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Item 1. Financial Statements

2023-05-12 compared with 2023-02-14 · 140 added, 86 removed, 389 unchanged (37% of the section changed)

3 unchanged sentences

Three Months Ended

March 31, Six Months Ended

2023 2022 2023 2022

R evenues $ 277.1 $ 274.5 $ 552.8 $ 563.8

Cost of products sold (1)

87.3 83.3 174.2 168.7

Gross Profit $ 189.8 $ 191.2 $ 378.6 $ 395.1

14 unchanged sentences

(1) For periods prior to the Separation, this income statement line includes cost of products sold from related party inventory purchases.

For the three month period ended December 31, 2021, cost of products sold from related party inventory purchases was $ 11.5 million.

For the three and six month periods ended March 31, 2022, cost of products sold from related party inventory purchases were $ 10.6 million and $ 22.1 million, respectively.

See notes to the Unaudited Condensed Consolidated Financial Statements.

3 unchanged sentences

Three Months Ended

March 31, Six Months Ended

2023 2022 2023 2022

Net Income $ 14.0 $ 79.6 $ 49.2 $ 178.4

7 unchanged sentences

Embecta Corp.

December 31, 2022 September 30, 2022

March 31, 2023 September 30, 2022

Current Assets

Cash and cash equivalents $ 346.4 $ 330.9

Trade receivables, net (net of allowance for doubtful accounts of $ 1.3 million as of December 31, 2022 and September 30, 2022, respectively)

Trade receivables, net (net of allowance for doubtful accounts of $ 1.1 million and $ 1.3 million as of March 31, 2023 and September 30, 2022, respectively)

Materials 29.9 23.4

26 unchanged sentences

Authorized - 250,000,000

Issued and outstanding - 57,213,757 as of December 31, 2022 and 57,055,327 as of September 30, 2022

Issued and outstanding - 57,287,537 as of March 31, 2023 and 57,055,327 as of September 30, 2022

Additional paid-in capital 18.1 10.0

8 unchanged sentences

Shares Par Value Additional Paid-In Capital Accumulated Deficit Net Investment from Becton, Dickinson and Company Accumulated Other Comprehensive (Loss) Income Total

Balance at January 1, 2022 — $ — $ — $ — $ 829.8 $ ( 279.3 ) $ 550.5

Net income attributable to Diabetes Care Business — — — — 79.6 — 79.6

Other comprehensive loss, net of taxes — — — — — ( 7.1 ) ( 7.1 )

Net transfers to Becton, Dickinson and Company — — — — ( 1,590.5 ) — ( 1,590.5 )

Balance at March 31, 2022 — $ — $ — $ — $ ( 681.1 ) $ ( 286.4 ) $ ( 967.5 )

Balance at January 1, 2023 57,213,757 $ 0.6 $ 12.7 $ ( 550.5 ) $ — $ ( 298.9 ) $ ( 836.1 )

Net income attributable to Embecta Corp.

— — — 14.0 — — 14.0

Other comprehensive income, net of taxes — — — — — 2.7 2.7

Stock-based compensation plans — — 5.6 — — — 5.6

Common dividends ($ 0.15 per share)

— — — ( 8.6 ) — — ( 8.6 )

Issuance of shares related to stock-based compensation plans 73,780 — ( 0.2 ) — — — ( 0.2 )

Balance at March 31, 2023 57,287,537 $ 0.6 $ 18.1 $ ( 545.1 ) $ — $ ( 296.2 ) $ ( 822.6 )

See notes to the Unaudited Condensed Consolidated Financial Statements.

Dollar amounts are in millions except per share amounts or as otherwise specified.

Shares Par Value Additional Paid-In Capital Accumulated Deficit Net Investment from Becton, Dickinson and Company Accumulated Other Comprehensive (Loss) Income Total

Balance at October 1, 2021 — $ — $ — $ — $ 864.8 $ ( 270.5 ) $ 594.3

2 unchanged sentences

Net transfers to Becton, Dickinson and Company — — — — ( 1,724.3 ) — ( 1,724.3 )

Balance at December 31, 2021 — $ — $ — $ — $ 829.8 $ ( 279.3 ) $ 550.5

Balance at March 31, 2022 — $ — $ — $ — $ ( 681.1 ) $ ( 286.4 ) $ ( 967.5 )

Balance at October 1, 2022 57,055,327 $ 0.6 $ 10.0 $ ( 577.1 ) $ — $ ( 324.9 ) $ ( 891.4 )

6 unchanged sentences

Issuance of shares related to stock-based compensation plans 232,210 — ( 3.0 ) — — — ( 3.0 )

Balance at December 31, 2022 57,213,757 $ 0.6 $ 12.7 $ ( 550.5 ) $ — $ ( 298.9 ) $ ( 836.1 )

See notes to the Unaudited Condensed Consolidated Financial Statements.

