Catalent(CTLT) - 2021 Q2 - Quarterly Report

General Information Provides foundational company details, forward-looking statement disclaimers, and official communication channels Company Information Catalent, Inc. is a Delaware corporation with common stock (CTLT) listed on NYSE, with 170.2 million shares outstanding - Catalent, Inc. is a Delaware corporation, with its common stock (CTLT) listed on the New York Stock Exchange[3] Common Stock Outstanding (as of Jan 25, 2021) | Metric | Value | | :--- | :--- | | Common Stock Outstanding (as of Jan 25, 2021) | 170,226,514 shares | | Par Value per Share | $0.01 | Special Note Regarding Forward-Looking Statements This section highlights forward-looking statements subject to various risks, including global health epidemics, market competition, and regulatory compliance - The report contains forward-looking statements, identifiable by words like 'outlook,' 'believes,' 'expects,' 'potential,' and 'anticipates,' which are subject to various risks and uncertainties[7] - Key risk factors include: * Adverse effects from global health epidemics, including COVID-19 * Intense market competition * Dependence on customer R&D and product success * Product and other liability risks * Failure to comply with regulatory requirements * Operational complexities and quality control issues * Economic, political, and regulatory risks from global operations, including Brexit * Risk of technology obsolescence if new offerings are not introduced timely * Intellectual property protection challenges * Fluctuations in component costs and supply chain disruptions * Changes in market access or healthcare reimbursement * Currency exchange rate fluctuations * Tax legislative or regulatory changes * Dependence on key personnel * Information and communication systems risks * Acquisition and divestiture risks * Risks associated with cell and gene therapies * Environmental, health, and safety laws and regulations * Labor and employment laws and regulations * Underfunded pension plans * Substantial leverage and debt agreement restrictions[9][11][13] Social Media The company uses its website and social media (Facebook, Twitter) as official channels for distributing potentially material information to investors - Catalent uses its website (www.catalent.com), Facebook (https://www.facebook.com/CatalentPharmaSolutions), and Twitter (@catalentpharma) as official channels for distributing potentially material information to investors[15] Part I. Financial Information Presents unaudited consolidated financial statements, management's discussion and analysis, and market risk disclosures Item 1. Financial Statements (unaudited) This section presents unaudited consolidated financial statements, including operations, balance sheets, cash flows, and notes on accounting policies Consolidated Statements of Operations Presents the unaudited consolidated statements of operations for the three and six months ended December 31, 2020 and 2019 Consolidated Statements of Operations (Unaudited; dollars in millions, except per share data) | Metric | Three Months Ended Dec 31, 2020 | Three Months Ended Dec 31, 2019 | Six Months Ended Dec 31, 2020 | Six Months Ended Dec 31, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net revenue | $910.8 | $721.4 | $1,756.5 | $1,386.1 | | Cost of sales | 612.6 | 489.2 | 1,209.4 | 976.2 | | Gross margin | 298.2 | 232.2 | 547.1 | 409.9 | | Operating earnings | 126.6 | 89.0 | 208.1 | 123.4 | | Earnings before income taxes | 109.0 | 58.5 | 176.4 | 51.7 | | Net earnings | 88.4 | 45.5 | 170.8 | 45.6 | | Net earnings attributable to common shareholders | $76.6 | $34.3 | $145.4 | $26.9 | | Basic EPS | $0.46 | $0.23 | $0.88 | $0.18 | | Diluted EPS | $0.45 | $0.23 | $0.87 | $0.18 | Consolidated Statements of Comprehensive Income Presents the unaudited consolidated statements of comprehensive income for the three and six months ended December 31, 2020 and 2019 Consolidated Statements of Comprehensive Income (Unaudited; dollars in millions) | Metric | Three Months Ended Dec 31, 2020 | Three Months Ended Dec 31, 2019 | Six Months Ended Dec 31, 2020 | Six Months Ended Dec 31, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net earnings | $88.4 | $45.5 | $170.8 | $45.6 | | Other comprehensive income, net of tax | 40.4 | 25.4 | 56.7 | 3.3 | | Comprehensive income | $128.8 | $70.9 | $227.5 | $48.9 | Consolidated Balance Sheets Presents the unaudited consolidated balance sheets as of December 31, 2020 and June 30, 2020 Consolidated Balance Sheets (Unaudited; in millions) | Asset | Dec 31, 2020 | June 30, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $833.1 | $953.2 | | Total current assets | 2,518.9 | 2,293.0 | | Property, plant, and equipment, net | 2,129.8 | 1,900.8 | | Goodwill | 2,461.5 | 2,470.6 | | Other intangibles, net | 855.3 | 888.7 | | Total assets | $8,198.1 | $7,776.5 | | Liability & Equity | Dec 31, 2020 | June 30, 2020 | | :--- | :--- | :--- | | Total current liabilities | $1,024.0 | $893.2 | | Long-term obligations, less current portion | 2,983.8 | 2,945.1 | | Total liabilities | 4,383.6 | 4,271.1 | | Redeemable preferred stock | 359.0 | 606.6 | | Total shareholders' equity | 3,455.5 | 2,898.8 | | Total liabilities, redeemable preferred stock, and shareholders' equity | $8,198.1 | $7,776.5 | Consolidated Statement of Changes in Shareholders' Equity Details changes in shareholders' equity for the six months ended December 31, 2020, including net earnings and equity offerings - Shareholders' equity increased from $2,898.8 million at June 30, 2020, to $3,455.5 million at December 31, 2020, primarily due to net earnings, equity offerings, and conversion of redeemable preferred stock[29][33] Key Changes in Shareholders' Equity (Six Months Ended December 31, 2020; dollars in millions) | Item | Impact on Total Shareholders' Equity | | :--- | :--- | | Balance at June 30, 2020 | $2,898.8 | | Equity offering, sale of common stock | 81.8 | | Conversion of redeemable preferred stock | 253.0 | | Stock-based compensation | 30.1 | | Cash paid, in lieu of equity, for tax withholding | (26.4) | | Preferred dividend | (13.0) | | Net earnings | 170.8 | | Other comprehensive income, net of tax | 56.7 | | Balance at December 31, 2020 | $3,455.5 | Consolidated Statements of Cash Flows Presents the unaudited consolidated statements of cash flows for the six months ended December 31, 2020 and 2019 Consolidated Statements of Cash Flows (Unaudited; dollars in millions) | Activity | Six Months Ended Dec 31, 2020 | Six Months Ended Dec 31, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $223.7 | $145.9 | | Net cash used in investing activities | $(354.4) | $(199.2) | | Net cash used in financing activities | $(7.2) | $(101.8) | | Net