generally amortized on a straight-line basis, reflecting the pattern in which the economic benefits are consumed, and are amortized over their estimated useful lives.

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We assess the impairment of identifiable intangibles if events or changes in circumstances indicate that the carrying values of the assets may not be recoverable. Factors that we consider important that could trigger an impairment review include the following:

•significant under-performance relative to historical or projected future operating results;

•significant changes in the manner of use of the acquired assets or the strategy of the overall business;

•significant negative industry or economic trends; and

•recognition of goodwill impairment charges.

If we determine that the carrying value of intangibles and/or long-lived assets may not be recoverable based on the existence of one or more of the above indicators of impairment, we measure recoverability of assets 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, we measure any impairment based on the amount in which the net carrying amounts of the assets exceed the fair values of the assets. See Notes 5 and 18 to the Consolidated Financial Statements.

Goodwill and Indefinite-Lived Intangible Assets

We account for purchased goodwill and intangible assets with indefinite lives in accordance with ASC 350, Intangible and Other Assets. Under ASC 350, goodwill and intangible assets with indefinite lives are not amortized, but instead are tested for impairment at least annually. We perform an impairment evaluation of goodwill annually during the fourth quarter of our fiscal year or when circumstances otherwise indicate an evaluation should be performed. The evaluation may begin with a qualitative assessment for each reporting unit to determine whether it is more-likely-than-not that the fair value of the reporting unit is less than its carrying value. If the qualitative assessment does not generate a positive response, or if no qualitative assessment is performed, a quantitative assessment, based upon discounted cash flows, is performed and requires management to estimate future cash flows, growth rates, and economic and market conditions. In fiscal 2017 and 2018, we proceeded immediately to the quantitative assessment, but in fiscal 2019 we began with the qualitative assessment, which was sufficient to find no impairment. The 2018 and 2017 evaluations also resulted in no impairment charge.

See Note 4 to the Consolidated Financial Statements.

Series A Preferred Stock Dividend Adjustment Feature

The terms of the Series A Preferred Stock include a dividend adjustment feature to provide the holder with certain protections against a decline in the trading price of our Common Stock. Because this adjustment feature depends in part on the value of external metrics at future dates, over which we have no control, this feature is accounted for separately from the Series A Preferred Stock. The derivative instrument is measured at fair value, as of the valuation date, using a combination of (i) a Monte Carlo simulation and (ii) a binomial lattice model, which incorporates the terms and conditions of the Series A Preferred Stock and is based on changes in the market prices of shares of our Common Stock over successive periods. Key assumptions used in both models include the current market price of one share of the Common Stock and its historical and expected volatility, risk-neutral interest rates, and the remaining term of the adjustment feature. These assumptions require significant management judgment and are considered Level 3 inputs. We recognize the derivative as either an asset or liability in the consolidated balance sheets at its fair value and revalue it as of the end of each quarterly reporting period; changes in the fair value are recognized in the consolidated statements of operations.

Income Taxes

In accordance with ASC 740 Income Taxes, we account for income taxes using the asset and liability method. The asset and liability method requires recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between tax bases and financial reporting bases of our assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates in the respective jurisdictions in which we operate. Deferred taxes are not provided on the undistributed earnings of subsidiaries outside of the United States when it is expected that these earnings will be permanently reinvested. In fiscal 2018, we recorded a provision for U.S. income taxes and foreign withholding taxes in relation to expected repatriations as a result of the 2017 Tax Act, but we have not made any provision for U.S. income taxes on the remaining undistributed earnings of foreign subsidiaries as those earnings are considered permanently reinvested in the operations of those foreign subsidiaries in fiscal 2019.

The 2017 Tax Act imposed taxes with respect to so-called “global intangible low-taxed income” (“GILTI”) earned by certain foreign subsidiaries of a U.S. company. In accordance with ASC 740, we made an accounting policy election to treat taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred.

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We had valuation allowances of $76.3 million and $86.2 million as of June 30, 2019 and 2018, respectively, against our deferred tax assets. We considered all available evidence, both positive and negative, in assessing the need for a valuation allowance for deferred tax assets. We evaluated four possible sources of taxable income when assessing the realization of deferred tax assets: 

•carrybacks of existing net operating losses (if permitted by tax law);

•future reversals of existing taxable temporary differences; 

•tax planning strategies; and

•future taxable income exclusive of reversing temporary differences and carryforwards.

