| Basis of Presentation and Summary of Significant Accounting Policies | 12 Months Ended |
| Jun. 30, 2014 |
| Accounting Policies [Abstract] | ' |
| Basis of Presentation and Summary of Significant Accounting Policies | ' |
| BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
| Business |
| Catalent, Inc. (“Catalent” or the “Company” or the “Parent”) directly and wholly owns PTS Intermediate Holdings LLC (“Intermediate Holdings”). Intermediate Holdings directly and wholly owns Catalent Pharma Solutions, Inc. (“Operating Company”). 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 L.P. (“Blackstone”), a global private investment and advisory firm. In July 2014, the Company completed an initial public offering of the common shares of Catalent, Inc. See Note 19 for the Subsequent Events footnote for further disclosures. |
| We are the leading global provider of development solutions and advanced delivery technologies for drugs, biologics and consumer health products. Through our extensive capabilities and deep expertise in product development, we help our customers bring more products to market, faster. Our advanced delivery technology platforms, the broadest and most diverse combination of intellectual property and proven formulation, manufacturing and regulatory expertise available to the industry, enable our customers to bring more products and better treatments to the market. Across both development and delivery, our commitment to reliably supply our customers' needs serves as the foundation for the value we provide. We operate through four businesses: Development & Clinical Services, Softgel Technologies, Modified Release Technologies, and Medication Delivery Solutions. We believe that through our prior and ongoing investments in growth-enabling capacity and capabilities, our entry into new markets, our ongoing focus on operational and quality excellence, our innovation activities, the sales of existing customer products, and the introduction of new customer products, we will continue to benefit from attractive margins and realize the growth potential from these areas. |
| For financial reporting purposes, we present three distinct financial reporting segments based on criteria established by U.S. GAAP: Development & Clinical Services, Oral Technologies and Medication Delivery Solutions. The Oral Technologies segment includes the Softgel Technologies and Modified Release Technologies businesses. |
| Oral Technologies |
| The Company’s Oral Technologies segment provides advanced oral delivery technologies, including formulation, development and manufacturing of oral dose forms for prescription and consumer health products across all phases of a molecule’s lifecycle. These oral dose forms include softgel, modified release technology (“MRT”) and immediate release solid oral technology products. At certain facilities the Company also provides integrated primary packaging services for the products the Company manufactures. In fiscal 2014, the Company generated approximately $857.5 million in revenue from its softgel products and approximately $358.2 million in revenue from or MRT products (including intra-segment revenue of approximately $35.6 million). |
| Through the Softgel Technologies business, the Company provides formulation, development and manufacturing services for soft gelatin capsules, or “softgels,” which the Company first commercialized in the 1930s. The Company is the market leader in overall softgel manufacturing and holds the leading market position in the prescription arena. The Company’s principal softgel technologies include traditional softgel capsules (in which the shell is made from animal-derived materials) and Vegicaps and OptiShell capsules (in which the shell is made from vegetable-derived materials), which are used in a broad range of customer products including prescription drugs, over-the-counter medications, and vitamins and supplements. Softgel capsules encapsulate liquid, paste or oil-based active compounds in solution or suspension within an outer shell, filling and sealing the capsule simultaneously. The Company performs all encapsulation within one of the Company’s softgel facilities, with active ingredients provided by customers or sourced directly by the Company. Softgels have historically been used to solve formulation challenges or technical issues for a specific drug, to help improve the clinical performance of compounds, to provide important market differentiation, particularly for over-the-counter compounds, and to provide safe handling of hormonal, potent and cytotoxic drugs. The Company also participates in the softgel over-the-counter and vitamin, mineral and supplement business in selected regions around the world. With the 2001 introduction of the Company’s vegetable-derived softgel shell, Vegicaps capsules, consumer health manufacturers have been able to extend the softgel dose form to a broader range of active ingredients and serve patient/consumer populations that were previously inaccessible due to religious, dietary or cultural preferences. In recent years this platform has been extended to pharmaceutical active ingredients via the OptiShell platform. The Company’s Vegicaps and OptiShell capsules are patent protected in most major global markets. Physician and patient studies that the Company has conducted have demonstrated a preference for softgels versus traditional tablet and hard capsule dose forms in terms of ease of swallowing, real or perceived speed of delivery, ability to remove or eliminate unpleasant odor or taste and, for physicians, perceived improved patient adherence with dosing regimens. |
