What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-02-09 compared with 2023-08-08 · 142 added, 229 removed, 306 unchanged (55% of the section changed)

Financial Statements and Supplementary Data.

Financial Statements.

Condensed Consolidated Statements of Income

1 unchanged sentence

Three Months Ended

June 30, Nine Months Ended

2023 2022 2023 2022

R evenues $ 286.1 $ 291.1 $ 838.9 $ 854.9

Revenues $ 277.3 $ 275.7

Cost of products sold 91.4 86.9

96.6 88.2 270.8 256.9

Gross Profit $ 185.9 $ 188.8

8 unchanged sentences

Income Before Income Taxes $ 14.3 $ 56.1

Income tax provision 4.9 11.2 36.3 43.3

Income tax provision (benefit)

Net Income $ 20.1 $ 35.2

2 unchanged sentences

Diluted $ 0.35 $ 0.61

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

For the nine month period ended June 30, 2022, cost of products sold from related party inventory purchases were $ 22.1 million.

See notes to the Unaudited Condensed Consolidated Financial Statements.

3 unchanged sentences

Three Months Ended

June 30, Nine Months Ended

2023 2022 2023 2022

Net Income $ 20.1 $ 35.2

Other Comprehensive Income (Loss), net of tax

Other Comprehensive Income, net of tax

Foreign currency translation adjustments 11.6 26.0

Other Comprehensive Income (Loss) $ 1.5 $ ( 21.4 ) $ 30.2 $ ( 37.3 )

Other Comprehensive Income

$ 11.6 $ 26.0

Comprehensive Income $ 31.7 $ 61.2

3 unchanged sentences

Embecta Corp.

June 30, 2023 September 30, 2022

December 31, 2023 September 30, 2023

Current Assets

Cash and cash equivalents $ 298.7 $ 326.5

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

Trade receivables, net (net of allowance for doubtful accounts of $ 1.2 million and $ 1.0 million as of December 31, 2023 and September 30, 2023, respectively)

Materials 32.9 32.1

6 unchanged sentences

Property, Plant and Equipment, Net 301.3 300.2

Goodwill and Other Intangible Assets 25.0 24.6

Goodwill and Intangible Assets

Deferred Income Taxes and Other Assets 172.7 140.4

17 unchanged sentences

Authorized - 250,000,000

Issued and outstanding - 57,302,056 as of June 30, 2023 and 57,055,327 as of September 30, 2022

Issued and outstanding - 57,573,497 as of December 31, 2023 and 57,333,353 as of September 30, 2023

Additional paid-in capital 33.4 27.9

7 unchanged sentences

Embecta Corp.

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

Balance at April 1, 2022 — $ — $ — $ — $ ( 681.1 ) $ ( 286.4 ) $ ( 967.5 )

Net transfers to Becton, Dickinson and Company including Separation adjustments — — — — 63.3 9.8 73.1

Issuance of common stock in connection with the Separation and reclassification of Net Investment from Becton, Dickinson and Company 57,797,841 0.6 — ( 618.4 ) 617.8 — —

Net income attributable to Embecta Corp.

— — — 62.4 — — 62.4

Other comprehensive loss, net of taxes — — — — — ( 21.4 ) ( 21.4 )

Stock-based compensation plans — — 5.8 — — — 5.8

Issuance of shares related to stock-based compensation plans 8,199 — — — — — —

Balance at June 30, 2022 57,806,040 $ 0.6 $ 5.8 $ ( 556.0 ) $ — $ ( 298.0 ) $ ( 847.6 )

Balance at April 1, 2023 57,287,537 $ 0.6 $ 18.1 $ ( 545.1 ) $ — $ ( 296.2 ) $ ( 822.6 )

Net income attributable to Embecta Corp.

