UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________

FORM 10-Q

______________________________



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

For the Quarterly Period Ended December 31, 2013



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

333-147871

(Commission File Number)

_____________________________

Catalent Pharma Solutions, Inc.

(Exact name of registrant as specified in its charter)

_____________________________



Delaware		13-3523163
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

14 Schoolhouse Road, Somerset, NJ		08873
(Address of principal executive offices)		(Zip code)

(732) 537-6200

(Registrant’s telephone number, including area code)

_____________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No x

(Note: As a voluntary filer not subject to the filing requirements of Section 13 or 15(d) of the Exchange Act, the registrant has filed all reports pursuant to Section 13 or 15(d) of the Exchange Act during the preceding 12 months as if it were subject to such filing requirements.)

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No

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



Large accelerated filer ¨		Accelerated filer ¨
Non-accelerated filer x	(Do not check if a smaller reporting company)	Smaller reporting company ¨

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

As of February 3, 2014, there were 100 shares of the Registrant’s common stock, par value $0.01 per share issued and outstanding.

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CATALENT PHARMA SOLUTIONS, INC.

INDEX TO FORM 10-Q



		Page

Part I.	Financial Information

Item 1.	Financial Statements (unaudited)	5

	Consolidated Statements of Operations for the Three and Six Months Ended December 31, 2013 and December 31, 2012	5

	Consolidated Statements of Comprehensive Income/(Loss) for the Three and Six Months Ended December 31, 2013 and December 31, 2012	6

	Consolidated Balance Sheets as of December 31, 2013 and June 30, 2013	7

	Consolidated Statement of Changes in Shareholder’s Equity/(Deficit) as of December 31, 2013	8

	Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2013 and December 31, 2012	9

	Notes to Unaudited Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44

Item 4.	Controls and Procedures	45

Part II.	Other Information	46

Item 1.	Legal Proceedings	46

Item 1A.	Risk Factors	47

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47

Item 3.	Defaults Upon Senior Securities	47

Item 4.	Mine Safety Disclosures	47

Item 5.	Other Information	47

Item 6.	Exhibits	47

Signatures		49

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PART I

Special Note Regarding Forward-Looking Statements

Certain information included in this Quarterly Report on Form 10-Q may be deemed to be “forward-looking statements.” All statements, other than statements of historical facts, included in this Form 10-Q are forward-looking statements. In particular, statements that we make regarding future market trends are forward-looking statements. When used in this document, the words “believe,” “expect,” “anticipate,” “estimate,” “project,” “plan,” “should,” “intend,” “may,” “will,” “would,” “potential” and similar expressions are intended to identify forward-looking statements.

These statements are based on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. Any forward-looking statements are not guarantees of our future performance and are subject to risks and uncertainties that could cause actual results, developments and business decisions to differ materially from those contemplated by such forward-looking statements. We disclaim any duty to update any forward-looking statements. We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them does, what impact they will have on our results of operations and financial condition.

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 Catalent Pharma Solution Inc.’s (“Catalent” or the “Company”) Annual Report on Form 10-K for the fiscal year ended June 30, 2013 and the following:


•	our substantial indebtedness;


•	our ability to service our outstanding indebtedness and the impact such indebtedness may have on the way we operate our business;


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


•	competition in the industry;


•	the continued financial viability and success of our suppliers and customers, including the research and development and other scientific endeavors of our customers;


•	product or other liability risks inherent in the design, development, manufacture and marketing of our offerings;


•	changes in government regulations or our failure to comply with those regulations or other applicable laws, including environmental, health and safety laws;


•	difficulties or delays in providing quality offerings, services and support to our customers, including manufacturing problems and difficulties or delays associated with obtaining requisite regulatory consents or approvals associated with those activities;


•	uncertainties relating to general economic, political and regulatory conditions;


•	inability to enhance our existing or introduce new technology or service offerings in a timely manner, and technological developments and products offered by our competitors;


•	increased costs for the active pharmaceutical ingredients, components, compounds and raw materials used by our manufacturing businesses or shortages in or interruptions in the supply of these materials;


•	changes in healthcare reimbursement in the United States or internationally;


•	currency risks and other risks associated with international markets;


•	tax legislation initiatives or challenges to our tax positions;


•	failure to retain or continue to attract senior management or key personnel;


•	disruption of, damage to or failure of our information systems;

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•	acquisition opportunities and our ability to successfully integrate acquired businesses and realize anticipated benefits of such acquisitions;


•	the inability to protect our trade secrets and enforce our patent, copyright and trademark rights, and successful challenges to the validity of our patents, copyrights or trademarks and the associated costs;


•	subject to environmental, health and safety and labor and employment laws and regulations, which could increase our costs and restrict our operations in the future;


•	certain liabilities in connection with our pension plans; and


•	conflicts of interest with our controlling investors.

We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them does, what impact they will have on our results of operations and financial condition.

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PART I. FINANCIAL INFORMATION


Item 1.	FINANCIAL STATEMENTS

Catalent Pharma Solutions, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited; Dollars in millions)



	Three Months Ended December 31,						Six Months Ended December 31,
	2013			2012			2013			2012
Net revenue	$	440.7		$	436.1		$	855.0		$	848.1
Cost of sales	303.3			296.1			598.4			590.6
Gross margin	137.4			140.0			256.6			257.5
Selling, general and administrative expenses	87.5			86.2			168.6			168.0
Impairment charges and (gain)/loss on sale of assets	—			2.6			—			2.4
Restructuring and other	5.4			5.6			8.4			9.1
Operating earnings/(loss)	44.5			45.6			79.6			78.0
Interest expense, net	41.5			53.2			82.4			107.1
Other (income)/expense, net	(1.4		)	12.0			(2.4		)	12.0
Earnings/(loss) from continuing operations, before income taxes	4.4			(19.6		)	(0.4		)	(41.1		)
Income tax expense/(benefit)	23.3			8.0			16.7			6.0
Earnings/(loss) from continuing operations	(18.9		)	(27.6		)	(17.1		)	(47.1		)
Net earnings/(loss) from discontinued operations, net of tax	(0.6		)	0.2			(1.0		)	—
Net earnings/(loss)	(19.5		)	(27.4		)	(18.1		)	(47.1		)
Less: Net earnings/(loss) attributable to noncontrolling interest, net of tax	(0.3		)	—			(0.4		)	—
Net earnings/(loss) attributable to Catalent	$	(19.2	)	$	(27.4	)	$	(17.7	)	$	(47.1	)

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

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Catalent Pharma Solutions, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income/(Loss)

(Unaudited; Dollars in millions)



	Three Months Ended December 31,						Six Months Ended December 31,
	2013			2012			2013			2012
Net earnings/(loss)	$	(19.5	)	$	(27.4	)	$	(18.1	)	$	(47.1	)
Other comprehensive income/(loss), net of tax
Foreign currency translation adjustments	(10.2		)	(15.9		)	10.2			11.5
Defined benefit pension plan	0.2			—			0.4			—
Deferred compensation	0.7			0.1			1.2			0.4
Changes in derivatives for the period	—			7.0			—			13.5
Other comprehensive income/(loss), net of tax	(9.3		)	(8.8		)	11.8			25.4
Comprehensive income/(loss)	(28.8		)	(36.2		)	(6.3		)	(21.7		)
Comprehensive income/(loss) attributable to noncontrolling interest	(0.3		)	—			(0.4		)	—
Comprehensive income/(loss) attributable to Catalent	$	(28.5	)	$	(36.2	)	$	(5.9	)	$	(21.7	)

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

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Catalent Pharma Solutions, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited; Dollars in millions except per share amounts)



