Notes to Unaudited Consolidated Financial Statements
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1
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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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Business
Catalent, Inc. (“Catalent” or the “Company”) directly and wholly owns PTS Intermediate Holdings LLC (“Intermediate Holdings”). Intermediate Holdings directly and wholly owns Catalent Pharma Solutions, Inc. (“Operating Company”). The financial results of Catalent are comprised of the financial results of Operating Company and its subsidiaries on a consolidated basis.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the
three months ended September 30, 2017
are not necessarily indicative of the results that may be expected for the year ending June 30,
2018
. The consolidated balance sheet at June 30,
2017
has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. For further information on the Company's accounting policies and footnotes, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30,
2017
filed with the Securities and Exchange Commission ("SEC").
Use of Estimates
The preparation of financial statements in conformity with GAAP 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, and pension plan asset and liability valuation. Actual amounts may differ from these estimated amounts.
Foreign Currency Translation
The financial statements of the Company’s operations outside the U.S. are generally measured using the local currency as the functional currency. Adjustments to translate the assets and liabilities of these foreign operations into U.S. dollars are accumulated as a component of other comprehensive income/(loss) utilizing period-end exchange rates. The currency fluctuations related to certain long-term inter-company loans deemed to not be repayable in the foreseeable future have been recorded within 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 consolidated statements of operations in the other (income)/expense, net line item. Foreign currency translation gains and losses generated from inter-company loans that are long-term in nature, but may be repayable in the foreseeable future, are also recorded within the other (income)/expense, net line item on the consolidated statements of operations.
Revenue Recognition
In accordance with
Accounting Standards Codification ("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 Drug Delivery Solutions 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.
Goodwill
The Company accounts for purchased goodwill and intangible assets with indefinite lives in accordance with
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. The Company's annual goodwill impairment test was conducted as of April 1, 2017. 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 ranges 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
$27.6 million
for the
three months ended September 30, 2017
and
$24.8 million
for the
three months ended September 30, 2016
. 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, patents and trademarks are amortized over their useful lives. The Company evaluates the recoverability of its other long-lived assets, including amortizing intangible assets, if circumstances indicate impairment may have occurred pursuant to
ASC 360 Property, Plant and Equipment
. This analysis is performed by comparing the respective carrying values of the assets to the current and expected future cash flows, on an un-discounted basis, to be generated from such assets. If such analysis indicates that the carrying value of these assets is not recoverable, the carrying value of such assets is reduced to fair value through a charge to the consolidated statements of operations. Fair value is determined based on assumptions the Company believes marketplace participants would utilize and comparable marketplace information in similar arm's length transactions. There were no impairment charges related to definite lived intangible assets and property, plant and equipment for the three months ended September 30, 2017 and 2016.
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
$1.8 million
for the
three months ended September 30, 2017
and
$1.5 million
for the
three months ended September 30, 2016
. Costs incurred in connection with research and development services the Company provides 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
$10.0 million
for the
three months ended September 30, 2017
and
$10.3 million
for the
three months ended September 30, 2016
.
Earnings / (Loss) Per Share
The Company reports net earnings/(loss) per share in accordance with
ASC 260
Earnings per Share
. 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 caused by 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 unvested 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 diluted earnings per share.
Equity-Based Compensation
The Company accounts for its equity-based compensation awards pursuant to
ASC 718 Compensation—Stock Compensation
. 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, and the expense is recorded over the applicable requisite service period using the accelerated attribution method. Forfeitures are recognized as and when they occur. 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.
The terms of the Company’s equity-based compensation plans permit an employee holding vested stock options to elect to have the Company withhold a portion of the shares otherwise issuable upon the employee's exercise of the option, a so-called "net settlement transaction," as a means of paying the exercise price meeting tax withholding requirements, or both.
Marketable Securities
Marketable securities consist of investments that have a readily determinable fair value based on quoted market price of the investment, which is considered a Level 1 fair value measurement. Under
ASC 320, Investments—Debt and Equity Securities
, these investments are classified as available-for-sale and are reported at fair value in other current assets on the Company's consolidated balance sheet. Unrealized holding gains and losses are reported within accumulated other comprehensive income/(loss). Under the Company's accounting policy, a decline in the fair value of marketable securities is deemed to be "other than temporary" and such marketable securities are generally considered to be impaired if their fair value is less than the Company's cost basis for a period based on the particular facts and circumstances surrounding the investment. If a decline in the fair value of a marketable security below the Company's cost basis is determined to be other than temporary, such marketable security is written down to its estimated fair value as a new cost basis and the amount of the write-down is included in earnings as an impairment charge.
Recent Financial Accounting Standards
Recently Adopted Accounting Standards
In July 2015, the Financial Accounting Standards Board (the "FASB") issued
Accounting Standards Update (“ASU”) 2015-11, Simplifying the Measurement of Inventory
, which requires an entity to measure inventory at lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The ASU is effective for public reporting entities in fiscal years beginning after December 15, 2016. The Company adopted this ASU prospectively in fiscal 2018. The adoption of this ASU did not have any material impact to the Company's consolidated financial statements.
In August 2016, the FASB issued
ASU 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
, which provides clarification on the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. The guidance will be effective for publicly reporting entities in fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted in any interim or annual period. The Company early adopted this ASU retrospectively in fiscal 2018. The adoption of this ASU did not have any material impact to the Company's consolidated financial statements.
New Accounting Standards Not Adopted as of September 30, 2017
In August 2017, the FASB issued
ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
, which reduces the complexity of and simplifies the application of hedge accounting by preparers. The ASU will be effective for fiscal years beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted. The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements.