We considered the need to maintain a valuation allowance on deferred tax assets based on management’s assessment of whether it is more likely than not that we would realize those deferred tax assets based on future reversals of existing taxable temporary differences and the ability to generate sufficient taxable income within the carryforward period available under the applicable tax law. During the year ended June 30, 2019 we released $12.1 million of the valuation allowance related to certain U.S. combined states. Of the $12.1 million released, $0.5 million relates to state net operating loss (“NOLs”) carryforwards, which expire over a number of years beginning in 2028, and $11.6 million relates to other state deferred tax temporary differences that will reduce income for state tax purposes in the future.

While the valuation allowance related to certain U.S. combined states was partially released in the year ended June 30, 2019, a state valuation allowance of $35.1 million is maintained on state NOLs and deductible temporary differences for the separate and remaining combined states. The remaining state valuation allowance is due to our history of tax losses and anticipated loss utilization rates in separate filing status states as well as the difference in the rules related to allocated and apportioned income for separate filing status states versus combined filing status states.

Unrecognized tax benefits are generated when there are differences between tax positions taken in a tax return and amounts recognized in the Consolidated Financial Statements. Tax benefits are recognized in the Consolidated Financial Statements when it is more likely than not that a tax position will be sustained upon examination. To the extent we prevail in matters for which liabilities have been established or are required to pay amounts in excess of our liabilities, our effective income tax rate in a given period could be materially affected. An unfavorable income tax settlement may require the use of cash and result in an increase in our effective income tax rate in the year it is resolved. A favorable income tax settlement would be recognized as a reduction in the effective income tax rate in the year of resolution. At June 30, 2019 and 2018, we recorded unrecognized tax benefits and related interest and penalties of $5.2 million and $4.1 million, respectively. We recognized no material adjustment in the liability for unrecognized income tax benefits during fiscal 2019.

Our accounting for income taxes involves the application of complex tax regulations in the U.S. and in each of the non-US jurisdictions in which we operate. The determination of income subject to taxation in each tax paying jurisdiction requires us to review reported book income and the events occurring during the year in each jurisdiction in which we operate. In addition, the application of deferred tax assets and liabilities will have an effect on the tax expense in each jurisdiction. For those entities engaging in transactions with affiliates, we apply transfer pricing guidelines relevant in many jurisdictions in which we operate and make certain informed and reasonable assumptions and estimates about the relative value of contributions by affiliates when assessing the allocation of income and deductions between consolidated entities in different jurisdictions. Additionally, for taxes incurred outside the U.S., we are entitled, under the Internal Revenue Code as amended by the 2017 Tax Act and regulations promulgated thereunder, to claim U.S. foreign tax credits to offset certain tax liabilities arising in the U.S. Certain of the assumptions and allocations used in the determination of the key inputs underlying the foreign tax credits, particularly as they relate to the calculation of U.S. income taxes owed on GILTI, are based on recently issued regulatory guidance that does not necessarily address all elements needed to prepare the calculations and is therefore subject to considerable judgment.

Factors Affecting our Performance

Fluctuations in Operating Results

Our annual financial reporting periods end on June 30. Our revenue and net earnings are generally higher in the third and fourth quarters of each fiscal year, with our first fiscal quarter typically generating our lowest revenue of any quarter, and our last fiscal quarter typically generating our highest revenue. These fluctuations are primarily the result of the timing of our, and our customers’, annual operational maintenance periods at locations in continental Europe and the U.K., the seasonality associated with pharmaceutical and biotechnology budgetary spending decisions, clinical trial and research and development schedules, the timing of new product launches and length of time needed to obtain full market penetration, and, to a lesser extent, the time of the year some of our customers’ products are in higher demand.

