BUSINESS COMBINATIONS

Transaction Overview:

In October 2017, the Company acquired 100% of the equity interest in Cook Pharmica LLC (now Catalent Indiana, LLC, "Catalent Indiana") for an aggregate nominal purchase price of $950 million, subject to adjustment, in order to enhance the Company's biologics capabilities. Catalent Indiana is 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.

The Company accounted for the transaction using the acquisition method of accounting for business combinations, in accordance with ASC 805 Business Combinations. The total consideration was (in thousands):



Cash paid at closing	$	748,002
Fair value of deferred consideration at closing		184,838
Total consideration	$	932,840

In addition to the cash paid at the closing of the acquisition, the purchase agreement includes a deferred consideration arrangement that requires the Company to pay an additional $200.0 million in $50.0 million increments on each of the first four anniversaries of the closing. The fair value of the deferred consideration recognized on the acquisition date was estimated by calculating the risk-adjusted present value of the deferred cash payments and includes a component of imputed interest. This deferred consideration is included in current and long-term obligations within the Company's consolidated balance sheet at June 30, 2018.

Following the acquisition, the operating results of Catalent Indiana have been included in the Company's consolidated financial statements. For the period from the acquisition date through June 30, 2018, Catalent Indiana's net revenue was $164.7 million and pre-tax earnings were $23.5 million. Transaction costs incurred as a result of the acquisition of $11.2 million are included in selling, general, and administrative expenses for the fiscal year ended June 30, 2018.

Valuation Assumptions and Preliminary Purchase Price Allocation:

The Company estimated fair values at the date of acquisition for the preliminary allocation of consideration to the net tangible and intangible assets acquired and liabilities assumed. During the one-year measurement period, the Company will continue to obtain information to assist in finalizing the fair value of net assets acquired, which may differ materially from these preliminary estimates. Amounts subject to finalization include income taxes. If any measurement period adjustment is material, the Company will record such adjustments, including any related impact on net income, in the reporting period in which the adjustment is determined.

The preliminary purchase price allocation to assets acquired and liabilities assumed in the transaction is (in thousands):



Accounts Receivable	$	37,096
Inventory		24,694
Other current assets		1,546
Property, plant, and equipment		221,139
Identifiable intangible assets		330,000
Trade and other payables		5,380
Deferred revenue		18,132
Total identifiable net assets		590,963
Goodwill		341,877
Total assets acquired and liabilities assumed	$	932,840

The carrying value of trade receivables, raw materials 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 was valued using a combination of the sales comparison approach and 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.

Customer-relationship intangible assets of $330 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, 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 the 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. Preliminary assumptions may change and may result in significant changes to the final valuation. The customer relationship intangible asset has a weighted average useful life of 14 years.

Goodwill has preliminarily been allocated to our Biologics and Specialty Drug Delivery segment as shown in Note 3, Goodwill. Goodwill is expected to be deductible for tax purposes and is mainly comprised of the following: growth from an expected increase in capacity utilization, potential new customers, and the biologic expertise and know-how acquired with the acquisition of Catalent Indiana's workforce.

Pro Forma Results:

The following table provides unaudited pro forma results for the Company, prepared in accordance with ASC 805, for the fiscal years ended June 30, 2018 and June 30, 2017, as if the Company had acquired Catalent Indiana as of July 1, 2016 (in thousands, except per share data):



	For the Year Ended
	June 30, 2018		June 30, 2017

Revenue	$	2,534.6	$	2,257.9
Net earnings	114.2		83.6
Basic earnings per share	0.86		0.63
Diluted earnings per share	0.85		0.62

The unaudited pro forma financial information was prepared based on the historical information of Catalent and Catalent Indiana. In order to reflect the acquisition on July 1, 2016, the unaudited pro formal financial information includes adjustments to reflect the incremental amortization expense to be incurred based on the fair value of the intangible assets acquired, the incremental depreciation expense related to the fair-value adjustments associated with Catalent Indiana's property, plant, and equipment, the additional interest expense associated with the issuance of debt to finance the acquisition, the shares issued in connection with the first quarter equity offering to finance the acquisition, and the acquisition, integration, and financing-related costs incurred during the fiscal years ended June 30, 2018 and 2017, respectively. The results do not include any anticipated cost savings or other effects associated with integrating Catalent Indiana into the rest of the Company. Unaudited pro forma amounts are not necessarily indicative of results had the acquisition occurred on July 1, 2016 or of future results.