In May 2017, the FASB issued
ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting
, which clarifies when an entity will apply modification accounting for changes to stock-based compensation arrangements. Modification accounting applies if the value, vesting conditions, or classification of the awards changes. The ASU will be effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted. The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements.
In March 2017, the FASB issued
ASU 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
, which requires entities to report the service cost component of the net periodic benefit cost in the same income statement line as other compensation costs arising from services rendered by employees during the reporting period. The other components of the net benefit costs will be presented in the income statement separately from the service cost and below the income from operations subtotal. The ASU will be effective for public reporting entities in fiscal years beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted in the first interim period of a fiscal year. The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements.
In January 2017, the FASB issued
ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business
, which provides additional guidance on the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions of assets or businesses. The ASU will be effective for public reporting entities in fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements.
In February 2016, the FASB issued
ASU 2016-02 Leases (Topic 842)
, which will supersede A
SC 840 Leases
. The new guidance requires lessees to recognize most leases on their balance sheets for the rights and obligations created by those leases. The guidance requires enhanced disclosures regarding the amount, timing and uncertainty of cash flows arising from leases and will be effective for publicly reporting entities in annual reporting periods beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The guidance is required to be adopted using the modified retrospective approach. The Company anticipates that most of its operating leases will result in the recognition of additional assets and corresponding liabilities on its Consolidated Balance Sheets. The Company continues to evaluate the impact of adopting this guidance and its implication on its consolidated financial statements.
In May 2014, the FASB issued
ASU No. 2014-09
Revenue from Contracts with Customers,
which
will supersede nearly all existing revenue recognition guidance. The new guidance’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 new guidance 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. On July 9, 2015, the FASB approved a one-year deferral of the effective date so that the new guidance is effective for public entities for annual and interim periods beginning after December 15, 2017. The new guidance 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 permitted. The Company has identified its revenue streams, reviewed the initial impacts of adopting of the new standard on those revenue streams, and appointed a governance committee and project management leader. While the Company continues to assess all potential impacts of the standard, it has preliminarily assessed that the timing of revenue recognition may change for certain contractual arrangements containing minimum volume commitments in which the price is not fixed or determinable pursuant to the terms of the agreement. Under the current standard, the related pricing adjustments are considered to be contingent, while under the new standard they will likely be accounted for as variable consideration and revenue might be recognized earlier provided that the Company can reliably estimate the amount expected to be realized. The Company expects to adopt the new standard on a modified retrospective basis.
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2.
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BUSINESS COMBINATION AND RELATED FINANCING TRANSACTIONS
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On October 23, 2017, the Company acquired
Cook Pharmica LLC
("Cook Pharmica"), a biologics-focused contract development and manufacturing organization with capabilities across biologics development, clinical and commercial cell culture manufacturing, formulation, finished-dose manufacturing, and packaging for an aggregate purchase price of approximately $
950 million
, of which (i)
$750 million
was paid on the closing date, subject to an earlier deposit and customary purchase price adjustments and (ii)
$200 million
is payable in
$50 million
installments, on each anniversary of the closing date over a period of four years. The Company funded the portion of the acquisition consideration due at its closing with available cash, and the net proceeds of a public offering of its common stock and a private offering of a new issuance of notes. The Company is in the process of of determining the fair value of the assets acquired and liabilities assumed at the date of purchase, which will be included in our second quarter results. Refer to Note
5
and 12 for further discussion of changes in our indebtedness and the stock offering.
On October 18, 2017, Operating Company completed a private offering (the "Debt Offering") of
$450 million
aggregate principal amount of 4.875% senior unsecured notes due 2026 (the "USD Notes"). The USD Notes are guaranteed by all of the wholly owned U.S. subsidiaries of Operating Company that guarantee its senior secured credit facilities, including Cook Pharmica. The USD Notes were offered in the U.S. to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (the "Securities Act") and outside the U.S. only to non-U.S. investors pursuant to Regulation S under the Securities Act. The USD Notes will mature on January 15, 2026, bear interest at the rate of
4.875%
per annum, and are payable semi-annually in arrears on January 15 and July 15 of each year beginning on July 15, 2018. The September 30, 2017 balance sheet does not reflect the Debt Offering. The net proceeds of the Debt offering, after payment of the initial purchasers' discount and related fees and expenses, were used to fund a portion of the acquisition consideration at its closing. See also Note 5 for further discussion on the Debt Offering and the USD Notes.
The following table summarizes the changes between
June 30, 2017
and
September 30, 2017
in the carrying amount of goodwill in total and by reporting segment:
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(Dollars in millions)
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Softgel Technologies
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Drug Delivery Solutions
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Clinical Supply Services
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Total
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Balance at June 30, 2017
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$
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415.2
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$
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477.2
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$
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151.7
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$
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1,044.1
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Additions
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—
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—
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—
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—
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Foreign currency translation adjustments
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10.0
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9.1
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6.4
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25.5
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Balance at September 30, 2017
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$
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425.2
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$
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486.3
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$
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158.1
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$
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1,069.6
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No goodwill impairment charge was required during the current or comparable prior-year period. When required, impairment charges are recorded within the consolidated statements of operations as impairment charges and (gain)/loss on sale of assets.
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4
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DEFINITE LIVED LONG-LIVED ASSETS
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The Company’s definite-lived long-lived assets include property, plant and equipment as well as other intangible assets with definite lives. Refer to Note
15
Supplemental Balance Sheet Information for details related to property, plant, and equipment.