	December 31, 2013			June 30, 2013
ASSETS
Current assets:
Cash and cash equivalents	$	64.2		106.4
Trade receivables, net	317.3			358.0
Inventories	140.3			124.9
Prepaid expenses and other	90.3			88.6
Total current assets	612.1			677.9
Property, plant, and equipment, net	838.2			814.5
Other assets:
Goodwill	1,081.5			1,023.4
Other intangibles, net	371.1			372.2
Deferred income taxes	130.9			132.2
Other	39.1			36.6
Total assets	$	3,072.9		3,056.8
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND SHAREHOLDER’S DEFICIT
Current liabilities:
Current portion of long-term obligations and other short-term borrowings	$	59.2		35.0
Accounts payable	120.5			150.8
Other accrued liabilities	226.3			224.5
Total current liabilities	406.0			410.3
Long-term obligations, less current portion	2,671.6			2,656.6
Pension liability	135.2			134.1
Deferred income taxes	215.7			219.1
Other liabilities	53.6			47.0
Commitment and contingencies (see Note 13)

Redeemable noncontrolling interest	4.7			—

Shareholder’s deficit:
Common stock $0.01 par value; 1,000 shared authorized, 100 shares issued	—			—
Additional paid in capital	1,029.9			1,027.4
Accumulated deficit	(1,446.5		)	(1,428.8	)
Accumulated other comprehensive income/(loss)	2.5			(9.3	)
Total Catalent shareholder’s deficit	(414.1		)	(410.7	)
Noncontrolling interest	0.2			0.4
Total shareholder’s deficit	(413.9		)	(410.3	)
Total liabilities, redeemable noncontrolling interest and shareholder’s deficit	$	3,072.9		3,056.8

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

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Catalent Pharma Solutions, Inc. and Subsidiaries

Consolidated Statement of Changes in Shareholder’s Equity/(Deficit)

(Unaudited; Dollars in millions)



	Common Stock		Additional Paid in Capital		Accumulated Deficit			Accumulated Other Comprehensive (Loss)/Income			Noncontrolling Interest			Total Shareholder’s (Deficit)/Equity
Balance at June 30, 2013	$	—	$	1,027.4	$	(1,428.8	)	$	(9.3	)	$	0.4		$	(410.3	)
Equity contribution			0.2											0.2
Equity compensation			2.3											2.3
Net earnings/(loss)					(17.7		)				(0.2		)	(17.9		)
Other comprehensive income/(loss)								11.8						11.8
Balance at December 31, 2013	$	—	$	1,029.9	$	(1,446.5	)	$	2.5		$	0.2		$	(413.9	)

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

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Catalent Pharma Solutions, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited; Dollars in millions)



	Six Months Ended December 31,
	2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings/(loss)	$	(18.1	)	$	(47.1	)
Net earnings/(loss) from discontinued operations	(1.0		)	—
Earnings/(loss) from continuing operations	(17.1		)	(47.1		)
Adjustments to reconcile (loss)/earnings from continued operations to net cash from operations:
Depreciation and amortization	73.8			75.8
Non-cash foreign currency transaction (gains)/losses, net	(7.8		)	4.2
Amortization and write off of debt financing costs	6.1			9.9
Asset impairments and (gain)/loss on sale of assets	—			2.4
Call premium payments and financing fees paid	—			7.6
Equity compensation	2.3			1.6
Provision/(benefit) for deferred income taxes	(3.9		)	(3.7		)
Provision for bad debts and inventory	3.9			5.2
Change in operating assets and liabilities:
Decrease/(increase) in trade receivables	47.7			49.2
Decrease/(increase) in inventories	(10.9		)	(32.3		)
Increase/(decrease) in accounts payable	(35.5		)	(4.7		)
Other accrued liabilities and operating items, net	(17.1		)	(42.4		)
Net cash provided by/(used in) operating activities from continuing operations	41.5			25.7
Net cash provided by/(used in) operating activities from discontinued operations	(1.1		)	—
Net cash provided by/(used in) operating activities	40.4			25.7
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment and other productive assets	(39.8		)	(52.8		)
Proceeds from sale of property and equipment	0.8			0.2
Payment for acquisitions, net	(51.0		)	—
Net cash provided by/(used in) investing activities from continuing operations	(90.0		)	(52.6		)
Net cash provided by/(used in) investing activities from discontinued operations	4.0			—
Net cash provided by/(used in) investing activities	(86.0		)	(52.6		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in short-term borrowings	15.0			(7.1		)
Proceeds from borrowing, net	0.7			341.7
Payments related to long-term obligations	(15.2		)	(370.3		)
Reclassification of call premium payments	—			(7.6		)
Equity contribution/(redemption)	0.2			0.4
Net cash (used in)/provided by financing activities from continuing operations	0.7			(42.9		)
Net cash (used in)/provided by financing activities from discontinued operations	—			—
Net cash (used in)/provided by financing activities	0.7			(42.9		)
Effect of foreign currency on cash	2.7			3.6
NET INCREASE/(DECREASE) IN CASH AND EQUIVALENTS	(42.2		)	(66.2		)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD	106.4			139.0
CASH AND EQUIVALENTS AT END OF PERIOD	$	64.2		$	72.8
SUPPLEMENTARY CASH FLOW INFORMATION:
Interest paid	$	77.7		$	102.1
Income taxes paid, net	$	12.4		$	5.5

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

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Catalent Pharma Solutions, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(Unaudited; Dollars in millions except per share amounts)


1.	BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

Catalent Pharma Solutions, Inc. (“Catalent”, or the “Company”) is a direct wholly-owned subsidiary of PTS Intermediate Holdings LLC ("Intermediate Holdings"). Intermediate Holdings is a direct wholly-owned subsidiary of Catalent, Inc. (“Parent”) and Parent is 100% owned by Phoenix Charter LLC (“Phoenix”) and certain members of the Company’s senior management. Phoenix is wholly-owned by BHP PTS Holdings L.L.C., an entity controlled by affiliates of The Blackstone Group (“Blackstone”), a global private investment and advisory firm.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the six months ended December 31, 2013 are not necessarily indicative of the results that may be expected for the year ending June 30, 2014. The consolidated balance sheet at June 30, 2013 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended June 30, 2013 filed with the Securities and Exchange Commission.

Noncontrolling interest is included within the equity section in the consolidated balance sheets. Redeemable noncontrolling interest has been classified as temporary equity and is therefore reported outside of permanent equity on the consolidated balance sheets at the greater of the initial carrying amount adjusted for the noncontrolling interest's share of net earnings/(loss) or its redemption value. We present the amount of consolidated net earnings/(loss) that is attributable to Catalent and the noncontrolling interest in the consolidated statements of operations. Furthermore, we disclose the amount of comprehensive income that is attributable to Catalent and the noncontrolling interest in the consolidated statements of comprehensive income/(loss).

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Such estimates include, but are not limited to, allowance for doubtful accounts, inventory and long-lived asset valuation, goodwill and other intangible asset valuation and impairment, equity-based compensation, income taxes, derivative financial instruments and pension plan asset and liability valuation. Actual amounts may differ from these estimated amounts.

Foreign Currency Translation

The financial statements of the Company’s operations outside the U.S. are generally measured using the local currency as the functional currency. Adjustments to translate the assets and liabilities of these foreign operations into U.S. dollars are accumulated as a component of other comprehensive income/(loss) utilizing period-end exchange rates. The currency fluctuation related to certain long-term inter-company loans deemed to not be repayable in the foreseeable future have been recorded within the cumulative translation adjustment, a component of other comprehensive income/(loss). In addition, the currency fluctuation associated with the portion of the Company’s euro-denominated debt designated as a net investment hedge is included as a component of other comprehensive income/(loss). Foreign currency transaction gains and losses calculated by utilizing weighted average exchange rates for the period are included in the statements of operations in “other (income)/expense, net”. Such foreign currency transaction gains and losses include inter-company loans repayable in the foreseeable future that are long-term in nature.