Balance at March 31, 2023 57,287,537 $ 0.6 $ 18.1 $ ( 545.1 ) $ — $ ( 296.2 ) $ ( 822.6 )

See notes to the Consolidated Financial Statements.

Dollar amounts are in millions except per share amounts or as otherwise specified.

1 unchanged sentence

Embecta Corp.

Three Months Ended

Six Months Ended

Operating Activities

17 unchanged sentences

Capital expenditures $ ( 10.5 ) $ ( 9.7 )

Acquisition of intangible assets — ( 0.4 )

Net Cash Used for Investing Activities $ ( 10.5 ) $ ( 10.1 )

Financing Activities

Proceeds from the issuance of long-term debt — 1,450.0

Payments on long-term debt $ ( 4.8 ) $ —

Payment of long-term debt issuance costs — ( 33.3 )

Payment of revolving credit facility fees — ( 5.6 )

Payments related to tax withholding for stock-based compensation ( 3.0 ) —

Payments on finance lease ( 1.8 ) —

Dividend payments ( 17.2 ) —

Net consideration paid to Becton, Dickinson and Company in connection with the Separation — ( 1,266.0 )

Net transfers to Becton, Dickinson and Company — ( 189.3 )

4 unchanged sentences

Closing Cash and cash equivalents $ 346.4 $ 264.3

Schedule of non-cash Financing Activities:

Dividends payable $ 8.6 $ —

See notes to the Unaudited Condensed Consolidated Financial Statements.

6 unchanged sentences

The Company has a broad portfolio of marketed products, including a variety of pen needles, syringes and safety devices, which are complemented by a proprietary digital application designed to assist people with managing their diabetes.

The Company primarily sells products to wholesalers and distributors that sell to retail and institutional channels who in turn sell to patients.

The Company primarily sells products to wholesalers and distributors that sell to retail and institutional channels who in turn sell to patients or use the products to deliver insulin injections to patients.

On April 1, 2022, Embecta and Becton, Dickinson and Company ("BD") entered into a Separation and Distribution Agreement (the "Separation and Distribution Agreement").

19 unchanged sentences

As the separate legal entities that made up the Diabetes Care Business were not historically held by a single legal entity, Net Investment from Becton, Dickinson and Company was shown in lieu of stockholders’ equity in these Condensed Consolidated Financial Statements.

Net Investment from Becton, Dickinson and Company represented BD’s interest in the recorded assets of the Diabetes Care Business and the cumulative investment by BD through the date of the Separation, inclusive of operating results.

Net Investment from Becton, Dickinson and Company represented BD’s interest in the

Dollar amounts are in millions except per share amounts or as otherwise specified.

recorded assets of the Diabetes Care Business and the cumulative investment by BD through the date of the Separation, inclusive of operating results.

For periods prior to the Separation, income tax expense and tax balances in the Condensed Combined Financial Statements were calculated on a separate tax return basis.

11 unchanged sentences

The Company amortizes the costs over the expected term of the hosting arrangement using the straight-line method to the same income statement line as the associated cloud operating expenses.

The total balance of capitalized costs associated with these arrangements as of December 31, 2022 is $ 10.9 million which primarily relates to the implementation of the Company's new enterprise resource planning system ("ERP").

The total balance of capitalized costs associated with these arrangements as of March 31, 2023 is $ 15.4 million which primarily relates to the implementation of the Company's new enterprise resource planning system ("ERP").

Once the implementation of the new ERP is complete and ready for its intended use, the capitalized costs are expected to be amortized over the term of the hosting arrangement which is expected to be five years .

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The Company adopted this guidance at the beginning of fiscal year 2023 and it did not materially impact the Company's Condensed Consolidated Financial Statements.

Reclassification

Certain prior period amounts have been reclassified to conform to current year presentation.