decrease in cash and equivalents | $(120.1) | $(156.5) | | Cash and equivalents at end of period | $833.1 | $188.9 | Notes to Unaudited Consolidated Financial Statements Provides detailed notes to the unaudited consolidated financial statements, covering accounting policies, segments, and other disclosures Note 1. Basis of Presentation and Summary of Significant Accounting Policies This note outlines the basis of presentation for unaudited financial statements, detailing accounting policies, foreign currency, and recently adopted standards - The financial statements are prepared under U.S. GAAP for interim reporting, with all necessary adjustments included. Operating results for the six months ended December 31, 2020, are not necessarily indicative of the full fiscal year[41] - Research and development costs were $5.2 million (Q3 2020) and $11.6 million (H1 2020), expensed as incurred[45] - Recently adopted accounting standards (ASU 2018-15, ASU 2018-13, ASU 2016-13) on July 1, 2020, did not have a material impact on the company's financial condition or results of operations[47][48][49] Note 2. Revenue Recognition Revenue is recognized from manufacturing, development, and clinical supply services, with contract liabilities at $273.1 million and assets at $122.9 million - Revenue is primarily generated from manufacturing and commercial product supply, development services, and clinical supply services[52] Net Revenue by Activity and Segment (Three Months Ended December 31, 2020; dollars in millions) | Activity | Biologics | Softgel & Oral Technologies | Oral & Specialty Delivery | Clinical Supply Services | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Manufacturing & commercial product supply | $124.4 | $213.8 | $113.5 | — | $451.7 | | Development services | 279.5 | 32.8 | 56.4 | — | 368.7 | | Clinical supply services | — | — | — | 93.5 | 93.5 | | Total | $403.9 | $246.6 | $169.9 | $93.5 | $913.9 | | Inter-segment revenue elimination | | | | | (3.1) | | Combined net revenue | | | | | $910.8 | Net Revenue by Geographic Location (Three Months Ended December 31, 2020; dollars in millions) | Location | 2020 | 2019 | | :--- | :--- | :--- | | United States | $535.3 | $414.7 | | Europe | 326.4 | 239.5 | | International Other | 72.0 | 87.3 | | Elimination of revenue attributable to multiple locations | (22.9) | (20.1) | | Total | $910.8 | $721.4 | Contract Liabilities and Assets (dollars in millions) | Metric | Dec 31, 2020 | June 30, 2020 | | :--- | :--- | :--- | | Contract liabilities balance | $273.1 | $218.4 | | Contract assets | $122.9 | $61.4 | Note 3. Business Combinations and Divestitures Catalent completed acquisitions (Anagni, MaSTherCell) and agreed to divest its blow-fill-seal business for $300 million cash and a $50 million note receivable - Acquisitions in 2020: * Anagni Acquisition (January 2020): Acquired a manufacturing and packaging facility from BMS for $55.3 million cash, allocated to Oral and Specialty Delivery and Biologics segments. Assets acquired included property, plant, and equipment ($34.2M), inventory ($6.5M), and prepaid expenses ($12.2M) * Masthercell Global Inc. Acquisition (February 2020): Acquired 100% equity for $323.3 million, funded by a public offering. MaSTherCell is a cell therapy CDMO. Preliminary allocation included property, plant, and equipment ($25.5M), identifiable intangible assets ($51.0M), and goodwill ($252.5M) * Skeletal Cell Therapy Support SA Acquisition (November 2020): Acquired 100% equity for $14.8 million, expanding cell therapy capacity in the Biologics segment. Preliminary allocation included property, plant, and equipment ($8.7M) and goodwill ($5.4M)[59][60][61][64][66][67] - In December 2020, Catalent agreed to sell its blow-fill-seal manufacturing business for $300 million cash, a $50 million note receivable, and potential contingent consideration. This business is classified as held for sale[68] Note 4. Goodwill Goodwill decreased slightly to $2,461.5 million at December 31, 2020, reflecting acquisitions, divestitures, and foreign currency adjustments, with no impairment charges Goodwill by Segment (dollars in millions) | Segment | June 30, 2020 | Additions (Skeletal) | Divestitures (Blow-Fill-Seal) | Other (MaSTherCell, FX) | Dec 31, 2020 | | :--- | :--- | :--- | :--- | :--- | :--- | | Biologics | $1,462.2 | $5.4 | — | $19.3 | $1,486.9 | | Softgel & Oral Technologies | 505.5 | — | — | 15.3 | 520.8 | | Oral & Specialty Delivery | 354.7 | — | $(65.6) | 9.7 | 298.9 | | Clinical Supply Services | 148.2 | — | — | 6.7 | 154.9 | | Total | $2,470.6 | $5.4 | $(65.6) | $51.0 | $2,461.5 | - No impairment charges to goodwill were recorded in the current period[71] Note 5. Definite-Lived Long-Lived Assets This note details definite-lived long-lived assets, with amortization expense of $23.0 million for three months and $46.0 million for six months ended December 31, 2020 Other Intangibles, Net (dollars in millions) | Category | Dec 31, 2020 Net Carrying Value | June 30, 2020 Net Carrying Value | | :--- | :--- | :--- | | Core technology | $50.0 | $51.5 | | Customer relationships | 746.9 | 773.3 | | Product relationships | 48.6 | 52.9 | | Other | 9.8 | 11.0 | | Total intangible assets | $855.3 | $888.7 | Amortization Expense (dollars in millions) | Period | 2020 | 2019 | | :--- | :--- | :--- | | Three months ended Dec 31 | $23.0 | $21.8 | | Six months ended Dec 31 | $46.0 | $43.3 | Estimated Future Amortization Expense (dollars in millions) | Fiscal Year | Amount | | :--- | :--- | | 2021 (Remainder) | $46.6 | | 2022 | $92.5 | | 2023 | $91.7 | | 2024 | $90.6 | | 2025 | $89.6 | | 2026 | $82.1 | Note 6. Long-Term Obligations and Short-Term Borrowings Total long-term obligations and short-term borrowings increased to $3,055.8 million, driven by foreign currency fluctuations and a $50.0 million deferred purchase payment Long-Term Obligations and Short-Term Borrowings (dollars in millions) | Obligation | Maturity | Dec 31, 2020 | June 30, 2020 | | :--- | :--- | :--- | :--- | | U.S. dollar-denominated term loan facility | May 2026 | $924.6 | $928.5 | | U.S. dollar-denominated 4.875% senior notes | Jan 2026 | 445.8 | 445.4 | | U.S. dollar-denominated 5.00% senior notes | July 2027 | 493.6 | 493.1 | | Euro-denominated 2.375% senior notes | March 2028 | 993.1 | 909.9 | | Deferred purchase consideration | Oct 2021 | 48.7 | 97.5 | | Finance lease obligations | 2020 to 2044 | 147.3 | 142.2 | | Other obligations | 2020 to 2024 | 2.7 | 1.4 | | Total | | $3,055.8 | $3,018.0 | | Less: current portion | | 72.0 | 72.9 | | Long-term obligations, less current portion | | $2,983.8 | $2,945.1 | - The increase in Euro-denominated debt is primarily due to foreign currency exchange rate fluctuations[77] - A $50.0 million installment payment for the Catalent Indiana, LLC acquisition was made in October 2020, with one remaining $50.0 million payment due in October 2021[78] Note 7. Earnings Per Share Basic EPS for common shareholders increased to $0.46 (three months) and $0.88 (six months) due to higher net earnings, with diluted EPS also increasing Earnings Per Share Attributable to Common Shareholders (dollars in millions, except per share data) | Metric | Three Months Ended Dec 31, 2020 | Three Months Ended Dec 31, 2019 | Six Months Ended Dec 31, 2020 | Six Months Ended Dec 31, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net earnings attributable to common shareholders | $76.6 | $34.3 | $145.4 | $26.9 | | Weighted average shares outstanding - basic | 167,075,141 | 146,068,025 | 165,589,730 | 145,865,570 | | Weighted average diluted shares outstanding - diluted | 169,279,089 | 147,690,921 | 168,088,190 | 147,769,691 | | Basic EPS | $0.46 | $0.23 | $0.88 | $0.18 | | Diluted EPS | $0.45 | $0.23 | $0.87 | $0.18 | - On November 23, 2020, holders of Series A Preferred Stock converted 265,233 shares (approximately 41% of holdings) and $1.9 million of unpaid accrued dividends into 5,392,280 shares of Common Stock[81] - Approximately 7.7 million 'if-converted' shares of Common Stock from Series A Preferred Stock were excluded from diluted EPS calculation for both periods ended December 31, 2020, as they were anti-dilutive[83] Note 8. Other (Income) Expense, Net Other (income) expense, net, shifted to an income of $8.3 million (Q3 2020) and $19.5 million (H1 2020), primarily due to gains on Series A Preferred Stock derivative liability Other (Income) Expense, Net (dollars in millions) | Metric | Three Months Ended Dec 31, 2020 | Three Months Ended Dec 31, 2019 | Six Months Ended Dec 31, 2020 | Six Months Ended Dec 31, 2019 | | :--- | :--- | :--- | :--- | :--- | | Foreign currency (gains) losses | $(0.2) | $6.7 | $(0.8) | $3.6 | | Other (includes derivative liability gain) | $(8.1) | $(11.1) | $(18.7) | $(3.2) | | Total other (income) expense, net | $(8.3) | $(4.4) | $(19.5) | $0.5 | - Other (income) expense, net for the three and six months ended December 31, 2020, includes realized and unrealized gains of $7.0 million and $16.0 million, respectively, related to the fair value of the Series A Preferred Stock derivative liability[86] Note 9. Restructuring and Other Costs Restructuring charges increased to $5.5 million (three months) and $6.4 million (six months) due to a plan to close the Bolton, U.K. facility, incurring $4.0 million to $7.0 million in severance costs Total Restructuring Charges (dollars in millions) | Period | 2020 | 2019 | | :--- | :--- | :--- | | Three months ended Dec 31 | $5.5 | $0.5 | | Six months ended Dec 31 | $6.4 | $1.2 | - A plan was adopted in Q3 2020 to close the Clinical Supply Services facility in Bolton, U.K., expecting to reduce headcount by 150-180 employees and incur $4.0 million to $7.0 million in severance benefits. $4.0 million in charges were recognized for this closure in the three and six months ended December 31, 2020[88][89] Note 10. Derivative Instruments and Hedging Activities Catalent uses derivative instruments for risk management, including euro-denominated debt as a net investment hedge and an interest-rate swap to fix $500.0 million of term loans at 3.51% - Euro-denominated debt of $993.1 million (U.S. dollar equivalent) is designated as a hedge of net investment in foreign operations[91] Unrealized Foreign Exchange Gain (Loss) from Net Investment Hedge (dollars in millions) | Period | Within Other Comprehensive Income | | :--- | :--- | | Three Months Ended Dec 31, 2020 | $(45.4) | | Six Months Ended Dec 31, 2020 | $(77.8) | - A derivative liability for the Series A Preferred Stock's adjustable dividend feature resulted in a $7.0 million gain for the three months ended December 31, 2020, and a $16.0 million gain for the six months ended December 31, 2020, due to volatility in common stock price[86][95] - An interest-rate swap agreement, entered in April 2020, effectively fixed the floating rate on $500.0 million of U.S. dollar-denominated term loans at 1.26%, for a total fixed rate of 3.51%[100][102] Note 11. Income Taxes Income tax expense increased to $20.6 million (three months) due to higher pretax income, while the six-month expense decreased to $5.6 million due to a $22.2 million foreign tax credit benefit Income Tax Expense (dollars in millions) | Period | Earnings Before Income Taxes | Income Tax Expense | | :--- | :--- | :--- | | Three Months Ended Dec 31, 2020 | $109.0 | $20.6 | | Three Months Ended Dec 31, 2019 | $58.5 | $13.0 | | Six Months Ended Dec 31, 2020 | $176.4 | $5.6 | | Six Months Ended Dec 31, 2019 | $51.7 | $6.1 | - The reduced income tax provision for the six-month period reflects a $22.2 million benefit for U.S. foreign tax credits from an amended prior-year return[108] - Unrecognized tax benefits (including interest and penalties) were $4.1 million at December 31, 2020, down from $5.6 million at June 30, 2020, primarily due to a settlement of an income tax audit[105] Note 12. Employee Retirement Benefit Plans Net periodic benefit costs were $0.4 million (three months) and $0.6 million (six months), with a pension liability of $38.6 million for a multi-employer plan Net Periodic Benefit Cost (dollars in millions) | Component | Three Months Ended Dec 31, 2020 | Six Months Ended Dec 31, 2020 | | :--- | :--- | :--- | | Service cost | $1.0 | $2.0 | | Interest cost | 1.1 | 2.1 | | Expected return on plan assets | (2.5) | (4.9) | | Amortization | 0.8 | 1.4 | | Net amount recognized | $0.4 | $0.6 | - The estimated discounted value of projected contributions to a multi-employer pension plan is $38.6 million as of December 31, 2020, with an annual cash impact of approximately $1.7 million[110] Note 13. Equity, Redeemable Preferred Stock and Accumulated Other Comprehensive Loss Catalent completed two common stock offerings in 2020, raising $547.5 million and $494.2 million, and converted Series A Preferred Stock, reducing accumulated other comprehensive loss - Recent Public Offerings of Common Stock: * June 2020 Equity Offering: Sold 7.7 million shares at $70.72/share, generating $547.5 million net proceeds. An over-allotment option in July 2020 yielded an additional $81.8 million * February 2020 Equity Offering: Sold 8.4 million shares at $58.58/share, generating $494.2 million net proceeds[112][114][115] - On November 23, 2020, 265,233 shares of Series A Preferred Stock were converted into 5,392,280 shares of Common Stock, reducing outstanding preferred stock to 384,777 shares[119] Accumulated Other Comprehensive Loss (dollars in millions) | Component | Balance