— — — 15.2 — — 15.2

Other comprehensive income, net of taxes — — — — — 1.5 1.5

Stock-based compensation plans — — 5.5 — — — 5.5

Common dividends ($ 0.15 per share)

— — — ( 8.6 ) — — ( 8.6 )

Issuance of shares related to stock-based compensation plans 14,519 — ( 0.4 ) — — — ( 0.4 )

Balance at June 30, 2023 57,302,056 $ 0.6 $ 23.2 $ ( 538.5 ) $ — $ ( 294.7 ) $ ( 809.4 )

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

Shares Par Value Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive (Loss) Income Total

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

Net transfers to Becton, Dickinson and Company including Separation adjustments — — — — ( 395.0 ) 9.8 ( 385.2 )

Issuance of common stock in connection with the Separation and reclassification of Net Investment from Becton, Dickinson and Company 57,797,841 0.6 — ( 618.4 ) 617.8 — —

Net consideration paid to Becton, Dickinson, and Company in connection with Separation — — — — ( 1266.0 ) — ( 1266.0 )

Net income attributable to Embecta Corp.

2 unchanged sentences

Stock-based compensation plans — — 5.5 — — 5.5

Dividends declared ($ 0.15 per share)

— — — ( 8.6 ) — ( 8.6 )

Issuance of shares related to stock-based compensation plans 158,430 — ( 2.8 ) — — ( 2.8 )

Balance at June 30, 2022 57,806,040 $ 0.6 $ 5.8 $ ( 556.0 ) $ — $ ( 298.0 ) $ ( 847.6 )

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

Balance at October 1, 2023 57,333,353 $ 0.6 $ 27.9 $ ( 541.1 ) $ ( 309.1 ) $ ( 821.7 )

3 unchanged sentences

Stock-based compensation plans — — 7.3 — — 7.3

Common dividends ($ 0.45 per share)

Dividends and dividend equivalents declared ($ 0.15 per share)

— — 0.4 ( 9.0 ) — ( 8.6 )

Issuance of shares related to stock-based compensation plans 240,144 — ( 2.2 ) — — ( 2.2 )

Balance at June 30, 2023 57,302,056 $ 0.6 $ 23.2 $ ( 538.5 ) $ — $ ( 294.7 ) $ ( 809.4 )

Balance at December 31, 2023 57,573,497 $ 0.6 $ 33.4 $ ( 530.0 ) $ ( 297.5 ) $ ( 793.5 )

See notes to the Unaudited Condensed Consolidated Financial Statements.

2 unchanged sentences

Embecta Corp.

Nine Months Ended

Three Months Ended

Operating Activities

3 unchanged sentences

Amortization of debt issuance costs 1.6 1.6

Amortization of cloud computing arrangements

Stock-based compensation 7.3 5.5

Net periodic pension benefit and other postretirement costs 3.7 6.4

Deferred income taxes ( 17.0 ) 1.4

7 unchanged sentences

Other assets and liabilities, net ( 9.3 ) ( 0.3 )

Net Cash Provided by Operating Activities $ 38.1 $ 354.2

Net Cash (Used for) Provided by Operating Activities

$ ( 13.1 ) $ 60.4

Investing Activities

Capital expenditures $ ( 2.7 ) $ ( 4.7 )

Acquisition of intangible assets — ( 0.4 )

Net Cash Used for Investing Activities $ ( 2.7 ) $ ( 4.7 )

Financing Activities

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

Payments on long-term debt $ ( 2.4 ) $ ( 2.4 )

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 ( 2.2 ) ( 2.8 )

1 unchanged sentence

Dividend payments ( 8.6 ) —

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

Net transfers to Becton, Dickinson and Company — ( 182.7 )

Net Cash Used for Financing Activities $ ( 13.5 ) $ ( 6.1 )

12 unchanged sentences

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").

Pursuant to the Separation and Distribution Agreement, BD agreed to spin off its diabetes care business (the "Diabetes Care Business") into Embecta, a new, publicly traded company (the "Separation").

The Separation occurred by means of a pro-rata distribution of all of Embecta’s issued and outstanding shares of common stock on the basis of one share of Embecta common stock, par value $ 0.01 per share, for every five shares of BD common stock, par value $ 1.00 per share, held as of the close of business on March 22, 2022, the record date for the distribution.

Embecta is now a standalone publicly traded company and, on April 1, 2022, regular-way trading of Embecta common stock commenced on The Nasdaq Global Select Market under the ticker symbol "EMBC".

In connection with the Separation, BD and Embecta entered into various agreements to provide a framework for the relationship between BD and Embecta after the Separation, including, but not limited to, a separation and distribution agreement, a transition services agreement, a tax matters agreement, an employee matters agreement, a cannula supply agreement, contract manufacturing agreements, an intellectual property matters agreement, a logistics services agreement, distribution agreements, factoring and receivables agreements, local support and service agreements and other transaction documents.