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Revenue Recognition

In accordance with Accounting Standard Codification (ASC) 605 Revenue Recognition, the Company recognizes revenue when persuasive evidence of an arrangement exists, the services have been rendered, the price is fixed or determinable, and collectability is reasonably assured. Revenue is recognized net of sales returns and allowances, if any.

The Company manufactures products on behalf of its customers. Revenue is recognized upon delivery of the product in accordance with the terms of the contract, which specify when transfer of title and risk of loss occurs. The Company also generates revenue through royalty fees, research and development product license fees, participation fees, annual exclusivity fees, option fees to extend exclusivity agreements, and milestone payments for attaining certain regulatory approvals, which are recognized at fair value. Exclusivity payments are paid by customers in return for the Company's commitment to manufacture certain products for those customers only. The revenue related to those agreements is recognized over the term of the exclusivity agreement or the term of the option agreement unless a particular milestone is designated, in which case revenue is recognized when service obligations or performance have been completed. Some of the Company’s manufacturing contracts with its customers have annual minimum purchase requirements. At the end of the contract year, revenue is recognized for the unfilled purchase obligation in accordance with the contract terms.

Arrangements containing multiple revenue generating activities, including service arrangements, are accounted for in accordance with applicable accounting guidance included within the framework of U.S. GAAP. If the deliverable meets the criteria of a separate unit of accounting, the arrangement revenue is allocated to each element based upon its relative fair value. Generally, in cases where we have multiple contracts with the same customer, we treat such contracts as separate arrangements.

Goodwill

The Company accounts for purchased goodwill and intangible assets with indefinite lives in accordance with ASC 350 Intangibles—Goodwill and Other (ASC 350). Under ASC 350, goodwill and intangible assets with indefinite lives are not amortized, but instead are tested for impairment at least annually. The Company has elected to perform its annual impairment analysis during its fourth fiscal quarter each year or earlier if indicators of impairment are present.

Property and Equipment and Other Definite Lived Intangible Assets

Property and equipment are stated at cost, net of depreciation. Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets, including capital lease assets that are amortized over the shorter of their useful lives or the terms of the respective leases. The Company generally uses the following range of useful lives for its property and equipment categories: buildings and improvements - 5 to 50 years; machinery and equipment - 3 to 10 years; and furniture and fixtures - 3 to 7 years. Depreciation expense was $26.8 million and $53.0 million for the three and six months ended December 31, 2013 and $27.9 million and $54.7 million for the three and six months ended December 31, 2012. The Company charges repairs and maintenance costs to expense as incurred. The amount of capitalized interest was immaterial for all periods presented.

Intangible assets with finite lives, primarily including customer relationships, patents and trademarks, continue to be amortized over their useful lives. The Company evaluates the recoverability of its other long-lived assets, including amortizing intangible assets, if circumstances indicate impairment may have occurred pursuant to ASC 360 Property, Plant and Equipment (ASC 360). This analysis is performed by comparing the respective carrying values of the assets to the current and expected future cash flows, on an un-discounted basis, to be generated from such assets. If such analysis indicates that the carrying value of these assets is not recoverable, the carrying value of such assets is reduced to fair value through a charge to the Consolidated Statements of Operations. Fair value is determined based on assumptions the Company believes marketplace participants would utilize and comparable marketplace information in similar arm's length transactions.

Research and Development Costs

The Company expenses research and development costs as incurred. Costs incurred in connection with the development of new offerings and manufacturing process improvements are recorded within selling, general and administrative expenses. Such research and development costs included in selling, general and administrative expenses amounted to $4.5 million and $7.9 million for three and six months ended December 31, 2013 and $4.0 million and $6.7 million for three and six months ended December 31, 2012. Costs incurred in connection with research and development services we provide to customers and services performed in support of the commercial manufacturing process for customers are recorded within cost of sales. Such research and development costs included in cost of sales amounted to $8.4 million and $15.8 million for the three and six months ended December 31, 2013 and $8.9 million and $17.3 million for the three and six months ended December 31, 2012.

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Recent Financial Accounting Standards

In February 2013, the FASB issued Accounting Standards Update No. 2013-02, “Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income” (“ASU 2013-02”). ASU 2013-02 requires enhanced disclosures about items reclassified out of accumulated other comprehensive income ("AOCI"). For items reclassified to net income in their entirety, the ASU requires information about the effect of significant reclassification items to appear on separate line items of net income. For those items where direct reclassification to net income is not required, companies must provide cross-references to other disclosures that provide details about the effects of the reclassification out of AOCI. Expanded disclosures concerning current period changes in AOCI balances are also required for each component of OCI on the face of the financial statements or in the notes. During the first quarter of fiscal 2014, the Company adopted ASU 2013-02 and has presented the required disclosures in the "Accumulated Other Comprehensive Income (Loss)" footnote within the notes to the financial statements.


2.	GOODWILL

The following table summarizes the changes between June 30, 2013 and December 31, 2013 in the carrying amount of goodwill in total and by reporting segment:



(Dollars in millions)	Oral Technologies		Medication Delivery Solutions		Development & Clinical Services		Total
Balance at June 30, 2013 ⁽¹⁾	$	833.2	$	—	$	190.2	$	1,023.4
Additions/(impairments)⁽²⁾	33.1		—		—		33.1
Foreign currency translation adjustments	15.2		—		9.8		25.0
Balance at December 31, 2013	$	881.5	$	—	$	200.0	$	1,081.5


(1)	The opening balance is reflective of historical impairment charges related to the Medication Delivery Solutions segment of approximately $158.0 million.


(2)	Acquired goodwill of $33.1 million in our Oral Technologies segment was generated from acquisitions in Brazil and China during the six months ended December 31, 2013.

No goodwill impairment charges were required during the current or comparable prior year period. When required, impairment charges are recorded within the Consolidated Statement of Operations as Impairment charges and (gain)/loss on sale of assets.


3.	DEFINITE LIVED LONG-LIVED ASSETS

The Company’s definite lived long-lived assets include property, plant and equipment as well as other intangible assets with definite lives.

The details of other intangible assets subject to amortization as of December 31, 2013 and June 30, 2013, are as follows:



(Dollars in millions)	Gross Carrying Value		Accumulated Amortization			Net Carrying Value
December 31, 2013
Amortized intangibles:
Core technology	$	148.4	$	(49.0	)	$	99.4
Customer relationships	228.0		(59.1		)	168.9
Product relationships	234.6		(131.8		)	102.8
Total intangible assets	$	611.0	$	(239.9	)	$	371.1

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(Dollars in millions)	Gross Carrying Value		Accumulated Amortization			Net Carrying Value
June 30, 2013
Amortized intangibles:
Core technology	$	143.7	$	(44.4	)	$	99.3
Customer relationships	214.3		(50.1		)	164.2
Product relationships	227.1		(118.4		)	108.7
Total intangible assets	$	585.1	$	(212.9	)	$	372.2

Amortization expense was $10.5 million and $20.8 million for the three and six months ended December 31, 2013 and $10.6 million and $21.1 million for the three and six months ended December 31, 2012.

