UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 10, 2017
CATALENT, INC.
(Exact name of registrant as specified in its charter)
Delaware | 001-36587 | 20-8737688 | ||
(State or other jurisdiction of Incorporation) |
(Commission File Number) |
(IRS Employer Identification Number) | ||
14 Schoolhouse Road Somerset, New Jersey |
08873 | |||
(Address of registrants principal executive office) | (Zip code) |
(732) 537-6200
(Registrants telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 7.01 | Regulation FD Disclosure. |
On October 10, 2017, Catalent, Inc. (the Company) issued a press release announcing that its wholly owned subsidiary, Catalent Pharma Solutions, Inc. (the Operating Company), has commenced a private offering (the Private Offering) of $450 million aggregate principal amount of senior unsecured notes due 2026 (the Notes). The Company also announced that the Operating Company is seeking, concurrently with the Private Offering, to amend the credit agreement governing its senior secured credit facilities to reduce the applicable margins and extend the maturities by three years of each of the term loans and revolving credit facility (the Amendment). The full text of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
There can be no assurance that the Operating Company will be able to complete either the Private Offering or the Amendment on terms and conditions favorable to it or at all, and the Operating Company may decide to not pursue either or both of the Private Offering and the Amendment before completion.
The unaudited pro forma financial statements, together with the notes thereto, from a preliminary offering memorandum prepared by the Operating Company in connection with the Private Offering are attached hereto as Exhibit 99.2.
The information in Item 7.01 on this Current Report on Form 8-K and Exhibits 99.1 and 99.2 attached hereto is being furnished pursuant to Item 7.01 of Form 8-K and shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or otherwise subject to the liabilities of that Section, nor shall any such information or exhibits be deemed incorporated by reference in any filing under the Exchange Act or the Securities Act of 1933, as amended (the Securities Act).
The information filed in this Form 8-K pursuant to Item 7.01, including the information contained in Exhibits 99.1 and 99.2, is neither an offer to sell nor a solicitation of an offer to buy any of the Notes in the Private Offering.
Cautionary Note Concerning Forward-Looking Statements
This Current Report on Form 8-K and the exhibits attached hereto contain both historical and forward-looking statements, including concerning the closing of the agreement to purchase Cook Pharmica and the financing that the Company intends to obtain to finance the acquisition on the closing date. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These forward-looking statements generally can be identified because they relate to the topics set forth above or by the use of statements that include phrases such as believe, expect, anticipate, intend, estimate, plan, project, foresee, likely, may, will, would or other words or phrases with similar meanings. Similarly, statements that describe the Companys objectives, plans or goals are, or may be, forward-looking statements. These statements are based on current expectations of future events. If underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results could vary materially from Catalents expectations and projections. Some of the factors that could cause actual results to differ include, but are not limited to, the following: antitrust or other regulatory actions that may delay or interfere with the closing of the acquisition or result in other changes to the Companys business; other unanticipated events that may prevent a closing of the acquisition or may make it more difficult to realize the anticipated benefits of the transaction; an inability to complete the anticipated financing on the anticipated terms, or at all; participation in a highly competitive market and increased competition may adversely affect the business of the Company or of Cook Pharmica; demand for the Companys or Cook Pharmicas offerings which depends in part on their customers research and development and the clinical and market success of their products; product and other liability risks that could adversely affect the results of operations, financial condition, liquidity and cash flows of the Company or Cook Pharmica; failure to comply with existing and future regulatory requirements; failure to provide quality offerings to customers could have an adverse effect on the business and subject it to regulatory actions and costly litigation; problems providing the highly exacting and complex services or support required; global economic, political and regulatory risks to the operations of the Company and Cook Pharmica; inability to enhance existing or introduce new technology or service offerings in a timely manner; inadequate patents, copyrights, trademarks and other forms of intellectual property protections; fluctuations in the costs, availability, and suitability of the components of the products the Company and Cook Pharmica manufacture, including active pharmaceutical ingredients, excipients, purchased components and raw materials; changes in market access or healthcare reimbursement in the United States or internationally; fluctuations in the exchange rate of the U.S. dollar and other foreign currencies including as a result of the recent U.K. referendum to exit from the European Union; adverse tax legislation initiatives or challenges to the Companys tax positions; loss of key personnel; risks generally associated with information systems; inability to complete any future acquisitions and other transactions that may complement or expand the business of the Company or divest of non-strategic businesses or assets and the Companys ability to successfully integrate acquired business and realize anticipated benefits of such acquisitions; offerings and customers products that may infringe on the intellectual property rights of third parties; environmental, health
and safety laws and regulations, which could increase costs and restrict operations; labor and employment laws and regulations; additional cash contributions required to fund the Companys existing pension plans; substantial leverage resulting in the limited ability of the Company to raise additional capital to fund operations and react to changes in the economy or in the industry, exposure to interest rate risk to the extent of the Companys variable rate debt and preventing the Company from meeting its obligations under its indebtedness. For a more detailed discussion of these and other factors, see the information under the caption Risk Factors in the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2017, filed August 28, 2017 with the Commission and the risk factors in Exhibit 99.4 in the Companys Current Report on Form 8-K filed September 25, 2017 and incorporated herein by reference. All forward-looking statements speak only as of the date of this release or as of the date they are made, and Catalent does not undertake to update any forward-looking statement as a result of new information or future events or developments except to the extent required by law.