Note 2 — Basis of Presentation

On April 1, 2022, the Company became a standalone publicly traded company, and its financial statements are now presented on a consolidated basis.

Prior to the Separation on April 1, 2022, the Company’s historical combined financial statements were prepared on a standalone basis and were derived from BD's Consolidated Financial Statements and accounting records.

The unaudited financial statements for all periods presented, including the historical results of the Company prior to April 1, 2022, are now referred to as "Condensed Consolidated Financial Statements", and have been prepared pursuant to the rules and regulations for reporting on Form 10-Q.

Accordingly, certain information and disclosures required by United States generally accepted accounting principles ("GAAP") for complete consolidated financial statements are not included herein.

The accompanying unaudited financial statements have been prepared in accordance with U.S.

Generally Accepted Accounting Principles (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X.

Accordingly, certain information and disclosures required by GAAP for complete consolidated financial statements are not included herein.

The results of operations of any interim period are not necessarily indicative of the results of operations for the full year.

In the Company's opinion, all adjustments necessary for a fair statement of these interim statements have been included and are of a normal and recurring nature.

These interim statements should be read in conjunction with the audited financial statements and notes thereto included in Embecta’s Annual Report on Form 10-K for the year ended September 30, 2022 filed with the Securities and Exchange Commission on December 22, 2022 (the "2022 Form 10-K").

Prior to the Separation, the Company was referred to as the Diabetes Care Business.

The assets, liabilities, revenue and expenses of the Diabetes Care Business were reflected in the Condensed Combined Financial Statements on a historical cost basis, as included in the consolidated financial statements of BD, using the historical accounting policies applied by BD.

The Condensed Combined Financial Statements did not purport to reflect what the Company’s results of operations, comprehensive income, financial position, equity or cash flows would have been had the Company operated as a standalone public company during the periods presented.

The Diabetes Care Business had historically functioned together with the other businesses controlled by BD.

Accordingly, the Diabetes Care Business relied on BD’s corporate and other support functions for its business.

Therefore, for the period prior to the Separation, certain corporate and shared costs were allocated to the Diabetes Care Business based on a specific identification basis or, when specific identification was not practicable, a proportional cost allocation method.

Refer to Note 2 of the audited Consolidated Financial Statements in the 2022 Form 10-K for additional details on Embecta's basis of presentation during periods prior to the Separation, at Separation and post Separation.

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

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.

The separate tax return method applies the accounting guidance for income taxes to the standalone financial statements as if the Company was a separate taxpayer and a standalone enterprise.

Management believes the assumptions supporting the allocation and presentation of income taxes on a separate return basis are reasonable.

As part of the Separation, Net Investment from Becton, Dickinson and Company was reclassified as Common Stock and Accumulated Deficit .

All intercompany transactions and accounts within Embecta have been eliminated.

These interim statements should be read in conjunction with the audited financial statements and notes thereto included in Embecta's Annual Report on Form 10-K for the year ended September 30, 2023.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions.

These estimates or assumptions affect reported assets, liabilities, revenues and expenses, including determining the allocation of shared costs and expenses from BD, depreciable and amortizable lives, sales returns and allowances, rebate accruals, inventory reserves and taxes on income as reflected in the Condensed Consolidated Financial Statements.

These estimates or assumptions affect reported assets, liabilities, revenues and expenses, depreciable and amortizable lives, sales returns and allowances, rebate accruals, inventory reserves and taxes on income as reflected in the Condensed Consolidated Financial Statements.

Actual results could differ from these estimates.

The following provides updates to the Company's "Summary of Significant Accounting Policies" as disclosed in the Form 10-K.

Cloud Computing Arrangements

The Company capitalizes costs incurred to implement cloud computing arrangements that are service contracts within Prepaid expenses and other and Deferred Income Taxes and Other Assets in the Company's Condensed Consolidated Balance Sheets.

Implementation costs associated with cloud computing arrangements are capitalized when incurred during the application development phase.

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 June 30, 2023 is $ 26.6 million which primarily relates to the implementation of the Company's new enterprise resource planning system ("ERP").

