BUSINESS COMBINATIONS

6 Months Ended

Apr. 30, 2017

Business Combinations [Abstract]

BUSINESS COMBINATIONS

BUSINESS COMBINATIONS

The acquisition activity referenced below has been accounted for using the acquisition method of accounting in accordance with ASC Subtopic 805-10, "Business Combinations," and the fair value concepts set forth in ASC Subtopic 820-10, "Fair Value Measurements and Disclosures". The total purchase price for each acquisition was allocated to the assets acquired and liabilities assumed based on their respective fair values as of the acquisition date. The allocation of the purchase price is based on estimates and assumptions that are subject to change within the measurement period. The excess of the fair values of the assets acquired and liabilities assumed over the consideration transferred was recorded as a bargain purchase gain.

RCI Acquisition

Background

On February 1, 2017, the Company acquired the Roche Carolin, Inc. active pharmaceutical ingredients (API) facility located in Florence, South Carolina ("RCI Acquisition") from Roche Holdings, Inc. (Roche). Through the acquisition, the Company entered into a stock purchase agreement in which Roche provided amounts to satisfy certain capital expenditures and other liabilities of the facility and the Company provided an upfront payment of $1.0 million to acquire the stock of Roche Carolina Inc. (RCI) and approximately $9.3 million to acquire inventory, spare parts, prepaid expense and accounts payable and certain transaction expenses of Roche. The RCI Acquisition is included in the DSS segment.

As part of the transaction, the parties entered into (i) a supply agreement for the production of certain pharmaceutical intermediates by the Company for Roche and (ii) a toll manufacturing agreement where the Company will assume the manufacturing of certain products produced by the facility.

The toll manufacturing agreement has a five-year initial term. During the first four years of the term, Roche is subject to a minimum annual purchasing commitment. The Company will manufacture certain existing Roche products and sell the products back to Roche at fiscal year 2016 standard costs. Annual volumes above the minimum annual commitment will be rolled into the subsequent year. If applicable, Roche will pay true-up payments for amounts below the minimum purchase requirement. A liability from this unfavorable product supply contract has been recognized as deferred revenue in order to reflect this liability at fair value as of the acquisition date.

Purchase Price Allocation

The preliminary purchase price allocation for the RCI Acquisition is as follows:

	$
Assets
Inventories	9.4
Prepaid expenses and other	0.1
Capital assets	155.6
Total assets acquired	165.1
Liabilities
Accounts payable and accrued liabilities	2.0
Deferred revenue	67.0
Deferred tax liabilities	59.4
Total liabilities assumed	128.4
Total net assets	36.7
Bargain purchase gain	(26.4	)
Total purchase price	10.3

The bargain purchase gain, net of taxes, is reflected in income before taxes in the statements of operations. In late 2015, Roche analyzed strategic alternatives for the facility, including potentially closing or divesting the facility. The cost to close the facility or continue operating an under utilized facility contributed to the bargain purchase gain noted above.

Financial results

The revenues and net income from continuing operations from the RCI Acquisition for the period from February 1, 2017 to April 30, 2017 included in the consolidated statement of operations are as follows:

	February 1, 2017 to April 30, 2017
	$
Revenues	8.1
Net income from continuing operations (1)	25.9

(1) Net income from continuing operations includes the $26.4 million of the bargain purchase gain.

Pro forma financial information

The following unaudited supplemental pro forma information presents the financial results as if the acquisition had occurred on November 1, 2015. The unaudited supplemental pro forma information does not purport to be indicative of what would have occurred had the acquisition been completed on November 1, 2015, nor is it indicative of any future results.

	Three months ended April 30,			Six months ended April 30,
	2017	2016		2017	2016
	$	$		$	$
Revenues	483.4	484.0		999.1	904.9
Net income from continuing operations	1.2	(6.0	)	11.4	(258.8	)

(1) Net income from continuing operations for the six months ended April 30, 2016 includes $257.8 million of impairment expense related to Roche's strategic realignment of the facility. This is not part of the acquisition transaction and as such is not removed from the pro forma financial information.

The unaudited pro forma financial information was prepared using the acquisition method of accounting and is based on the historical financial information of the Company and RCI, reflecting the Company's and RCI's combined results of operations for the three and six months ended April 30, 2017 and 2016. The historical financial information has been adjusted to give effect to the pro forma events that are (i) directly attributable to the RCI Acquisition, (ii) factually supportable and (iii) expected to have a continuing impact on the combined results of the Company and RCI. The unaudited pro forma consolidated results reflect primarily the following pro forma adjustments:

• additional revenue related to the amortization of deferred revenue on the unfavorable product supply contract;

• additional cost of goods sold resulting from increases in depreciation expense relating to the fair values of acquired property and equipment;

• removal of repositioning costs related to the acquisition; and

• the effect of the bargain purchase gain