The details of other intangible assets subject to amortization as of
September 30, 2017
and
June 30, 2017
, are as follows:
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(Dollars in millions)
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Weighted Average Life
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Gross
Carrying
Value
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Accumulated
Amortization
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Net
Carrying
Value
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September 30, 2017
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Amortized intangibles:
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Core technology
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18 years
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$
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173.9
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$
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(79.2
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)
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$
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94.7
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Customer relationships
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14 years
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260.1
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(112.6
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)
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147.5
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Product relationships
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12 years
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212.1
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(185.1
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)
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27.0
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Total intangible assets
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$
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646.1
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$
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(376.9
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)
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$
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269.2
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(Dollars in millions)
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Weighted Average Life
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Gross
Carrying
Value
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Accumulated
Amortization
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Net
Carrying
Value
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June 30, 2017
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Amortized intangibles:
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Core technology
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18 years
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$
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170.3
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$
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(74.8
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)
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$
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95.5
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Customer relationships
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14 years
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253.0
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(106.1
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)
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146.9
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Product relationships
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12 years
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206.9
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(176.2
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)
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30.7
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Total intangible assets
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$
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630.2
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$
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(357.1
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)
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$
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273.1
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Amortization expense was
$11.4 million
for the
three months ended September 30, 2017
, and
$11.0 million
for the
three months ended September 30, 2016
. Future amortization expense for the next five fiscal years is estimated to be:
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(Dollars in millions)
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Remainder
Fiscal 2018
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2019
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2020
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2021
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2022
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2023
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Amortization expense
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$
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34.5
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$
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40.3
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$
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26.2
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$
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26.2
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$
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26.2
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$
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26.2
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5
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LONG-TERM OBLIGATIONS AND OTHER SHORT-TERM BORROWINGS
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Long-term obligations and other short-term borrowings consist of the following at
September 30, 2017
and
June 30, 2017
:
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(Dollars in millions)
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Maturity as of September 30, 2017
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September 30,
2017
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June 30, 2017
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Senior Secured Credit Facilities
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Term loan facility dollar-denominated
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May 2021
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$
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1,241.1
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$
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1,244.2
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Term loan facility euro-denominated
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May 2021
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365.2
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352.0
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Euro-denominated 4.75% Senior Notes due 2024
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December 2024
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441.6
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424.3
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Capital lease obligations
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2020 to 2032
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53.9
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53.3
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Other obligations
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2017 to 2018
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5.0
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5.9
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Total
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2,106.8
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2,079.7
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Less: Current portion of long-term obligations and other short-term
borrowings
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23.9
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24.6
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Long-term obligations, less current portion
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$
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2,082.9
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$
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2,055.1
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Senior Secured Credit Facilities and Third Amendment
Borrowings under Operating Company's term loan facilities bear interest at a rate based on the London Interbank Offered Rate ("LIBOR"). The applicable rate for the U.S. dollar-denominated term loan as of September 30, 2017 was LIBOR (subject to a floor of
1.00%
) plus
2.75%
, and the rate for the euro-denominated term loans was LIBOR (subject to a floor of
1.00%
) plus
2.50%
.
On October 18, 2017, Operating Company completed Amendment No. 3 (the "Third Amendment") to its Amended and Restated Credit Agreement, dated as of May 20, 2014 (as subsequently amended, the "Credit Agreement"), governing the senior secured credit facilities that provide U.S. dollar denominated term loans, euro-denominated term loans and a revolving credit facility. The Third Amendment lowered the interest rate on U.S. dollar-denominated and euro-denominated term loans and the revolving credit facility and extended the maturity dates on the senior secured credit facilities by three years. The new applicable rate for U.S. dollar-denominated term loans is LIBOR (subject to a floor of 1.00%) plus 2.25%, which is 0.50% lower than the previous rate, and the new applicable rate for euro-denominated term loans is LIBOR (subject to a floor of 1.00%) plus 1.75%, which is 0.75% lower than the previous rate. The new applicable rate for the revolving loans is initially LIBOR plus 2.25%, which is 1.25% lower than the previous rate, and such rate can additionally be reduced to LIBOR plus 2.00% in future periods based on a measure of Operating Company's total leverage ratio. The term loans and revolving loans will now mature in May 2024 and May 2022, respectively. The Third Amendment also includes a prepayment of
1.0%
in the event of another repricing event on or before the six-month anniversary of the Third Amendment.
Euro-denominated 4.75% Senior Notes due 2024
On December 9, 2016, Operating Company, completed a private offering of
€380.0 million
aggregate principal of 4.75% Senior Notes due 2024 (the "Euro Notes"). The Euro Notes are fully and unconditionally guaranteed, jointly and severally, by all of the wholly owned U.S. subsidiaries of Operating Company that guarantee its senior secured credit facilities. The Euro Notes were offered in the United States to qualified institutional buyers in reliance on Rule 144A under the Securities Act and outside the United States only to non-U.S. investors pursuant to Regulation S under the Securities Act. The Euro Notes will mature on December 15, 2024, bear interest at the rate of
4.75%
per annum and are payable semi-annually in arrears on June 15 and December 15 of each year.
Bridge Loan Facility
On September 18, 2017, contemporaneous with the Company entering into the the agreement to acquire Cook Pharmica, the Company entered into a debt commitment letter 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 the debt commitment letter and subject to its terms and conditions, 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 any back-up financing necessary to fund a portion of the consideration to be paid for Cook Pharmica and related fees, costs and expenses (the "Bridge Loan Commitment"). In connection with entering into the Bridge Facility, Operating Company incurred
$6.1 million
of associated fees, which is recorded in prepaid expenses and other in the consolidated balance sheet as of September 30, 2017. Because the Equity Offering and the Debt Offering together reduced the
commitment available under the Bridge Loan Commitment to $0, the Company did not draw on it to fund the Cook Pharmica acquisition and the
$6.1 million
of fees will be expensed in the second quarter.