Amortization expense in future periods is estimated to be:



(Dollars in millions)	Remainder Fiscal 2014		2015		2016		2017		2018		2019
Amortization expense	$	20.7	$	41.0	$	41.0	$	40.4	$	40.4	$	31.5


4.	DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Risk Management Objective of Using Derivatives

The Company is exposed to fluctuations in the EUR-USD exchange rate on its investments in foreign operations in Europe. While the Company does not actively hedge against changes in foreign currency, we have mitigated the exposure of our investments in our European operations by denominating a portion of our debt in euros. At December 31, 2013, the Company had euro denominated debt outstanding of $572.6 million that qualifies as a hedge of a net investment in foreign operations. For non-derivatives designated and qualifying as net investment hedges, the effective portion of the translation gains or losses are reported in accumulated other comprehensive income/(loss) as part of the cumulative translation adjustment. For the three and six months ended December 31, 2013, the Company recorded an unrealized foreign exchange loss of $4.0 million and a loss of $15.4 million, respectively, within cumulative translation adjustment. For the three and six months ended December 31, 2012, the Company recorded an unrealized foreign exchange loss of $9.8 million and a loss of $25.8 million, respectively, within cumulative translation adjustment. The net accumulated gain of this net investment as of December 31, 2013 included within other comprehensive income/(loss) was approximately $47.7 million. For the three and six months ended December 31, 2013, the Company recognized an unrealized foreign exchange loss of $2.6 million and a loss of $10.3 million in the consolidated statement of operations related to a portion of its euro-denominated debt not designated as a net investment hedge. For the three and six months ended December 31, 2012, the Company recognized an unrealized foreign exchange loss of $3.3 million and a loss of $9.6 million, respectively.

Amounts are reclassified out of accumulated other comprehensive income/(loss) into earnings when the hedged net investment is either sold or substantially liquidated.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives historically were to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily used interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. As of December 31, 2013, we did not have any interest rate swap agreements in place.


5.	FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS

ASC 820 Fair Value Measurements and Disclosures (“ASC 820”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 defines fair value as the exit price that would be received to sell an asset or paid to transfer a liability. Fair value is a market-based measurement that should be

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determined using assumptions that market participants would use in pricing an asset or liability. Valuation techniques used to measure fair value should maximize the use of observable inputs and minimize the use of unobservable inputs. To measure fair value, the Company uses the following fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data by correlation or other means.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Value is determined using pricing models, discounted cash flow methodologies, or similar techniques and also includes instruments for which the determination of fair value requires significant judgment or estimation.

Fair value under ASC 820 is principally applied to financial assets and liabilities which, for Catalent, primarily include investments in money market funds. The Company is not required to apply all the provisions of ASC 820 in financial statements to the nonfinancial assets and nonfinancial liabilities. There were no changes from the previously reported classification of financial assets and liabilities.

The following table provides a summary of financial assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2013, aggregated by the level in the fair value hierarchy within which those measurements fall:



			Fair Value Measurements using:
(Dollars in millions)	Total		Level 1		Level 2		Level 3
Assets
Cash equivalents - money market funds	$	2.5	$	2.5	$	—	$	—

The following table provides a summary of financial assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2013, aggregated by the level in the fair value hierarchy in which those measurements fall:



			Fair Value Measurements using:
(Dollars in millions)	Total		Level 1		Level 2		Level 3
Assets
Cash equivalents - money market funds	$	5.8	$	5.8	$	—	$	—

Cash Equivalents

The fair value of cash equivalents is estimated on the quoted market price of the investments. The carrying amounts of the Company’s cash equivalents approximate their fair value due to the short-term maturity of these instruments.

Long-Term Obligations

The estimated fair value of long-term debt, which is considered a Level 2 liability, is based on the quoted market prices for the same or similar issues or on the current rates offered for debt of the same remaining maturities and considers collateral, if any.

The carrying amounts and the estimated fair values of financial instruments as of December 31, 2013 and June 30, 2013, are as follows:



	December 31, 2013				June 30, 2013
(Dollars in millions)	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Long-term debt and other	$	2,730.8	$	2,782.8	$	2,691.6	$	2,633.2

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6.	LONG-TERM OBLIGATIONS AND OTHER SHORT-TERM BORROWINGS

Long-term obligations and other short-term borrowings consist of the following at December 31, 2013 and June 30, 2013:



(Dollars in millions)	Maturity	December 31, 2013		June 30, 2013
Senior Secured Credit Facilities
Term loan facility dollar-denominated	September 2016	$	787.9	$	791.3
Term loan facility dollar-denominated	September 2017	644.2		646.3
Term loan facility euro-denominated	September 2016	277.6		266.6
9 ^3/4% Senior Subordinated euro-denominated Notes	April 2017	295.0		281.9
7 ^7/8 % Senior Notes	October 2018	348.5		348.2
Senior Unsecured Term Loan Facility	December 2017	274.2		274.1
$200.3 million Revolving Credit Facility	April 2016	30.0		—
Other obligations	2013 to 2032	73.4		83.2
Total		2,730.8		2,691.6
Less: Current portion of long-term obligations and other short-term borrowings		59.2		35.0
Long-term obligations, less current portion short-term borrowings		$	2,671.6	$	2,656.6

Debt Covenants

The Credit Agreement, the senior unsecured term loan facility and the indentures governing the notes contain a number of covenants that, among other things, restrict, subject to certain exceptions, the Company’s (and the Company’s restricted subsidiaries’) ability to incur additional indebtedness or issue certain preferred shares; create liens on assets; engage in mergers and consolidations; sell assets; pay dividends and distributions or repurchase capital stock; repay subordinated indebtedness; engage in certain transactions with affiliates; make investments, loans or advances; make certain acquisitions; and in the case of the Company’s Credit Agreement, enter into sale and leaseback transactions, amend material agreements governing the Company’s subordinated indebtedness (including the senior subordinated notes) and change the Company’s lines of business.

As of December 31, 2013, the Company was in compliance with all covenants related to its long-term obligations. The Company’s long-term debt obligations do not contain any financial maintenance covenants.


7.	INCOME TAXES

The Company accounts for income taxes in accordance with the provision of ASC 740 Income Taxes. Generally, fluctuations in the effective tax rate are primarily due to changes in the U.S. and non-U.S. pretax income resulting from the Company’s business mix and changes in the tax impact of special items and other discrete tax items, which may have unique tax implications depending on the nature of the item. Such discrete items include, but are not limited to, changes in foreign statutory tax rates, the amortization of certain assets and the tax impact of changes in our ASC 740 unrecognized tax benefit reserves. In the normal course of business, we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as the United States, Germany, France, and the United Kingdom. We are no longer subject to non-U.S. income tax examinations for years prior to 2005. Under the terms of the purchase agreement related to the 2007 acquisition, the Company is indemnified by its former owner for tax liabilities that may arise in the future that relate to tax periods prior to April 10, 2007. The indemnification agreement includes, among other taxes, any and all federal, state and international income based taxes as well as interest and penalties that may be related thereto. As of December 31, 2013 and June 30, 2013, approximately $2.9 million and $6.6 million of unrecognized tax benefit is subject to indemnification by our former owner, respectively.

ASC 740 includes guidance on the accounting for uncertainty in income taxes recognized in the financial statements. This standard also provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. As of December 31, 2013, the Company had a total of $58.0 million of unrecognized tax benefits. A reconciliation of our reserves for uncertain tax positions, excluding accrued interest and penalties, for December 31, 2013 is as follows:

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Balance at June 30, 2013	$	37.7
Additions based on tax positions related to the current year	—
Additions for tax positions of prior years	24.1
Reductions for tax positions of prior years	(3.8		)
Balance at December 31, 2013	$	58.0

As of December 31, 2013 and June 30, 2013, the Company had a total of $62.9 million and $42.7 million of uncertain tax positions (including accrued interest and penalties), respectively. As of these dates, $33.1 million and $9.6 million, respectively, represent the amount of unrecognized tax benefits, which, if recognized, would favorably impact the effective income tax rate. The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense. As of December 31, 2013 and June 30, 2013, the Company has approximately $4.8 million and $5.0 million of accrued interest and penalties related to uncertain tax positions, respectively. As of these dates, the portion of such interest and penalties subject to indemnification by our former owner is $2.4 million and $4.1 million, respectively.


