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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 ______________________________
FORM 10-Q
______________________________ 
ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023
or
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
001-36587
(Commission File Number)
Image1.jpg
 _____________________________
Catalent, Inc.
(Exact name of registrant as specified in its charter)
_____________________________ 
     Delaware 20-8737688
        (State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
       14 Schoolhouse Road
                   Somerset, New Jersey08873
                     (Address of principal executive offices)_______
(Zip code)
(732) 537-6200
Registrant's telephone number, including area code
____________________________________ 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ¨  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).       Yes ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
¨
Non-accelerated filer
¨
Smaller reporting company
¨
Emerging growth company
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).       ¨ Yes     No 

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbols(s)Name of each exchange on which registered
Common StockCTLTNew York Stock Exchange

On May 31, 2023, there were 180,271,741 shares of the Registrant's common stock, par value $0.01 per share, issued and outstanding.


Table of Contents
CATALENT, INC.
Index to Form 10-Q
For the Three and Nine Months Ended March 31, 2023
 
ItemPage
Part I.
Item 1.
Item 2.
Item 3.
Item 4.
Part II.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

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Table of Contents
Special Note Regarding Forward-Looking Statements
In addition to historical information, this Quarterly Report on Form 10-Q of Catalent, Inc. (“Catalent” or the “Company”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. All statements, other than statements of historical facts, included in this Quarterly Report on Form 10-Q are forward-looking statements. In some cases, you can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words.
These statements are based on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments, and other factors they believe to be appropriate. Any forward-looking statement is subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements.

Some of the factors that may cause actual results, developments and business decisions to differ materially from those contemplated by such forward-looking statements include, but are not limited to, those summarized below, in addition to those described more fully (i) in Part II, “Item 1A. Risk Factors” and elsewhere in this report, (ii) from time to time in reports that we have filed or in the future may file with the Securities and Exchange Commission (the “SEC”), and (iii) under the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2022 (as amended by Amendment No. 1 on Form 10-K/A filed with the SEC on June 12, 2023, the “Amended Fiscal 2022 10-K”).

Our ability to resolve productivity issues at three of our manufacturing facilities, the impact of such issues on product made at these facilities, the timing of recovering unproduced batches and resumption of normal activities at these facilities, and the impact of such issues on our results of operations and financial condition.
The impact of higher-than-expected costs experienced at three of our manufacturing facilities on our results of operations and financial condition.
The declining demand for various vaccines and treatments for the SARS-Co-V-2 strain of coronavirus and its variants (“COVID-19”) from both patients and governments around the world may affect sales of the COVID-19 products we manufacture.
Our goodwill has been subject to impairment and may be subject to further impairment in the future, which could have a material adverse effect on our results of operations, financial condition and our future operating results.
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, regulatory and market success of their products.
We may become subject to litigation, other proceedings and government investigations relating to us or our operations, and the ultimate outcome of any such matters may have an impact on our business, prospects, financial condition and results of operations.
We are subject to product and other liability risks that could exceed our anticipated costs or adversely affect our results of operations, financial condition, liquidity, and cash flows.
We are a part of the highly regulated healthcare industry, subject to stringent regulatory standards and other applicable laws and regulations, which can change unexpectedly and may adversely impact our business.
Any failure to implement fully, monitor, and improve our quality management strategy could lead to quality or safety issues and expose us to significant costs, potential liability, and adverse publicity.
If we cannot keep pace with rapid technological advances, our services may become uncompetitive or obsolete.
Any failure to protect or maintain our intellectual property may adversely affect our competitive edge and result in loss of revenue and reputation.
Future price fluctuations, material shortages of raw materials, or changes in healthcare policies may have an adverse effect on our results of operations and financial conditions.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
We may be unable to attract or retain key personnel.
We may be unsuccessful in integrating our acquisitions, and we may expend substantial amounts of cash and incur debt in making acquisitions.
Our global operations are subject to economic and political risks, including risks resulting from continuing inflation, from disruptions to global supply chains, destabilization of a regional or national banking system, or from the Ukrainian-Russian war, which could affect the profitability of our operations or require costly changes to our procedures.
Our business, financial condition, and operations may be adversely affected by global health developments.
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As a global enterprise, fluctuations in the exchange rates of the United States ("U.S.") dollar, our reporting currency, against other currencies could have a material adverse effect on our financial performance and results of operations.
Tax legislative or regulatory initiatives, new interpretations or developments concerning existing tax laws, or challenges to our tax positions could adversely affect our results of operations and financial condition.
We use advanced information and communication systems to run our operations, compile and analyze financial and operational data, and communicate among our employees, customers, and counter-parties, and the risks generally associated with information and communications systems could adversely affect our results of operations. We continuously work to install new, and upgrade existing, systems and provide employee awareness training around phishing, malware, and other cyber security risks to enhance the protections available to us, but such protections may be inadequate to address malicious attacks or inadvertent compromises affecting data security or the operability of such systems.
We provide services incorporating various advanced modalities, including protein, virus, and plasmid production and cell and gene therapies, and these modalities may involve to relatively new types of vaccines or modes of treatment that may be subject to changing public opinion, continuing research, and increased regulatory scrutiny, each of which may affect our customers' ability to conduct their businesses, or obtain regulatory approvals for their vaccines, treatments, or therapies, and thereby adversely affect these offerings.
The size of our indebtedness and the obligations associated with our debt obligations could limit our ability to operate our business and to finance future operations or acquisitions that would enhance our growth.
Our interest expense on our variable-rate debt may continue to increase if and to the extent that policymakers combat inflation through interest-rate increases on benchmark financial products.
Our debt agreements contain restrictions that may limit our flexibility in conducting certain current and future operations.
We may not be able to pay our indebtedness when it becomes due.
Our current and potential future use of derivative financial instruments may expose us to economic losses in the event of price or currency fluctuations.
We identified material weaknesses in our internal control over financial reporting. Failure to remediate these material weaknesses or any other material weakness that we may identify in the future could result in material misstatements in our financial statements or cause us to fail to meet our periodic reporting obligations.
Our stock price has historically been and may continue to be volatile due to a variety of factors, including the perceived growth rate of our business or comparable businesses, the values that others pay to acquire comparable businesses, and rumors about potential business combinations.
Because we have no plan to pay cash dividends on our common stock, par value $0.01 (the “Common Stock”) for the foreseeable future, receiving a return on an investment in our Common Stock may require a sale for a net price greater than was paid for it.
Provisions in our organizational documents could delay or prevent a change of control.