at June 30, 2020 | Net Current Period Other Comprehensive Income | Balance at Dec 31, 2020 | | :--- | :--- | :--- | | Foreign Exchange Translation Adjustments | $(335.1) | $55.3 | $(279.8) | | Pension and Liability Adjustments | $(47.5) | $1.0 | $(46.5) | | Derivatives and Hedges | $(2.6) | $0.4 | $(2.2) | | Other | $(1.1) | — | $(1.1) | | Total | $(386.3) | $56.7 | $(329.6) | Note 14. Commitments and Contingencies The company is involved in various legal proceedings, including environmental and product liability claims, but does not expect a material adverse effect on its financial statements - Catalent is subject to legal proceedings, including environmental, product liability, manufacturing defects, and acquisition-related claims, but does not expect a material adverse effect on financial statements[127] - The company regularly responds to subpoenas and information requests from governmental agencies and private parties, incurring considerable time and effort, and expects to incur future costs[128] Note 15. Segment Information Catalent operates in four segments, with Biologics showing significant revenue growth to $403.9 million (three months) and $781.0 million (six months) driven by strong demand and COVID-19 programs - The company operates in four segments: Biologics, Softgel and Oral Technologies, Oral and Specialty Delivery, and Clinical Supply Services. Segment performance is measured by Segment EBITDA[129] Net Revenue by Segment (dollars in millions) | Segment | Three Months Ended Dec 31, 2020 | Three Months Ended Dec 31, 2019 | Six Months Ended Dec 31, 2020 | Six Months Ended Dec 31, 2019 | | :--- | :--- | :--- | :--- | :--- | | Biologics | $403.9 | $225.2 | $781.0 | $413.8 | | Softgel and Oral Technologies | 246.6 | 267.9 | 467.7 | 528.5 | | Oral and Specialty Delivery | 169.9 | 143.2 | 328.2 | 275.8 | | Clinical Supply Services | 93.5 | 87.9 | 186.2 | 172.5 | | Total net revenue | $910.8 | $721.4 | $1,756.5 | $1,386.1 | Segment EBITDA (dollars in millions) | Segment | Three Months Ended Dec 31, 2020 | Three Months Ended Dec 31, 2019 | Six Months Ended Dec 31, 2020 | Six Months Ended Dec 31, 2019 | | :--- | :--- | :--- | :--- | :--- | | Biologics | $135.5 | $63.0 | $242.0 | $98.8 | | Softgel and Oral Technologies | 45.6 | 64.5 | 83.4 | 110.9 | | Oral and Specialty Delivery | 44.2 | 33.1 | 65.6 | 60.8 | | Clinical Supply Services | 25.3 | 24.0 | 50.3 | 45.6 | | Sub-Total | $250.6 | $184.6 | $441.3 | $316.1 | Total Assets by Segment (dollars in millions) | Segment | Dec 31, 2020 | June 30, 2020 | | :--- | :--- | :--- | | Biologics | $4,303.5 | $3,775.0 | | Softgel and Oral Technologies | 1,547.0 | 1,501.8 | | Oral and Specialty Delivery | 1,265.7 | 1,247.4 | | Clinical Supply Services | 472.2 | 451.2 | | Corporate and eliminations | 609.7 | 801.1 | | Total assets | $8,198.1 | $7,776.5 | Note 16. Supplemental Balance Sheet Information This note details inventories, prepaid expenses, property, plant, and equipment, and other accrued liabilities, all showing increases, with significant assets and liabilities held for sale Inventories (dollars in millions) | Category | Dec 31, 2020 | June 30, 2020 | | :--- | :--- | :--- | | Raw materials and supplies | $338.5 | $222.6 | | Work-in-process | 157.0 | 123.2 | | Total inventories, gross | 495.5 | 345.8 | | Inventory cost adjustment | (34.2) | (22.0) | | Total inventories | $461.3 | $323.8 | Prepaid Expenses and Other (dollars in millions) | Category | Dec 31, 2020 | June 30, 2020 | | :--- | :--- | :--- | | Prepaid expenses | $47.5 | $28.6 | | Contract assets | 122.9 | 61.4 | | Current assets held for sale | 175.1 | — | | Spare parts supplies | 24.9 | 23.1 | | Prepaid income tax | 21.5 | 15.0 | | Non-U.S. value-added tax | 33.4 | 19.0 | | Other current assets | 27.7 | 30.8 | | Total prepaid expenses and other | $453.0 | $177.9 | Property, Plant, and Equipment, Net (dollars in millions) | Category | Dec 31, 2020 | June 30, 2020 | | :--- | :--- | :--- | | Land, buildings, and improvements | $1,341.3 | $1,250.9 | | Machinery and equipment | 1,292.1 | 1,233.6 | | Furniture and fixtures | 22.4 | 20.9 | | Construction in progress | 558.5 | 440.0 | | Property, plant, and equipment, at cost | 3,214.3 | 2,945.4 | | Accumulated depreciation | (1,084.5) | (1,044.6) | | Property, plant, and equipment, net | $2,129.8 | $1,900.8 | Other Accrued Liabilities (dollars in millions) | Category | Dec 31, 2020 | June 30, 2020 | | :--- | :--- | :--- | | Accrued employee-related expenses | $151.9 | $140.8 | | Restructuring accrual | 6.5 | 2.8 | | Accrued interest | 30.0 | 29.1 | | Contract liability | 260.6 | 191.0 | | Accrued income tax | 0.2 | 4.5 | | Current liabilities held for sale | 19.9 | — | | Other accrued liabilities and expenses | 126.0 | 131.1 | | Total other accrued liabilities | $595.1 | $499.3 | Note 17. Subsequent Events In January 2021, Catalent agreed to acquire Acorda Therapeutics' dry powder inhaler and spray dry manufacturing business for $80.0 million, expected to close in Q3 fiscal 2021 - In January 2021, Catalent agreed to acquire Acorda Therapeutics, Inc.'s dry powder inhaler and spray dry manufacturing business for $80.0 million, including a long-term supply agreement for INBRIJA®[144] - The acquisition is expected to close in the third quarter of fiscal 2021 and will be integrated into the Oral and Specialty Delivery segment[144] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's discussion and analysis of financial condition, results of operations, COVID-19 impact, accounting policies, non-GAAP metrics, liquidity, and market risks The Company Catalent is a leading global provider of advanced delivery technologies and manufacturing solutions for drugs, biologics, and consumer health products - Catalent is a leading global provider of advanced delivery technologies, development, and manufacturing solutions for drugs, biologics, and consumer health products[146] - The company's technologies cover small molecules, protein, cell, and gene therapy biologics, and consumer health products, helping customers accelerate products to market[146] - Annually, Catalent produces approximately 74 billion doses for nearly 7,000 customer products, representing about 1 in every 20 doses taken globally[146] The COVID-19 Pandemic Details measures taken to protect employees and operations, supply chain review, and the pandemic's impact on business and financial results - Catalent has implemented measures to protect employees and business operations, including quarantines, travel restrictions, and workflow reorganization for social distancing[147] - The company has reviewed its supply chain for risks, procuring expanded safety stocks of raw materials and PPE, and monitoring supplier levels[148] - To