Note 3 — Third Party Arrangements and Related Party Disclosures

1 unchanged sentence

In connection with the Separation, the Company entered into the Separation and Distribution Agreement, which contains provisions that, among other things, relate to (i) assets, liabilities and contracts to be transferred, assumed and assigned to each of Embecta and BD (including certain deferred assets and liabilities) as part of the Separation, (ii) cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of Embecta's business with Embecta and financial responsibility for the obligations and liabilities of BD’s remaining businesses with BD, (iii) procedures with respect to claims subject to indemnification and related matters, (iv) the allocation among Embecta and BD of rights and obligations under existing insurance policies with respect to occurrences prior to completion of the Separation, as well as the right to proceeds and the obligation to incur certain deductibles under certain insurance policies, and (v) procedures governing Embecta’s and BD’s obligations and allocations of liabilities with respect to ongoing litigation matters that may implicate each of BD’s business and Embecta’s business.

Agreements that Embecta entered into with BD that govern aspects of Embecta's relationship with BD following the Separation include, but are not limited to the Transition Services Agreements ("TSA"), Trade Receivables Factoring Agreements ("Factoring Agreements"), Distribution Agreements, Cannula Supply Agreement, Tax Matters Agreement, Logistics Services Agreement, employee matters agreement, an intellectual property matters agreement, local support services agreements, certain other manufacturing arrangements and a process services agreement and lease agreement for a

Dollar amounts are in millions except per share amounts or as otherwise specified.

manufacturing facility located in Holdrege, Nebraska.

Logistics Services Agreement, employee matters agreement, an intellectual property matters agreement, local support services agreements, certain other manufacturing arrangements and a process services agreement and lease agreement for a manufacturing facility located in Holdrege, Nebraska.

For details on the rights and responsibilities of the parties under these agreements refer to Note 4 to the audited Consolidated Financial Statements in the 2022 Form 10-K.

The amount due from BD under the above agreements was $ 123.4 million at December 31, 2022 and is reflected in Amounts due from Becton, Dickinson and Company .

The amount due to BD under these agreements was $ 69.7 million at December 31, 2022 and is included in Amounts due to Becton, Dickinson and Company .

The amount due from BD under the above agreements was $ 133.6 million at March 31, 2023 and is reflected in Amounts due from Becton, Dickinson and Company .

The amount due to BD under these agreements was $ 74.3 million at March 31, 2023 and is included in Amounts due to Becton, Dickinson and Company .

The closing of the transfers of certain assets and liabilities related to the Diabetes Care Business in certain jurisdictions, including China, Mexico, and Italy, as contemplated by the Separation and Distribution Agreement did not occur at Separation.

The transfers of the relevant local assets and liabilities for these deferred countries are expected to close at a future date.

As of December 31, 2022, the Company estimates that amounts due to BD related to certain assets and liabilities in deferred close jurisdictions is $ 29.9 million and are reflected in Accrued expenses .

As of December 31, 2022, the Company estimates that amounts due from BD related to certain assets and liabilities in deferred close jurisdictions are $ 4.9 million and is reflected in Prepaid expenses and other .

As of March 31, 2023, the Company estimates that amounts due to BD related to certain assets and liabilities in deferred close jurisdictions is $ 45.9 million and are reflected in Accrued expenses .

As of March 31, 2023, the Company estimates that amounts due from BD related to certain assets and liabilities in deferred close jurisdictions are $ 6.3 million and is reflected in Prepaid expenses and other .

Prior to the Separation, the Company did not operate as a standalone business and the Condensed Combined Financial Statements were derived from the consolidated financial statements and accounting records of BD.

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The allocations of General Corporate Expenses are reflected in the Condensed Consolidated Statements of Income as follows:

Three months ended December 31,

Three months ended March 31, Six months ended March 31,

Cost of products sold $ 0.7 $ 2.3

9 unchanged sentences

The following transactions represent activity in the ordinary course of business between the Company and BD prior to the Separation for certain materials for use in production of certain medical products that were not at arm’s length.

The following table summarizes related party purchases for the three month period ended December 31, 2021:

Three months ended December 31,

The following table summarizes related party purchases for the three month and six month periods ended March 31, 2022:

Three months ended March 31, Six months ended March 31,

Purchases from BD $ 13.6 $ 28.0

All significant intercompany transactions between the Company and BD prior to the Separation have been included in the Condensed Consolidated Financial Statements and are considered to be effectively settled for cash at the time the

Dollar amounts are in millions except per share amounts or as otherwise specified.

transaction is recorded.

For the period prior to the Separation, the total net effect of the settlement of these intercompany transactions is reflected in the Condensed Consolidated Statements of Cash Flows as a financing activity and in the Condensed Consolidated Balance Sheets as Net Investment from Becton, Dickinson and Company.