Item 9.01 | Financial Statements and Exhibits. |
(d) Exhibits. |
Exhibit |
Description | |
99.1 | Press Release of Catalent, Inc., dated October 10, 2017, announcing the launch of the Private Offering. | |
99.2 | Unaudited Pro Forma Financial Statements, together with the notes thereto, from the preliminary offering memorandum, dated October 10, 2017, prepared in connection with the Private Offering. |
EXHIBIT LIST
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Catalent, Inc. | ||
(Registrant) | ||
By: | /s/ Steven L. Fasman | |
Steven L. Fasman | ||
Senior Vice President, General Counsel and Secretary |
Date: October 10, 2017
Exhibit 99.1
Catalent Announces Launch of Private Offering of $450 Million of Senior Unsecured Notes Due 2026
SOMERSET, N.J., October 10, 2017 Catalent, Inc. (Catalent) (NYSE: CTLT), the leading global provider of advanced delivery technologies and development solutions for drugs, biologics, and consumer health products, today announced that its wholly owned subsidiary, Catalent Pharma Solutions, Inc. (the Operating Subsidiary), intends to offer, subject to market and other conditions, $450 million in aggregate principal amount of senior unsecured notes due 2026 (the Notes) in a private offering (the Private Offering) that is exempt from the registration requirements of the Securities Act of 1933, as amended (the Securities Act).
The Operating Subsidiary intends to use the net proceeds from the Private Offering to fund, in part, the purchase price of the previously announced pending acquisition (the Acquisition) of Cook Pharmica LLC (Cook Pharmica). Catalent expects to fund the balance of the purchase price and pay related fees and expenses with $277.4 million of the approximate net proceeds from the previously announced underwritten public offering of its common stock, which closed on September 29, 2017, as well as cash on hand. The closing of the Private Offering is not contingent upon the closing of the Acquisition. If for any reason (i) the Acquisition is not consummated on or prior to March 18, 2018, (ii) the Acquisition Agreement is terminated prior to March 18, 2018, or (iii) the Operating Subsidiary notifies the trustee in writing that it will not pursue the consummation of the Acquisition or otherwise publicly announces that the Acquisition will not be consummated, then the Operating Subsidiary will be required to redeem all of the outstanding Notes for cash at a redemption price equal to 100% of the issue price of the Notes, plus accrued and unpaid interest to, but excluding, the redemption date.
The Notes will be guaranteed by all of the wholly owned U.S. subsidiaries of the Operating Subsidiary that guarantee its senior secured credit facilities. The Notes will not be guaranteed by PTS Intermediate Holdings, LLC or Catalent, the direct and indirect parent companies of the Operating Subsidiary.
The Notes will be offered and sold to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain non-U.S. persons outside the United States pursuant to Regulation S under the Securities Act.
The Notes have not been and will not be registered under the Securities Act or applicable state securities laws and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and applicable state laws.
This press release does not constitute an offer to sell or a solicitation of an offer to buy any of the Notes or any other securities and shall not constitute an offer, solicitation or sale in any state or jurisdiction in which such offer, solicitation, or sale is unlawful.
The Operating Subsidiary is also seeking, concurrently with the Private Offering, to amend the credit agreement governing its senior secured credit facilities to reduce the applicable margins and extend the maturities by three years of its term loans and revolving credit facility (the Amendment). The closing of each of the Private Offering and the Acquisition is not conditioned upon the consummation of the Amendment and there can be no assurance that the Operating Subsidiary will be able to obtain any reduction to the applicable margins or extension of maturities. There can be no assurance that the Operating Subsidiary will consummate either of the Private Offering or the Amendment on favorable terms or at all.
About Catalent, Inc.
Catalent, Inc. (NYSE: CTLT) is the leading global provider of advanced delivery technologies and development solutions for drugs, biologics and consumer health products. With over 80 years serving the industry, Catalent has proven expertise in bringing more customer products to market faster, enhancing product performance and ensuring reliable clinical and commercial product supply. Catalent employs approximately 10,000 people, including over 1,400 scientists, at more than 30 facilities across five continents, and in fiscal 2017 generated over $2 billion in annual revenue. Catalent is headquartered in Somerset, New Jersey.