date, the COVID-19 pandemic has not had a material adverse impact on business, financial condition, or results of operations, but future effects remain uncertain. Some customer delays/cancellations and absenteeism were observed, alongside revenue increases from COVID-19 related programs[149] Critical Accounting Policies and Estimates Discusses critical accounting policies and estimates used in financial statement preparation, with no material changes from the prior fiscal year - Financial statements are prepared in accordance with U.S. GAAP, involving management estimates and assumptions that affect reported amounts[152] - There were no material changes to critical accounting policies or underlying assumptions/estimates from the Fiscal 2020 10-K, other than recently adopted accounting principles which had no material impact on net earnings[153] Non-GAAP Metrics Explains the non-GAAP financial measures used by management, including EBITDA from operations, Segment EBITDA, and constant currency metrics - Management uses 'EBITDA from operations' (consolidated earnings from operations before interest expense, income taxes, depreciation, and amortization, adjusted for non-controlling interests) to assess operating performance, excluding items not representative of core business[154][155] - Segment EBITDA is used to evaluate segment performance, defined as segment earnings before non-controlling interests, other (income) expense, impairments, restructuring costs, interest expense, income tax expense (benefit), and depreciation and amortization[156] - Constant currency presentation is used to compare results between periods as if exchange rates remained constant, aiding in understanding operating results and evaluating performance[157] - Organic revenue growth and Segment EBITDA growth are used to show current year sales and earnings from existing operations, excluding foreign currency impact, acquisitions, and divestitures[159] Three Months Ended December 31, 2020 Compared to the Three Months Ended December 31, 2019 For Q3 2020, Catalent reported significant growth, with net revenue up 26%, gross margin up 25%, and operating earnings up 36%, driven by acquisitions and Biologics demand Financial Performance (Three Months Ended December 31, 2020 vs. 2019; dollars in millions) | Metric | 2020 | 2019 | FX Impact | Constant Currency Change ($) | Constant Currency Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | | Net revenue | $910.8 | $721.4 | $17.9 | $171.5 | 24% | | Cost of sales | 612.6 | 489.2 | 10.9 | 112.5 | 23% | | Gross margin | 298.2 | 232.2 | 7.0 | 59.0 | 25% | | Selling, general, and administrative expenses | 165.5 | 141.0 | 1.4 | 23.1 | 16% | | Impairment charges and (gain) loss on sale of assets | 0.6 | 1.7 | — | (1.1) | (65)% | | Restructuring and other | 5.5 | 0.5 | 0.1 | 4.9 | 980% | | Operating earnings | 126.6 | 89.0 | 5.5 | 32.1 | 36% | | Interest expense, net | 25.9 | 34.9 | 0.2 | (9.2) | (26)% | | Other (income) expense, net | (8.3) | (4.4) | 1.8 | (5.7) | 130% | | Earnings before income taxes | 109.0 | 58.5 | 3.5 | 47.0 | 80% | | Income tax expense | 20.6 | 13.0 | 0.7 | 6.9 | 53% | | Net earnings | $88.4 | $45.5 | $2.8 | $40.1 | 88% | Net Revenue Net revenue increased by $171.5 million, or 24% (constant currency), driven by acquisitions and robust Biologics demand, partially offset by Softgel declines - Net revenue increased by $171.5 million, or 24%, excluding foreign exchange impact, compared to the three months ended December 31, 2019[163] - Acquisitions contributed 7% to net revenue growth, while organic growth (without acquisitions) was 17% on a constant-currency basis, driven by robust demand in Biologics, especially for COVID-19 related programs[163] - The growth was partially offset by decreased demand for prescription and consumer health products in the Softgel and Oral Technologies segment due to COVID-19[163] Gross Margin Gross margin increased by $59.0 million, or 25% (constant currency), primarily due to strong Biologics margin profile, including COVID-19 related programs - Gross margin increased by $59.0 million, or 25%, excluding foreign exchange impact, primarily due to strong margin profile in Biologics, including COVID-19 related programs[164] - On a constant-currency basis, gross margin as a percentage of revenue increased by 40 basis points to 32.6% (from 32.2%) for the three months ended December 31, 2020[164] Selling, General, and Administrative Expenses Selling, general, and administrative expenses increased by $23.1 million, or 16% (constant currency), driven by acquired companies and employee-related costs - Selling, general, and administrative expenses increased by $23.1 million, or 16%, excluding foreign exchange impact[165] - Key drivers of increase: * $5.6 million from acquired companies (including $1.1 million depreciation/amortization, $2.0 million employee costs, $1.9 million transitional services) * $13.7 million increase in employee-related costs (wages and bonuses) * $9.8 million increase in IT expenses (headcount, cybersecurity), insurance premiums, market research, and COVID-19 related spend (PPE, test kits)[165][166] - Partially offset by cost savings of $6.4 million in health and welfare and $3.3 million in travel and entertainment[165] Restructuring and Other Restructuring and other charges increased to $5.5 million due to a plan to close the Clinical Supply Services facility in Bolton, U.K - Restructuring and other charges increased by $5.0 million to $5.5 million for the three months ended December 31, 2020[167] - This increase is primarily due to a plan to close the Clinical Supply Services facility in Bolton, U.K., incurring $4.0 million in charges for the period, with expected total charges of $4.0 million to $7.0 million[167] Interest Expense, net Interest expense, net, decreased by $9.2 million, or 26% (constant currency), due to debt repayment and favorable interest rate movements - Interest expense, net, decreased by $9.2 million, or 26%, to $25.9 million, excluding foreign exchange impact[169] - Savings were driven by repayment of euro-denominated term loans and senior notes, and favorable interest rate movement on U.S. dollar-denominated term loans, partially offset by interest on Euro 2028 Notes[169] - Savings also include $4.0 million of capitalized interest costs[169] Other (Income) Expense, net Other income, net, was $8.3 million, primarily due to a $7.0 million gain from the Series A Preferred Stock derivative liability - Other income, net, was $8.3 million for the three months ended December 31, 2020, primarily due to a $7.0 million gain from the change in fair value of the Series A Preferred Stock derivative liability[171] - In the prior year, other