| Through the Company’s Modified Release Technologies business, the Company provides formulation, development and manufacturing services for fast-dissolve tablets and both proprietary and conventional controlled release products. The Company launched its orally dissolving tablet business in 1986 with the introduction of Zydis tablets, a unique oral dosage form that is freeze-dried in its package, can be swallowed without water, and typically dissolves in the mouth in less than three seconds. Most often used for indications, drugs and patient groups that can benefit from rapid oral disintegration, the Zydis technology is utilized in a wide range of products and indications, including treatments for a variety of central nervous system-related conditions such as migraines, Parkinson's Disease, schizophrenia, and pain relief. Zydis tablets continue to be used in new ways by its customers as the Company extends the application of the technology to new categories, such as for immunotherapies, vaccines and biologics delivery. More recently the Company has added three new technology platforms to the Modified Release business portfolio, including the highly flexible OptiDose tab-in-tab technology, already commercially proven in Japan; the OptiMelt hot melt extrusion technology; and the development stage LyoPan oral dissolving tablet technology. The Company plans to continue to expand the development pipeline of customer products for all of its Modified Release technologies. |
| Representative Oral Technologies business customers include Pfizer, Novartis, Merck, GlaxoSmithKline, Eli Lilly, Johnson & Johnson and Actavis. |
| Medication Delivery Solutions |
| The Company’s Medication Delivery Solutions segment provides formulation, development and manufacturing services for delivery of drugs and biologics, administered via injection, inhalation and ophthalmic routes, using both traditional and advanced technologies. The Company’s range of injectable manufacturing offerings includes filling drugs or biologics into pre-filled syringes, with flexibility to accommodate other formats within its existing network, focused increasingly on complex pharmaceuticals and biologics. With the Company’s range of technologies, it is able to meet a wide range of specifications, timelines and budgets. The complexity of the manufacturing process, the importance of experience and know-how, regulatory compliance, and high start-up capital requirements create significant barriers to entry and, as a result, limit the number of competitors in the market. For example, blow-fill-seal is an advanced aseptic processing technology which uses a continuous process to form, fill with drug, and seal a plastic container in a sterile environment. Blow-fill-seal units are currently used for a variety of pharmaceuticals in liquid form, such as respiratory, ophthalmic and optic products. The Company is a leader in the outsourced blow-fill-seal market, and operates one of the largest capacity commercial manufacturing blow-fill-seal facilities in the world. The Company’s sterile blow-fill-seal business provides flexible and scalable solutions for unit-dose delivery of complex formulations such as suspensions and emulsions, as well as innovative design and engineering container design and manufacturing solutions. The Company’s regulatory expertise can lead to decreased time to commercialization, and its dedicated development production lines support feasibility, stability and clinical runs. The Company plans to continue to expand the Company’s product line in existing and new markets, and in higher margin specialty products with additional respiratory, ophthalmic, and injectable applications. Representative customers include Pfizer, Sanofi-Aventis, Novartis, Roche and Teva. |
| The Company’s biologics offerings include its formulation development and cell-line manufacturing based on its advanced and patented Gene Product Expression (“GPEx”) technology, which is used to develop stable, high-yielding mammalian cell lines for both innovator and bio-similar biologic compounds. The Company’s GPEx technology can provide rapid cell line development, high biologics production yields, flexibility and versatility. The Company believes its development stage SMARTag next-generation antibody-drug conjugate technology will provide more precision targeting for delivery of drugs to tumors or other locations, with improved safety versus existing technologies. In fiscal 2013, the Company launched its recently completed biologics facility in Madison, Wisconsin, with expanded capability and capacity to produce clinical scale biologic supplies; combined with offerings from other businesses of Catalent and external partners, the Company now provides the broadest range of technologies and services supporting the development and launch of new biologic entities, biosimilars or biobetters to bring a product from gene to market commercialization, faster. |
| Development and Clinical Services |