1 unchanged sentence

in the Condensed Consolidated Statements of Equity and represent the net effect of transactions between the Company and BD.

The following table summarizes the components of net transfers to BD for the three months ended December 31, 2021:

The following table summarizes the components of net transfers to BD for the three months ended March 31, 2022:

Cash pooling and general financing activities (1)

1 unchanged sentence

Taxes deemed settled with BD 1.6

Net consideration paid to BD in connection with the spin off 1,266.0

Related party senior secured notes 197.0

Other transfers to (from) BD, net 78.0

Net transfers to BD $ 1,590.5

The following table summarizes the components of the net transfers to BD for the six months ended March 31, 2022:

Cash pooling and general financing activities (1)

Corporate and segment allocations, excluding non-cash stock-based compensation ( 50.4 )

Taxes deemed settled with BD 0.0

Other Separation related adjustments, net ( 16.2 )

Net transfers to BD as reflected in the Condensed Consolidated Statements of Cash Flows 189.3

1 unchanged sentence

Pension expense ( 3.6 )

Net Consideration paid to BD in connection with the Separation 1,266.0

Related party senior secured notes 197.0

Other transfers to (from) BD, net 84.1

2 unchanged sentences

As part of this activity, cash balances were swept to BD on a daily basis under the BD Treasury function and the Company receives capital from BD for its cash needs.

Note 4 — Collaboration Agreement

In March 2023, the Company entered into a collaboration agreement with a third-party to develop and commercialize an interoperable automated glycemic controller ("iAGC") to complement the Company's insulin patch pump currently in development.

The Company believes that both parties are active participants in the operating activities of the collaboration and exposed to certain risks and rewards depending on commercial success.

The transaction included an upfront payment of $ 2.5 million for project costs, which was expensed to Research and development expense during the three and six month periods ended March 31, 2023.

Upon successful commercialization of the iAGC, the Company will be responsible for the sales and marketing effort and would pay a royalty to the third-party based on future product sales to customers.

The Company expects that it will be the principal in the end customer sale and 100% of product sales will be included in Revenues and any royalty payments and continued project costs after commercialization will be included in Cost of products sold as they are incurred.

Note 5 — Other Operating Expenses

In connection with the Separation, the Company incurred separation and stand-up costs of approximately $ 9.9 million and restructuring related costs of approximately $ 0.4 million during the three months ended December 31, 2022.

There were $ 8.4 million of separation and stand-up costs incurred during the three months ended December 31, 2021.

The costs incurred primarily consist of costs associated with accounting, auditing, legal services, supply chain, employee retention, and certain other costs to establish certain stand-alone functions to assist with the transition to being a stand-alone entity.

In connection with the Separation, the Company incurred separation and stand-up costs of approximately $ 25.6 million and $ 35.5 million during the three and six months ended March 31, 2023, respectively.

There were $ 7.4 million and $ 15.8 million of separation and stand-up costs incurred during the three and six months ended March 31, 2022, respectively.

Dollar amounts are in millions except per share amounts or as otherwise specified.

costs incurred primarily consist of costs associated with accounting, auditing, legal services, supply chain, employee retention, and certain other costs to establish certain stand-alone functions to assist with the transition to being a stand-alone entity.

Note 6 — Contingencies

The Company was not a party to any material legal proceedings at December 31, 2022 or September 30, 2022, nor is it a party to any material legal proceedings as of the date of issuance of these Condensed Consolidated Financial Statements.

The Company was not a party to any material legal proceedings at March 31, 2023 or September 30, 2022, nor is it a party to any material legal proceedings as of the date of issuance of these Condensed Consolidated Financial Statements.

Note 7 — Revenues

The Company’s policies for recognizing sales have not changed from those described in the 2022 Form 10-K.

The Company sells syringes, pen needles and other products used in the management of diabetes which are primarily sold to wholesalers and distributors that sell to retail and institutional channels who in turn sell to patients.

End-users of the Company’s products include healthcare institutions, physicians, life science researchers, clinical laboratories, the pharmaceutical industry, and the general public.

9 unchanged sentences

Because these deductions represent estimates of the related obligations, judgment is required when determining the impact of these revenue deductions on gross revenues for a reporting period.

Rebates provided by the Company are based upon

Dollar amounts are in millions except per share amounts or as otherwise specified.

prices determined under the Company’s agreements primarily with its end-user customers.

Rebates provided by the Company are based upon prices determined under the Company’s agreements primarily with its end-user customers.