U.S. Dollar-denominated 4.875% Senior Notes due 2026
On October 18, 2017, Operating Company completed the Debt Offering, selling
$450.0 million
aggregate principal amount of 4.875% senior unsecured notes due 2026. The USD Notes are fully and unconditionally guaranteed, jointly and severally, by all of the wholly owned U.S. subsidiaries of Operating Company that guarantee its senior secured credit facilities. The USD Notes were offered in the United States to qualified institutional buyers in reliance on Rule 144A under the Securities Act and outside the United States only to non-U.S. investors pursuant to Regulation S under the Securities Act. The USD Notes will mature on January 15, 2026, bear interest at the rate of
4.875%
per annum, and are payable semi-annually in arrears on January 15 and July 15 of each year, beginning on July 15, 2018. The net proceeds of the Debt Offering, after payment of the initial purchasers' discount and related fees and expenses, were used to fund a portion of the consideration for the Cook Pharmica acquisition due at its closing. See also Note 2.
Debt Covenants
Senior Secured Credit Facilities
The Credit Agreement contains a number of covenants that, among other things, restrict, subject to certain exceptions, Operating Company’s (and Operating Company’s restricted subsidiaries’) ability to incur additional indebtedness or issue certain preferred shares; create liens on assets; engage in mergers and consolidations; sell assets; pay dividends and distributions or repurchase capital stock; repay subordinated indebtedness; engage in certain transactions with affiliates; make investments, loans or advances; make certain acquisitions; enter into sale and leaseback transactions, amend material agreements governing Operating Company’s subordinated indebtedness and change Operating Company’s lines of business.
The Credit Agreement also contains change of control provisions and certain customary affirmative covenants and events of default. The revolving credit facility requires compliance with a net leverage covenant when there is a 30% or more draw outstanding at a period end. As of
September 30, 2017
, Operating Company was in compliance with all material covenants related to its long-term obligations.
Subject to certain exceptions, the Credit Agreement permits Operating Company and its restricted subsidiaries to incur certain additional indebtedness, including secured indebtedness. None of Operating Company’s non-U.S. subsidiaries or Puerto Rico subsidiaries is a guarantor of the loans.
Under the Credit Agreement, Operating Company’s ability to engage in certain activities such as incurring certain additional indebtedness, making certain investments and paying certain dividends is tied to ratios based on Adjusted EBITDA (which is defined as “Consolidated EBITDA” in the Credit Agreement). Adjusted EBITDA is based on the definitions in the Credit Agreement, is not defined under U.S. GAAP, and is subject to important limitations.
The Euro Notes and the USD Notes
The Indentures governing the Euro Notes and the USD Notes (the "Indentures") contain certain covenants that, among other things, limit the ability of Operating Company and its restricted subsidiaries to incur or guarantee more debt or issue certain preferred shares, pay dividends on, repurchase or make distributions in respect of their capital stock or make other restricted payments, make certain investments, sell certain assets, create liens, consolidate, merge, sell or otherwise dispose of all or substantially all of their assets, enter into certain transactions with their affiliates, and designate their subsidiaries as unrestricted subsidiaries. These covenants are subject to a number of exceptions, limitations and qualifications as set forth in the Indentures. The Indentures also contain customary events of default including, but not limited to, nonpayment, breach of covenants, and payment or acceleration defaults in certain other indebtedness of Operating Company or certain of its subsidiaries. Upon an event of default, either the holders of at least 30% in principal amount of each of the then-outstanding Euro Notes or the then-outstanding USD Notes, or either of the Trustees under the Indentures may declare the applicable notes immediately due and payable, or in certain circumstances, the applicable notes will become automatically immediately due and payable. As of
September 30, 2017
, Operating Company was in compliance with all material covenants under the Euro Notes.
Fair Value of Debt Instruments
The estimated fair value of the senior secured credit facility, a Level 2 fair value estimate, is based on the quoted market prices for the same or similar issues or on the current rates offered for debt of the same remaining maturities and considers collateral, if any. The estimated fair value of the Euro Notes, a Level 1 fair value estimate, is based on the quoted market prices of the instrument. The carrying amounts and the estimated fair values of financial instruments as of
September 30, 2017
and
June 30, 2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
June 30, 2017
|
(Dollars in millions)
|
Fair Value Measurement
|
Carrying
Value
|
|
Estimated Fair
Value
|
|
Carrying
Value
|
|
Estimated Fair
Value
|
Euro-denominated 4.75% Senior Notes
|
Level 1
|
$
|
441.6
|
|
|
$
|
474.6
|
|
|
$
|
424.3
|
|
|
$
|
454.0
|
|
Senior Secured Credit Facilities & Other
|
Level 2
|
1,665.2
|
|
|
1,664.8
|
|
|
1,655.4
|
|
|
1,653.1
|
|
Total
|
|
$
|
2,106.8
|
|
|
$
|
2,139.4
|
|
|
$
|
2,079.7
|
|
|
$
|
2,107.1
|
|
The reconciliations between basic and diluted earnings per share attributable to Catalent common shareholders for the
three months ended September 30, 2017
and
2016
, respectively, are as follows (dollars in millions, except share and per share data):
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
2017
|
|
2016
|
Net earnings
|
$
|
3.8
|
|
|
$
|
4.6
|
|
|
|
|
|
Weighted average shares outstanding
|
125,713,246
|
|
|
124,819,466
|
|
Dilutive securities issuable-stock plans
|
2,071,275
|
|
|
1,440,255
|
|
Total weighted average diluted shares outstanding
|
127,784,521
|
|
|
126,259,721
|
|
|
|
|
|
Basic earnings per share of common stock:
|
|
|
|
|
Net earnings
|
$
|
0.03
|
|
|
$
|
0.04
|
|
|
|
|
|
Diluted earnings per share of common stock :
|
|
|
|
Net earnings
|
$
|
0.03
|
|
|
$
|
0.04
|
|
The computation of diluted earnings per share for the
three months ended September 30, 2017
and 2016 excludes the effect of 0.3 million and
0.5 million
shares, respectively, potentially issuable pursuant to awards granted under the 2007 Stock Incentive Plan, because the vesting provisions of those awards specify performance- or market-based conditions that had not been met as of the period end. Further, the computation of diluted earnings per share for the three months ended September 30, 2017 and
2016
excludes the effect of potential common shares issuable under the employee-held stock options and restricted stock units of approximately 0.5 million and
1.1 million
shares, respectively, because they are anti-dilutive.