| The Company’s Development & Clinical Services segment provides manufacturing, packaging, storage and inventory management for drugs and biologics in clinical trials. The Company offers customers flexible solutions for clinical supplies production, and provide distribution and inventory management support for both simple and complex clinical trials. This includes dose form manufacturing or over-encapsulation where needed; supplying placebos, comparator drug procurement and clinical packages and kits for physicians and patients; inventory management; investigator kit ordering and fulfillment; and return supply reconciliation and reporting. The Company supports trials in all regions of the world through its facilities and distribution network. In fiscal 2012, the Company substantially expanded this business via the Aptuit CTS business acquisition in February 2012, and in fiscal 2013 formed a joint venture with ShangPharma Corporation to expand its clinical supply services network into China. The Company is the leading provider of integrated development solutions and one of the leading providers of clinical trial supplies and respiratory products. |
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| The Company also offers analytical chemical and cell-based testing and scientific services, stability testing, respiratory products formulation and manufacturing, regulatory consulting, and bioanalytical testing for biologic products. The Company’s respiratory product capabilities include development and manufacturing services for inhaled products for delivery via metered dose inhalers, dry powder inhalers and nasal sprays. The Company also provides formulation development and clinical and commercial manufacturing for conventional and specialty oral dose forms. The Company provides global regulatory and clinical support services for the Company’s customers’ regulatory and clinical strategies during all stages of development. Demand for the Company’s offerings is driven by the need for scientific expertise and depth and breadth of services offered, as well as by the reliable supply thereof, including quality, execution and performance. |
| Basis of Presentation |
| These financial statements include all of our subsidiaries, including those operating outside the United States (U.S) and are prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). All significant transactions among our businesses have been eliminated. |
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| Correction of an Error in Previously Issued Financial Statements |
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| In conjunction with the year-end financial reporting process, the Company identified an error in the application of the intraperiod tax allocation guidance of ASC 740 related to the tax effect of certain activity in Other Comprehensive Income. There was no impact to total shareholders’ deficit, cash taxes paid, total net deferred taxes or cash flows from operations. |
| The restatement resulted in a reduction to the previously reported income tax expense and reduction to Other Comprehensive Income in 2010, 2012 and an increase to the previously reported income tax expense and increase to Other Comprehensive Income in 2013. |
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| The Company also identified an error in the presentation of the offsetting of deferred tax assets and liabilities in accordance with ASC 740 related to the net presentation of its current and non-current deferred taxes by jurisdiction on the consolidated balance sheets. We have restated the Company’s presentation of current deferred tax assets and liabilities and non-current deferred tax assets and liabilities in all periods presented. There was no change to the net deferred tax position. |
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| Accordingly, we restated the affected line items of our consolidated balance sheets, consolidated statements of operations, consolidated statements of comprehensive income, consolidated statements of changes in shareholders’ equity/(deficit), and consolidated statements of cash flows as well as the income taxes footnote, the accumulated other comprehensive income (loss) footnote, the segment information footnote and the supplemental balance sheet information footnote disclosures to correct these errors. |
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| In accordance with ASC 250, Accounting Changes and Error Corrections and SAB Topic 1.M, Assessing Materiality, we determined the correction is immaterial to the Company’s individual prior period consolidated financial statements. However, the cumulative correction of the prior period error would be material to our current year financial statements. Therefore, we have revised previously reported amounts. |
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| Provided below is a reconciliation of the previously reported amounts and impact of the restatement: |
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| 30-Jun-13 |
| Dollars in millions, except per share data | Previously Reported | | Adjustment | | As Adjusted |
| Shareholders' Equity / (Deficit) | | | | | |
| Accumulated Deficit | $ | (1,428.8 | ) | | $ | 33.5 | | | $ | (1,395.3 | ) |
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| Accumulated Other Comprehensive (Loss)/Income, net of tax | (9.3 | ) | | (33.5 | ) | | (42.8 | ) |
| Total Shareholders' Equity / (Deficit) | (410.3 | ) | | — | | | (410.3 | ) |
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| Statement of Operations | | | | | |
| Income tax expense / (benefit) | $ | 24.1 | | | $ | 2.9 | | | $ | 27 | |