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Acquisition and Related Integration Efforts

Our growth and profitability are affected by the acquisitions we complete and the speed at which we integrate those acquisitions into our existing operating platforms. In fiscal 2018, we acquired Catalent Indiana in order to enhance our biologics capabilities, and it has been integrated into our Biologics and Specialty Drug Delivery segment. In fiscal 2019, we completed the acquisitions of Juniper, based in the U.K., in August 2018 and Paragon, based in the U.S., in May 2019, which have been integrated into our Oral Drug Delivery and Biologics and Specialty Drug Delivery segments, respectively.

Foreign Exchange Rates

Our operating network is global, and, as a result, we have substantial revenues and operating expenses that are denominated in currencies other than the U.S. dollar, the currency in which we report our financial results, and are therefore influenced by changes in currency exchange rates. In fiscal 2019, approximately 48% of our revenue was generated from our operations outside the United States. Significant foreign currencies for our operations include the British pound, the euro, the Brazilian real, the Argentine peso, the Japanese yen, the Canadian dollar, and the Australian dollar.

Trends Affecting Our Business

Industry

We participate in nearly every sector of the global pharmaceutical and biotechnology industry, which has been estimated to generate $1 trillion in annual revenue, including, but not limited to, the prescription drug and biologic sectors as well as consumer health, which includes the over-the-counter and vitamins and nutritional supplement sectors. Innovative pharmaceuticals continue to play a critical role in the global market, while the share of revenue due to generic drugs and biosimilars is increasing in both developed and developing markets. Sustained developed market demand and rapid growth in emerging economies is driving the consumer health product growth rate to more than double that for pharmaceuticals. Payors, both public and private, have sought to limit the economic impact of pharmaceutical and biologics product demand through greater use of generic and biosimilar drugs, access and spending controls, and health technology assessment techniques, favoring products that deliver truly differentiated outcomes.

New Molecule Development and R&D Sourcing

Continued strengthening in early-stage development pipelines for drugs and biologics, compounded by increasing clinical trial breadth and complexity, support our belief in the attractive growth prospects for development solutions. Large companies are in many cases reconfiguring their R&D resources, increasingly involving the use of strategic partners for important outsourced functions. Additionally, an increasing portion of compounds in development are from companies that do not have a full research and development infrastructure, and thus are more likely to need strategic development solutions partners.

Demographics

Aging population demographics in developed countries, combined with health care reforms in many global markets that are expanding access to treatments to a greater proportion of their populations, will continue to drive increases in demand for pharmaceuticals, biologics, and consumer health products. Increasing economic affluence in developing regions will further increase demand for healthcare treatments, and we are taking active steps to allow us to participate effectively in these growth regions and product categories.

Finally, we believe the market access and payor pressures our customers face, global supply chain complexity, and the increasing demand for improved treatments will continue to escalate the need for product differentiation, improved outcomes, and treatment cost reduction, all of which can often be addressed using our advanced delivery technologies.

Non-GAAP Performance Metrics

As described in this section, management uses various financial metrics, including certain metrics that are not based on concepts defined in U.S. GAAP, to measure and assess the performance of our business and to make critical business decisions. We therefore, believe that presentation of certain of these non-GAAP metrics in this Annual Report will aid investors in understanding our business performance.

Use of EBITDA from operations

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

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of operating income, operating performance, or liquidity presented in accordance with U.S. GAAP, and is subject to important limitations.

We believe that the presentation of EBITDA from operations enhances an investor’s understanding of our financial performance. We believe this measure is a useful financial metric to assess our operating performance across periods 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 disclosing EBITDA from operations will provide investors with a useful tool for assessing the comparability between periods of our ability to generate cash from operations sufficient to pay taxes, to service debt, and to undertake capital expenditures without consideration of non-cash depreciation and amortization expense. We present EBITDA from operations in order to provide supplemental information that we consider relevant for the readers of the Consolidated Financial Statements, and such information is not meant to replace or supersede U.S. GAAP measures. Our definition of EBITDA from operations may not be the same as similarly titled measures used by other companies. The most directly comparable measure to EBITDA from operations defined under U.S. GAAP is earnings/(loss) from operations. Included in this Management's Discussion and Analysis is a reconciliation of earnings/(loss) from operations to EBITDA from operations.