Forward-Looking Statements
This release contains both historical and forward-looking statements, including concerning the closing of the agreement to purchase Cook Pharmica and the financing that Catalent intends to obtain to finance the initial purchase price. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements generally can be identified because they relate to the topics set forth above or by the use of statements that include phrases such as believe, expect, anticipate, intend, estimate, plan, project, foresee, likely, may, will, would or other words or phrases with similar meanings. Similarly, statements that describe Catalents objectives, plans or goals are, or may be, forward-looking statements. These statements are based on current expectations of future events. If underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results could vary materially from Catalents expectations and projections. Some of the factors that could cause actual results to differ include, but are not limited to, the following: antitrust or other regulatory actions that may delay or interfere with the closing of the acquisition or result in other changes to Catalents business; other unanticipated events that may prevent a closing of the acquisition or may make it more difficult to realize the anticipated benefits of the transaction; inability to complete the anticipated financing on the anticipated terms, or at all; participation in a highly competitive market and increased competition may adversely affect the business of Catalent or of Cook Pharmica; demand for Catalents or Cook Pharmicas offerings which depends in part on their customers research and development and the clinical and market success of their products; product and other liability risks that could adversely affect the results of operations, financial condition, liquidity, and cash flows of Catalent or Cook Pharmica; failure to comply with existing and future regulatory requirements; failure to provide quality offerings to customers could have an adverse effect on the business and subject it to regulatory actions and costly litigation; problems providing the highly exacting and complex services or support required; global economic, political, and regulatory risks to the operations of Catalent and Cook Pharmica; inability to enhance existing or introduce new technology or service offerings in a timely manner; inadequate patents, copyrights, trademarks, and other forms of intellectual property protections; fluctuations in the costs, availability, and suitability of the components of the products Catalent and Cook Pharmica manufacture, including active pharmaceutical ingredients, excipients, purchased components, and raw materials; changes in market access or healthcare reimbursement in the United States or internationally; fluctuations in the exchange rate of the U.S. dollar and other foreign currencies including as a result of the recent U.K. referendum to exit from the European Union; adverse tax legislation initiatives or challenges to Catalents tax positions; loss of key personnel; risks generally associated with information systems; inability to complete any future acquisitions and other transactions that may complement or expand the business of Catalent or divest of non-strategic businesses or assets and Catalents ability to successfully integrate acquired business and realize anticipated benefits of such acquisitions; offerings and customers products that may infringe on the intellectual property rights of third parties; environmental, health, and safety laws and regulations, which could increase costs and restrict operations; labor and employment laws and regulations; additional cash contributions required to fund Catalents existing pension plans; substantial leverage resulting in the limited ability of Catalent to raise additional capital to fund operations and react to changes in the economy or in the industry; exposure to interest rate risk to the extent of Catalents variable rate debt and preventing Catalent from meeting its obligations under its indebtedness. For a more detailed discussion of these and other factors, see the information under the caption Risk Factors in Exhibit 99.4 of Catalents Form 8-K filed September 25, 2017 with the SEC and Catalents Annual Report on Form 10-K for the fiscal year ended June 30, 2017, filed August 28, 2017 with the SEC. All forward-looking statements speak only as of the date of this release or as of the date they are made, and Catalent does not undertake to update any forward-looking statement as a result of new information or future events or developments except to the extent required by law.
Contact:
Catalent, Inc.
Investor Contact:
Thomas Castellano, 732-537-6325
investors@catalent.com
Exhibit 99.2
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
On September 18, 2017, Catalent Pharma Solutions, Inc., a wholly owned subsidiary of Catalent, Inc. (Catalent), entered into an Interest Purchase Agreement (the Acquisition Agreement) with Cook Pharmica LLC, an Indiana limited liability company (Cook Pharmica), Cook Group Incorporated, an Indiana corporation (the Seller) and, solely for purposes of Section 7.19 of the Acquisition Agreement, Catalent. Unless otherwise indicated or the context otherwise requires, the terms Catalent, we, our, the Company, and us refer to Catalent and its subsidiaries on a consolidated basis. In these unaudited pro forma condensed combined financial statements and the notes thereto, when we refer to our fiscal years, which end on June 30, we say fiscal and the year number, as in fiscal 2017, which refers to our fiscal year ended June 30, 2017. We refer in these unaudited pro forma condensed combined financial statements and the notes thereto to our Annual Report on Form 10-K for fiscal 2017 as our 2017 Form 10-K.
Pursuant to the terms and conditions of the Acquisition Agreement, at the closing, we will acquire 100% of the outstanding equity interests of Cook Pharmica (the Acquisition). The aggregate purchase price payable by us is $950.0 million of which (i) $750.0 million is payable on the closing date of the Acquisition (less an amount to be placed in escrow for adjustment purposes and a previous deposit), subject to customary purchase price adjustments related to the amount of Cook Pharmicas working capital, cash, debt and transaction expense reimbursement as described in the Acquisition Agreement and (ii) $200.0 million is payable in $50.0 million increments on each anniversary of the closing date of the Acquisition over four years (the Deferred Purchase Consideration).
The closing of the Acquisition is subject to customary closing conditions, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the clearance of the Acquisition from the German Federal Cartel Office. The Acquisition Agreement contains certain termination rights for the Seller and us, including if the closing does not occur before March 18, 2018. We have agreed to pay the Seller a termination fee of $35.0 million upon termination of the Acquisition Agreement under certain specified circumstances. We currently anticipate obtaining satisfaction or waiver of the closing conditions and closing the Acquisition during our second quarter of fiscal 2018, although there can be no assurance that the Acquisition will close when anticipated, or at all.