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| Earnings/(loss) from continuing operations | (48.0 | ) | | (2.9 | ) | | (50.9 | ) |
| Net earnings / (loss) | (46.8 | ) | | (2.9 | ) | | (49.7 | ) |
| Net earnings / (loss) attributable to Catalent | (46.7 | ) | | (2.9 | ) | | (49.6 | ) |
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| Basic Earnings / (loss) per share attributable to Catalent | | | | | |
| Continuing operations | $ | (0.64 | ) | | $ | (0.04 | ) | | $ | (0.68 | ) |
| Net earnings / (loss) | (0.62 | ) | | (0.04 | ) | | (0.66 | ) |
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| Diluted Earnings / (loss) per share attributable to Catalent | | | | | |
| Continuing operations | $ | (0.64 | ) | | $ | (0.04 | ) | | $ | (0.68 | ) |
| Net earnings / (loss) | (0.62 | ) | | (0.04 | ) | | (0.66 | ) |
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| Balance Sheet | | | | | |
| Prepaid expenses and other current assets | $ | 88.6 | | | 1.2 | | | $ | 89.8 | |
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| Deferred income taxes | 132.2 | | | (108.5 | ) | | 23.7 | |
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| Total assets | 3,056.80 | | | (107.3 | ) | | 2,949.50 | |
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| Other accrued liabilities | $ | 224.5 | | | $ | — | | | $ | 224.5 | |
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| Deferred income tax liabilities | 219.1 | | | (107.3 | ) | | 111.8 | |
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| Total liabilities | 3,467.10 | | | (107.3 | ) | | 3,359.80 | |
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| Statement of Cash Flows | | | | | |
| Net Cash provided by / (used in) operating activities | $ | 137.7 | | | $ | — | | | $ | 137.7 | |
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| 30-Jun-12 |
| Dollars in millions, except per share data | Previously Reported | | Adjustment | | As Adjusted |
| Shareholders' Equity / (Deficit) | | | | | |
| Accumulated Deficit | $ | (1,382.1 | ) | | $ | 36.4 | | | $ | (1,345.7 | ) |
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| Accumulated Other Comprehensive (Loss)/Income, net of tax | 7.5 | | | (36.4 | ) | | (28.9 | ) |
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| Total Shareholders' Equity / (Deficit) | (350.7 | ) | | — | | | (350.7 | ) |
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| Statement of Operations | | | | | |
| Income tax expense / (benefit) | $ | 16.5 | | | $ | (16.0 | ) | | $ | 0.5 | |
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| Earnings/(loss) from continuing operations | 2.1 | | | 16 | | | 18.1 | |
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| Net earnings / (loss) | (39.2 | ) | | 16 | | | (23.2 | ) |
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| Net earnings / (loss) attributable to Catalent | (40.4 | ) | | 16 | | | (24.4 | ) |
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| Basic Earnings / (loss) per share attributable to Catalent | | | | | |
| Continuing operations | $ | 0.01 | | | $ | 0.22 | | | $ | 0.23 | |
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| Net earnings / (loss) | (0.54 | ) | | 0.21 | | | (0.33 | ) |
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| Diluted Earnings / (loss) per share attributable to Catalent | | | | | |
| Continuing operations | $ | 0.01 | | | $ | 0.21 | | | $ | 0.22 | |
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| Net earnings / (loss) | (0.54 | ) | | 0.22 | | | (0.32 | ) |
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| Statement of Cash Flows | | | | | |
| Net Cash provided by / (used in) operating activities | $ | 87.9 | | | $ | — | | | $ | 87.9 | |
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| 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 |
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| 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 expense, net.” Such foreign currency transaction gains and losses include inter-company loans that are long-term in nature. |
| Revenue Recognition |
| In accordance with ASC 605 Revenue Recognition, the Company recognizes revenue when persuasive evidence of an arrangement exists, product delivery has occurred or the services have been rendered, the price is fixed or determinable and collectability is reasonably assured. In cases where the Company has multiple contracts with the same customer, the Company evaluates those contracts to assess if the contracts are linked or are separate arrangements. Factors the Company considers include the timing of negotiation, interdependency with other contracts or elements and payment terms. The Company and its customers generally view each contract discussion as a separate arrangement. |
| Manufacturing and packaging service revenue is recognized upon delivery of the product in accordance with the terms of the contract, which specify when transfer of title and risk of loss occurs. Some of the Company’s manufacturing contracts with its customers have annual minimum purchase requirements. At the end of the contract year, revenue is recognized for the unfilled purchase obligation in accordance with the contract terms. Development service contracts generally take the form of a fee-for-service arrangement. After the Company has evidence of an arrangement, the price is determinable and there is a reasonable expectation regarding payment, the Company recognizes revenue at the point in time the service obligation is completed and accepted by the customer. Examples of output measures include a formulation report, analytical and stability testing, clinical batch production or packaging and the storage and distribution of a customer’s clinical trial material. Development service revenue is primarily driven by the Company’s Development and Clinical Services segment. |