We caution that the risks, uncertainties, and other factors referenced above may not contain all of the risks, uncertainties, and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits, or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. There can be no assurance that (i) we have correctly measured or identified all of the factors affecting our business or the extent of these factors’ likely impact, (ii) the available information with respect to these factors on which such analysis is based is complete or accurate, (iii) such analysis is correct, or (iv) our strategy, which is based in part on this analysis, will be successful. All forward-looking statements in this report apply only as of the date of this report or as of the date they were made and we undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as required by law.
Social Media
We use our website (catalent.com), our corporate Facebook page (https://facebook.com/CatalentPharmaSolutions), and our corporate Twitter account (@catalentpharma) as channels for the distribution of information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings, and public conference calls and webcasts. The contents of our website and social media channels are not, however, a part of this report.
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Table of Contents
PART I.    FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

Catalent, Inc.
Consolidated Statements of Operations
(Unaudited; dollars in millions, except per share data)

Three Months Ended  
March 31,
Nine Months Ended  
March 31,
2023202220232022
Net revenue$1,037 $1,273 $3,208 $3,515 
Cost of sales857 850 2,383 2,363 
Gross margin180 423 825 1,152 
Selling, general, and administrative expenses190 207 612 618 
Gain on sale of subsidiary   (1)
Goodwill impairment charges210  210  
Other operating expense, net15 5 40 25 
Operating (loss) earnings(235)211 (37)510 
Interest expense, net51 33 130 91 
Other (income) expense, net(4)2 (2)25 
(Loss) earnings before income taxes (282)176 (165)394 
Income tax (benefit) expense(55)35 (19)63 
Net (loss) earnings(227)141 (146)331 
Less: Net earnings attributable to preferred shareholders   (15)
Net (loss) earnings attributable to common shareholders$(227)$141 $(146)$316 
Earnings per share:
Basic
Net (loss) earnings$(1.26)$0.78 $(0.81)$1.81 
Diluted
Net (loss) earnings$(1.26)$0.78 $(0.81)$1.79 










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


Three Months Ended  
March 31,
Nine Months Ended  
March 31,
2023202220232022
Net (loss) earnings$(227)$141 $(146)$331 
Other comprehensive (loss) income, net of tax
Foreign currency translation adjustments27 (22)10 (54)
Pension and other post-retirement adjustments 1  2 
Net change in marketable securities2 (1)4 (2)
Derivatives and hedges(2)17 12 21 
Other comprehensive income (loss), net of tax27 (5)26 (33)
Comprehensive (loss) income $(200)$136 $(120)$298 






















The accompanying notes are an integral part of these unaudited consolidated financial statements.
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Catalent, Inc.
Consolidated Balance Sheets
(Unaudited; in millions, except share and per share data)
 
March 31,
2023
June 30,
2022
ASSETS
Current assets:
Cash and cash equivalents $252 $449 
Trade receivables, net of allowance for credit losses of $29 and $29, respectively
1,049 1,051 
Inventories744 702 
Prepaid expenses and other 693 626 
Marketable securities 89 
Total current assets 2,738 2,917 
Property, plant, and equipment, net of accumulated depreciation of $1,540 and $1,347, respectively
3,671 3,127 
Other assets:
Goodwill3,023 3,006 
Other intangibles, net1,012 1,060 
Deferred income taxes42 49 
Other long-term assets344 349 
Total assets $10,830 $10,508 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations and other short-term borrowings $588 $31 
Accounts payable 394 421 
Other accrued liabilities 505 646 
Total current liabilities 1,487 1,098 
Long-term obligations, less current portion 4,261 4,171 
Pension liability104 103 
Deferred income taxes119 197 
Other liabilities156 164 
Commitment and contingencies (see Note 15)— — 
Total liabilities6,127 5,733 
Shareholders' equity:
Common stock, $0.01 par value; 1.00 billion shares authorized at March 31, 2023 and June 30, 2022; 180 million and 179 million issued and outstanding at March 31, 2023 and June 30, 2022, respectively
2 2 
Preferred stock, $0.01 par value; 100 million shares authorized at March 31, 2023 and June 30, 2022;0 shares issued and outstanding at March 31, 2023 and June 30, 2022
  
Additional paid in capital4,697 4,649 
Retained earnings372 518 
Accumulated other comprehensive loss(368)(394)
Total shareholders' equity4,703 4,775 
Total liabilities and shareholders' equity$10,830 $10,508 


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


Three Months Ended March 31, 2023
Shares of Common StockCommon StockAdditional Paid in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal Shareholders' EquityRedeemable Preferred Stock
Balance at December 31, 2022179,988 $2 $4,686 $599 $(395)$4,892 $ 
Share issuances related to stock-
     based compensation
169  — — —  — 
Stock-based compensation— — 6 — — 6 — 
Exercise of stock options— — 3 — — 3 — 
Employee stock purchase plan— — 2 — — 2 — 
Net loss— — — (227)— (227)— 
Other comprehensive income, net
of tax
— — — — 27 27 — 
Balance at March 31, 2023180,157 $2 $4,697 $372 $(368)$4,703 $ 





Three Months Ended March 31, 2022
Shares of Common StockCommon StockAdditional Paid in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal Shareholders' EquityRedeemable Preferred Stock
Balance at December 31, 2021179,050 $2 $4,615 $209 $(345)$4,481 $ 
Share issuances related to stock-
     based compensation
97   — —  — 
Stock-based compensation— — 10 — — 10 — 
Exercise of stock options— — 2 — — 2 — 
Employee stock purchase plan— — 3 — — 3 — 
Net earnings— — — 141 — 141 — 
Other comprehensive loss, net
       of tax
— — — — (5)(5)— 
Balance at March 31, 2022179,147 $2 $4,630 $350 $(350)$4,632 $ 







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


Nine Months ended March 31, 2023
Shares of Common StockCommon StockAdditional Paid in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal Shareholders' EquityRedeemable Preferred Stock
Balance at June 30, 2022179,302 $2 $4,649 $518 $(394)$4,775 $ 
Share issuances related to stock-
     based compensation
855 — — — — — — 
Stock-based compensation— — 35 — — 35 — 
Exercise of stock options— — 4 — — 4 — 
Employee stock purchase plan— — 9 — — 9 — 
Net loss— — — (146)— (146)— 
Other comprehensive income,
net of tax
— — — — 26 26 — 
Balance at March 31, 2023180,157 $2 $4,697 $372 $(368)$4,703 $ 




Nine Months Ended March 31, 2022
Shares of Common StockCommon StockAdditional Paid in CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal Shareholders' EquityRedeemable Preferred Stock
Balance at June 30, 2021170,549 $2 $4,205 $25 $(317)$3,915 $359 
Share issuances related to stock-
     based compensation
780 — — — — — — 
Conversion of redeemable
     preferred stock
7,818 — 362 — — 362 (359)
Stock-based compensation— — 42 — — 42 — 
Cash paid, in lieu of equity, for
     tax withholding obligations
— — (9)— — (9)— 
Exercise of stock options— — 21 — — 21 — 
Employee stock purchase plan— — 9 — — 9 — 
Preferred dividend ($12.50 per
     share of redeemable preferred
     stock)
— — — (6)— (6)— 
Net earnings— — — 331 — 331 — 
Other comprehensive income,
net of tax
— — — — (33)(33)— 
Balance at March 31, 2022179,147 $2 $4,630 $350 $(350)$4,632 $ 



The accompanying notes are an integral part of these unaudited consolidated financial statements.
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Catalent, Inc.
Consolidated Statements of Cash Flows
(Unaudited; dollars in millions)
Nine Months Ended March 31,
20232022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings$(146)$331 
Adjustments to reconcile net earnings to net cash from operations:
Depreciation and amortization308 278 
Goodwill impairment charges210  
Non-cash foreign currency transaction (gain) loss, net(6)25 
Non-cash restructuring charges18  
Amortization of debt issuance costs
6 5 
Impairments charges and loss/gain on sale of assets, net
4 21 
Gain on sale of subsidiary (1)
Financing-related charges 4 
Gain on derivative instrument (2)
Stock-based compensation
35 42 
(Benefit from) provision for deferred income taxes(69)13 
Provision for bad debts and inventory99 14 
Change in operating assets and liabilities:
Decrease in trade receivables18 60 
Increase in inventories(135)(93)
Decrease in accounts payable(39)(34)
Other assets/accrued liabilities, net—current and non-current
(245)(293)
Net cash provided by operating activities58 370 
CASH FLOWS USED IN INVESTING ACTIVITIES:
Acquisition of property, equipment, and other productive assets(455)(425)
Proceeds from maturity of (purchase of) marketable securities89 (25)
Proceeds from sale of property and equipment8  
Settlement on sale of subsidiaries, net (3)
Payment for acquisitions, net of cash acquired(474)(1,033)
Payment for investments(2)(4)
Net cash used in investing activities(834)(1,490)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowing715 1,100 
Payments related to long-term obligations(176)(72)
Financing fees paid
(4)(15)
Dividends paid (4)
Cash paid, in lieu of equity, for tax-withholding obligations (9)
Exercise of stock options4 21 
Other financing activities33 9 
Net cash provided by financing activities572 1,030 
Effect of foreign currency exchange on cash and cash equivalents7 (20)
NET DECREASE IN CASH AND CASH EQUIVALENTS(197)(110)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD449 896 
CASH AND CASH EQUIVALENTS AT END OF PERIOD$252 $786 
SUPPLEMENTARY CASH FLOW INFORMATION:
Interest paid$145 $93 
Income taxes paid, net$83 $40 
Non-cash purchase of property, equipment, and other productive assets$8 $50 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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Catalent, Inc.
Notes to Unaudited Consolidated Financial Statements
1.    BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Catalent, Inc. (Catalent or the Company) directly and wholly owns PTS Intermediate Holdings LLC (Intermediate Holdings). Intermediate Holdings directly and wholly owns Catalent Pharma Solutions, Inc. (Operating Company). The financial results of Catalent are comprised of the financial results of Operating Company and its subsidiaries on a consolidated basis.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending June 30, 2023. The consolidated balance sheet at June 30, 2022 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. For further information on the Company's accounting policies and footnotes, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2022 (as amended by Amendment No.1 on Form 10-K/A filed with the Securities and Exchange Commission (the “SEC”) on June 12, 2023, the “Amended Fiscal 2022 10-K”).
Reportable Segments
Effective July 1, 2022, in connection with the appointment of a new President and Chief Executive Officer, the Company changed its operating structure and reorganized its executive leadership team accordingly. This new organizational structure includes simplifying the four operating and reportable segments the Company disclosed during fiscal 2022 to two: (i) Biologics and (ii) Pharma and Consumer Health. Set forth below is a summary description of the Company's two current operating and reportable segments.

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

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

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

In connection with the preparation of its consolidated financial statements as of and for the three and nine months ended March 31, 2023, the Company identified an immaterial prior period error related to the recognition of revenue in its previously issued consolidated financial statements.
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In accordance with SAB No. 99, “Materiality,” and SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” and as described further in Note 2, Revisions of Previously Issued Financial Statements, the Company evaluated the error and determined that the related impacts were not material to its financial statements for the prior annual period when they occurred, but that correcting the the error would be significant to the Company's results of operations for the three and nine months ended March 31, 2023. Accordingly, the Company has revised previously reported financial information for such immaterial error. A summary of revisions to certain previously reported financial information presented herein for comparative purposes is included in Note 2, Revisions of Previously Issued Financial Statements.

Reclassifications

Consequent to the reorganization noted above, certain prior-period amounts were reclassified to conform to the current period presentation.