We expect to obtain the funds necessary to pay the portion of the Acquisition consideration due at the closing with (a) the approximately $277.4 million of net proceeds from the underwritten public offering of our common stock, which closed on September 29, 2017 (the Equity Offering), (b) the net proceeds from the issuance of $450.0 million aggregate principal amount of new notes to be sold pursuant to a private offering (the Debt Offering, and together with the Equity Offering, the Financing Transactions), and (c) cash on hand. We are giving effect to the Equity Offering which consisted of the issuance of 7,354,250 shares of our common stock at the offering price of $39.10 per share.
Contemporaneous with our entry into the Acquisition Agreement, we entered into a debt commitment letter, dated September 18, 2017, with Morgan Stanley Senior Funding, Inc., JP Morgan Chase Bank, N.A., Royal Bank of Canada, RBC Capital Markets, Bank of America, N.A. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as commitment parties, pursuant to which and subject to the terms and conditions set forth therein, the commitment parties agreed to provide a senior unsecured bridge loan facility (the Bridge Facility) of up to $700.0 million in the aggregate for the purpose of providing the financing necessary to fund a portion of the consideration to be paid pursuant to the terms of the Acquisition Agreement and related fees, costs, and expenses (the Bridge Loan Commitment). The Bridge Loan Commitment will be reduced on a dollar-for-dollar basis by 100% of the gross cash proceeds from the Financing Transactions. We do not currently expect to make any borrowings under the Bridge Facility.
Our fiscal year ends on June 30, while Cook Pharmicas fiscal year ends on December 31. Pursuant to Rule 11-02(c)(3) of Regulation S-X under the Securities Act of 1933, as amended (the Securities Act), the fiscal years have been conformed to have a fiscal year end of June 30 for the purpose of presenting summary unaudited pro forma condensed combined financial statements, because the two fiscal year ends are separated by more than 93 days.
The unaudited pro forma condensed combined balance sheet combines our audited year end consolidated balance sheet as of June 30, 2017 and the unaudited balance sheet of Cook Pharmica as of June 30, 2017. The unaudited pro forma condensed combined statement of operations for the year ended June 30, 2017 combines our audited consolidated statement of operations for fiscal 2017 with the unaudited statement of income of Cook
Pharmica for the twelve months ended June 30, 2017. The unaudited statement of income of Cook Pharmica for the twelve months ended June 30, 2017 is derived by adding the unaudited statement of income information for the six months ended June 30, 2017 to the audited statement of income information for the year ended December 31, 2016 and subtracting the unaudited statement of income information for the six months ended June 30, 2016.
The following unaudited pro forma condensed combined statement of operations gives effect to the Acquisition and the Financing Transactions as if they had closed on July 1, 2016. The following unaudited pro forma condensed combined balance sheet gives effect to the Acquisition and the Financing Transactions as if they had closed on June 30, 2017. The summary unaudited pro forma condensed combined financial statements do not give effect to a potential amendment of the credit agreement governing our senior secured credit facilities, which we intend to seek contemporaneously with the Debt Offering.
The historical financial data is adjusted in the unaudited pro forma condensed combined financial statements to give effect to unaudited pro forma adjustments that are (1) directly attributable to the Acquisition and the Financing Transactions, (2) factually supportable and (3) with respect to the unaudited pro forma condensed combined statement of operations, expected to have a continuing impact on our consolidated operating results. The unaudited pro forma adjustments are based upon available information and certain assumptions that our management believes are reasonable. Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma condensed combined financial data.
In addition, in connection with our entry into the Acquisition Agreement, we and the Seller have agreed that on the closing of the Acquisition, (i) the Seller and Cook Pharmica will enter into a transition services agreement, pursuant to which the Seller and Cook Pharmica will provide certain services to facilitate the transition of Cook Pharmicas business and (ii) Cook Pharmica and two affiliates of the Seller (collectively, Cook Medical) will enter into a supply agreement, pursuant to which Cook Pharmica will manufacture, fill, inspect, label, package, test, release, and supply in vitro fertilization (IVF) media to Cook Medical and its affiliates. No pro forma adjustments were made in contemplation of these two agreements as they were not material.
The unaudited pro forma condensed combined statement of operations is not necessarily indicative of operating results that would have been achieved had the Acquisition and the Financing Transactions been completed as of July 1, 2016 and are not intended to project our future financial results after the Acquisition and the Financing Transactions. The unaudited pro forma condensed combined balance sheet does not purport to reflect what our financial condition would have been had the Acquisition and the Financing Transactions closed on June 30, 2017 or for any future or historical period. The unaudited pro forma condensed combined statement of operations and balance sheet do not reflect the cost of any integration activities or benefits from the Acquisition that may be derived, either or both of which may have a material effect on our consolidated results in periods following completion of the Acquisition.