| Arrangements containing multiple elements, including service arrangements, are accounted for in accordance with the provisions of ASC 605-25, Revenue Recognition: Multiple-Element Arrangements. The Company determines the separate units of account in accordance with ASC 605-25. If the deliverable meets the criteria of a separate unit of accounting, the arrangement consideration is allocated to each element based upon its relative selling price. In determining the best evidence of selling price of a unit of account the Company utilizes vendor-specific objective evidence (“VSOE”), which is the price the Company charges when the deliverable is sold separately. When VSOE is not available, management uses relevant third-party evidence (“TPE”) of selling price, if available. When neither VSOE nor TPE of selling price exists, management uses its best estimate of selling price. |
| Cash and Cash Equivalents |
| All liquid investments purchased with an original maturity of three months or less are considered to be cash and equivalents. The carrying value of these cash equivalents approximates fair value. |
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| Receivables and Allowance for Doubtful Accounts |
| Trade receivables are primarily comprised of amounts owed to the Company through its operating activities and are presented net of an allowance for doubtful accounts. The Company monitors past due accounts on an ongoing basis and establishes appropriate reserves to cover probable losses. An account is considered past due on the first day after its due date. We make judgments as to our ability to collect outstanding receivables and provide allowances when it is assessed that all or a portion of the receivable will not be collected. The Company determines its allowance by considering a number of factors, including the length of time accounts receivable are past due, the Company's previous loss history, the specific customer's ability to pay its obligation to the Company, and the condition of the general economy and the customer's industry. The Company writes off accounts receivable when they become uncollectible. |
| Concentrations of Credit Risk and Major Customers |
| Concentration of credit risk, with respect to accounts receivable, is limited due to the large number of customers and their dispersion across different geographic areas. The customers are primarily concentrated in the pharmaceutical and healthcare industry. The Company normally does not require collateral or any other security to support credit sales. The Company performs ongoing credit evaluations of its customers' financial conditions and maintains reserves for credit losses. Such losses historically have been within the Company's expectations. During fiscal year 2014 and 2013, no single customer exceeded 10% of revenue or accounts receivable. |
| Inventories |
| Inventory is stated at the lower of cost or market, using the first-in, first-out (“FIFO”) method. The Company provides reserves for excess, obsolete or slow-moving inventory based on changes in customer demand, technology developments or other economic factors. Inventory consists of costs associated with raw material, labor and overhead. |
| Goodwill |
| The Company accounts for purchased goodwill and intangible assets with indefinite lives in accordance with Codification Statement ASC 350 Goodwill, Intangible and Other Assets. Under ASC 350, goodwill and intangible assets with indefinite lives are not amortized, but instead are tested for impairment at least annually. Our annual goodwill impairment test was conducted as of April 1, 2014. The Company assesses goodwill for possible impairment by comparing the carrying value of its reporting units to their fair values. The Company determines the fair value of its reporting units utilizing estimated future discounted cash flows and incorporates assumptions that it believes marketplace participants would utilize. In addition, the Company uses comparative market information and other factors to corroborate the discounted cash flow results. |
| Property and Equipment and Other Definite Lived Intangible Assets |
| Property and equipment are stated at cost. Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets, including capital lease assets that are amortized over the shorter of their useful lives or the terms of the respective leases. The Company generally uses the following range of useful lives for its property and equipment categories: buildings and improvements—5 to 50 years; machinery and equipment—3 to 10 years; and furniture and fixtures—3 to 7 years. Depreciation expense was $100.5 million for the fiscal year ended June 30, 2014, $108.8 million for the fiscal year ended June 30, 2013, and $95.7 million for the fiscal year ended June 30, 2012. Depreciation expense includes amortization of assets related to capital leases. The Company charges repairs and maintenance costs to expense as incurred. The amount of capitalized interest was immaterial for all periods presented. |