|
|
7
.
|
OTHER (INCOME) / EXPENSE, NET
|
The components of Other (Income)/Expense, net for the
three months ended September 30, 2017
and
2016
are as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
(Dollars in millions)
|
2017
|
|
2016
|
Other (income)/expense, net
|
|
|
|
Foreign currency (gains) and losses
|
5.6
|
|
|
(2.3
|
)
|
Other
|
0.1
|
|
|
0.2
|
|
Total Other (Income)/Expense, net
|
$
|
5.7
|
|
|
$
|
(2.1
|
)
|
|
|
8
.
|
RESTRUCTURING AND OTHER COSTS
|
Restructuring Costs
The Company has implemented plans to restructure certain operations, both domestically and internationally. The restructuring plans focused on various aspects of operations, including closing and consolidating certain manufacturing operations, rationalizing headcount and aligning operations in a strategic and more cost-efficient structure. In addition, the Company may incur restructuring charges in the future in cases where a material change in the scope of operation with its business occurs. Employee-related costs consist primarily of severance costs and also include outplacement services provided to employees who have been involuntarily terminated and duplicate payroll costs during transition periods. Facility exit and other costs consist of accelerated depreciation, equipment relocation costs and costs associated with planned facility expansions and closures to streamline Company operations.
Other Costs / (Income)
Other income includes settlement charges, net of any insurance recoveries related to the probable resolution of certain customer claims related to a previous temporary suspension of operations at a softgel manufacturing facility. Refer to Note
13
Commitments and Contingencies for further discussions of such claims.
The following table summarizes the significant costs recorded within restructuring costs:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
(Dollars in millions)
|
2017
|
|
2016
|
Restructuring costs:
|
|
|
|
Employee-related reorganization
|
$
|
1.7
|
|
|
$
|
0.8
|
|
Facility exit and other costs
|
0.6
|
|
|
0.3
|
|
Total restructuring costs
|
$
|
2.3
|
|
|
$
|
1.1
|
|
Other - insurance recoveries against customer claims
|
(1.1
|
)
|
|
—
|
|
Total restructuring and other costs
|
$
|
1.2
|
|
|
$
|
1.1
|
|
|
|
9
.
|
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
|
The Company is exposed to fluctuations in the applicable exchange rate on its investments in foreign operations. While the Company does not actively hedge against changes in foreign currency, the Company has mitigated its exposure from its investments in its European operations by denominating a portion of its debt in euros. At
September 30, 2017
, the Company had euro-denominated debt outstanding of
$806.8 million
that is designated and qualifies as a hedge of a net investment in foreign operations. For non-derivatives designated and qualifying as net investment hedges, the effective portions of the translation gains or losses are reported in accumulated other comprehensive income/(loss) as part of the cumulative translation adjustment. The ineffective portions of the translation gains or losses are reported in the statement of operations. The following table includes net investment hedge activity during the
three months ended September 30, 2017
and
September 30, 2016
.
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
(Dollars in millions)
|
2017
|
|
2016
|
Unrealized foreign exchange gain/(loss) within other
comprehensive income
|
$
|
(17.6
|
)
|
|
$
|
(3.5
|
)
|
Unrealized foreign exchange gain/(loss) within statement
of operations
|
$
|
(13.4
|
)
|
|
$
|
(2.5
|
)
|
The net accumulated gain of the instrument designated as the hedge as of
September 30, 2017
within other comprehensive income/(loss) was approximately
$42.4 million
. Amounts are reclassified out of accumulated other comprehensive income/(loss) into earnings when the entity to which the gains and losses relate is either sold or substantially liquidated.
The Company accounts for income taxes in accordance with
ASC 740 Income Taxes
. Generally, fluctuations in the effective tax rate are primarily due to changes in U.S. and non-U.S. pretax income resulting from the Company’s business mix and changes in the tax impact of special items and other discrete tax items, which may have unique tax implications depending on the nature of the item. Such discrete items include, but are not limited to, changes in foreign statutory tax rates, the amortization of certain assets, and the tax impact of changes in its ASC 740 unrecognized tax benefit reserves. In the normal course of business, the Company is subject to examination by taxing authorities around the world, including such major jurisdictions as the United States, Germany, France, and the United Kingdom. The Company is no longer subject to new non-U.S. income tax examinations for years prior to fiscal year 2008. Under the terms of the 2007 purchase agreement by which the selling stockholders acquired their interest in the Company, the Company is indemnified by its former owner for tax liabilities that may arise after the 2007 purchase that relate to tax periods prior to April 10, 2007. The indemnification agreement applies to, among other taxes, any and all federal, state and international income-based taxes as well as related interest and penalties. As of
September 30, 2017
and
June 30, 2017
, approximately
$0.8 million
and
$0.8 million
, respectively, of unrecognized tax benefit are subject to indemnification by the Company's former owner.