income, net, was $4.4 million, driven by a $10.3 million gain on the derivative liability, partially offset by $5.5 million in non-cash foreign currency translation losses[172] Income Tax Expense Income tax expense was $20.6 million on $109.0 million earnings before taxes, primarily due to higher pretax income - Income tax expense was $20.6 million on $109.0 million earnings before income taxes for the three months ended December 31, 2020, compared to $13.0 million on $58.5 million in the prior year[173] - The increased provision was largely due to higher pretax income across several jurisdictions, partially offset by increased discrete benefit items, including equity compensation deductions[173] Segment Review Provides a review of financial performance for each operating segment for the three months ended December 31, 2020 Biologics Segment Biologics net revenue increased by $170.8 million, or 76% (constant currency), driven by robust end-market demand, especially for COVID-19 related programs - Net revenue increased by $170.8 million, or 76%, excluding foreign exchange impact, driven by robust end-market demand across all offerings, especially for COVID-19 related programs[179] - Segment EBITDA increased by $68.6 million, or 109%, excluding foreign exchange impact, due to strong demand for global drug product and drug substance offerings, particularly COVID-19 related programs[180] - Acquisitions (Anagni, MaSTherCell, Skeletal) contributed 11% to net revenue and 5% to Segment EBITDA growth on an inorganic basis[181] Softgel and Oral Technologies Segment Net revenue decreased by $26.5 million, or 10% (constant currency), due to reduced demand for prescription and consumer health products impacted by COVID-19 - Net revenue decreased by $26.5 million, or 10%, excluding foreign exchange impact, primarily due to reduced end-market demand for prescription and consumer health products (cough, cold, OTC pain relief) attributable to COVID-19 effects[182] - Segment EBITDA decreased by $19.9 million, or 31%, excluding foreign exchange impact, mirroring the net revenue decline due to decreased demand in prescription and consumer health portfolios[184] - The decrease was partially offset by strong development revenue growth[182][184] Oral and Specialty Delivery Segment Net revenue increased by $24 million, or 17% (constant currency), driven by increased demand for Zydis commercial products and early-phase development programs - Net revenue increased by $24 million, or 17%, excluding foreign exchange impact, driven by increased demand for Zydis commercial products and early-phase development programs[185] - Segment EBITDA increased by $10.2 million, or 31%, excluding foreign exchange impact, due to increased demand for Zydis products, early-phase development, and favorable manufacturing efficiencies[186] - The Anagni acquisition contributed 15% to net revenue and 22% to Segment EBITDA on an inorganic basis[187] Clinical Supply Services Segment Net revenue increased by $3.6 million, or 4% (constant currency), driven by strong demand in manufacturing, packaging, storage, and distribution offerings in North America - Net revenue increased by $3.6 million, or 4%, excluding foreign exchange impact, driven by strong demand in manufacturing, packaging, storage, and distribution offerings in North America[188] - Segment EBITDA increased by $0.4 million, or 2%, excluding foreign exchange impact, due to strong demand in North America, partially offset by an unfavorable sales mix in Europe[189] Six Months Ended December 31, 2020 Compared to the Six Months Ended December 31, 2019 For H1 2020, Catalent's net revenue increased 27% to $1,756.5 million, gross margin improved 31%, and net earnings surged 266% to $170.8 million, driven by acquisitions and Biologics Financial Performance (Six Months Ended December 31, 2020 vs. 2019; dollars in millions) | Metric | 2020 | 2019 | FX Impact | Constant Currency Change ($) | Constant Currency Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | | Net revenue | $1,756.5 | $1,386.1 | $27.6 | $342.8 | 25% | | Cost of sales | 1,209.4 | 976.2 | 16.7 | 216.5 | 22% | | Gross margin | 547.1 | 409.9 | 10.9 | 126.3 | 31% | | Selling, general, and administrative expenses | 330.2 | 283.8 | 2.4 | 44.0 | 16% | | Impairment charges and (gain) loss on sale of assets | 2.4 | 1.5 | — | 0.9 | 60% | | Restructuring and other | 6.4 | 1.2 | 0.1 | 5.1 | 425% | | Operating earnings | 208.1 | 123.4 | 8.4 | 76.3 | 62% | | Interest expense, net | 51.2 | 71.2 | 0.4 | (20.4) | (29)% | | Other (income) expense, net | (19.5) | 0.5 | 3.3 | (23.3) | * | | Earnings before income taxes | 176.4 | 51.7 | 4.7 | 120.0 | 232% | | Income tax expense | 5.6 | 6.1 | 0.6 | (1.1) | (18)% | | Net earnings | $170.8 | $45.6 | $4.1 | $121.1 | 266% | *Percentage not meaningful Net Revenue Net revenue increased by $342.8 million, or 25% (constant currency), driven by acquisitions and strong organic growth in Biologics, partially offset by Softgel declines - Net revenue increased by $342.8 million, or 25%, excluding foreign exchange impact, compared to the six months ended December 31, 2019[193] - Key drivers of change: * Acquisitions contributed 7% to net revenue growth * Divestitures resulted in a 1% decrease * Organic growth (without acquisitions and divestitures) was 19% on a constant-currency basis, primarily from robust demand across Biologics offerings, especially COVID-19 related programs[193][194] - Growth was partially offset by decreased demand for prescription and consumer health products in the Softgel and Oral Technologies segment due to COVID-19[195] Gross Margin Gross margin increased by $126.3 million, or 31% (constant currency), primarily due to strong Biologics margin profile and recent acquisitions - Gross margin increased by $126.3 million, or 31%, excluding foreign exchange impact, primarily due to strong margin profile in Biologics, including COVID-19 related programs[196] - On a constant-currency basis, gross margin as a percentage of revenue increased by 140 basis points to 31% (from 29.6%) for the six months ended December 31, 2020, primarily due to recent acquisitions[196] - Growth was partially offset by decreased demand in Softgel and Oral Technologies and a one-time $14 million charge from a voluntary product recall in the respiratory and ophthalmic platform[196] Selling, General, and Administrative Expenses Selling, general, and administrative expenses increased by $44 million, or 16% (constant currency), driven by acquired companies and employee-related costs - Selling, general, and administrative expenses increased by $44 million, or 16%, excluding foreign exchange impact[197] - Key drivers of increase: * $11.2 million from acquired companies (including $2.2 million depreciation/amortization, $3.8 million employee costs, $3.6 million transitional services) * $25.9 million increase in employee-related costs (wages and bonuses) * $17.2 million increase in IT expenses (headcount, cybersecurity), insurance premiums, market research, and COVID-19 related spend (PPE, test kits)[197][198] - Partially offset by cost savings of $7.2 million in health and welfare and $6.5 million in travel and entertainment expenses[197] Restructuring and Other Restructuring and other charges increased to $6.4 million due to the plan to close the Clinical Supply Services facility in Bolton, U.K - Restructuring and other charges increased by $5.2 million to $6.4 million for the six months ended December 31, 2020[199] - This increase is primarily due to the plan to close the Clinical Supply Services facility in Bolton, U.K., incurring $4.0 million in charges for the period, with expected total charges of $4.0 million to $7.0 million[199] Interest Expense, net Interest expense, net, decreased by $20.0 million, or 28%, due to debt repayment and favorable interest rate movements, including capitalized interest - Interest expense, net, decreased by $20.0 million, or 28%, to $51.2 million, compared to the six months ended December 31, 2019[200] - Savings were driven by repayment of euro-denominated term loans and senior notes, and favorable interest rate movement on U.S. dollar-denominated term loans, partially offset by interest on Euro 2028 Notes[200] - Savings also include $10.2 million of capitalized interest costs[200] Other (Income) Expense, net Other income, net, was $19.5 million, primarily due to a $16.0 million gain from the Series A Preferred Stock derivative liability and foreign currency gains - Other income, net, was $19.5 million for the six months ended December 31, 2020, primarily due to a $16.0 million gain from the change in fair value of the Series A Preferred Stock derivative liability and a $0.8 million net foreign currency translation gain[201] - In the prior year, other expense, net, was $0.5 million, including a $1.4 million gain on the derivative liability, a $4.4 million foreign currency gain, and $8.0 million in non-cash foreign currency translation losses[202] Income Tax Expense Income tax expense was $5.6 million on $176.4 million earnings before taxes, reflecting a $22.2 million benefit for U.S. foreign tax credits - Income tax expense was $5.6 million on $176.4 million earnings before income taxes for the six months ended December 31, 2020, compared to $6.1 million on $51.7 million in the prior year[204] - The reduced provision reflects an increase in pretax earnings significantly offset by discrete items, including a $22.2 million benefit for U.S. foreign tax credits from an amended prior-year return[204] Segment Review Provides a review of financial performance for each operating segment for the six months ended December 31, 2020 Biologics Segment Biologics net revenue increased by $356.0 million, or 86% (constant currency), driven by robust demand across all offerings, including COVID-19 related programs - Net revenue increased by $356.0 million, or 86%, excluding foreign exchange impact, driven by robust end-market demand across all offerings, including drug product, drug substance, and cell and gene therapy, partly due to COVID-19 related programs[210] - Segment EBITDA increased by $138.2 million, or 140%, excluding foreign exchange impact, due to strong demand in drug product, drug substance, and cell and gene therapy offerings, partly from COVID-19 related programs[211] - Acquisitions (Anagni, MaSTherCell, Skeletal) contributed 13% to net revenue and 8% to Segment EBITDA growth on an inorganic basis[214] Softgel and Oral Technologies Segment Net revenue decreased by $68 million, or 13% (constant currency), due to reduced demand for prescription and consumer health products impacted by COVID-19 - Net revenue decreased by $68 million, or 13%, excluding foreign exchange impact, primarily due to reduced end-market demand for prescription and consumer health products (cough, cold, OTC pain relief) attributable to COVID-19 effects[215] - Segment EBITDA decreased by $29.3 million, or 26%, excluding foreign exchange impact, mirroring the net revenue decline due to decreased demand in prescription and consumer health portfolios[216] - The decrease was partially offset by strong development revenue growth. A facility divestiture in Australia resulted in a 2% decrease in net revenue and a 1% increase in Segment EBITDA[215][216][217] Oral and Specialty Delivery Segment Net revenue increased by $46.8 million, or 17% (constant currency), driven by increased demand for Zydis commercial products and early-phase development programs - Net revenue increased by $46.8 million, or 17%, excluding foreign exchange impact, driven by increased demand for Zydis commercial products and early-phase development programs[218] - Segment EBITDA increased by $2.8 million, or 5%, excluding foreign exchange impact. However, excluding acquisitions, Segment EBITDA decreased by 23%, primarily due to a $14 million charge from a voluntary product recall in the respiratory and ophthalmic platform[219][222] - Increased demand for Zydis products and favorable manufacturing efficiencies partially offset the recall charges[222] Clinical Supply Services Segment Net revenue increased by $10.2 million, or 6% (constant currency), driven by strong demand in manufacturing and packaging across all regions and increased demand for storage and distribution in North America - Net revenue increased by $10.2 million, or 6%, excluding foreign exchange impact, driven by strong demand in manufacturing and packaging across all regions and increased demand for storage and distribution in North America[223] - Segment EBITDA increased by $3.1 million, or 7%, excluding foreign exchange impact, due to strong global demand in manufacturing, packaging, storage, and distribution, partially offset by an unfavorable sales mix in Europe[224] Liquidity and Capital Resources Catalent's liquidity is supported by cash from operations and capital markets, with operating cash flow increasing to $223.7 million and adequate liquidity for the next twelve months - Principal liquidity sources are cash flows from operations and capital market activities; principal uses are operating/capital expenditures, acquisitions, interest payments, deferred purchase consideration, and preferred stock dividends[225] - The company had a $550 million revolving credit facility available, with $6.7 million reduced by letters of credit outstanding, and believes current liquidity is adequate for the next twelve months[225][226] - No significant debt maturities are