| Intangible assets with finite lives, primarily including customer relationships and patents and trademarks continue to be amortized over their useful lives. The Company evaluates the recoverability of its other long-lived assets, including amortizing intangible assets, if circumstances indicate impairment may have occurred pursuant to Codification Standard ASC 360 Property, Plant and Equipment ("ASC 360"). This analysis is performed by comparing the respective carrying values of the assets to the current and expected future cash flows, on an un-discounted basis, to be generated from such assets. If such analysis indicates that the carrying value of these assets is not recoverable, the carrying value of such assets is reduced to fair value through a charge to the Consolidated Statements of Operations. Fair value is determined based on assumptions the Company believes marketplace participants would utilize and comparable marketplace information in similar arms length transactions. The Company recorded an impairment charge related to property, plant and equipment of approximately $3.2 million, $5.2 million and $1.8 million net of any gains on sale of equipment, as of June 30, 2014, June 30, 2013 and June 30, 2012 respectively. During fiscal years 2014 and 2013, no intangible asset impairment charges were recorded. |
| Post-Retirement and Pension Plans |
| The Company sponsors various retirement and pension plans, including defined benefit retirement plans and defined contribution retirement plans. The measurement of the related benefit obligations and the net periodic benefit costs recorded each year are based upon actuarial computations, which require management's judgment as to certain assumptions. These assumptions include the discount rates used in computing the present value of the benefit obligations and the net periodic benefit costs, the expected future rate of salary increases (for pay-related plans) and the expected long-term rate of return on plan assets (for funded plans). The discount rates are derived based on a hypothetical yield curve represented by a series of annualized individual discount rates. The expected long-term rate of return on plan assets is based on the target asset allocation and the average expected rate of growth for the asset classes invested. The average expected rate of growth is derived from a combination of historic returns, current market indicators, the expected risk premium for each asset class and the opinion of professional advisors. The Company uses a measurement date of June 30 for all its retirement and postretirement benefit plans. |
| Derivative Instruments, Hedging Activities, and Fair Value |
| Derivatives Instruments |
| The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company's derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company's known or expected cash receipts and its known or expected cash payments principally related to the Company's borrowings. The Company does not net any of its derivative positions under master netting arrangements. |
| Hedging Activities |
| The Company's objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company has 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. |
| The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges for financial reporting purposes is recorded in Accumulated Other Comprehensive Income on the balance sheet and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During fiscal years 2013 and 2012, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt; however, as of June 30, 2014, the Company did not have any such derivatives in place. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. |
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| 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, it has mitigated the exposure of investments in its European operations through a net-investment hedge by denominating a portion of the debt in euros. |
| Fair Value |
| The Company is required to measure certain assets and liabilities at fair value, either upon initial measurement or for subsequent accounting or reporting. We use fair value extensively in the initial measurement of net assets acquired in a business combination and when accounting for and reporting on certain financial instruments. We estimate fair value using an exit price approach, which requires, among other things, that we determine the price that would be received to sell an asset or paid to transfer a liability in an orderly market. The determination of an exit price is considered from the perspective of market participants, considering the highest and best use of assets and, for liabilities, assuming the risk of non-performance will be the same before and after the transfer. A single estimate of fair value results from a complex series of judgments about future events and uncertainties and relies heavily on estimates and assumptions. When estimating fair value, depending on the nature and complexity of the assets or liability, we may use one or all of the following approaches: |
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| • | Market approach, which is based on market prices and other information from market transactions involving identical or comparable assets or liabilities. | | | | | | | | | | |
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| • | Cost approach, which is based on the cost to acquire or construct comparable assets less an allowance for functional and/or economic obsolescence. | | | | | | | | | | |