Foreign Currency Translation
The financial statements of the Company’s operations are generally measured using the local currency as the functional currency. Adjustments to translate the assets and liabilities of operations outside the United States (“U.S.”) into U.S. dollars are accumulated as a component of other comprehensive income utilizing period-end exchange rates. Since July 1, 2018, the Company has accounted for its Argentine operations as highly inflationary.
Concentrations of Credit Risk and Major Customers
Concentration of credit risk, with respect to accounts receivable, is limited due to the large number of customers and their dispersion across different geographic areas. The customers are primarily concentrated in the pharmaceutical, biopharmaceutical and consumer products industries. The Company does not normally require collateral or any other security to support credit sales. The Company performs ongoing credit evaluations of its customers’ financial conditions and maintains reserves for credit losses. Such losses historically have been within the Company’s expectations.
As of March 31, 2023 and June 30, 2022, the Company had one customer that represented 23% and 14%, respectively, of its aggregate net trade receivables and current contract asset values, primarily associated with the Company's Biologics segment. After performing a risk assessment of this customer, the Company has determined that a reserve is not warranted as of March 31, 2023. Additionally, the Company had two customers in its Biologics segment that each that represented approximately 11% of consolidated net revenue during the three months ended March 31, 2023. These same two customers represented 9% and 5% of net revenue in the three months ended March 31, 2022.
Depreciation
Depreciation expense was $72 million and $66 million for the three months ended March 31, 2023 and 2022, respectively. Depreciation expense was $207 million and $188 million for the nine months ended March 31, 2023 and 2022, respectively. Depreciation expense includes amortization of assets related to finance leases. The Company charges repairs and maintenance costs to expense as incurred.
Amortization
Amortization expense related to other intangible assets was $34 million and $33 million for the three months ended March 31, 2023 and 2022, respectively. Amortization expense related to other intangible assets was $101 million and $90 million for the nine months ended March 31, 2023 and 2022, respectively.
Research and Development Costs
The Company expenses research and development costs as incurred. Research and development costs amounted to $4 million and $6 million for the three months ended March 31, 2023 and 2022, respectively. Research and development costs amounted to $13 million and $18 million for the nine months ended March 31, 2023 and 2022, respectively.
Marketable Securities

The Company classifies its marketable securities as available-for-sale, because it may sell certain of its marketable securities prior to the stated maturity for various reasons, including management of liquidity, credit risk, duration, relative return, and asset allocation. The Company determines the fair value of each marketable security in its portfolio at each period end and recognizes gains and losses in the portfolio in other comprehensive income. As of March 31, 2023, all of the
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Company's outstanding marketable securities had matured. The amortized cost basis of all previously owned marketable securities approximated fair value and all previously outstanding marketable securities matured within one year.
Recent Financial Accounting Standards
New Accounting Standards Not Adopted as of March 31, 2023

In March 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance to ease the potential burden in accounting for the discontinuation of a reference rate such as LIBOR, formerly known as the London Interbank Offered Rate, because of reference rate reform. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which delayed the effective date from December 31, 2022 to December 31, 2024. The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements.
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2.    REVISIONS OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

As described in the Amended Fiscal 2022 10-K, in preparing the consolidated financial statements for the three and nine months ended March 31, 2023, the Company identified a $26 million error related to the over-recognition of revenue in the consolidated financial statements it issued with respect to its fiscal year ended June 30, 2022. This error resulted from the misapplication of the contract modification guidance in accordance with ASC 606, Revenue from Contracts with Customers, related to one of the Company’s customer arrangements. The Company assessed the materiality of the error both quantitatively and qualitatively and determined this error to be immaterial to those consolidated financial statements. However, the Company concluded that the effect of correcting the error in the quarter ended March 31, 2023 would materially misstate the Company’s unaudited consolidated financial statements for the three and nine months ended March 31, 2023 and, accordingly, determined that it was necessary to revise the consolidated financial statements it previously issued with respect to the fiscal year ended June 30, 2022.

The following tables reflect the impact of this revision on the Company’s consolidated balance sheet as of June 30, 2022:
Consolidated Balance SheetJune 30, 2022
(Dollars in millions)As Previously
ReportedAdjustmentAs Revised
Prepaid expenses and other$625 $1 $626 
Total current assets2,916 1 2,917 
Total assets10,507 1 10,508 
Other accrued liabilities620 26 646 
Total current liabilities1,072 26 1,098 
Deferred income taxes202 (5)197 
Total liabilities5,712 21 5,733 
Retained earnings538 (20)518 
Total shareholders' equity4,795 (20)4,775 
Total liabilities and shareholders' equity$10,507 $1 10,508 

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