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

Use of Constant Currency

As exchange rates are an important factor in understanding period-to-period comparisons, we believe the presentation of results on a constant currency basis in addition to reported results helps improve investors’ ability to understand our operating results and evaluate our performance in comparison to prior periods. Constant currency information compares results between periods as if exchange rates had remained constant period-over-period. We use results on a constant currency basis as one measure to evaluate our performance. In this Annual Report, 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.

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Summary Two-Year Key Financial Performance Metrics

The below tables summarize our results in fiscal 2019 and 2018 on several financial metrics we use to measure performance. Refer to the discussions below regarding performance and the use of key financial metrics and “—Non-GAAP Performance Metrics” concerning the measurement of revenue at “constant currency.”

Fiscal Year Ended June 30, 2019 compared to the Fiscal Year Ended June 30, 2018

Results for the fiscal year ended June 30, 2019 compared to the fiscal year ended June 30, 2018 were as follows:

(Dollars in millions)	Fiscal Year Ended    June 30,				FX Impact		Constant Currency Increase/(Decrease)
	2019		2018				Change $		Change %
Net revenue	$	2,518.0	$	2,463.4	$	(57.0)	$	111.6	5	%
Cost of sales	1,712.9		1,710.8		(41.1)		43.2		3	%
Gross margin	805.1		752.6		(15.9)		68.4		9	%
Selling, general and administrative expenses	512.0		464.8		(5.1)		52.3		11	%
Impairment charges and (gain)/loss on sale of assets	5.1		8.7		(0.1)		(3.5)		(40)	%
Restructuring and other	14.1		10.2		(0.4)		4.3		42	%
Operating earnings	273.9		268.9		(10.3)		15.3		6	%
Interest expense, net	110.9		111.4		(0.7)		0.2		*
Other (income)/expense, net	2.7		5.5		(2.9)		0.1		2	%
Earnings from operations, before income taxes	160.3		152.0		(6.7)		15.0		10	%
Income tax expense/(benefit)	22.9		68.4		(1.4)		(44.1)		(64)	%
Net earnings	$	137.4	$	83.6	$	(5.4)	$	59.2	71	%

 *Percentage not meaningful

Net Revenue

Net revenue increased by $111.6 million, or 5%, in fiscal 2019 compared to fiscal 2018, excluding the impact of foreign exchange, primarily due to acquisitions. We acquired Paragon in May 2019, Juniper in August 2018, and Catalent Indiana in October 2017, which increased revenue by 7%, but the increase was partially offset by a reduction in revenue from comparator sourcing arrangements within our Clinical Supply Services segment of 4%. As a result of the adoption of ASC 606, we recorded comparator sourcing arrangements on a net basis versus a gross basis, resulting in a decrease in net revenue with no corresponding decrease to EBITDA. Excluding the impact of acquisitions, divestitures, and the change in accounting for comparator sourcing arrangements, revenue increased 2% primarily driven by increased net revenue within our Biologics and Specialty Drug Delivery segment.

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Gross Margin

Gross margin increased by $68.4 million, or 9%, in fiscal 2019 compared to fiscal 2018, excluding the impact of foreign exchange, primarily due to increased sales volumes as a result of acquisitions discussed above. On a constant currency basis, gross margin, as a percentage of revenue, was 31.9% in the twelve months ended June 30, 2019, an increase from the prior year of 133 basis points, primarily as a result of the adoption of ASC 606, pursuant to which we record comparator sourcing arrangements on a net basis versus the former gross basis, which increased gross margin percentage by 127 basis points.

Selling, General, and Administrative Expense

Selling, general, and administrative expense increased by $52.3 million, or 11%, in fiscal 2019 compared to fiscal 2018, excluding the impact of foreign exchange, primarily driven by acquisition-related expenses during the year, including transaction fees of $19.7 million related to the acquisitions of Paragon, Juniper, and the two advanced biologics clinical development and manufacturing sites in southern Maryland from Novavax, Inc. and the expected acquisition of the oral solids, biologics, and sterile product manufacturing and packaging facility in Anagni, Italy. Additionally, there were incremental selling, general, and additional administrative expenses from the acquired companies of $28.4 million, primarily driven by $19.9 million of incremental depreciation and amortization expense and $3.0 million of employee-related costs. Selling, general, and administrative expenses further increased approximately $4.4 million for non-cash equity-based compensation driven by the achievement of certain performance-based metrics during the fiscal year.