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| • | Income approach, which is based on the present value of the future stream of net cash flows. | | | | | | | | | | |
| These fair value methodologies depend on the following types of inputs: |
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| • | Quoted prices for identical assets or liabilities in active markets (called Level 1 inputs). | | | | | | | | | | |
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| • | Quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in markets that are directly or indirectly observable (called Level 2 inputs). | | | | | | | | | | |
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| • | Unobservable inputs that reflect estimates and assumptions (called Level 3 inputs). | | | | | | | | | | |
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| Self-Insurance |
| The Company is partially self-insured for certain employee health benefits and partially self-insured for product liability and workers compensation claims. Accruals for losses are provided based upon claims experience and actuarial assumptions, including provisions for incurred but not reported losses. |
| Shipping and Handling |
| Shipping and handling costs are included in cost of sales in the Consolidated Statements of Operations. Shipping and handling revenue received was immaterial for all periods presented and is presented within net revenues. |
| Accumulated Other Comprehensive Income/(Loss) |
| Accumulated other comprehensive income/(loss), which is reported in the accompanying Consolidated Statements of Changes in Shareholders' Equity, consists of net earnings/(loss), foreign currency translation, deferred compensation, minimum pension liability and unrealized gains and losses from derivatives. |
| 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 $17.5 million, $14.5 million and $16.9 million for fiscal years ended June 30, 2014, June 30, 2013 and June 30, 2012, respectively. Costs incurred in connection with research and development services we provide to customers and services performed in support of the commercial manufacturing process for customers are recorded within cost of sales. Such research and development costs included in cost of sales amounted to $34.0 million, $35.0 million and $33.5 million for fiscal years ended June 30, 2014, June 30, 2013 and June 30, 2012, respectively. |
| Earnings / (Loss) Per Share |
| The Company reports net earnings (loss) per share in accordance with the standard codification of ASC “Earnings per Share” (“ASC 260”). Under ASC 260, basic earnings per share, which excludes dilution, is computed by dividing net earnings or loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could be exercised or converted into common shares, and is computed by dividing net earnings or loss available to common stockholders by the weighted average of common shares outstanding plus the dilutive potential common shares. Diluted earnings per share includes in-the-money stock options, restricted stock units, and restricted stock using the treasury stock method. During a loss period, the assumed exercise of in-the-money stock options has an anti-dilutive effect and therefore, these instruments are excluded from the computation of dilutive earnings per share. |
| Income Taxes |
| In accordance with the standard codification of ASC 740 Income Taxes ("ASC 740") the Company accounts for income taxes using the asset and liability method. The asset and liability method requires recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between tax bases and financial reporting bases of the Company's assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates in the respective jurisdictions in which the Company operates. In assessing the ability to realize deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The calculation of the Company's tax liabilities involves dealing with uncertainties in the application of complex tax regulations in each of its tax jurisdictions. The number of years with open tax audits varies depending on the tax jurisdiction. A number of years may lapse before a particular matter is audited and finally resolved. The Company applies the accounting guidance issued to address the accounting for uncertain tax positions. This guidance clarifies the accounting for income taxes, by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements as well as provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. |
| Equity-Based Compensation |
| The Company accounts for its equity-based compensation awards in accordance with Accounting Standard Codification ASC 718, "Compensation-Stock Compensation" (“ASC 718”). ASC 718 requires companies to recognize compensation expense using a fair value based method for costs related to share-based payments including stock options and restricted stock units. The expense is measured based on the grant date fair value of the awards that are expected to vest, and the expense is recorded over the applicable requisite service period. In the absence of an observable market price for a share-based award, the fair value is based upon a valuation methodology that takes into consideration various factors, including the exercise price of the award, the expected term of the award, the current price of the underlying shares, the expected volatility of the underlying share price based on peer companies, the expected dividends on the underlying shares and the risk-free interest rate. |
