Business Combination Disclosure | BUSINESS COMBINATIONS AND DIVESTITURES RheinCell Therapeutics GmbH Acquisition In August 2021, the Company acquired 100% of the equity interest in RheinCell Therapeutics GmbH (“RheinCell”) for $26 million, net of cash acquired. RheinCell was a developer and manufacturer of clinical- and cGMP-grade iPSCs based in Lagenfeld, Germany. The operations became part of the Company’s Biologics segment and built on its existing custom cell therapy process development and manufacturing capabilities with proprietary cGMP cell lines for iPSC-based therapies. The Company accounted for the RheinCell transaction using the acquisition method in accordance with ASC 805, Business Combinations . The Company funded the entire purchase price with cash on hand and allocated the purchase price among the assets acquired, recognizing $4 million of current liabilities, $1 million of other liabilities, $14 million of intangible assets, and goodwill of $17 million. Results of this business were not material to the Company’s statement of operations, financial position, or cash flows for the fiscal years ended June 30, 2023 and 2022. Bettera Holdings, LLC Acquisition In October 2021, the Company acquired 100% of the equity interest in Bettera Holdings, LLC (“Bettera Wellness”) for $1.00 billion cash. Bettera Wellness was a manufacturer of nutraceuticals and nutritional supplements in gummy, soft chew, and lozenge delivery formats and became part of the Company’s Pharma and Consumer Health segment. The Company accounted for the Bettera Wellness transaction using the acquisition method in accordance with ASC 805, Business Combinations . The Company estimated fair values at the date of acquisition for the allocation of consideration to the net tangible and intangible assets acquired and liabilities assumed and allocated the purchase price among the assets acquired, recognizing $361 million of other intangibles, net, $72 million of property, plant, and equipment, $31 million of inventories, $23 million of cash and cash equivalents, $16 million of trade receivables, $17 million of net other liabilities, and goodwill of $531 million. Results of this business were not material to the Company's statement of operations, financial position, or cash flows for the fiscal years ended June 30, 2023 and 2022. The carrying value of trade receivables, inventory, and trade payables, as well as certain other current and non-current assets and liabilities, generally represented the fair value at the date of acquisition. Property, plant, and equipment assets were valued using the cost approach, which is based on current replacement and/or reproduction cost of the related asset as new, less depreciation attributable to physical, functional, and economic factors. The Company then determined the remaining useful life based on the anticipated life of the asset and Company policy for similar assets. Core technology intangible assets of $338 million were valued using the multi-period, excess-earnings method, a method that values the intangible asset using the present value of the after-tax cash flows attributable to the intangible asset only. The significant assumptions used in developing the valuation included the estimated annual net cash flows (including application of an appropriate margin to forecasted revenue, revenue obsolescence rate, selling and marketing costs, return on working capital, contributory asset charges, and other factors), the discount rate that appropriately reflects the risk inherent in each future cash flow stream, and an assessment of the asset’s life cycle, as well as other factors. The assumptions used in the financial forecasts were based on historical data, supplemented by current and anticipated growth rates, management plans, and market-comparable information. Fair-value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. The core technology intangible asset has a weighted average useful life of 10 years. Goodwill has been allocated to the Pharma and Consumer Health segment as shown in Note 4, Goodwill . Goodwill is mainly comprised of growth from expected increases in capacity utilization and new customers. The goodwill resulting from the Bettera Wellness acquisition is deductible for tax purposes. Vaccine Manufacturing and Innovation Centre UK Limited Asset Acquisition In April 2022, the Company, through its wholly owned subsidiary, Catalent Oxford Limited, acquired a development and manufacturing facility near Oxford, United Kingdom (“U.K.”) and certain related assets and liabilities from The Vaccine Manufacturing and Innovation Centre UK Limited for $134 million in cash, including $9 million of closing costs. The facility and related assets and liabilities became part of the Company’s Biologics segment. The Company accounted for this transaction as an acquisition of assets in accordance with ASC 805, Business Combinations . The Company funded this acquisition with cash on hand and allocated the purchase price among the net assets acquired, recognizing $1 million of current assets, $165 million of property, plant, and equipment, $18 million of current liabilities, and $14 million of other liabilities. Results of this business were not material to the Company’s statement of operations, financial position, or cash flows for the fiscal years ended June 30, 2023 and 2022. Princeton Cell Therapy Development and Manufacturing Acquisition In April 2022, the Company acquired a cell therapy commercial manufacturing facility and operations near Princeton, New Jersey (“Princeton”) from Erytech Pharma S.A. (“Erytech”) for $45 million in cash, subject to customary adjustments. In connection with the purchase, Erytech and the Company entered into a long-term supply agreement, under which the Company agreed to continue to manufacture and package an Erytech product at the Princeton facility. The operations and facility acquired became part of the Company’s Biologics segment. The Company accounted for this transaction using the acquisition method in accordance with ASC 805, Business Combinations . The