8.	EMPLOYEE RETIREMENT BENEFIT PLANS

Components of the Company’s net periodic benefit costs are as follows:



	Three Months Ended December 31,						Six Months Ended December 31,
(Dollars in millions)	2013			2012			2013			2012
Components of net periodic benefit cost:
Service cost	$	0.7		$	0.8		$	1.4		$	1.5
Interest cost	3.1			3.1			6.1			6.1
Expected return on plan assets	(2.6		)	(2.5		)	(5.1		)	(5.0		)
Amortization ⁽¹⁾	0.3			0.2			0.6			0.4
Net amount recognized	$	1.5		$	1.6		$	3.0		$	3.0


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

The Company has recorded $39.7 million in obligations related to its withdrawal from a multi-employer pension plan related to a former commercial packaging site, a clinical services site and a former printed components operation. The estimated discounted value of the projected contributions related to these plans is $39.7 million as of December 31, 2013 and June 30, 2013. The annual cash impact associated with our long term obligation approximates $1.7 million per year. Refer to Note 12 to the Consolidated Financial Statements for further discussion.


9.	RELATED PARTY TRANSACTIONS

Advisor Transaction and Management Fees

The Company is party to a transaction and advisory fee agreement with Blackstone and certain other Investors in BHP PTS Holdings L.L.C. (the “Investors”), the investment entity controlled by affiliates of Blackstone that was formed in connection with the Investors’ investment in Phoenix. The Company pays an annual sponsor advisory fee to Blackstone and the Investors for certain monitoring, advisory and consulting services to the Company. During the three and six months ended December 31, 2013 this management fee was approximately $3.2 million and $6.4 million, respectively and was $3.3 million and $6.6 million, respectively for three and six months ended December 31, 2012, and is recorded within selling, general and administrative expenses in the Consolidated Statements of Operations.


10.	ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)

The components of the changes in the cumulative translation adjustment and minimum pension liability for the three and six months ended December 31, 2013 and December 31, 2012 are presented below.

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	Three Months Ended December 31,						Six Months Ended December 31,
	2013			2012			2013			2012
Cumulative translation adjustments:
Net investment hedge	$	(4.0	)	$	(9.8	)	$	(15.4	)	$	(25.8	)
Long term intercompany loans	6.1			—			18.3			—
Translation adjustments	(12.3		)	(6.1		)	7.3			37.3
Total cumulative translation adjustment	(10.2		)	(15.9		)	10.2			11.5

Net change in minimum pension liability
Net gain/(loss) recognized during the period	0.3			—			0.6			—
Total pension, pretax	0.3			—			0.6			—
Tax expense/(benefit) ⁽¹⁾	(0.1		)	—			(0.2		)	—
Net change in minimum pension liability, net of tax	$	0.2		$	—		$	0.4		$	—

(1) Tax related to minimum pension liability relate to the Company's foreign operations.

Tax related to the minimum pension liability generated in the U.S., foreign currency translation adjustments related to the net investment hedge, unrealized gains/(losses) and derivatives and deferred compensation have a full valuation allowance recorded offsetting the tax impact resulting in a net zero tax impact for the two years presented.

Changes in Accumulated Other Comprehensive Income/(Loss) by Component

For the three months ended December 31, 2013 the changes in accumulated other comprehensive income by component are as follows:



	Foreign Exchange Translation Adjustments			Pension and Other Post-Retirement Adjustments			Deferred Compensation		Total
Balance at September 30, 2013	$	35.5		$	(25.7	)	$	2.0	$	11.8
Other comprehensive income/(loss) before reclassifications	(10.2		)	—			0.7		(9.5		)
Amounts reclassified from accumulated other comprehensive income	—			0.2			—		0.2
Net current period other comprehensive income (loss)	(10.2		)	0.2			0.7		(9.3		)
Balance as of December 31, 2013	$	25.3		$	(25.5	)	$	2.7	$	2.5

For the three months ended December 31, 2013 the Company reclassified $0.3 million of actuarial losses related to its defined benefit pension and other post-retirement benefit plans from accumulated other comprehensive income into selling, general and administrative expenses. Due to this reclassification, the company recognized an income tax benefit of $0.1 million for the three months ended December 31, 2013.

For the six months ended December 31, 2013 the changes in accumulated other comprehensive income by component are as follows:

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	Foreign Exchange Translation Adjustments		Pension and Other Post-Retirement Adjustments			Deferred Compensation		Total
Balance at June 30, 2013	$	15.1	$	(25.9	)	$	1.5	$	(9.3	)
Other comprehensive income/(loss) before reclassifications	10.2		—			1.2		11.4
Amounts reclassified from accumulated other comprehensive income	—		0.4			—		0.4
Net current period other comprehensive income (loss)	10.2		0.4			1.2		11.8
Balance as of December 31, 2013	$	25.3	$	(25.5	)	$	2.7	$	2.5

For the six months ended December 31, 2013, the Company reclassified $0.6 million of actuarial losses related to its defined benefit pension and other post-retirement benefit plans from accumulated other comprehensive income into selling, general and administrative expenses. Due to this reclassification, the company recognized an income tax benefit of $0.2 million for six months ended December 31, 2013, respectively.


11.	REDEEMABLE NONCONTROLLING INTEREST

In July 2013, the Company acquired a 67% controlling interest in a softgel manufacturing facility located in Haining, China. The noncontrolling interest shareholders have the right to jointly sell the remaining 33% interest to Catalent during the 30-day period following the third anniversary of closing for a price based on the greater of (1) an amount that would provide the noncontrolling interest shareholders a return on their investment of a predetermined amount per annum on their pro rata share of the initial valuation or (2) a multiple of the sum of the target's earnings before interest, taxes, depreciation and amortization and amortization less net debt for the four quarters immediately preceding such sale. Noncontrolling interest with redemption features, such as the arrangement described above, that are not solely within the Company's control are considered redeemable noncontrolling interests, which is considered temporary equity and is therefore reported outside of permanent equity on the Company's consolidated balance sheet at the greater of the initial carrying amount adjusted for the noncontrolling interest's share of net income/(loss) or its redemption value. As of December 31, 2013, the redemption value of the redeemable noncontrolling interest approximated the carrying value.


12.	COMMITMENTS AND CONTINGENCIES

As previously disclosed with regard to the Company’s participation in a multi-employer pension plan, the Company notified the plan trustees of its withdrawal from such plan in fiscal 2012. The withdrawal from the plan resulted in the recognition of liabilities associated with the Company’s long term obligations in both the prior and current year periods, which were primarily recorded as an expense within discontinued operations. The actuarial review process, which is administered by the plan trustees, is ongoing and we await final determination as to the company’s ultimate liability. The annual cash impact associated with our long term obligation approximates $1.7 million per year. Refer to Note 8 on the Consolidated Financial Statements for further discussion.

Beginning in November 2006, we, along with several pharmaceutical companies, have been named in approximately 380 civil lawsuits. These lawsuits were filed by individuals allegedly injured by their use of the prescription acne medication Amnesteem®, a branded generic form of isotretinoin, and in some instances of isotretinoin products made and/or sold by other firms as well. All but one of these lawsuits have been dismissed or settled. We were not required to make any contribution toward any settlement to date. While it is not possible to determine with any degree of certainty the ultimate outcome of this legal proceeding, including making a determination of liability, we believe we have meritorious defenses with respect to the claims asserted against us and intend to vigorously defend our position.

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

From time to time, we receive subpoenas or requests for information from various government agencies, including from state attorneys general and the U.S. Department of Justice relating to the business practices of customers or suppliers. We

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generally respond to such subpoenas and requests in a timely and thorough manner, which responses sometimes require considerable time and effort and can result in considerable costs being incurred by us. We expect to incur additional costs in the future in connection with existing and future requests.