These capitalized costs are included in Deferred Income Taxes and Other Assets.

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.

Recently Adopted Accounting Standards

In October 2021, the Financial Accounting Standards Board issued Accounting Standards Update 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.

The new guidance requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with Accounting Standards Codification 606, Revenue from Contracts with Customers, as if it had originated the contracts.

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.

Recently Issued Accounting Standards Not Yet Adopted

In November 2023, the Financial Account Standard Board issued Accounting Standards Update ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which modifies the disclosure and presentation requirements of reportable segments.

This update is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 with early adoption permitted.

The Company is currently evaluating the impact that this guidance will have on the presentation of its condensed consolidated financial statements and accompanying notes.

In December 2023, the Financial Accounting Standards Board issued Accounting Standards Update 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, to enhance the transparency and decision usefulness of income tax disclosures.

This update is effective for annual periods beginning after December 15, 2024 with early adoption permitted.

The Company is currently evaluating the impact that this guidance will have on the presentation of its condensed consolidated financial statements and accompanying notes.

Reclassification

1 unchanged sentence

Note 3 — Third Party Arrangements and Related Party Disclosures

Pursuant to the Separation, BD ceased to be a related party to Embecta and accordingly, no related party transactions or balances are reported subsequent to April 1, 2022.

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.

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

Pursuant to the Separation and Distribution Agreement, BD agreed to spin off its diabetes care business (the "Diabetes Care Business") into Embecta, a new, publicly traded company (the "Separation").

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

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 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 $ 169.0 million at June 30, 2023 and is included in Amounts due from Becton, Dickinson and Company .

The amount due to BD under these agreements was $ 68.6 million at June 30, 2023 and is included in Amounts due to Becton, Dickinson and Company .

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 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 Embecta’s Annual Report on Form 10-K for the year ended September 30, 2023 filed with the Securities and Exchange Commission on November 29, 2023 (the “2023 Form 10-K”).

In November 2023, a portion of the Factoring Agreement between Embecta and BD for services to the U.S.

for the Company’s U.S.

subsidiary expired and terminated as a result of our implementation and onboarding of certain systems and services, including, but not limited to, information technology, procurement, quality and regulatory affairs, medical affairs, tax and treasury services, distribution logistics, and shared services infrastructure support for order-to-cash, source-to-pay, and record-to-report, which, for clarity, includes enterprise resource planning (“ERP”) systems (“Business Continuity Processes”) in North America.

The amount due from BD under the above agreements was $ 110.3 million at December 31, 2023 and is included in Amounts due from Becton, Dickinson and Company .

The amount due to BD under these agreements was $ 57.6 million at December 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 June 30, 2023, the Company estimates that amounts due to BD related to certain assets and liabilities in deferred close jurisdictions is $ 41.0 million and are reflected in Accrued expenses .

As of June 30, 2023, the Company estimates that amounts due from BD related to certain assets and liabilities in deferred close jurisdictions are $ 7.5 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.

The following disclosure summarizes activity between the Company and BD up to the Separation, including the affiliates of BD that were not part of the Separation.

Corporate and Medical Segment Allocations from BD

Prior to the Separation, BD provided significant corporate, finance, human resources, information technology, facilities, and legal services, among others (collectively, “General Corporate Expenses”) to the Company.

Some of these services continue to be provided by BD to the Company on a temporary basis under the Transition Services Agreement.

For purposes of these Condensed Consolidated Financial Statements for the periods prior to the Separation, the General Corporate Expenses have been allocated to the Company.

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

Nine months ended June 30,

Cost of products sold $ 2.3

Selling and administrative expense 47.9

Research and development expense 3.5

Other (income) expense, net ( 0.6 )

Total General Corporate Expenses $ 53.1

These expenses were allocated to the Company on a pro rata basis of global and regional revenues, headcount, research and development spend and other drivers.

Management believes the assumptions underlying the Condensed Consolidated Financial Statements, including the assumptions regarding allocating General Corporate Expenses from BD, are reasonable.

Nevertheless, the Condensed Consolidated Financial Statements for periods prior to the Separation may not include all of the actual expenses that would have been incurred and may not reflect the Company’s consolidated results of operations, financial position and cash flows had it been a standalone public company during the periods presented.