Company funded this acquisition with cash on hand and allocated the purchase price among the assets acquired, recognizing $22 million of property, plant, and equipment, $10 million of other assets, $1 million of current liabilities, $10 million of other liabilities, and goodwill of $24 million. Results of this business were not material to the Company’s statement of operations, financial position, or cash flows for the fiscal years ended June 30,2023 and 2022. Metrics Contract Services Acquisition In October 2022, the Company acquired 100% of Metrics Contract Services (“Metrics”) from Mayne Pharma Group Limited for $474 million in cash. Metrics, based in Greenville, North Carolina, was an oral solids development and manufacturing business specializing in the manufacture of drugs containing highly potent active pharmaceutical ingredients. The operations and facility acquired became part of the Company’s Pharma and Consumer Health segment. The Company accounted for the Metrics transaction using the acquisition method in accordance with ASC 805, Business Combinations . The Company funded this acquisition with a portion of the proceeds of an October 2022 drawdown from its senior secured revolving credit facility. The Company estimated fair values at the date of acquisition for the allocation of consideration to the net tangible and intangible assets acquired and liabilities assumed. The purchase price was allocated to assets acquired and liabilities assumed in the acquisition as follows: (Dollars in millions) Purchase Price Allocation Trade receivables, net 15 Inventories 5 Property, plant, and equipment 195 Other intangibles, net 52 Other, net (12) Goodwill 219 Total assets acquired and liabilities assumed $ 474 The carrying value of trade receivables, inventory, and trade payables, as well as certain other current and non-current assets and liabilities generally represented the fair value at the date of acquisition. Other intangibles, net consists of customer relationships of $52 million, which were valued using the multi-period, excess-earnings method, a method that values the intangible asset using the present value of the after-tax cash flows attributable to the intangible asset only. The significant assumptions used in developing the valuation included the estimated annual net cash flows (including application of an appropriate margin to forecasted revenue, selling and marketing costs, return on working capital, contributory asset charges, and other factors), the discount rate that appropriately reflects the risk inherent in each future cash flow stream, and an assessment of the asset’s life cycle, as well as other factors. The assumptions used in the financial forecasts were based on historical data, supplemented by current and anticipated growth rates, management plans, and market-comparable information. Fair-value determinations require judgment and are sensitive to changes in underlying assumptions and factors. The customer relationship intangible asset has a weighted average useful life of 12 years. Property, plant, and equipment was valued using the cost approach, which is based on current replacement and/or reproduction cost of the asset as new, less depreciation attributable to physical, functional, and economic factors. The Company then determined the remaining useful life based on the anticipated life of the asset and Company policy for similar assets. Goodwill has been allocated to the Pharma and Consumer Health segment as shown in Note 4, Goodwill . Goodwill is mainly comprised of the growth from an expected increase in capacity utilization and potential new customers. The goodwill resulting from the Metrics acquisition is not deductible for U.S. income tax purposes. Results of the business acquired were not material to the Company’s consolidated statement of operations, financial position, or cash flows for the fiscal year ended June 30, 2023. Blow-Fill-Seal Divestitur e In March 2021, the Company sold 100% of the shares of Catalent USA Woodstock, Inc. and certain related assets (collectively, the “Blow-Fill-Seal Business”) for $331 million in total consideration ($300 million in cash). The Blow-Fill-Seal Business was part of the Pharma and Consumer Health segment. The carrying value of the net assets sold was $149 million, which included goodwill of $54 million. As a result of the sale, the Company realized a gain from divestiture of $182 million, net of transaction costs, for the fiscal year ended June 30, 2021. During the fiscal year ended June 30, 2022, the Company settled a post-closing purchase price adjustment, which resulted in a gain on sale of subsidiary of $1 million. All consideration received was measured at its divestiture date fair value. The Company valued the total consideration received from divestiture of the Blow-Fill-Seal Business as follows: (Dollars in millions) Fair value of consideration received Cash, gross $ 300 Note receivable (1) 47 Contingent consideration (2) — Other (3) (16) Total $ 331 (1) The note receivable, which provides for interest at a rate of 5.0% paid in kind, had an estimated fair value of $47 million and $51 million at June 30, 2021 and June 30, 2022, respectively. The fair value at divestiture date consisted of a $50 million aggregate principal amount less a $3 million discount determined using a discounted cash flow model. (2) The Company determined that the estimated fair value of the contingent consideration from the sale of the Blow-Fill-Seal Business at June 30, 2022 was zero, and therefore no contingent consideration was recorded at divestiture. If any contingent consideration is subsequently received, it will be recorded in the period in which it is received. The Company has elected an accounting policy to recognize increases in the carrying amount of the contingent consideration asset using the gain contingency guidance in ASC 450, Contingencies . (3) Other includes $8 million of transaction expenses, a working capital adjustment of $6 million, and a $2 million assumption of liabilities, resulting in net cash proceeds of $284 million. |