Additional factors considered in the estimate of the Company’s rebate liability include the quantification of inventory that is either in stock at or in transit to the Company’s distributors, as well as the estimated lag time between the sale of product and the payment of corresponding rebates.

The Company’s liability attributed to variable consideration at December 31, 2022 and September 30, 2022 was $ 43.1 million and $ 43.8 million, respectively.

Sales deductions recorded as a reduction of gross revenues for the three months ended December 31, 2022 and 2021 were $ 92.6 million and $ 85.8 million, respectively.

The Company’s liability attributed to variable consideration at March 31, 2023 and September 30, 2022 was $ 37.9 million and $ 43.8 million, respectively.

Sales deductions recorded as a reduction of gross revenues for the three months ended March 31, 2023 and 2022 were $ 95.2 million and $ 78.1 million, respectively.

Sales deductions recorded as a reduction of gross revenues for the six months ended March 31, 2023 and 2022 were $ 187.8 million and $ 163.9 million, respectively.

Disaggregation of Revenues

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Contract assets consist of the Company’s right to consideration that is conditional upon its future performance pursuant to private label agreements and are presented within Prepaid expenses and other in the Condensed Consolidated Balance Sheets.

The Company’s contract asset balance was $ 1.2 million as of December 31, 2022 and September 30, 2022, respectively.

The Company’s contract asset balance was $ 1.2 million as of March 31, 2023 and September 30, 2022, respectively.

Note 8 — Segment and Geographical Data

1 unchanged sentence

Management has concluded that the Company operates in one segment based upon the information used by the CODM in evaluating the performance of the Company’s business and allocating resources and capital.

Dollar amounts are in millions except per share amounts or as otherwise specified.

Disaggregation of Revenues

6 unchanged sentences

Revenues by geographic region are as follows:

Three months ended December 31,

Three months ended March 31, Six months ended March 31,

2023 2022 (1)

United States $ 146.4 $ 141.3 $ 295.7 $ 292.2

International (2)

130.7 133.2 257.1 271.6

Total $ 277.1 $ 274.5 $ 552.8 $ 563.8

(1) For the three months ended December 31, 2022 and 2021, no individual country outside of the United States generated net revenues that represented more than 10.0% of total revenues.

(1) $ 1.5 million was reclassified between United States and International for both the three and six months ended March 31, 2022 respectively to conform to the current year presentation.

(2) For the three and six months ended March 31, 2023 and 2022, no individual country outside of the United States generated net revenues that represented more than 10.0% of total revenues.

Note 9 — Stock-Based Compensation

Time Vested Restricted Stock Units ("TVUs")

During the three months ended December 31, 2022 , Embecta granted 572,884 of restricted stock units ("RSUs") in the form of TVUs to employees which vest ratably over three years , subject to continued employment of the recipients.

During the six months ended March 31, 2023 , Embecta granted 634,032 of restricted stock units ("RSUs") in the form of TVUs to employees which vest ratably over three years , subject to continued employment of the recipients.

Performance Based Restricted Stock Units ("PSUs")

During the three months ended December 31, 2022 , Embecta awarded 244,192 of RSUs in the form of PSUs to certain executive officers and employees which vest after three years , subject to continued employment of the recipients and the

Dollar amounts are in millions except per share amounts or as otherwise specified.

achievement of certain performance metric targets.

During the six months ended March 31, 2023 , Embecta awarded 244,192 of RSUs in the form of PSUs to certain executive officers and employees which vest after three years , subject to continued employment of the recipients and the achievement of certain performance metric targets.

The Company has identified certain performance metrics associated with these awards and certain targets will be fully established at a future date.

1 unchanged sentence

As the service inception date precedes the accounting grant date, the Company recognizes stock-based compensation expense for each separately-vesting tranche over the requisite service period based on the fair value at each reporting date.

Stock-based compensation expense for these awards for the three months ended December 31, 2022 was $ 0.1 million.

Stock-based compensation expense for these awards for the three and six months ended March 31, 2023 was $ 0.5 million and $ 0.6 million, respectively.

Dollar amounts are in millions except per share amounts or as otherwise specified.