Actual costs that would have been incurred if the Company had been a standalone public company would depend on multiple

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

factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure.

Related party transactions

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 nine month period ended June 30, 2022:

Nine months ended June 30,

Purchases from BD $ 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 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.

Prior to the Separation, net transfers to BD were included within Net Investment from Becton, Dickinson and Company .

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 the net transfers to BD for the nine months ended June 30, 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 ( 16.2 )

Other Separation related adjustments, net ( 6.6 )

Net transfers to BD as reflected in the Condensed Consolidated Statements of Cash Flows 182.7

Stock-based compensation expense ( 8.5 )

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

Net transfers to BD $ 1,717.7

(1) The nature of activities includes financing activities for capital transfers, cash sweeps and other treasury services.

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.

As of December 31, 2023, the Company estimates that amounts due to BD related to certain assets and liabilities in deferred close jurisdictions is $ 13.5 million and are reflected in Accrued expenses .

As of December 31, 2023, the Company estimates that amounts due from BD related to certain assets and liabilities in deferred close jurisdictions are $ 7.4 million and is reflected in Prepaid expenses and other .

Note 4 — Collaboration Agreement

1 unchanged sentence

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 nine month period ended June 30, 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.

1 unchanged sentence

Note 5 — Other Operating Expenses

In connection with the Separation, the Company incurred separation and stand-up costs of approximately $ 25.6 million and $ 61.1 million during the three and nine months ended June 30, 2023, respectively.

There were $ 7.7 million and $ 23.5

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

million of separation and stand-up costs incurred during the three and nine months ended June 30, 2022, respectively.

The costs incurred primarily consist of costs associated with accounting, auditing, legal services, supply chain, employee retention, costs associated with the implementation of the Company's new ERP, 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 $ 26.4 million and $ 9.9 million during the three months ended December 31, 2023 and 2022, respectively.

The costs incurred primarily consist of costs associated with accounting, auditing, legal services, supply chain, employee retention, the implementation of the Company's new ERP system, and certain other costs to establish certain Business Continuity Processes and stand-alone functions to assist with the transition to being a stand-alone entity.

During the three months ended December 31, 2023, the Company recorded approximately $ 1.9 million of severance costs related to the optimization of certain business functions.

These costs were primarily recorded in the U.S.

Severance costs related to the optimization of certain business functions were not material in the comparable prior year period.

Liabilities for costs associated with these activities were not material to any period presented.

Note 6 — Contingencies

The Company was not a party to any material legal proceedings at June 30, 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.

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

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

Note 7 — Revenues

14 unchanged sentences

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 June 30, 2023 and September 30, 2022 was $ 45.7 million and $ 43.8 million, respectively.

Sales deductions recorded as a reduction of gross revenues for the three months ended June 30, 2023 and 2022 were $ 106.2 million and $ 84.8 million, respectively.

Sales deductions recorded as a reduction of gross revenues for the nine months ended June 30, 2023 and 2022 were $ 294.0 million and $ 248.7 million, respectively.

The Company’s liability attributed to variable consideration at December 31, 2023 and September 30, 2023 was $ 118.0 million and $ 36.4 million, respectively.

Sales deductions recorded as a reduction of gross revenues for the three months ended December 31, 2023 and 2022 were $ 126.7 million and $ 92.6 million, respectively.

Disaggregation of Revenues

3 unchanged sentences

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 both June 30, 2023 and September 30, 2022.

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

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

5 unchanged sentences

The Company disaggregates its revenue by geography as management believes this category best depicts how the nature, amount, and timing of revenues and cash flows are affected by economic factors.

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

Revenues by geographic region are as follows:

Three months ended June 30, Nine months ended June 30,

2023 2022 2023 2022

Three months ended December 31,

United States $ 148.6 $ 149.3

International (1)

132.2 133.1 389.3 404.5

Total $ 277.3 $ 275.7

(1) For the three and nine months ended June 30, 2023 and 2022, no individual country outside of the United States generated net revenues that represented more than 10.0% of total revenues.

(1) For the three months ended December 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 nine months ended June 30, 2023 , Embecta granted 634,032 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 nine months ended June 30, 2023 , Embecta awarded 244,192 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.