The unaudited pro forma condensed combined financial data should be read in conjunction with the following information:
| the notes to the unaudited pro forma condensed combined financial data; |
| Item 1.01 of Catalents Current Report on Form 8-K filed with the Securities and Exchange Commission (the SEC) on September 19, 2017, including the exhibit thereto, which describes the Acquisition; |
| our audited consolidated financial statements as of and for fiscal 2017, which are included in our 2017 Form 10-K, as filed with the SEC; |
| the audited financial statements of Cook Pharmica as of and for the year ended December 31, 2016, which are included in Exhibit 99.1 of Catalents Current Report on Form 8-K filed with the SEC on September 25, 2017; and |
| the unaudited financial statements of Cook Pharmica as of June 30, 2017 and for the six months ended June 30, 2017 and 2016, which are included in Exhibit 99.2 of Catalents Current Report on Form 8-K filed with the SEC on September 25, 2017. |
Unaudited Pro Forma Condensed Combined Balance Sheet
June 30, 2017
(dollars in millions, except per share data)
Catalent | Cook Pharmica |
Financing Transactions |
Acquisition | Pro Forma | ||||||||||||||||
ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ | 288.3 | $ | | $ | 718.7 | (a) | $ | (763.9 | )(b) | $ | 243.1 | ||||||||
Trade receivables, net |
488.8 | 32.9 | | | 521.7 | |||||||||||||||
Inventories |
184.9 | 16.2 | | | 201.1 | |||||||||||||||
Prepaid expenses and other |
97.8 | 2.0 | | | 99.8 | |||||||||||||||
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Total current assets |
1,059.8 | 51.1 | 718.7 | (763.9 | ) | 1,065.7 | ||||||||||||||
Property, plant, and equipment, net |
995.9 | 171.7 | | 63.0 | (c) | 1,230.6 | ||||||||||||||
Other assets: |
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Goodwill |
1,044.1 | | | 408.7 | (d) | 1,452.8 | ||||||||||||||
Other intangibles, net |
273.1 | | | 260.0 | (e) | 533.1 | ||||||||||||||
Deferred income taxes |
53.9 | 110.6 | | (110.6 | )(f) | 53.9 | ||||||||||||||
Other |
27.5 | | | | 27.5 | |||||||||||||||
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Total assets |
$ | 3,454.3 | $ | 333.4 | $ | 718.7 | $ | (142.8 | ) | $ | 4,363.6 | |||||||||
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current liabilities: |
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Current portion of long-term obligations and other short-term borrowings |
$ | 24.6 | $ | | $ | | $ | 48.4 | (g) | $ | 73.0 | |||||||||
Accounts payable |
163.2 | 4.9 | | | 168.1 | |||||||||||||||
Other accrued liabilities |
281.2 | 18.6 | (h) | | | 299.8 | ||||||||||||||
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Total current liabilities |
469.0 | 23.5 | | 48.4 | 540.9 | |||||||||||||||
Long-term obligations, less current portion |
2,055.1 | | 441.3 | (i) | 134.5 | (g) | 2,630.9 | |||||||||||||
Pension liability |
129.5 | | | | 129.5 | |||||||||||||||
Deferred income taxes |
31.7 | | | | 31.7 | |||||||||||||||
Other liabilities |
45.5 | 0.1 | (h) | | | 45.6 | ||||||||||||||
Commitment and contingencies |
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Shareholders equity/(deficit): |
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Common stock $0.01 par value; 1.0 billion shares authorized actual and pro forma; 125,049,867 shares issued and outstanding actual and 132,404,117 shares issued and outstanding, pro forma |
1.3 | | 0.1 | (j) | | 1.4 | ||||||||||||||
Preferred stock $0.01 par value; 100 million authorized actual and pro forma; 0 issued and outstanding actual and pro forma |
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Additional paid in capital |
1,992.0 | | 277.3 | (j) | | 2,269.3 | ||||||||||||||
Accumulated deficit |
(955.7 | ) | (163.9 | ) | | 148.0 | (j),(k) | (971.6 | ) | |||||||||||
Net parent investment |
| 473.7 | | (473.7 | )(k) | | ||||||||||||||
Accumulated other comprehensive income/(loss) |
(314.1 | ) | | | | (314.1 | ) | |||||||||||||
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Total shareholders equity |
723.5 | 309.8 | 277.4 | (325.7 | ) | 985.0 | ||||||||||||||
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Total liabilities and shareholders equity |
$ | 3,454.3 | $ | 333.4 | $ | 718.7 | $ | (142.8 | ) | $ | 4,363.6 | |||||||||
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See accompanying notes to unaudited pro forma condensed combined financial statements.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended June 30, 2017