ASC 740 includes guidance on the accounting for uncertainty in income taxes recognized in the financial statements. This standard provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolution of any related appeal or litigation process, based on the technical merits. As of
September 30, 2017
, the Company had a total of
$52.6 million
of unrecognized tax benefits. A reconciliation of its reserves for uncertain tax positions, excluding accrued interest and penalties, for
September 30, 2017
is as follows:
|
|
|
|
|
(Dollars in millions)
|
|
Balance at June 30, 2017
|
$
|
52.5
|
|
Additions for tax positions of current year
|
0.1
|
|
Balance at September 30, 2017
|
$
|
52.6
|
|
As of
September 30, 2017
and
June 30, 2017
, the Company had a total of
$57.7 million
and
$57.5 million
, respectively, of uncertain tax positions (including accrued interest and penalties). As of these dates,
$41.5 million
and
$41.4 million
, respectively, represent the amount of unrecognized tax benefits, which, if recognized, would favorably affect the effective income tax rate. The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense. As of
September 30, 2017
and
June 30, 2017
, the Company has approximately
$5.1 million
and
$5.0 million
, respectively, of accrued interest and penalties related to uncertain tax positions. As of these dates, the portion of such interest and penalties subject to indemnification by its former owner is
$1.8 million
and
$1.7 million
, respectively.
|
|
11
.
|
EMPLOYEE RETIREMENT BENEFIT PLANS
|
Components of the Company’s net periodic benefit costs are as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
(Dollars in millions)
|
2017
|
|
2016
|
Components of net periodic benefit cost:
|
|
|
|
Service cost
|
$
|
0.9
|
|
|
$
|
0.8
|
|
Interest cost
|
1.8
|
|
|
1.7
|
|
Expected return on plan assets
|
(2.9
|
)
|
|
(2.8
|
)
|
Amortization
(1)
|
0.6
|
|
|
1.1
|
|
Net amount recognized
|
$
|
0.4
|
|
|
$
|
0.8
|
|
|
|
(1)
|
Amount represents the amortization of unrecognized actuarial gains/(losses).
|
As previously disclosed, the Company notified the trustees of a multi-employer pension plan of its withdrawal from participation in such plan in fiscal 2012. The actuarial review process, administered by the plan trustees ended in fiscal 2015. The liability reported reflects the present value of the Company's expected future long-term obligations. The estimated discounted value of the projected contributions related to such plans was
$39.1 million
as of
September 30, 2017
and
June 30, 2017
and is included within pension liability on the consolidated balance sheets. The annual cash impact associated with the Company's obligation in such plan approximates
$1.7 million
per year.
|
|
12
.
|
EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)
|
Description of Capital Stock
The Company is authorized to issue
1,000,000,000
shares of common stock, par value
$0.01
per share, and
100,000,000
shares of preferred stock, par value
$0.01
per share. In accordance with the Company's amended and restated certificate of incorporation, each share of common stock has one vote, and the common stock votes together as a single class.
Public Stock Offering
On September 29, 2017, the Company completed a public offering of its common stock (the "Equity Offering"), pursuant to which, the Company sold 7.4 million shares, including shares sold pursuant to an exercise of the underwriters' over-allotment option, at a price of $39.10 per share, before underwriting discounts and commissions. Net of these discounts and commissions and other offering expenses, the Company obtained total proceeds from the Equity Offering, including the over-allotment exercise, of
$277.8 million
. This amount is included in cash and cash equivalents within the consolidated balance sheet as of September 30, 2017. See also Note 2 concerning the use of these proceeds after the close of the first fiscal quarter.
Stock Repurchase Program
On October 29, 2015, the Company’s Board of Directors authorized a share repurchase program to use up to
$100.0 million
to repurchase shares of its outstanding common stock. Under the program, the Company is authorized to repurchase shares through open market purchases, privately negotiated transactions, or otherwise as permitted by applicable federal securities laws. There has been no purchase pursuant to this program as of
September 30, 2017
.
Accumulated Other Comprehensive Income/(Loss)
The components of the changes in the cumulative translation adjustment, minimum pension liability and available for sale investment for the
three months ended September 30, 2017
and
September 30, 2016
are presented below.