The Company has determined that the service inception date precedes the grant date for these awards as (a) the awards were authorized prior to establishing an accounting grant date, (b) the recipients began providing services prior to the grant date, and (c) there are performance conditions that, if not met by the accounting grant date, will result in the forfeiture of the awards.

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 and nine months ended June 30, 2023 was $ 0.3 million and $ 0.9 million, respectively.

Stock-Based Compensation Expense

Total direct and allocated stock-based compensation expense for the three and nine months ended June 30, 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 June 30, Nine months ended June 30,

2023 2022 2023 2022

Total direct and allocated stock-based compensation expense for the three months ended December 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 December 31,

Cost of products sold $ 0.9 $ 0.6

3 unchanged sentences

Tax benefit associated with stock-based compensation costs recognized $ 0.7 $ 1.3

The following table summarizes the Company's total stock-based compensation expense by classification of award:

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

Three months ended June 30, Nine months ended June 30,

2023 2022 2023 2022

The following table summarizes the Company's total stock-based compensation expense by classification of award for the three months ended December 31, 2023 and 2022:

Equity Awards $ 7.3 $ 5.5

1 unchanged sentence

Total $ 7.4 $ 5.5

A summary of stock appreciation rights ("SARs") outstanding as of June 30, 2023 and changes during the nine months ended June 30, 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

Exercised* ( 25.0 ) 21.98

Forfeited, canceled or expired — $ —

Balance at June 30 1,891.7 $ 29.08 8.0 $ 0.2

Vested and expected to vest at June 30 1,818.7 $ 29.05 8.0 $ 0.2

Exercisable at June 30 565.1 $ 27.67 6.9 $ 0.2

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

SARs with an intrinsic val ue of $ 0.3 million and grant date fair value of $ 0.6 million w ere exercised during the nine months ended June 30, 2023.

A summary of time-vested RSUs and performance-based RSUs outstanding as of June 30, 2023 and changes during the nine months ended June 30, 2023 are as follows:

The following table summarizes the Company's total stock-based compensation expense by award type for the three months ended December 31, 2023 and 2022:

Time-Vested Restricted Stock Units (TVUs)

Performance-Based Restricted Stock Units (PSUs)

Stock Appreciation Rights (SARs)

Total $ 7.4 $ 5.5

Time Vested Restricted Stock Units ("TVUs")

During the three months ended December 31, 2023 , Embecta granted 1,277,644 restricted stock units ("RSUs") in the form of TVUs to employees which vest ratably over three years , subject to continued employment of the recipients.

These awards accumulate dividend equivalents, which are provided as additional units and are subject to the same vesting requirements as the underlying grant.

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

A summary of TVUs outstanding as of December 31, 2023 and changes during the three months ended December 31, 2023 are as follows:

RSUs (in thousands) Weighted Average Grant Date Fair Value

3 unchanged sentences

Forfeited, canceled or expired ( 17.3 ) 29.21

Nonvested at June 30 1,292.9 30.54

Expected to vest at June 30 1,226.4 $ 30.53

Nonvested at December 31 2,078.5 $ 22.16

Expected to vest at December 31 1,970.9 $ 22.16

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

The weighted average grant date fair value of time-vested RSUs granted during the nine months ended June 30, 2023 is $ 32.38 and the total fair value of time-vested RSUs vested during the nine months ended June 30, 2023 is $ 9.4 million.

At June 30, 2023, the weighted average remaining vesting term of time-vested RSUs is 2.0 years.

The amount of unrecognized compensation expense for all non-vested stock-based awards granted as of June 30, 2023, is approximately $ 37.7 million, which is expected to be recognized over a weighted-average remaining life of approximately 2.0 years.

At June 30, 2023, 3.5 million shares were authorized for future grants under the 2022 Employee and Director Equity Based Compensation Plan.

The weighted average grant date fair value of TVUs granted during the three months ended December 31, 2023 is $ 17.52 and the total fair value of TVUs vested during the three months ended December 31, 2023 is $ 10.8 million.

At December 31, 2023, the weighted average remaining vesting term of TVUs is 2.3 years.

Performance Based Restricted Stock Units ("PSUs")

During the three months ended December 31, 2023 , Embecta awarded 531,253 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.

These awards accumulate dividend equivalents, which are provided as additional units and are subject to the same vesting requirements as the underlying grant.

As of December 31, 2023, there were 709,112 RSUs in the form of PSUs that have been awarded for which a grant date has not yet been established.

As of both December 31, 2023 and September 30, 2023, there were approximately 57.8 thousand nonvested PSUs with a weighted average grant date fair value of $ 30.24 .

As of December 31, 2023, there were approximately 54.6 thousand nonvested PSUs expected to vest with a weighted average grant date fair value of $ 30.24 .

At December 31, 2023, the weighted average remaining vesting term of PSUs is 1.9 years.

Stock Appreciation Rights

A summary of stock appreciation rights ("SARs") outstanding as of December 31, 2023 and changes during the three months ended December 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 1,831.7 $ 29.06

Forfeited, canceled or expired ( 1.2 ) 10.27

Balance at December 31 1,830.5 $ 29.07 7.5 $ 0.1

Vested and expected to vest at December 31 1,775.5 29.04 7.4 $ 0.1

Exercisable at December 31 829.6 $ 27.84 6.8 $ 0.1

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

Note 10 — Goodwill and Other Intangible Assets

No SARs w ere exercised during the three months ended December 31, 2023.

Unrecognized Stock-Based Compensation Expense and Other Stock Plans

The amount of unrecognized compensation expense for all non-vested stock-based awards granted as of December 31, 2023, is approximately $ 49.8 million which is expected to be recognized over a weighted-average remaining life of approximately 2.3 years.

At December 31, 2023, 2.6 million shares were authorized for future grants under the 2022 Employee and Director Equity Based Compensation Plan.

Note 10 — Goodwill, Intangible Assets, and Cloud Computing Arrangements

Goodwill and Intangible Assets

Goodwill and Other Intangible Assets consisted of:

June 30, 2023 September 30, 2022

December 31, 2023 September 30, 2023

Amortized intangible assets

8 unchanged sentences

Total Goodwill and Other Intangible Assets $ 24.3 $ 24.7

Cloud Computing Arrangements

The Company capitalizes costs associated with the development of cloud computing arrangements in a manner consistent with internally developed software.

The total balance of capitalized costs associated with these arrangements as of December 31, 2023 and September 30, 2023 is $ 50.4 million and $ 38.0 million, respectively, which primarily relates to the implementation of the Company's new ERP system.

These capitalized costs are included in Deferred Income Taxes and Other Assets.

Costs amortized during the three months ended December 31, 2023 were $ 0.4 million and are included in Other operating expenses .

Costs amortized during the three months ended December 31, 2022 were not material to the Company's condensed consolidated financial results.

As of December 31, 2023, cloud computing arrangement assets in-service have useful lives which range from approximately three to nine years .

Note 11 — Long-Term Debt

9 unchanged sentences

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

As of June 30, 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.

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

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

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.

In addition, the Credit Agreement contains covenants that will limit, among other things, Embecta’s ability to prepay, redeem or repurchase its subordinated and junior lien debt, incur additional debt, make acquisitions, merge with other entities, pay dividends or distributions, redeem or repurchase equity interests, and create or become subject to liens.

The following is a summary of Embecta's total debt outstanding as of June 30, 2023:

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

Term Loan due March 2029 $ 933.4

6 unchanged sentences

The debt issuance costs on the Term Loan, 5.00 % Notes, 6.75 % Notes and the discount on the Term Loan are reported in the Condensed Consolidated Balance Sheets as a reduction of debt and are amortized as a component of Interest expense, net over the term of the related debt using the effective interest method.

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

The schedule of principal payments required on long-term debt for the next five fiscal years and thereafter is as follows:

Thereafter 1,585.9

The estimated fair value of long-term debt (including current portion) at June 30, 2023 was $ 1,528.1 million compared with a carrying value (which includes a reduction for unamortized debt issuance costs and discounts) of $ 1,604.5 million.

The estimated fair value of long-term debt (including current portion) at December 31, 2023 was $ 1,510.5 million compared with a carrying value (which includes a reduction for unamortized debt issuance costs and discounts) of $ 1,602.4 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.

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 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 nine months ended June 30, 2023 and 2022 was as follows:

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

Three Months Ended

June 30, Nine Months Ended

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

7 unchanged sentences

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 nine months ended June 30, 2023 , 2.1 million and 1.9 million, respectively, and for both the three and nine months ended June 30, 2022, 1.8 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.

For the three months ended December 31, 2023 , and 2022, 3.2 million and 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.

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

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 24.4 % and 15.2 % for the three months ended June 30, 2023 and 2022, respectively, and 36.0 % and 15.2 % for the nine months ended June 30, 2023 and 2022, respectively.

The increase in the Company’s effective tax rates for both comparative periods are primarily due to an increase in the valuation allowance on the utilization of interest expense carryforwards related to U.S.

interest deduction limitation rules, higher tax expense on undistributed earnings of foreign subsidiaries and an increase in non-deductible expenses;

partially offset by lower U.S.

tax expense on earnings of foreign affiliates.

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

The effective tax rates were ( 40.6 )% and 37.3 % for the three months ended December 31, 2023 and 2022, respectively.

The decrease in the Company’s effective tax rate from the prior comparative period is primarily due to a tax benefit of approximately $ 17.1 million for the establishment of a deferred tax asset related to tax law changes in Switzerland.

The tax law changes instituted a higher cantonal tax rate and additional tax basis that is amortizable for income tax purposes over a period of seven years.

Note 14 — Financial Instruments and Fair Value Measurements

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

June 30, 2023 September 30, 2022

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

December 31, 2023 September 30, 2023

Cash and cash equivalents $ 298.7 $ 326.5

Cash and cash equivalents as of June 30, 2023 includes cash held in money market funds and other cash equivalents.

Cash and cash equivalents as of December 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.

Interest income on Cash and cash equivalents was $ 3.4 million and $ 1.1 million for the three months ended December 31, 2023 and 2022, respectively, and is included as a component of Interest expense, net .

Foreign Currency Risks and Related Strategies

1 unchanged sentence

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 as of June 30, 2023 and September 30, 2022, respectively:

Hedge Designation June 30, 2023 September 30, 2022

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

Hedge Designation December 31, 2023 September 30, 2023

Foreign exchange contracts (a) Undesignated $ 6.7 $ 6.7

7 unchanged sentences

Concentration of Credit Risk

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 June 30, 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 receivables and does not have material credit risk exposure associated with the remaining $ 21.1 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 39.8 % for the three months ended June 30, 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 nine months ended June 30, 2023.

Three of the Company’s customers represented at least 10.0% of total gross revenues individually and, in the aggregate, represented approximately 40.8 % for the three months ended December 31, 2023.

Four of the Company's customers represented at least 10.0% of total gross trade receivables individually and, in the aggregate, represented approximately 60.9 % as of December 31, 2023.

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

3 unchanged sentences

Property, Plant and Equipment, Net consisted of:

June 30, 2023 September 30, 2022

December 31, 2023 September 30, 2023

Land $ 2.4 $ 2.3

14 unchanged sentences

The Company's leases are included in its Condensed Consolidated Balance Sheets as follows:

June 30, 2023 September 30, 2022

December 31, 2023 September 30, 2023

Finance Leases

15 unchanged sentences

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

Supplemental cash flow information related to leases for the nine months ended June 30, 2023 and 2022 were as follows:

June 30, 2023 June 30, 2022

Right of use assets obtained in exchange for lease liabilities

Financing Leases $ — $ 36.7

Operating Leases 17.4 0.9

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 options to extend the lease for an additional period of six years and to extend for a subsequent additional period of four years , after the expiration of the first extension period.

Maturities of the Company's finance and operating lease liabilities as of June 30, 2023 by fiscal year are as follows:

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

For both the three months ended December 31, 2023 and 2022, right of use assets obtained in exchange for lease liabilities were not material.

December 31, 2023

Cash used for amounts included in the measurement of lease liabilities

Operating cash flows from Operating Leases

Financing cash flows from Finance Lease

Operating cash flows from Finance Lease

For the three months ended December 31, 2022, cash used for amounts included in the measurement of lease liabilities was not material.

Maturities of the Company's finance and operating lease liabilities as of December 31, 2023 by fiscal year are as follows:

Finance Leases Operating Leases Total

10 unchanged sentences

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