(dollars in millions, except per share data)
Catalent | Cook Pharmica (Note 1) |
Reclassifications(l) | Financing Transactions |
Acquisition | Pro Forma | |||||||||||||||||||
Net revenue |
$ | 2,075.4 | $ | 179.0 | $ | 1.3 | $ | | $ | | $ | 2,255.7 | ||||||||||||
Cost of sales |
1,420.8 | 119.4 | 1.4 | | 1.1 | (m) | 1,542.7 | |||||||||||||||||
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Gross margin |
654.6 | 59.6 | (0.1 | ) | | (1.1 | ) | 713.0 | ||||||||||||||||
Selling, general and administrative expenses |
402.6 | 21.6 | 4.5 | | 14.6 | (n),(o) | 443.3 | |||||||||||||||||
Impairment charges and (gain)/loss on sale of assets |
9.8 | | | | | 9.8 | ||||||||||||||||||
Research and development |
| 1.1 | (1.1 | ) | | | ||||||||||||||||||
Corporate Allocation |
| 3.1 | (3.1 | ) | | | ||||||||||||||||||
Restructuring and other |
8.0 | | | | | 8.0 | ||||||||||||||||||
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Operating earnings |
234.2 | 33.8 | (0.4 | ) | | (15.7 | ) | 251.9 | ||||||||||||||||
Interest expense, net |
90.1 | | | 32.5 | (p) | | 122.6 | |||||||||||||||||
Other (income)/expense, net |
8.5 | | (0.4 | ) | | | 8.1 | |||||||||||||||||
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Earnings from continuing operations before income taxes |
135.6 | 33.8 | | (32.5 | ) | (15.7 | ) | 121.2 | ||||||||||||||||
Income tax expense/(benefit) |
25.8 | (110.4 | )(q) | | (12.7 | )(q) | (6.1 | )(q) | (103.4 | ) | ||||||||||||||
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Net earnings |
$ | 109.8 | $ | 144.2 | $ | | $ | (19.8 | ) | $ | (9.6 | ) | $ | 224.6 | ||||||||||
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Earnings per share attributable to Catalent |
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Basic |
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Net earnings |
$ | 0.88 | 1.70 | (r) | ||||||||||||||||||||
Diluted |
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Net earnings |
0.87 | 1.67 | (r) |
See accompanying notes to unaudited pro forma condensed combined financial statements.
Notes to the Unaudited Pro Forma Condensed Combined Financial Statements
Note 1Basis of Presentation
As Cook Pharmicas fiscal year of December 31 differs from our fiscal year of June 30, in order for the pro forma results to be comparable to ours, the Cook Pharmica statement of income for the twelve months ended June 30, 2017 was calculated as follows:
Six months ended June 30, 2017 |
+ | Year Ended December 31, 2016 |
- | Six months ended June 30, 2016 |
= | Twelve months ended June 30, 2017 |
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(dollars in millions) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||||||
Net revenuesexternal |
$ | 83.9 | $ | 168.3 | $ | 82.7 | $ | 169.5 | ||||||||||||||||||||
Revenuesaffiliates |
5.0 | 9.5 | 5.0 | 9.5 | ||||||||||||||||||||||||
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Total revenues |
88.9 | 177.8 | 87.7 | 179.0 | ||||||||||||||||||||||||
Cost of revenues |
60.8 | 121.9 | 63.3 | 119.4 | ||||||||||||||||||||||||
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Gross profit |
28.1 | 55.9 | 24.4 | 59.6 | ||||||||||||||||||||||||
Sales, marketing, and administrative |
11.0 | 21.9 | 11.3 | 21.6 | ||||||||||||||||||||||||
Research and development |
0.7 | 1.0 | 0.6 | 1.1 | ||||||||||||||||||||||||
Corporate allocation |
1.9 | 2.9 | 1.7 | 3.1 | ||||||||||||||||||||||||
Other expense, net |
0.1 | 0.1 | 0.2 | | ||||||||||||||||||||||||
Income before income taxes |
14.4 | 30.0 | 10.6 | 33.8 | ||||||||||||||||||||||||
Income tax expense / (benefit) |
(110.7 | ) | 0.1 | (0.2 | ) | (110.4 | ) | |||||||||||||||||||||
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Net income |
$ | 125.1 | $ | 29.9 | $ | 10.8 | $ | 144.2 | ||||||||||||||||||||
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Note 2Preliminary Purchase Price Allocation
As discussed above, the aggregate purchase price for the Acquisition is $950.0 million of which (i) $750.0 million is payable on the closing date of the Acquisition (less an amount to be placed in escrow for adjustment purposes and a previous deposit), subject to customary purchase price adjustments related to the amount of Cook Pharmicas working capital, cash, debt and transaction expenses as described in the Acquisition Agreement and (ii) the Deferred Purchase Consideration of $200.0 million is payable in $50.0 million increments on each anniversary of the closing date of the Acquisition over four years.