due until January 2026, and only one $50.0 million deferred purchase consideration payment remains due in October 2021[226] Cash Flows Summarizes cash flows from operating, investing, and financing activities for the six months ended December 31, 2020 and 2019 Consolidated Statements of Cash Flows Summary (dollars in millions) | Activity | Six Months Ended Dec 31, 2020 | Six Months Ended Dec 31, 2019 | Change ($) | | :--- | :--- | :--- | :--- | | Operating activities | $223.7 | $145.9 | $77.8 | | Investing activities | $(354.4) | $(199.2) | $(155.2) | | Financing activities | $(7.2) | $(101.8) | $94.6 | - Cash from operating activities increased by $77.8 million, primarily due to higher operating earnings and favorable timing of trade receivables collection, partially offset by inventory impact[229] - Cash used in investing activities increased by $155.2 million, mainly due to a $186.7 million increase in property, plant, and equipment acquisitions, partially offset by lower cash used for business acquisitions[230] - Cash used in financing activities decreased by $94.6 million, primarily due to $81.8 million in net proceeds from the exercise of an over-allotment option on common stock[231] Guarantees and Security Details the guarantees and security arrangements for the company's Senior Notes and senior secured credit facilities - All obligations under the Senior Notes (Euro 2028 Notes, USD 2026 Notes, USD 2027 Notes) are general, unsecured, and subordinated to secured indebtedness of guarantors[232] - Each series of Senior Notes is guaranteed by all of Operating Company's wholly owned U.S. subsidiaries that guarantee the senior secured credit facilities, but not by PTS Intermediate Holdings LLC or Catalent, Inc[232] Debt Covenants Outlines the debt covenants contained in the Credit Agreement and Indentures governing the Senior Notes, with compliance as of December 31, 2020 - The Credit Agreement for senior secured credit facilities contains covenants restricting additional indebtedness, liens, mergers, asset sales, dividends, and other activities, subject to exceptions[233] - A net leverage covenant applies to the revolving credit facility if there is a 30% or more draw outstanding at period end. As of December 31, 2020, Operating Company was in compliance with all material covenants[234] - The Indentures governing the Senior Notes also contain covenants limiting debt, restricted payments, investments, asset sales, and other activities, with customary events of default. Operating Company was in compliance as of December 31, 2020[239] Geographic Allocation of Cash Provides the geographic allocation of cash and cash equivalents for non-U.S. subsidiaries and total consolidated amounts Cash and Cash Equivalents (dollars in millions) | Category | Dec 31, 2020 | June 30, 2020 | | :--- | :--- | :--- | | Non-U.S. subsidiaries | $266.9 | $228.0 | | Total consolidated | $833.1 | $953.2 | Interest Rate Risk Management Describes the company's use of interest-rate swaps to manage exposure to variable-rate interest obligations on its term loans - Catalent uses interest-rate swaps to manage exposure to variable-rate interest obligations. In April 2020, an interest-rate swap fixed the floating rate on $500.0 million of U.S. dollar-denominated term loans at 1.26%, resulting in a total fixed rate of 3.51%[241] Currency Risk Management Explains the company's exposure to foreign currency exchange risk and its mitigation strategies, including euro-denominated debt as a net investment hedge - The company is exposed to euro-U.S. dollar exchange rate fluctuations on European investments. It mitigates this by denominating a portion of its debt in euros; $993.1 million of euro-denominated debt was outstanding as a net investment hedge at December 31, 2020[242] - While not currently using forward foreign currency exchange contracts, the company may use them in the future to manage exposure to foreign exchange rate changes and protect foreign currency assets/liabilities[243] Contractual Obligations Details contractual obligations, noting no material changes from the Fiscal 2020 10-K, other than venture capital investment commitments - No material changes to contractual obligations from the Fiscal 2020 10-K, other than venture capital investment commitments[245] Venture Capital Investment Commitments (dollars in millions) | Category | Total | Fiscal 2021 | Fiscal 2022-2023 | Fiscal 2024-2025 | Thereafter | | :--- | :--- | :--- | :--- | :--- | :--- | | Venture capital investment commitments | $11.5 | $11.5 | $— | $— | $— | Off-Balance Sheet Arrangements States that there were no material off-balance sheet arrangements as of December 31, 2020, other than short-term operating leases and letters of credit - As of December 31, 2020, the company had no material off-balance sheet arrangements other than short-term operating leases and outstanding letters of credit[247] Item 3. Quantitative and Qualitative Disclosures About Market Risk Catalent is exposed to market risks from interest rates and foreign exchange, managed through interest-rate swaps and euro-denominated debt for hedging - The company is exposed to cash flow and earnings fluctuations due to interest rate changes on long-term debt and foreign exchange rate changes[249] Interest Rate Risk Details the company's exposure to interest rate risk and its use of interest-rate swaps to manage variable-rate interest obligations - Catalent uses interest-rate swaps to manage variable-rate interest obligations, effectively fixing the interest payable on portions of its term loans[250] - An April 2020 interest-rate swap fixed the floating portion of the rate on $500.0 million of U.S. dollar-denominated term loans at 1.26%, resulting in a total fixed rate of 3.51%[251] Foreign Currency Exchange Risk Explains the company's exposure to transactional and translational foreign exchange risk and its mitigation strategies, including euro-denominated debt - Global operations expose the company to transactional and translational foreign exchange risk, diversified across currencies like the European euro, British pound, Argentinean peso, and Brazilian real[252] - To mitigate exposure on European investments, a portion of debt is denominated in euros. Foreign-currency transaction gains and losses are included in other (income) expense, net[252] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of December 31, 2020, with no material changes to internal control over financial reporting Disclosure Controls and Procedures Management concluded that disclosure controls and procedures were effective as of December 31, 2020, providing reasonable assurance of control objectives - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effec