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
(Dollars in millions)
|
2017
|
|
2016
|
Foreign currency translation adjustments:
|
|
|
|
Net investment hedge
|
$
|
(17.6
|
)
|
|
$
|
(3.5
|
)
|
Long-term intercompany loans
|
13.5
|
|
|
(7.7
|
)
|
Translation adjustments
|
36.1
|
|
|
10.6
|
|
Total foreign currency translation adjustment, pretax
|
32.0
|
|
|
(0.6
|
)
|
Tax expense/(benefit)
|
(6.1
|
)
|
|
(1.2
|
)
|
Total foreign currency translation adjustment, net of tax
|
$
|
38.1
|
|
|
$
|
0.6
|
|
|
|
|
|
Net change in minimum pension liability
|
|
|
|
Net gain/(loss) recognized during the period
|
0.6
|
|
|
1.1
|
|
Total pension, pretax
|
0.6
|
|
|
1.1
|
|
Tax expense/(benefit)
|
0.2
|
|
|
0.3
|
|
Net change in minimum pension liability, net of tax
|
$
|
0.4
|
|
|
$
|
0.8
|
|
|
|
|
|
Net change in available for sale investment:
|
|
|
|
Net gain/(loss) recognized during the period
|
(5.2
|
)
|
|
—
|
|
Total available for sale investment, pretax
|
(5.2
|
)
|
|
—
|
|
Tax expense/(benefit)
|
(1.8
|
)
|
|
—
|
|
Net change in available for sale investment, net of tax
|
$
|
(3.4
|
)
|
|
$
|
—
|
|
|
|
|
|
For the
three months ended September 30, 2017
, the changes in accumulated other comprehensive income, net of tax by component are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
Foreign Exchange Translation Adjustments
|
|
Pension and Liability Adjustments
|
|
Available for Sale investment Adjustments
|
|
Total
|
Balance at June 30, 2017
|
$
|
(280.7
|
)
|
|
$
|
(43.9
|
)
|
|
$
|
10.5
|
|
|
$
|
(314.1
|
)
|
Other comprehensive income/(loss) before reclassifications
|
38.1
|
|
|
—
|
|
|
(3.4
|
)
|
|
34.7
|
|
Amounts reclassified from accumulated other comprehensive income
|
—
|
|
|
0.4
|
|
|
—
|
|
|
0.4
|
|
Net current period other comprehensive income (loss)
|
38.1
|
|
|
0.4
|
|
|
(3.4
|
)
|
|
35.1
|
|
Balance at September 30, 2017
|
$
|
(242.6
|
)
|
|
$
|
(43.5
|
)
|
|
$
|
7.1
|
|
|
$
|
(279.0
|
)
|
|
|
13
.
|
COMMITMENTS AND CONTINGENCIES
|
The Company continues to receive and resolve claims stemming from a prior, temporary. regulatory suspension of one of our manufacturing facilities. To date, more than 30 customers of the facility have presented claims against the Company for alleged losses, including lost profits and other types of indirect or consequential damages that they have allegedly suffered due to the temporary suspension, or have reserved their right to do so subsequently. The Company is unable to estimate at this time either the total value of claims that are reasonably possible to be asserted with respect to this matter or the likely cost to resolve them, although (a) as of the end of September 30, 2017, the Company has settled 15 customer claims and recorded $0.7 million for claim amounts that the Company deemed to be both probable and reasonably estimable, but is not currently in a position to record under GAAP any insurance recovery with respect to such costs and (b) certain remaining customers have presented the
Company with support for other claims having an aggregate claim value of approximately $6 million. To date, none of the asserted claims takes into account limitations of liability in the contracts governing these claims or any other defense that the Company may assert. In addition, the Company may have insurance for additional costs it may incur as a result of such claims, subject to various deductibles and other limitations, but there can be no assurance as to the aggregate amount or timing of insurance recoveries against any such costs.
From time to time, the Company may be involved in legal proceedings arising in the ordinary course of business, including, without limitation, inquiries and claims concerning environmental contamination as well as litigation and allegations in connection with acquisitions, product liability, manufacturing or packaging defects and claims for reimbursement for the cost of lost or damaged active pharmaceutical ingredients, the cost of any of which could be significant. The Company intends to vigorously defend itself against any such litigation and does not currently believe that the outcome of any such litigation will have a material adverse effect on the Company’s financial statements. In addition, the healthcare industry is highly regulated and government agencies continue to scrutinize certain practices affecting government programs and otherwise.
From time to time, the Company receives subpoenas or requests for information relating to the business practices and activities of customers or suppliers from various governmental agencies or private parties, including from state attorneys general, the U.S. Department of Justice, and private parties engaged in patent infringement, antitrust, tort, and other litigation. The Company generally responds to such subpoenas and requests in a timely and thorough manner, which responses sometimes require considerable time and effort and can result in considerable costs being incurred. The Company expects to incur costs in future periods in connection with future requests.
The Company conducts its business within the following operating segments: Softgel Technologies, Drug Delivery Solutions, and Clinical Supply Services. The Company evaluates the performance of its segments based on segment earnings before noncontrolling interest, other (income) expense, impairments, restructuring costs, interest expense, income tax (benefit)/expense, and depreciation and amortization (“Segment EBITDA”). EBITDA from continuing operations is consolidated earnings from continuing operations before interest expense, income tax (benefit)/expense, depreciation and amortization and is adjusted for the income or loss attributable to noncontrolling interest. The Company’s presentation of Segment EBITDA and EBITDA from continuing operations are not prepared in accordance with GAAP and may not be comparable to similarly titled measures used by other companies.
The following tables include net revenue and Segment EBITDA during the
three months ended September 30, 2017
and
September 30, 2016
:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
(Dollars in millions)
|
2017
|
|
2016
|
Softgel Technologies
|
|
|
|
Net revenue
|
$
|
219.7
|
|
|
$
|
186.4
|
|
Segment EBITDA
|
35.1
|
|
|
30.5
|
|
Drug Delivery Solutions
|
|
|
|
Net revenue
|
225.8
|
|
|
191.3
|
|
Segment EBITDA
|
47.4
|
|
|
42.0
|
|
Clinical Supply Services
|
|
|
|
Net revenue
|
109.7
|
|
|
75.0
|
|
Segment EBITDA
|
16.7
|
|
|
10.5
|
|
Inter-segment revenue elimination
|
(11.3
|
)
|
|
(10.5
|
)
|
Unallocated Costs
(1)
|
(34.0
|
)
|
|
(20.3
|
)
|
Combined Totals:
|
|
|
|
Net revenue
|
$
|
543.9
|
|
|
$
|
442.2
|
|
|
|
|
|
EBITDA from continuing operations
|
$
|
65.2
|
|
|
$
|
62.7
|
|
|
|
(1)
|
Unallocated costs include restructuring and special items, equity-based compensation, impairment charges, certain other corporate directed costs, and other costs that are not allocated to the segments as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
(Dollars in millions)
|
2017
|
|
2016
|
Equity compensation
|
(7.0
|
)
|
|
(6.9
|
)
|
Restructuring and other special items
(2)
|
(12.3
|
)
|
|
(5.9
|
)
|
Other income/(expense), net
(3)
|
(5.7
|
)
|
|
2.1
|
|
Non-allocated corporate costs, net
|
(9.0
|
)
|
|
(9.6
|
)
|
Total unallocated costs
|
$
|
(34.0
|
)
|
|
$
|
(20.3
|
)
|
|
|
(2)
|
Segment results do not include restructuring and certain acquisition-related costs.