The Acquisition will be accounted for as a business combination in accordance with the Financial Accounting Standards Board Accounting Standards Codification (ASC) 805 Business Combinations, which will establish a new basis of accounting for all identifiable assets acquired and liabilities assumed at fair value as of the Acquisition completion date. Accordingly, the cost to acquire such interests will be allocated to the underlying net assets based on their respective fair values. The fair value of Cook Pharmicas identifiable tangible and intangible assets acquired and liabilities assumed, along with the Deferred Purchase Consideration, are based on a preliminary estimate of fair value as of June 30, 2017. Any excess of the purchase price over the estimated fair value of the net assets acquired will be recorded as goodwill. The allocation of the purchase price to all identifiable assets acquired and liabilities assumed reflected in the unaudited pro forma condensed combined financial statements is based on preliminary estimates using assumptions that our management believes are reasonable based on currently available information as of the date of the offering memorandum for the Debt Offering. The final purchase price and fair value assessment of identifiable assets acquired and liabilities assumed will be completed following the closing date of the Acquisition based on a detailed valuation analysis that has not yet been completed. The final purchase price allocation may be different from that reflected in the preliminary pro forma purchase price allocation presented herein, and this difference may be material.
Preliminary Purchase Price Allocation
(dollars in millions) | ||||
Preliminary purchase price: |
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Cash paid at closing |
$ | 748.0 | ||
Fair value of Deferred Purchase Consideration(*) |
182.9 | |||
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Total estimated purchase price |
$ | 930.9 | ||
Preliminary purchase price allocation |
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Property, plant and equipment |
$ | 234.7 | ||
Customer relationships |
260.0 | |||
Other net assets |
27.5 | |||
Goodwill |
408.7 | |||
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Total |
$ | 930.9 |
(*) | We have preliminarily determined the fair value using assumptions including the yield on applicable U.S. Treasury notes, our credit spread, and a present value factor. |
Note 3Conforming Accounting Policies
Following the Acquisition, we will conduct a review of Cook Pharmicas accounting policies in an effort to determine if differences in accounting policies require reclassification of Cook Pharmicas results of operations or reclassification of assets or liabilities to conform to our accounting policies and classifications. As a result of that review, we may identify differences between the accounting policies of the two companies that, when conformed, could have a material impact on these unaudited pro forma condensed combined financial statements. During the preparation of these unaudited pro forma condensed combined financial statements, we were not aware of any material differences between the accounting policies of the two companies and accordingly, these unaudited pro forma condensed combined financial statements do not assume any material differences in accounting policies between the two companies, other than certain financial statement reclassifications described in Note 4.
Note 4Pro Forma Adjustments
The adjustments described below are keyed to the footnotes in the Unaudited Pro Forma Condensed Combined Financial Statements. This note should be read in conjunction with Note 1Basis of Presentation, Note 2Preliminary Purchase Price Allocation, and Note 3Conforming Accounting Policies.
Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet
(a) | Represents an increase in cash and cash equivalents in the amount of $718.7 million, which relates to the Debt Offering and the Equity Offering, calculated as: |
(i) | an increase of $287.6 million to reflect the gross proceeds raised in the Equity Offering; |
(ii) | a decrease of $10.2 million to reflect fees of the Equity Offering; |
(iii) | an increase of $450.0 million to reflect the gross proceeds expected to be raised in the Debt Offering; and |
(iv) | a decrease of $8.7 million to reflect debt issuance costs related to the Debt Offering. |
(b) | Represents a decrease in cash and cash equivalents in the amount of $763.9 million, which relates to the Acquisition, calculated as: |
(i) | a decrease of $748.0 million paid by us at the closing of the Acquisition; and |
(ii) | a decrease of $15.9 million to reflect other estimated Acquisition-related costs such as fees and expenses payable with respect to the Bridge Loan Commitment and other legal and banking fees and expenses that were not incurred as of June 30, 2017 and are expected to be incurred through the closing of the Acquisition. |
(c) | Represents an increase in property, plant, and equipment of $63.0 million as a result of adjusting the historical book value of such assets to the preliminary estimated fair value. |
(d) | Represents the recognition of $408.7 million of goodwill for the excess of the preliminary fair value purchase price over the estimated fair value of Cook Pharmicas net assets. |
(e) | Represents the recognition of $260.0 million of intangible assets consisting of customer relationships as a result of the Acquisition, calculated using the multi-period excess earnings method for the valuation of customer relationships. |
(f) | Represents the elimination of Cook Pharmicas deferred income taxes of $110.6 million as a result of the Acquisition because the transaction is taxable and does not result in any deferred taxes as of date of closing of the Acquisition, since the book basis and tax basis of Cook Pharmica will be the same. |
(g) | Represents the current and long-term portions of the Deferred Purchase Consideration, recognized at estimated fair value as of June 30, 2017, as discussed in Note 2Preliminary Purchase Price Allocation. |
(h) | Represents reclassifications to conform to our basis of presentation for our balance sheet, which have no effect on the net equity of Cook Pharmica and relate to: |
(i) | Historical employee compensation, business taxes, sundry, and deferred revenue totaling $18.6 million, which were reclassified to other accrued liabilities. |
(dollars in millions) | June 30, 2017 Increase/(Decrease) |
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Employee Compensation |
(5.8 | ) | ||
Business taxes |
(1.2 | ) | ||
Sundry |
(0.7 | ) | ||
Deferred revenue |
(10.9 | ) | ||
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Other accrued liabilities |
18.6 |
(ii) | Historical deferred compensation of $0.1 million, which was reclassified to other liabilities. |
(dollars in millions) | June 30, 2017 Increase/(Decrease) |
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Deferred Compensation |
(0.1 | ) | ||
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Other liabilities |
0.1 |
(i) | Represents the net increase in long-term obligations of $450.0 million as a result of the Debt Offering, net of $8.7 million of debt issuance costs. |
(j) | Represents an increase to our equity as a result of the Equity Offering, which consisted of the issuance of 7,354,250 shares at an offering price of $39.10: |
(i) | an increase in shareholders equity of $0.1 million relating to the issuance of 7,354,250 shares at a par value of $0.01; |
(ii) | an increase in shareholders equity / additional paid-in capital of $277.3 million relating to the aggregate capital assumed to be raised in excess of par value (exclusive of underwriting fees and other equity offering fees); and |
(iii) | an increase in accumulated deficit of $15.9 million to reflect other estimated transaction costs, including expenses of the Bridge Facility and legal and banking fees that were not incurred as of June 30, 2017 and are expected to be incurred through the closing of the Acquisition. |
(k) | Represents the elimination of Cook Pharmicas equity balance in connection with the Acquisition. |
Adjustments to Unaudited Pro Forma Condensed Combined Statement of Operations
(l) | Represents reclassifications to conform to our basis of presentation for our statement of operations, which have no effect on the net income of Cook Pharmica, and relate to: |
(i) | research and development costs and corporate allocation costs totaling $4.2 million, which were reclassified to selling, general and administrative expenses; |
(ii) | royalty fees of $1.4 million, which were reclassified from other (income)/expense, net to cost of sales; |
(iii) | research and development revenue of $1.3 million, which was reclassified from other (income)/expense, net to net revenue; and |
(iv) | employee compensation of $0.3 million, which was reclassified from other (income)/expense, net to selling, general, and administrative expenses. |
(m) | Represents a net adjustment to depreciation expense of $1.1 million related to the fair value of the property, plant, and equipment acquired in the Acquisition. The revised depreciation expense was calculated on a straight-line basis using the following estimated useful lives as determined by management: Buildings and Improvements35 years; Machinery and Equipment5 to 10 years; Other Equipment4 years. We made an adjustment to conform Cook Pharmicas typically shorter depreciation schedules to our accounting policies with respect to depreciable lives. |
(n) | Represents amortization expense of intangible assets resulting from the Acquisition. The intangible assets represent customer relationships with an estimated useful life of 15 years, which we will amortize on a straight-line basis. The estimated useful life was determined based on a review of the period over which economic benefit is estimated to be generated as well as additional factors. Factors considered include contractual life, the period over which a majority of cash flow is expected to be generated, and/or managements view based on historical experience with similar assets. Total pro forma amortization expense recorded for the twelve months ended June 30, 2017 is $17.3 million. A 10% increase / decrease in the estimated fair value of intangibles will increase / decrease amortization by $1.7 million. |
(o) | Represents the elimination of $2.7 million in transaction costs paid by us during our fiscal 2017 that are non-recurring and directly related to the Acquisition. |
(p) | Represents the adjustments to interest expense of $32.5 million in connection with the Debt Offering and amortization of the Deferred Purchase Consideration, calculated as follows: |
(i) | an increase of $24.7 million related to cash interest on the new notes at an assumed interest rate. A 0.125 percentage point change in the assumed interest rate on the notes would correspondingly change interest expense by $0.6 million on a pro forma basis for the year ended June 30, 2017; |
(ii) | an increase of $1.1 million related to the amortization of an aggregate $8.5 million of debt issuance costs estimated to be incurred in connection with the Debt Offering; and |
(iii) | an increase of $6.7 million related to non-cash interest on the Deferred Purchase Consideration at an estimated interest rate of 3.68%. The expense associated with this non-cash interest was calculated using the effective interest method. |
(q) | In the six months ended June 30, 2017, Cook Pharmica determined that it no longer had a three-year cumulative pre-tax loss and expected to generate positive net pre-tax income in future years. Cook Pharmica, therefore, reversed the valuation allowance against the net deferred tax asset, resulting in an income tax benefit of $110.7 million. No pro forma adjustment was made to this income tax benefit as the release of the tax valuation allowance is not directly related to the Acquisition and Financing Transactions. The reversal of the valuation allowance and its impact on the effective tax rate is not considered to be representative of the income taxes of the combined organization on a go-forward basis. We expect Cook Pharmica to achieve an effective tax rate of 39% and have applied that rate to the pro forma adjustments presented herein. Exclusion of the Cook Pharmica income tax benefit from the pro forma net earnings attributable to us would result in basic and diluted net earnings per share of $0.86 and $0.85, respectively, which represents a $0.02 decrease from each of our basic and diluted net earnings per share. |
(r) | Basic and diluted net earnings per share are each calculated by dividing pro forma net earnings attributable to us by the weighted average shares outstanding and diluted weighted average shares outstanding, respectively, for the year ended June 30, 2017, as adjusted for the issuance of 7,354,250 shares related to the Equity Offering as of the beginning of the annual period. |