Stock-Based Compensation Expense

Total direct and allocated stock-based compensation expense for the three months ended December 31, 2022 and 2021 and the respective income tax benefits recognized by the Company in the Condensed Consolidated Statements of Income are as follows:

Three months ended December 31,

Total direct and allocated stock-based compensation expense for the three and six months ended March 31, 2023 and 2022 and the respective income tax benefits recognized by the Company in the Condensed Consolidated Statements of Income are as follows:

Three months ended March 31, Six months ended March 31,

2023 2022 2023 2022

Cost of products sold $ 0.6 $ 0.7 $ 1.2 $ 1.7

3 unchanged sentences

Tax benefit associated with stock-based compensation costs recognized $ 0.7 $ 1.0 $ 1.5 $ 2.0

A summary of stock appreciation rights ("SARs") outstanding as of December 31, 2022 and changes during the three months ended December 31, 2022 are as follows:

A summary of stock appreciation rights ("SARs") outstanding as of March 31, 2023 and changes during the six months ended March 31, 2023 are as follows:

SARs (in thousands) Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value

Balance at October 1 1,916.7 $ 28.98

Balance at December 31 1,916.7 $ 28.98 8.4 $ 0.4

Vested and expected to vest at December 31 1,840.2 $ 28.95 8.4 $ 0.4

Exercisable at December 31 524.0 $ 27.06 7.2 $ 0.4

Exercised* ( 25.0 ) 21.98

Forfeited, canceled or expired — $ —

Balance at March 31 1,891.7 $ 28.08 8.2 $ 0.7

Vested and expected to vest at March 31 1,816.9 $ 29.05 8.2 $ 0.7

Exercisable at March 31 532.1 $ 27.44 7.1 $ 0.6

*The amounts exercised include shares withheld for taxes that are not formally issued to the market.

There were no SARs granted, exercised or forfeited during the three months ended December 31, 2022.

A summary of time-vested RSUs outstanding as of December 31, 2022 and changes during the three months ended December 31, 2022 are as follows:

SARs with an intrinsic val ue of $ 0.3 million and grant date fair value of $ 0.6 million w ere exercised during the six months ended March 31, 2023.

A summary of time-vested RSUs and performance-based RSUs outstanding as of March 31, 2023 and changes during the six months ended March 31, 2023 are as follows:

RSUs (in thousands) Weighted Average Grant Date Fair Value

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Forfeited, canceled or expired ( 30.0 ) 28.18

Nonvested at December 31 1,297.9 30.72

Expected to vest at December 31 1,229.9 $ 30.60

Nonvested at March 31 1,331.0 30.54

Expected to vest at March 31 1,257.9 $ 30.54

*The RSUs distributed include shares withheld for taxes that are not formally issued to the market.

At December 31, 2022, the weighted average remaining vesting term of time vested restricted stock units is 2.2 years.

The weighted average grant date fair value of time restricted stock units granted during the six months ended March 31, 2023 is $ 32.38 and the total fair value of time vested stock units vested during the six months ended March 31, 2023 is $ 8.8 million.

At March 31, 2023, the weighted average remaining vesting term of time vested restricted stock units is 2.0 years.

Dollar amounts are in millions except per share amounts or as otherwise specified.

The amount of unrecognized compensation expense for all non-vested stock-based awards granted as of December 31, 2022, is approximately $ 38.9 million, which is expected to be recognized over a weighted-average remaining life of approximately 2.4 years.

At December 31, 2022, 3.6 million shares were authorized for future grants under the 2022 Employee and Director Equity Based Compensation Plan.

The amount of unrecognized compensation expense for all non-vested stock-based awards granted as of March 31, 2023, is approximately $ 40.4 million, which is expected to be recognized over a weighted-average remaining life of approximately 2.2 years.

At March 31, 2023, 3.5 million shares were authorized for future grants under the 2022 Employee and Director Equity Based Compensation Plan.

Note 10 — Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets consisted of:

December 31, 2022 September 30, 2022

March 31, 2023 September 30, 2022

Amortized intangible assets

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A commitment fee applies to the unused portion of the Revolving Credit Facility, equal to 0.25 % per annum.

As of December 31, 2022, no amount has been drawn on the Revolving Credit Facility.

As of March 31, 2023, no amount has been drawn on the Revolving Credit Facility.

The Credit Agreement and the indentures for Embecta's outstanding 5.00 % senior secured notes due February 2030 (the " 5.00 % Notes") and 6.75 % senior secured notes due February 2030 (the " 6.75 % Notes") contain customary financial covenants, including a total net leverage ratio covenant, which measures the ratio of (i) consolidated total net debt to (ii) consolidated earnings before interest, taxes, depreciation and amortization, and subject to other adjustments, must meet certain defined limits which are tested on a quarterly basis in accordance with the terms of the Credit Agreement and the 5.00 % Notes and 6.75 % Notes.