13.	SEGMENT INFORMATION

The Company conducts its business within the following operating segments: Softgel Technologies, Modified Release Technologies, Medication Delivery Solutions and Development & Clinical Services. The Softgel Technologies and Modified Release Technologies segments are aggregated into one reportable operating segment – Oral Technologies. The Company evaluates the performance of its segments based on segment earnings before noncontrolling interest, other (income) expense, impairments, restructuring costs, interest expense, income tax (benefit)/expense, and depreciation and amortization (“Segment EBITDA”). EBITDA from continuing operations is consolidated earnings from continuing operations before interest expense, income tax (benefit)/expense, depreciation and amortization and is adjusted for the income or loss attributable to noncontrolling interest. The Company’s presentation of Segment EBITDA and EBITDA from continuing operations may not be comparable to similarly-titled measures used by other companies.

The following tables include net revenue and Segment EBITDA during the three and six months ended December 31, 2013 and December 31, 2012:



	Three Months Ended December 31,						Six Months Ended December 31,
(Dollars in millions)	2013			2012			2013			2012
Oral Technologies
Net revenue	$	285.8		$	290.1		$	544.7		$	549.9
Segment EBITDA	74.6			79.3			135.0			138.4
Medication Delivery Solutions
Net revenue	55.3			52.5			111.8			97.3
Segment EBITDA	7.0			6.8			15.2			8.8
Development and Clinical Services
Net revenue	102.1			96.4			203.1			205.1
Segment EBITDA	18.5			18.7			34.2			39.6
Inter-segment revenue elimination	(2.5		)	(2.9		)	(4.6		)	(4.2		)
Unallocated Costs ⁽¹⁾	(16.6		)	(32.7		)	(28.2		)	(45.0		)
Combined Totals:
Net revenue	$	440.7		$	436.1		$	855.0		$	848.1

EBITDA from continuing operations	$	83.5		$	72.1		$	156.2		$	141.8

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



	Three Months Ended December 31,						Six Months Ended December 31,
(Dollars in millions)	2013			2012			2013			2012
Impairment charges and gain/(loss) on sale of assets	$	—		$	(2.6	)	$	—		$	(2.4	)
Equity compensation	(1.1		)	(0.6		)	(2.3		)	(1.6		)
Restructuring and other special items	(8.1		)	(10.0		)	(14.8		)	(14.5		)
Sponsor advisory fee	(3.2		)	(3.3		)	(6.4		)	(6.6		)
Noncontrolling interest	0.3			—			0.4			—
Other income (expense), net ⁽²⁾	1.4			(12.0		)	2.4			(12.0		)
Non-allocated corporate costs, net	(5.9		)	(4.2		)	(7.5		)	(7.9		)
Total unallocated costs	$	(16.6	)	$	(32.7	)	$	(28.2	)	$	(45.0	)

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(2) Other income primarily relates to realized and unrealized gains/(losses) related to foreign currency translation. The prior year period included charges associated with redemption of our Senior Toggle Notes.

Provided below is a reconciliation of earnings/(loss) from continuing operations to EBITDA from continuing operations:



	Three Months Ended December 31,						Six Months Ended December 31,
(Dollars in millions)	2013			2012			2013			2012
Earnings/(loss) from continuing operations	$	(18.9	)	$	(27.6	)	$	(17.1	)	$	(47.1	)
Depreciation and amortization	37.3			38.5			73.8			75.8
Interest expense, net	41.5			53.2			82.4			107.1
Income tax (benefit)/expense	23.3			8.0			16.7			6.0
Noncontrolling interest	0.3			—			0.4			—
EBITDA from continuing operations	$	83.5		$	72.1		$	156.2		$	141.8

The following table includes total assets for each segment, as well as reconciling items necessary to total the amounts reported in the Consolidated Balance Sheets:



(Dollars in millions)	December 31, 2013			June 30, 2013
Assets
Oral Technologies	$	2,569.4		$	2,464.4
Medication Delivery Solutions	276.1			286.2
Development and Clinical Services	671.4			645.9
Corporate and eliminations	(444.0		)	(339.7		)
Total assets	$	3,072.9		$	3,056.8


14.	SUPPLEMENTAL BALANCE SHEET INFORMATION

Supplementary balance sheet information at December 31, 2013 and June 30, 2013, is detailed in the following tables.

Inventories

Work-in-process and finished goods inventories include raw materials, labor, and overhead. Total inventories consisted of the following:



(Dollars in millions)	December 31, 2013			June 30, 2013
Raw materials and supplies	$	83.6		$	70.6
Work-in-process	21.6			26.1
Finished goods	46.0			40.0
Total inventories, gross	151.2			136.7
Inventory reserve	(10.9		)	(11.8		)
Inventories	$	140.3		$	124.9

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Prepaid expenses and other

Prepaid expenses and other current assets consist of the following:



(Dollars in millions)	December 31, 2013		June 30, 2013
Prepaid expenses	$	22.9	$	16.2
Spare parts supplies	12.3		11.8
Deferred income taxes	18.0		16.3
Other current assets	37.1		44.3
Total prepaid expenses and other	$	90.3	$	88.6

Property, plant, and equipment, net

Property, plant, and equipment, net consist of the following:



(Dollars in millions)	December 31, 2013			June 30, 2013
Land, buildings, and improvements	$	604.3		$	552.7
Machinery, equipment, and capitalized software	665.1			641.6
Furniture and fixtures	8.3			9.0
Construction in progress	64.7			61.6
Property, plant, and equipment, at cost	1,342.4			1,264.9
Accumulated depreciation	(504.2		)	(450.4		)
Property, plant, and equipment, net	$	838.2		$	814.5

Other assets

Other assets consist of the following:



(Dollars in millions)	December 31, 2013		June 30, 2013
Deferred long term debt financing costs	$	15.9	$	18.2
Other	23.2		18.4
Total other assets	$	39.1	$	36.6

Other accrued liabilities

Other accrued liabilities consist of the following:



(Dollars in millions)	December 31, 2013		June 30, 2013
Accrued employee-related expenses	$	63.4	$	81.1
Restructuring accrual	5.3		6.0
Deferred income taxes	1.1		0.9
Accrued interest	12.1		12.5
Deferred revenue and fees	57.0		36.3
Accrued income taxes	33.4		30.7
Other accrued liabilities and expenses	54.0		57.0
Other accrued liabilities	$	226.3	$	224.5

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15.	SUBSEQUENT EVENTS

In the preparation of its consolidated financial statements, the Company completed an evaluation of the impact of any subsequent events and determined there were no other subsequent events requiring disclosure in or adjustment to these financial statements.


16.	GUARANTOR AND NON-GUARANTOR FINANCIAL STATEMENTS

All obligations under the Credit Agreement, the Senior Subordinated Notes and the 7.875% Notes are unconditionally guaranteed by each of the Company’s existing U.S. wholly-owned domestic material subsidiaries, other than the Company’s Puerto Rico subsidiaries, subject to certain exceptions.

The following condensed financial information presents the Company’s Consolidating Statements of Operations for the three and six months ended December 31, 2013 and December 31, 2012, Consolidating Balance Sheet as of December 31, 2013 and June 30, 2013, and Consolidating Statements of Cash Flows for the three and six months ended December 31, 2013 and December 31, 2012 detailing: (a) Catalent Pharma Solutions, Inc. (“Issuer” and/or “Parent”); (b) the guarantor subsidiaries; (c) the non-guarantor subsidiaries; and (d) elimination and adjustment entries necessary to combine the Issuer/Parent with the guarantor and non-guarantor subsidiaries on a consolidated basis, respectively.

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Catalent Pharma Solutions, Inc. and Subsidiaries

Consolidated Statements of Operations

For the Three Months Ended December 31, 2013

(Unaudited; Dollars in millions)



	Issuer			Guarantor			Non- Guarantor			Eliminations			Consolidated
Net revenue	$	—		$	162.5		$	283.3		$	(5.1	)	$	440.7
Cost of sales	—			100.9			207.5			(5.1		)	303.3
Gross margin	—			61.6			75.8			—			137.4
Selling, general and administrative expenses	1.1			57.4			29.0			—			87.5
Impairment charges and (gain)/loss on sale of assets	0.1			—			(0.1		)	—			—
Restructuring and other	—			3.3			2.1			—			5.4
Operating earnings/(loss)	(1.2		)	0.9			44.8			—			44.5
Interest expense, net	31.7			0.5			9.3			—			41.5
Other (income)/expense, net	(13.2		)	(54.8		)	18.2			48.4			(1.4		)
Earnings/(loss) from continuing operations before income taxes	(19.7		)	55.2			17.3			(48.4		)	4.4
Income tax expense/(benefit)	(0.4		)	—			23.7			—			23.3
Earnings/(loss) from continuing operations	(19.3		)	55.2			(6.4		)	(48.4		)	(18.9		)
Net earnings/(loss) from discontinued operations, net of tax	(0.2		)	(0.4		)	—			—			(0.6		)
Net earnings/(loss)	(19.5		)	54.8			(6.4		)	(48.4		)	(19.5		)
Less: Net earnings/(loss) attributable to noncontrolling interest, net of tax	(0.3		)	—			—			—			(0.3		)
Net earnings/(loss) attributable to Catalent	(19.2		)	54.8			(6.4		)	(48.4		)	(19.2		)

Net earnings/(loss)	(19.5		)	54.8			(6.4		)	(48.4		)	(19.5		)
Other comprehensive income/(loss), net of tax	(9.3		)	0.7			(12.1		)	11.4			(9.3		)
Comprehensive income/(loss)	$	(28.8	)	$	55.5		$	(18.5	)	$	(37.0	)	$	(28.8	)

Table of Contents

Catalent Pharma Solutions, Inc. and Subsidiaries

Consolidated Statements of Operations

For the Three Months Ended December 31, 2012

(Unaudited; Dollars in millions)



	Issuer			Guarantor			Non- Guarantor			Eliminations			Consolidated
Net revenue	$	—		$	158.7		$	281.2		$	(3.8	)	$	436.1
Cost of sales	—			91.4			208.5			(3.8		)	296.1
Gross margin	—			67.3			72.7			—			140.0
Selling, general and administrative expenses	0.5			59.0			26.7			—			86.2
Impairment charges and (gain)/loss on sale of assets	—			2.7			(0.1		)	—			2.6
Restructuring and other	—			1.4			4.2			—			5.6
Operating earnings/(loss)	(0.5		)	4.2			41.9			—			45.6
Interest expense, net	48.0			—			5.2			—			53.2
Other (income)/expense, net	(21.8		)	(50.7		)	22.0			62.5			12.0
Earnings/(loss) from continuing operations before income taxes	(26.7		)	54.9			14.7			(62.5		)	(19.6		)
Income tax expense/(benefit)	0.7			1.4			5.9			—			8.0
Earnings/(loss) from continuing operations	(27.4		)	53.5			8.8			(62.5		)	(27.6		)
Net earnings/(loss) from discontinued operations, net of tax	—			0.2			—			—			0.2
Net earnings/(loss)	(27.4		)	53.7			8.8			(62.5		)	(27.4		)
Less: Net earnings/(loss) attributable to noncontrolling interest, net of tax	—			—			—			—			—
Net earnings/(loss) attributable to Catalent	(27.4		)	53.7			8.8			(62.5		)	(27.4		)

Net earnings/(loss)	(27.4		)	53.7			8.8			(62.5		)	(27.4		)
Other comprehensive income/(loss), net of tax	(8.8		)	0.1			(6.3		)	6.2			(8.8		)
Comprehensive income/(loss)	$	(36.2	)	$	53.8		$	2.5		$	(56.3	)	$	(36.2	)

Table of Contents

Catalent Pharma Solutions, Inc. and Subsidiaries

Consolidated Statements of Operations

For the Six Months Ended December 31, 2013

(Unaudited; Dollars in millions)



	Issuer			Guarantor			Non- Guarantor		Eliminations			Consolidated
Net revenue	$	—		$	307.4		$	556.3	$	(8.7	)	$	855.0
Cost of sales	—			199.1			408.0		(8.7		)	598.4
Gross margin	—			108.3			148.3		—			256.6
Selling, general and administrative expenses	2.3			110.8			55.2		0.3			168.6
Impairment charges and (gain)/loss on sale of assets	0.1			(0.2		)	0.1		—			—
Restructuring and other	—			5.7			2.7		—			8.4
Operating earnings/(loss)	(2.4		)	(8.0		)	90.3		(0.3		)	79.6
Interest expense, net	62.6			1.2			18.6		—			82.4
Other (income)/expense, net	(46.9		)	(73.6		)	38.2		79.9			(2.4		)
Earnings/(loss) from continuing operations before income taxes	(18.1		)	64.4			33.5		(80.2		)	(0.4		)
Income tax expense/(benefit)	—			0.5			16.2		—			16.7
Earnings/(loss) from continuing operations	(18.1		)	63.9			17.3		(80.2		)	(17.1		)
Earnings/(loss) from discontinued operations, net of tax	—			(1.0		)	—		—			(1.0		)
Net earnings/(loss)	(18.1		)	62.9			17.3		(80.2		)	(18.1		)
Less: Net earnings/(loss) attributable to noncontrolling interest, net of tax	(0.4		)	—			—		—			(0.4		)
Net earnings/(loss) attributable to Catalent	(17.7		)	62.9			17.3		(80.2		)	(17.7		)

Net earnings/(loss)	(18.1		)	62.9			17.3		(80.2		)	(18.1		)
Other comprehensive income/(loss) attributable to Catalent, net of tax	11.8			1.2			7.7		(8.9		)	11.8
Comprehensive income/(loss)	$	(6.3	)	$	64.1		$	25.0	$	(89.1	)	$	(6.3	)

Table of Contents

Catalent Pharma Solutions, Inc. and Subsidiaries

Consolidated Statements of Operations

For the Six Months Ended December 31, 2012

(Unaudited; Dollars in millions)



	Issuer			Guarantor			Non- Guarantor			Eliminations			Consolidated
Net revenue	$	—		$	308.3		$	550.7		$	(10.9	)	$	848.1
Cost of sales	—			190.0			411.5			(10.9		)	590.6
Gross margin	—			118.3			139.2			—			257.5
Selling, general and administrative expenses	1.6			114.1			52.3			—			168.0
Impairment charges and (gain)/loss on sale of assets	—			2.5			(0.1		)	—			2.4
Restructuring and other	—			2.4			6.7			—			9.1
Operating earnings/(loss)	(1.6		)	(0.7		)	80.3			—			78.0
Interest expense, net	96.7			0.3			10.1			—			107.1
Other (income)/expense, net	(52.6		)	(68.8		)	42.3			91.1			12.0
Earnings/(loss) from continuing operations before income taxes	(45.7		)	67.8			27.9			(91.1		)	(41.1		)
Income tax expense/(benefit)	1.4			3.2			1.4			—			6.0
Earnings/(loss) from continuing operations	(47.1		)	64.6			26.5			(91.1		)	(47.1		)
Earnings/(loss) from discontinued operations, net of tax	—			—			—			—			—
Net earnings/(loss)	(47.1		)	64.6			26.5			(91.1		)	(47.1		)
Less: Net earnings/(loss) attributable to noncontrolling interest, net of tax	—			—			—			—			—
Net earnings/(loss) attributable to Catalent	(47.1		)	64.6			26.5			(91.1		)	(47.1		)

Net earnings/(loss)	(47.1		)	64.6			26.5			(91.1		)	(47.1		)
Other comprehensive income/(loss) attributable to Catalent, net of tax	25.4			0.4			37.0			(37.4		)	25.4
Comprehensive income/(loss)	$	(21.7	)	$	65.0		$	63.5		$	(128.5	)	$	(21.7	)

Table of Contents

Catalent Pharma Solutions, Inc. and Subsidiaries

Consolidating Balance Sheet

December 31, 2013

(Unaudited; Dollars in millions)



	Issuer			Guarantor			Non- Guarantor		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	2.9		$	7.5		$	53.8	$	—		$	64.2
Trade receivables, net	—			122.9			194.4		—			317.3
Intercompany receivables	375.9			14.3			214.7		(604.9		)	—
Inventories	—			29.6			110.7		—			140.3
Prepaid expenses and other	4.6			30.1			55.6		—			90.3
Total current assets	383.4			204.4			629.2		(604.9		)	612.1
Property, plant, and equipment, net	(0.3		)	380.2			458.3		—			838.2
Other assets:
Goodwill	—			332.0			749.5		—			1,081.5
Other intangibles, net	—			86.4			284.7		—			371.1
Investment in subsidiaries	2,953.3			—			—		(2,945.7		)	7.6
Deferred income taxes	10.8			74.8			45.3		—			130.9
Other	16.0			12.1			3.4		—			31.5
Total assets	$	3,363.2		$	1,089.9		$	2,170.4	$	(3,550.6	)	$	3,072.9
Liabilities, Redeemable noncontrolling interest, and Shareholder’s Deficit
Current liabilities:
Current portion of long-term obligations and other short-term borrowings	$	48.3		$	1.6		$	9.3	$	—		$	59.2
Accounts payable	—			30.2			90.3		—			120.5
Intercompany accounts payable	1,231.5			(1,229.8		)	70.6		(72.3		)	—
Other accrued liabilities	15.1			85.1			126.1		—			226.3
Total current liabilities	1,294.9			(1,112.9		)	296.3		(72.3		)	406.0
Long-term obligations, less current portion	2,609.1			24.1			38.4		—			2,671.6
Intercompany long-term debt	(144.8		)	0.5			676.9		(532.6		)	—
Pension liability	—			57.4			77.8		—			135.2
Deferred income taxes	17.9			116.0			81.8		—			215.7
Other liabilities	—			29.5			24.1		—			53.6

Redeemable noncontrolling interest	—			—			4.7		—			4.7

Shareholder’s equity/(deficit):
Total Catalent shareholder’s equity/(deficit)	(413.9		)	1,975.3			970.2		(2,945.7		)	(414.1		)
Noncontrolling interest	—			—			0.2		—			0.2
Total shareholder’s deficit	(413.9		)	1,975.3			970.4		(2,945.7		)	(413.9		)
Total liabilities, redeemable noncontrolling interest, and shareholder’s deficit	$	3,363.2		$	1,089.9		$	2,170.4	$	(3,550.6	)	$	3,072.9

Table of Contents

Catalent Pharma Solutions, Inc. and Subsidiaries

Consolidating Balance Sheet

June 30, 2013

(Dollars in millions)



	Issuer			Guarantor			Non- Guarantor		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	5.3		$	16.2		$	84.9	$	—		$	106.4
Trade receivables, net	—			143.0			215.0		—			358.0
Intercompany receivables	368.7			18.8			159.6		(547.1		)	—
Inventories	—			26.2			98.7		—			124.9
Prepaid expenses and other	(15.0		)	57.3			46.3		—			88.6
Total current assets	359.0			261.5			604.5		(547.1		)	677.9
Property, plant, and equipment, net	(0.2		)	375.9			438.8		—			814.5
Other assets:
Goodwill	—			332.0			691.4		—			1,023.4
Other intangibles, net	—			92.2			280.0		—			372.2
Investment in subsidiaries	2,861.3			—			—		(2,856.1		)	5.2
Deferred income taxes	38.3			47.5			46.4		—			132.2
Other	18.2			10.2			3.0		—			31.4
Total assets	$	3,276.6		$	1,119.3		$	2,064.1	$	(3,403.2	)	$	3,056.8
Liabilities, Redeemable Noncontrolling Interest, and Shareholder’s Deficit
Current liabilities:
Current portion of long-term obligations and other short-term borrowings	$	18.2		$	6.5		$	10.3	$	—		$	35.0
Accounts payable	—			48.9			101.9		—			150.8
Intercompany accounts payable	1,215.0			(1,219.0		)	53.1		(49.1		)	—
Other accrued liabilities	15.2			100.0			113.9		(4.6		)	224.5
Total current liabilities	1,248.4			(1,063.6		)	279.2		(53.7		)	410.3
Long-term obligations, less current portion	2,590.3			25.1			41.2		—			2,656.6
Intercompany long-term debt	(169.7		)	0.5			662.6		(493.4		)	—
Pension liability	—			57.6			76.5		—			134.1
Deferred income taxes	17.9			116.0			85.2		—			219.1
Other liabilities	—			26.5			20.5		—			47.0

Redeemable noncontrolling interest	—			—			—		—			—

Shareholder’s equity/(deficit):
Total Catalent shareholder’s equity/(deficit)	(410.3		)	1,957.2			898.5		(2,856.1		)	(410.7		)
Noncontrolling interest	—			—			0.4		—			0.4
Total shareholder’s deficit	(410.3		)	1,957.2			898.9		(2,856.1		)	(410.3		)
Total liabilities, redeemable noncontrolling interest, and shareholder’s deficit	$	3,276.6		$	1,119.3		$	2,064.1	$	(3,403.2	)	$	3,056.8

Table of Contents

Catalent Pharma Solutions, Inc. and Subsidiaries

Consolidating Statements of Cash Flows

For the Six Months Ended December 31, 2013

(Unaudited; Dollars in millions)



	Issuer			Guarantor			Non- Guarantor			Eliminations		Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by/(used in) operating activities from continuing operations	$	(87.1	)	$	73.1		$	55.5		$	—	$	41.5
Net cash provided by/(used in) operating activities from discontinued operations	—			(1.1		)	—			—		(1.1		)
Net cash provided by/(used in) operating activities	(87.1		)	72.0			55.5			—		40.4
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, equipment and other productive assets	—			(21.1		)	(18.7		)	—		(39.8		)
Proceeds from sale of property and equipment	—			0.3			0.5			—		0.8
Payment for acquisitions, net	(51.0		)	—			—			—		(51.0		)
Net cash provided by/(used in) investing activities from continuing operations	(51.0		)	(20.8		)	(18.2		)	—		(90.0		)
Net cash provided by/(used in) investing activities from discontinued operations	—			4.0			—			—		4.0
Net cash provided by/(used in) investing activities	(51.0		)	(16.8		)	(18.2		)	—		(86.0		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany	114.3			(58.0		)	(56.3		)	—		—
Net change in short-term borrowings	30.0			(5.0		)	(10.0		)	—		15.0
Proceeds from borrowing, net	—			—			0.7			—		0.7
Payments related to long-term obligations	(8.8		)	(0.9		)	(5.5		)	—		(15.2		)
Equity contribution/(redemption)	0.2			—			—			—		0.2
Net cash (used in)/provided by financing activities from continuing operations	135.7			(63.9		)	(71.1		)	—		0.7
Net cash (used in)/provided by financing activities from discontinued operations	—			—			—			—		—
Net cash (used in)/provided by financing activities	135.7			(63.9		)	(71.1		)	—		0.7
Effect of foreign currency on cash	—			—			2.7			—		2.7
NET INCREASE/(DECREASE) IN CASH AND EQUIVALENTS	(2.4		)	(8.7		)	(31.1		)	—		(42.2		)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD	5.3			16.2			84.9			—		106.4

Catalent Pharma Solutions, Inc. 10-Q