| Recent Financial Accounting Standards |
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| In June 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update No. 2014-12, “Accounting for Share Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period” (“ASU 2014-12”). ASU 2014-12 provides guidance for accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. The standard states that a performance target in a share-based payment that affects vesting and that could be achieved after the requisite service period should be accounted for as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. The standard is effective for annual periods beginning after December 15, 2015. Catalent does not expect a material impact on our consolidated results of operations and financial position upon adoption. |
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| In May 2014, the FASB issued Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09"). The new standard will supersede nearly all existing revenue recognition guidance. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, the standard creates a five step model that requires a company to exercise judgment when considering the terms of the contracts and all relevant facts and circumstances. The five steps require a company to identify customer contracts, identify the separate performance obligations, determine the transaction price, allocate the transaction price to the separate performance obligations and recognize revenue when each performance obligation is satisfied. The standard is effective for public entities for annual and interim periods beginning after December 15, 2016. The standard allows for either full retrospective adoption, where the standard is applied to all periods presented, or modified retrospective adoption where the standard is applied only to the most current period presented in the financial statements. Early adoption is not permitted. Catalent is currently evaluating the impact of this standard on the Company's consolidated results of operations and financial position. |
| In April 2014, the FASB issued Accounting Standards Update No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of an Entity” (“ASU 2014-08”). ASU 2014-08 changes the requirements for reporting discontinued operations under Accounting Standards Codification Subtopic 250-20 ("Subtopic 205-20") by limiting discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity's operations and financial results. The disclosure requirements for discontinued operations under ASU 2014-08 will be expanded in order to provide users of financial statements with more information about the assets, liabilities, revenues and expenses of discontinued operations. ASU 2014-08 is effective on a prospective basis for (1) all disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years, and (2) all businesses that are classified as held for sale on acquisition that occur within annual periods beginning on or after December 15, 2014 and interim periods within those years. Catalent is currently evaluating the impact of this standard on the Company's consolidated results of operations and financial position. |
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| In July 2013, the FASB issued Accounting Standards Update No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists" ("ASU 2013-11"). ASU 2013-11 resolves the diversity in practice concerning unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The guidance is effective for fiscal years and interim reporting periods within those fiscal years beginning after December 15, 2013. Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. Catalent does not expect a material impact on our consolidated results of operations and financial position upon adoption. |
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| In March 2013, the FASB issued Accounting Standards Update No. 2013-05, “Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity” (“ASU 2013-05”). ASU 2013-05 resolves the diversity in practice concerning the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets within a foreign entity. The guidance is effective for fiscal years and interim reporting periods within those fiscal years beginning after December 15, 2013. The amendments described in the ASU are to be applied prospectively to derecognition events occurring after the effective date; prior periods are not to be adjusted. Catalent does not expect a material impact on our consolidated results of operations and financial position upon adoption. |
| In February 2013, the FASB issued Accounting Standards Update No. 2013-04, “Obligations Resulting from Joint and Several Liability Arrangements” (“ASU 2013-04”). ASU 2013-04 provides guidance for the recognition, measurement, and disclosure resulting from joint and several liability arrangements. Examples of obligations that fall within the scope of the ASU include certain debt arrangements, other contractual obligations, and settled litigation. The new guidance is effective on a retrospective basis for fiscal years and interim periods within those fiscal years beginning after December 15, 2013. Catalent does not expect a material impact on the disclosures included in our consolidated financial statements upon adoption. |