1 unchanged sentence

Dollar amounts are in millions except per share amounts or as otherwise specified.

The following is a summary of Embecta's total debt outstanding as of December 31, 2022:

The following is a summary of Embecta's total debt outstanding as of March 31, 2023:

Term Loan due March 2029 $ 940.5

8 unchanged sentences

Thereafter $ 1,597.7

The estimated fair value of long-term debt (including current portion) at December 31, 2022 was $ 1,497.7 million compared with a carrying value (which includes a reduction for unamortized debt issuance costs and discounts) of $ 1,606.6 million.

The estimated fair value of long-term debt (including current portion) at March 31, 2023 was $ 1,561.8 million compared with a carrying value (which includes a reduction for unamortized debt issuance costs and discounts) of $ 1,605.5 million.

Fair value was estimated using inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability and would be considered Level 2 in the fair value hierarchy.

As the Term Loan, 5.00 % Notes and 6.75 % Notes were issued subsequent to the three months ended December 31, 2021, there was no comparable interest expense recognized in the Condensed Consolidated Income Statement for the three months ended December 31, 2021.

Note 12 — Earnings per Share

On April 1, 2022, the date of the Separation, 57,012,925 shares of Embecta's common stock, par value $ 0.01 per share, were distributed to BD shareholders of record as of March 22, 2022, the record date of the distribution.

This share amount is utilized for the calculation of basic and diluted earnings per share for all periods presented prior to the Separation.

The calculation of basic and diluted earnings per common share for the three months ended December 31, 2022 and 2022 was as follows:

This share amount is utilized for the calculation of earnings per basic and diluted common share for all periods presented prior to the Separation.

The calculation of earnings per basic and diluted common share for the three and six months ended March 31, 2023 and 2022 was as follows:

Three Months Ended

March 31, Six Months Ended

($ in millions and shares in thousands, except per share amounts) 2023 2022 2023 2022

6 unchanged sentences

For periods prior to the Separation, it is assumed that there were no dilutive equity instruments as there were no equity awards of Embecta outstanding prior to the Separation.

For periods subsequent to the Separation, diluted earnings per share is computed by giving effect to all potentially dilutive stock awards that are outstanding.

The computation of diluted earnings per share excludes the effect of the potential

For periods subsequent to the Separation, earnings per diluted share is computed by giving effect to all potentially dilutive stock awards that are outstanding.

The computation of earnings per diluted share excludes the effect of the potential exercise of stock-based awards, when the effect of the potential exercise would be anti-dilutive.

For the three and six months ended March 31, 2023 , 2.2 million and 1.8 million, respectively, of dilutive share equivalents issuable under stock-

Dollar amounts are in millions except per share amounts or as otherwise specified.

exercise of stock-based awards, when the effect of the potential exercise would be anti-dilutive.

For the three months ended December 31, 2022 , 2.0 million of dilutive share equivalents issuable under stock-based compensation plans were excluded from the diluted shares outstanding calculation because the result would have been antidilutive.

based compensation plans were excluded from the diluted shares outstanding calculation because the result would have been antidilutive.

Note 13 — Income Taxes

2 unchanged sentences

The effective tax rate can vary from quarter to quarter because of changes in the global pretax income or geographical mix of the Company's earnings, changes in tax laws and matters related to tax audits.

The effective tax rates were 37.3 % and 15.3 % for the three months ended December 31, 2022 and 2021, respectively.

The increase in the Company’s effective tax rate from the prior comparative period is primarily due to the establishment of a valuation allowance against the utilization of interest expense carryforwards generated during the current period resulting from U.S.

interest deduction limitation rules, increased tax expense on undistributed earnings of foreign subsidiaries and increased U.S.

taxes on the earnings of foreign subsidiaries, partially offset by tax benefits from non-taxable permanent differences.

The effective tax rates were 42.9 % and 15.2 % for the three months ended March 31, 2023 and 2022, respectively, and 39.0 % and 15.2 % for the six months ended March 31, 2023 and 2022, respectively.

The increase in the Company’s effective tax rates from both prior comparative periods are primarily due to the establishment of a valuation allowance against the utilization of interest expense carryforwards generated during the current periods resulting from U.S.

interest deduction limitation rules, higher tax expense on undistributed earnings of foreign subsidiaries and higher U.S.

taxes on the earnings of foreign subsidiaries.

This was partially offset by tax benefits from non-taxable permanent differences.