Impairment Charges and Loss on Sale of Assets

Impairment charges for the twelve months ended June 30, 2019 and June 30, 2018 were $5.1 million and $8.7 million, respectively. Impairment charges in the current year were driven by a software related intangible asset in our Clinical Supply Services segment that was not implemented and whose value therefore was not fully recoverable. The prior year included losses on the sales of two Asia-Pacific manufacturing sites in the Softgel Technologies segment. The site divestitures were not material, either individually or in the aggregate, to the segment or our business as a whole.

Restructuring and Other

Restructuring and other charges of $14.1 million in fiscal 2019 increased by $4.3 million, excluding the impact of foreign exchange, compared to the amounts in fiscal 2018 and were driven by increases in employee-related actions. Restructuring expenses varies period-to-period based on site consolidation efforts and other efforts to further streamline the business.

Interest Expense, net

Interest expense, net, of $110.9 million in fiscal 2019 was in line with interest expense incurred during fiscal 2018. The interest expense during fiscal 2019 was primarily driven by outstanding debt associated with the financing of the Catalent Indiana acquisition in October 2017, the financing of the Paragon acquisition in May 2019, and the offering of the USD 2027 Notes in June 2019. The principal balance of our debt obligation increased during the fiscal year; however, our interest expense remained in line with the prior fiscal year since we were able to reduce the higher interest rates applicable to certain of our debt and pay down some of our debt with the net proceeds of a July 2018 public offering of our Common Stock (the “2018 Equity Offering”).

For additional information concerning our debt and financing arrangements, including the changing mix of debt and equity in our capital structure, see “—Liquidity and Capital Resources—Debt and Financing Arrangements” and Note 7 to the Consolidated Financial Statements included elsewhere in this Annual Report.

A component of the purchase price for the Catalent Indiana acquisition consisted of $200.0 million in deferred purchase consideration payable in four annual $50.0 million installments, the first of which was paid in October 2018. The present value of the unpaid portion of the deferred consideration is accounted for as debt, with the difference between the nominal value of such portion and such present value considered imputed interest expense.

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Other Expense, net 

Other expense, net of $2.7 million for fiscal 2019 was primarily driven by financing charges of $15.8 million related to the offering of the USD 2027 Notes and was partially offset by a gain of $12.9 million related to the change in the fair value of the derivative liability arising from the dividend adjustment mechanism of the Series A Preferred Stock and $0.5 million of unrealized foreign currency gains in the year. See Notes 9 and 13 to the Consolidated Financial Statement for more details on the Series A Preferred Stock dividend adjustment.

Other expense, net for fiscal 2018 of $5.5 million was primarily driven by financing charges of $11.8 million related to the offering of the USD 2026 Notes and an amendment to the Credit Agreement, which included a $6.1 million charge for commitment fees paid during the first quarter of fiscal 2018, partially offset by $4.6 million of foreign currency gains in the fiscal year.

Provision/(Benefit) for Income Taxes

Our provision for income taxes for the twelve months ended June 30, 2019 was $22.9 million relative to earnings from operations before income taxes of $160.3 million. Our provision for income taxes for the twelve months ended June 30, 2018 was $68.4 million relative to earnings from operations before income taxes of $152.0 million. The income tax provision for the current period is not comparable to the same period of the prior year primarily due to the impact of the 2017 Tax Act, changes in pretax income over many jurisdictions, and the impact of discrete items, including equity compensation. Generally, fluctuations in our effective tax rate are due to changes in the geographic distribution of our 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, including the reversal portion of the state valuation allowance, which may have unique tax implications depending on the nature of the item.

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Segment Review

The below charts depict the percentage of revenue from each of our four reporting segments for the previous two years. Refer below for discussions regarding the segments’ revenue and EBITDA performance and to “Non-GAAP Performance Metrics”.

Our results on a segment basis for the twelve months ended June 30, 2019 compared to the twelve months ended June 30, 2018 were as follows:

(Dollars in millions) Fiscal Year Ended  
 June 30, FX Impact  Constant Currency Increase/(Decrease)