|
|
|
(3)
|
Amounts primarily relate to foreign currency translation gains and losses during all periods presented. Refer to Note
7
for details.
|
Provided below is a reconciliation of EBITDA from continuing operations to earnings/(loss) from continuing operations:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
(Dollars in millions)
|
2017
|
|
2016
|
Earnings from continuing operations
|
$
|
3.8
|
|
|
$
|
4.6
|
|
Depreciation and amortization
|
39.0
|
|
|
35.8
|
|
Interest expense, net
|
24.3
|
|
|
22.1
|
|
Income tax expense/(benefit)
|
(1.9
|
)
|
|
0.2
|
|
EBITDA from continuing operations
|
$
|
65.2
|
|
|
$
|
62.7
|
|
The following table includes total assets for each segment, as well as reconciling items necessary to total the amounts reported in the consolidated financial statements:
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
September 30,
2017
|
|
June 30,
2017
|
Assets
|
|
|
|
Softgel Technologies
|
$
|
1,534.7
|
|
|
$
|
1,631.8
|
|
Drug Delivery Solutions
|
1,632.1
|
|
|
1,639.0
|
|
Clinical Supply Services
|
635.5
|
|
|
596.2
|
|
Corporate and eliminations
|
(17.5
|
)
|
|
(412.7
|
)
|
Total assets
|
$
|
3,784.8
|
|
|
$
|
3,454.3
|
|
Corporate assets as of September 30, 2017 include
$277.8 million
of equity proceeds from the public stock offering discussed in Note 12. See also Note 2 concerning the use of these proceeds after the close of the first fiscal quarter.
|
|
15
.
|
SUPPLEMENTAL BALANCE SHEET INFORMATION
|
Supplementary balance sheet information at
September 30, 2017
and
June 30, 2017
is detailed in the following tables.
Inventories
Work-in-process and finished goods inventories include raw materials, labor, and overhead. Total inventories consist of the following:
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
September 30,
2017
|
|
June 30,
2017
|
Raw materials and supplies
|
$
|
118.1
|
|
|
$
|
107.5
|
|
Work-in-process
|
40.0
|
|
|
42.8
|
|
Finished goods
|
61.5
|
|
|
56.7
|
|
Total inventories, gross
|
219.6
|
|
|
207.0
|
|
Inventory cost adjustment
|
(25.6
|
)
|
|
(22.1
|
)
|
Inventories
|
$
|
194.0
|
|
|
$
|
184.9
|
|
Prepaid expenses and other
Prepaid expenses and other current assets consist of the following:
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
September 30,
2017
|
|
June 30,
2017
|
Prepaid expenses
|
$
|
23.7
|
|
|
$
|
12.3
|
|
Spare parts supplies
|
11.9
|
|
|
11.8
|
|
Prepaid income tax
|
12.1
|
|
|
11.5
|
|
Short term deferred financing costs
|
6.1
|
|
|
—
|
|
Non-US value added tax
|
23.4
|
|
|
16.0
|
|
Available for sale investment
|
13.4
|
|
|
18.6
|
|
Other current assets
|
33.6
|
|
|
27.6
|
|
Prepaid expenses and other
|
$
|
124.2
|
|
|
$
|
97.8
|
|
Property, plant, and equipment, net
Property, plant, and equipment, net consist of the following:
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
September 30,
2017
|
|
June 30,
2017
|
Land, buildings, and improvements
|
$
|
752.5
|
|
|
$
|
735.2
|
|
Machinery, equipment, and capitalized software
|
847.0
|
|
|
825.0
|
|
Furniture and fixtures
|
10.4
|
|
|
10.1
|
|
Construction in progress
|
165.0
|
|
|
137.4
|
|
Property, plant, and equipment, at cost
|
1,774.9
|
|
|
1,707.7
|
|
Accumulated depreciation
|
(749.9
|
)
|
|
(711.8
|
)
|
Property, plant, and equipment, net
|
$
|
1,025.0
|
|
|
$
|
995.9
|
|
Other accrued liabilities
Other accrued liabilities consist of the following:
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
September 30,
2017
|
|
June 30,
2017
|
Accrued employee-related expenses
|
$
|
82.8
|
|
|
$
|
96.4
|
|
Restructuring accrual
|
4.7
|
|
|
5.9
|
|
Accrued interest
|
6.4
|
|
|
0.9
|
|
Deferred revenue and fees
|
77.0
|
|
|
84.9
|
|
Accrued income tax
|
17.8
|
|
|
24.7
|
|
Other accrued liabilities and expenses
|
77.7
|
|
|
68.4
|
|
Other accrued liabilities
|
$
|
266.4
|
|
|
$
|
281.2
|
|