Note 14 — Financial Instruments and Fair Value Measurements

The following reconciles Cash and cash equivalents reported within the Condensed Consolidated Balance Sheets as of December 31, 2022 and September 30, 2022, to the total amounts shown in the Condensed Consolidated Statements of Cash Flows:

December 31, 2022 September 30, 2022

The following reconciles Cash and cash equivalents reported within the Condensed Consolidated Balance Sheets as of March 31, 2023 and September 30, 2022, to the total amounts shown in the Condensed Consolidated Statements of Cash Flows:

March 31, 2023 September 30, 2022

Cash and cash equivalents $ 346.4 $ 330.9

Cash and cash equivalents as of December 31, 2022 includes cash held in money market funds and other cash equivalents.

Cash and cash equivalents as of March 31, 2023 includes cash held in money market funds and other cash equivalents.

All cash and cash equivalents are Level 1 in the fair value hierarchy.

2 unchanged sentences

Transactional currency exposures that arise from entering into transactions, generally on an intercompany basis, in non-hyperinflationary countries that are denominated in currencies other than the functional currency are mitigated primarily through the use of forward contracts.

The notional amounts of the Company’s foreign currency-related derivative instruments were as follows:

Hedge Designation December 31, 2022 September 30, 2022

The notional amounts of the Company’s foreign currency-related derivative instruments were as follows as of March 31, 2023 and September 30, 2022, respectively:

Hedge Designation March 31, 2023

Foreign exchange contracts (a) Undesignated $ 5.1

8 unchanged sentences

Historically and prior to the Separation, the Company’s operations formed part of BD’s monitoring of concentrations of credit risk associated with financial institutions for which BD conducted business.

As of December 31, 2022, the Company had transferred the majority of its trade receivables to BD under the Factoring Agreements (see Note 3).

As of March 31, 2023, the Company had transferred the majority of its trade receivables to BD under the Factoring Agreements (see Note 3).

As a result, the Company is no longer exposed to credit risk associated with those transferred

1 unchanged sentence

receivables and does not have material credit risk exposure associated with the remaining $ 19.1 million of trade receivables.

Three of the Company’s customers represent at least 10.0% of total gross revenues individually and, in the aggregate, represented approximately 40.5 % for the three months ended December 31, 2022 .

Three of the Company’s customers represent at least 10.0% of total gross revenues individually and, in the aggregate, represented approximately 39.6 % for the three months ended March 31, 2023, and three of the Company's customers represented at least 10.0% of total gross revenues individually and, in the aggregate, represent 40.0 % of total revenues for the six months ended March 31, 2023.

Substantially all of the Company’s trade receivables are due from public and private entities involved in the healthcare industry.

2 unchanged sentences

Property, Plant and Equipment, Net consisted of:

December 31, 2022 September 30, 2022

March 31, 2023 September 30, 2022

Land $ 2.5 $ 1.4

15 unchanged sentences

Our leases are included in our Condensed Consolidated Balance Sheets as follows:

December 31, 2022 September 30, 2022

March 31, 2023 September 30, 2022

Finance Leases

14 unchanged sentences

Weighted-average discount rate 7.0 % 5.9 %

Supplemental cash flow information related to leases for the three months ended December 31, 2022 and 2021 were as follows:

December 31, 2022 December 31, 2021

Supplemental cash flow information related to leases for the six months ended March 31, 2023 and 2022 were as follows:

March 31, 2023 March 31, 2022

Right of use assets obtained in exchange for lease liabilities

Operating Leases 14.0 —

Maturities of our finance and operating lease liabilities as of December 31, 2022 by fiscal year are as follows:

On April 1, 2022, the Company entered into a real estate lease for a new Corporate Headquarters located in Parsippany, NJ.

The lease commenced during the second quarter of fiscal year 2023 and has an initial term of ten years .

The Company has an option to extend the lease for additional periods of six years and four years , respectively.

Maturities of our finance and operating lease liabilities as of March 31, 2023 by fiscal year are as follows:

Finance Leases Operating Leases Total

8 unchanged sentences

Present value of lease liabilities $ 35.6 $ 19.1 $ 54.7

On April 1, 2022, the Company entered into a real estate lease for a new Corporate Headquarters located in Parsippany, NJ.

The lease commenced during the second quarter of fiscal year 2023 and is in existence for an initial term of ten years .

The Company has an option to extend the lease for additional periods of six years and four years , respectively.

Dollar amounts are in millions except per share amounts or as otherwise specified.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements