Item 9A. Controls and Procedures
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
An evaluation was carried out by Embecta’s management, with the participation of Embecta’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Embecta’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of September 30, 2024. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these controls and procedures were, as of the end of the period covered by this Annual Report on Form 10-K, not effective due to a material weakness in the Company's internal control over financial reporting related to the design and operation of certain process and management review controls, including management's review activities for account reconciliations and analyses that were executed for the first time during fiscal year 2024 subsequent to the first and second phases of the Company's ERP system implementation which is further described below.
In 2022, the Company commenced the process of implementing a new ERP system and other Business Continuity Processes to replace the existing systems provided by BD. The ERP system is designed to accurately maintain the Company's financial records used to report operating results. The implementation of the ERP system and other Business Continuity Processes is highly complex and has occurred and will continue to occur in phases across our geographies. The first phase of the implementation began in the fourth quarter of fiscal year 2023. The second phase began in the first quarter of fiscal year 2024 and continued through fiscal year 2024 in North America, EMEA and Greater China. The first and second phases of the implementation are now complete. The remaining third and fourth phases include Latin America and India, respectively. The third phase was completed in the first quarter of fiscal 2025. The fourth and final phase is expected to be completed in fiscal year 2025 subsequent to the date of this Annual Report on Form 10-K. A standardized internal control framework is implemented with each phase as the Company moves away from relying on BD’s systems and controls. Since the fourth and final phase has not yet been completed as of the date of this Annual Report on Form 10-K, the Company continues to rely on certain processes and internal control over financial reporting performed by BD.
Management’s Responsibilities
The financial statements included in Item 8 of this Annual Report on Form 10-K have been prepared by the Company's management in conformity with U.S. generally accepted accounting principles and include, where required, amounts based on the best estimates and judgments of management. The integrity and objectivity of data in the financial statements and elsewhere in this Annual Report on Form 10-K are the responsibility of the Company's management.
In fulfilling its responsibilities for the integrity of the data presented and to safeguard the Company’s assets, management employs a system of internal accounting controls designed to provide reasonable assurance, at appropriate cost, that the Company’s assets are protected and that transactions are appropriately authorized, recorded and summarized. This system of control is supported by the selection of qualified personnel, by organizational assignments that provide appropriate delegation of authority and division of responsibilities, and by the dissemination of written policies and procedures. This control structure is further reinforced by a program of internal audits, including a policy that requires responsive action by management.
The Board of Directors monitors the internal control system, including internal accounting and financial reporting controls, through its Audit Committee, which consists of three independent Directors. The Audit Committee meets periodically with the independent registered public accounting firm, the internal auditors and management to review the work of each and to satisfy itself that they are properly discharging their responsibilities. The independent registered public accounting firm and the internal auditors have full and free access to the Audit Committee and meet with its members, with and without management present, to discuss the scope and results of their audits including internal control, auditing and financial reporting matters.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities Act of 1934, as amended. Management conducted an assessment of the effectiveness of internal control over financial reporting based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
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In connection with the preparation and filing of this Annual Report on Form 10-K, the Company’s management, including our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of the effectiveness of its internal control over financial reporting as of September 30, 2024. Based on this evaluation, management concluded that the Company's internal control over financial reporting was not effective as of September 30, 2024, due to a material weakness in its internal controls related to the design and operation of certain process and management review controls, including certain account reconciliations and analyses. Subsequent to the first and second phases of ERP implementation, the Company instituted new Control Activities. Specifically, these newly designed Control Activities were executed for the first time in fiscal year 2024. Management has concluded that these newly designed Control Activities were not designed or operating effectively to ensure the appropriate level of management review, precision, and adequate evidence to confirm the completeness and accuracy of data used in the account reconciliations and analyses.
Notwithstanding the material weaknesses, management has concluded that the financial statements included elsewhere in this Annual Report on Form 10-K present fairly, in all material respects, our financial position, results of operations, and cash flows in conformity with GAAP.
The consolidated financial statements included in this Annual Report on Form 10-K and the effectiveness of the Company's internal control over financial reporting as of September 30, 2024 have been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report included in this Annual Report on Form 10-K. See “Report of Independent Registered Public Accounting Firm” which is included in Item 8 of this Annual Report on Form 10-K.
Remediation Plan
Upon the identification of the material weakness, management immediately effectuated a plan to remediate the design and operation of the related Control Activities. This plan has commenced and will continue into fiscal year 2025 and is intended to involve, but is not limited to, the following actions:
• reassess the design of processes and internal controls related to certain account reconciliations and certain analyses;
• execute a robust and formal training program regarding diligence in control performance and Sarbanes-Oxley Act requirements;
• implement enhanced oversight and governance over account reconciliations and certain financial analyses; and
• enhance control documentation and design to include additional procedures regarding confirmation of the completeness and accuracy of data used to perform controls and the precision of control activities.
The Company is committed to remediating the material weakness. The actions it is taking are subject to ongoing management review, as well as oversight from the Audit Committee. When fully implemented and operational, the Company believes the measures described above will remediate the underlying cause of the material weakness and will strengthen the Company's internal control over financial reporting. However, the Company will not be able to fully remediate this material weakness until these steps have been completed and have been operating effectively for a sufficient period of time. The Company may also identify additional measures that may be required to remediate the material weakness in its internal control over financial reporting, necessitating further action. The Company expects to complete the remediation plan in fiscal year 2025.
Changes in Internal Control over Financial Reporting
The Company is working towards executing the remediation plan to address the material weakness noted above. However, none of these efforts have resulted in the remediation of the material weakness noted above as of September 30, 2024. There have been no changes in its internal control over financial reporting during the fourth quarter of fiscal year 2024 other than the identification of the material weakness and the remediation plan disclosed above that have materially affected, or that are reasonably likely to materially affect, the Company's internal control over financial reporting.
Item 9B. Other Information.
(a)
As previously disclosed in the Company’s Current Report on Form 8-K filed with the SEC on December 2, 2024 (the “December 2, 2024 8-K”), the Company appointed Anthony Roth as Vice President, Chief Accounting Officer (“CAO” and “principal accounting officer,” as such term is used under the Exchange Act) and Corporate Controller of the Company on November 26, 2024, effective December 2, 2024. The Company had anticipated filing this Annual Report on Form 10-K prior to the effectiveness of Mr. Roth’s appointment, but was unable to do so due to the identification of the material weakness in the Company’s internal control over financial reporting related to the design and operation of certain process and management review controls, as further described in Part II, Item 9A of this Annual Report on Form 10-K. As a result, the Company’s Board of Directors on December 10, 2024 retroactively postponed the effectiveness of Mr. Roth’s appointment from December 2, 2024 to until after the filing of this Annual Report on Form 10-K. Jake Elguicze, who is the
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Chief Financial Officer of the Company and served as the principal accounting officer of the Company prior to Mr. Roth’s appointment, served as the Company’s principal accounting officer until the filing of this Annual Report on Form 10-K . Following the filing of this Annual Report on Form 10-K, Mr. Roth’s appointment as CAO and principal accounting officer will become effective, and Mr. Elguicze will step down as the Company’s principal accounting officer , but continue to serve as the Company’s Chief Financial Officer and principal financial officer.
Biographical, compensation and other information regarding Mr. Elguicze is set forth in the Company’s proxy statement, filed with the SEC on December 19, 2023, under the section “Management,” and such information is incorporated by reference herein.
There is no arrangement or understanding between Mr. Elguicze and any other person pursuant to which Mr. Elguicze was selected as principal accounting officer , and there are no family relationships between Mr. Elguicze and any of the Company’s directors or executive officers. There have been no transactions involving Mr. Elguicze that would be required to be disclosed by Item 404(a) of Regulation S-K. Mr. Elguicze did not receive any additional compensation in connection with assuming the responsibilities of principal accounting officer .
Biographical, compensation and other information regarding Mr. Roth is set forth in the December 2, 2024 8-K , and such information is incorporated by reference herein.
(b)
None .
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
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PART III.
Item 10. Directors, Executive Officers and Corporate Governance.
Embecta has a Code of Conduct applicable to all employees, including the principal executive officer, principal financial officer, principal accounting officer, and controller, and all directors. The Code of Conduct is available at https://investors.embecta.com/corporate-governance/documents-charters. To the extent required by the rules of the SEC or The Nasdaq Stock Market LLC, Embecta intends to satisfy the disclosure requirements regarding any amendment or waiver of our Code of Conduct by posting such information on our website.
Additional information required by this item will be included in the 2025 Proxy Statement and is incorporated herein by reference.
Item 11. Executive Compensation.
The information required by this item will be included in the 2025 Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The other information required by this item will be included in the 2025 Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item will be included in the 2025 Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services.
The information required by this item will be included in the 2025 Proxy Statement and is incorporated herein by reference.
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PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a) (1) Financial Statements
• The following consolidated financial statements of Embecta are included in Item 8 of this Annual Report on Form 10-K:
• Report of Independent Registered Public Accounting Firm (PCAOB ID 42 )
• Consolidated Statements of Income — Fiscal years ended September 30, 2024, 2023 and 2022
• Consolidated Statements of Comprehensive Income — Fiscal years ended September 30, 2024, 2023 and 2022
• Consolidated Balance Sheets — September 30, 2024 and 2023
• Consolidated Statements of Equity — Fiscal years ended September 30, 2024, 2023 and 2022
• Consolidated Statements of Cash Flows — Fiscal years ended September 30, 2024, 2023 and 2022
• Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
See Note 20 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.
(b) Exhibits
Exhibit
Number
Exhibit Description
2.1 Separation and Distribution Agreement, dated as of March 31, 2022, by and between the Company and BD. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 6, 2022.) **
3.1 Amended and Restated Certificate of Incorporation of the Company. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 6, 2022.)
3.2 Amended and Restated Bylaws of the Company adopted effective as of August 2, 2023. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on August 3, 2023.)
4.1 Indenture, dated February 10, 2022, by and between the Company and U.S. Bank Trust Company, National Association, as trustee and as notes collateral agent, including the form of 5.000% Senior Secured Notes due 2030. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on February 11, 2022.)
4.2 First Supplemental Indenture, dated as of April 1, 2022, to the Indenture dated as of February 10, 2022, by and between the Company and U.S. Bank Trust Company, National Association, as trustee and as notes collateral agent. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 6, 2022.)
4.3 Indenture, dated as of March 31, 2022, by and between the Company and U.S. Bank Trust Company, National Association, as trustee and as notes collateral agent, including the form of 6.750% Senior Secured Notes due 2030. (Incorporated by reference to the Company's Current Report on Form 8-K filed on April 6, 2022.)
4.4 First Supplemental Indenture, dated as of April 1, 2022, to the Indenture dated as of March 31, 2022, by and between the Company and U.S. Bank Trust Company, National Association, as trustee and as notes collateral agent. (Incorporated by reference to the Company’s Current Report on Form 8-K on April 6, 2022.)
4.5 Description of Securities. (Incorporated by reference to the Company’s Annual Report on Form 10-K filed on November 29, 2023.)
10.1 Transition Services Agreement, dated as of March 31, 2022, by and between BD and the Company. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 6, 2022.) **
10.2 Amendment No. 1 to Transition Services Agreement, dated as of July 1, 2022, by and between BD and the Company. (Incorporated by reference to the Company’s Annual Report on Form 10-K filed on December 22, 2022.) **
10.3 Amendment No. 2 to Transition Services Agreement, dated as of March 28, 2024, by and between BD and the Company (Incorporated by reference to the Company’s Current Report on Form 8-K filed on March 28, 2024.) **
10.4 Tax Matters Agreement, dated as of March 31, 2022, by and between BD and the Company. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 6, 2022.) **
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10.5 Employee Matters Agreement, dated as of March 31, 2022, by and between BD and the Company. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 6, 2022.) **
10.6 Embecta 2022 Employee and Director Equity-Based Compensation Plan. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 6, 2022.) (+)
10.7 Amendment No. 1 to the Embecta Corp. 2022 Employee and Director Equity-Based Compensation Plan (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on February 9, 2024.) (+)
10.8 Embecta Corp. Executive Severance and Change in Control Plan. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 6, 2022.) (+)
10.9 Embecta Deferred Compensation Plan. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 6, 2022.) (+)
10.10 Embecta Corp. Directors’ Deferral Plan. (Incorporated by reference to the Company’s Annual Report on Form 10-K filed on December 22, 2022.) (+)
10.11 Form of Founders Grants under the Embecta Corp. 2022 Employee and Director Equity-Based Compensation Plan Terms and Conditions of Awards (April 1, 2022) (Incorporated by reference to the Company’s Annual Report on Form 10-K filed on December 22, 2022) (+)
10.12 Form of Non-Employee Directors RSU Award under the Embecta Corp. 2022 Employee and Director Equity-Based Compensation Plan Terms and Conditions of Awards (April 1, 2022) (Incorporated by reference to the Company’s Annual Report on Form 10-K filed on December 22, 2022) (+)
10.13 Form of Employee and Director PSU and RSU Awards under the 2022 Employee and Director Equity Based Compensation Plan and Conditions of Awards (November 26, 2022). (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on May 12, 2023.) (+)
10.14 Form of November 2024 Employee and Director PSU and RSU Awards under the 2022 Employee and Director Equity-Based Compensation Plan and Conditions of Awards. (Filed herewith.) (+)
10.15 Letter Agreement, dated as of January 25, 2021, by and between BD and Devdatt Kurdikar. (Incorporated by reference to the Company’s Information Statement on Form 10 filed December 21, 2021.) (+)
10.16 Letter Agreement, dated as of April 9, 2021, by and between BD and Jacob Elguicze. (Incorporated by reference to the Company’s Information Statement on Form 10 filed December 21, 2021.) (+)
10.17 Letter Agreement, dated as of August 13, 2021, by and between BD and Shaun Curtis. (Incorporated by reference to the Company’s Information Statement on Form 10 filed December 21, 2021.) (+)
10.18 Letter Agreement, dated as of May 26, 2021, by and between BD and Jeff Mann. (Incorporated by reference to the Company’s Information Statement on Form 10 filed December 21, 2021.) (+)
10.19 Change in Control Employment Agreement, dated as of February 10, 2021, by and between BD and Devdatt Kurdikar. (Incorporated by reference to the Company’s Information Statement on Form 10 filed December 21, 2021.) (+)
10.20 Cannula Supply Agreement, dated as of March 31, 2022, by and between BD and the Company. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 6, 2022.) *, **
10.21 Form of Contract Manufacturing Agreement, dated as of March 31, 2022, by and between BD and the Company. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 6, 2022.) **
10.22 Lease Agreement, dated as of March 31, 2022, by and between BD and the Company. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 6, 2022.) *, **
10.23 Intellectual Property Matters Agreement, dated as of March 31, 2022, by and between BD and the Company. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 6, 2022.) *, **
10.24 Logistics Services Agreement, dated as of January 1, 2022, by and between BD and the Company. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 6, 2022.) **
10.25 Amendment to Logistics Services Agreement, dated as of November 20, 2023, by and between BD and the Company. (Incorporated by reference to the Company’s Annual Report on Form 10-K filed on November 29, 2023.)
10.26 Amendment No. 2 to Logistics Services Agreement, dated as of March 28, 2024, by and between BD and Embecta (Incorporated by reference to the Company’s Current Report on Form 8-K filed on March 28, 2024.) **
10.27 Form of Distribution Agreement, dated as of March 31, 2022, by and between BD and the Company. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 6, 2022.) **
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10.28 Credit Agreement, dated as of March 31, 2022, by and among the Company, the lenders and other parties from time to time party thereto and Morgan Stanley Senior Funding, Inc., as administrative agent, collateral agent and an L/C issuer. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 6, 2022.) **
19 Embecta Corp. Insider Trading Policy. (Filed herewith.)
21.1 List of Subsidiaries of Embecta Corp. (Filed herewith.)
23.1 Consent of Ernst & Young LLP. (Filed herewith.)
31.1 Certification of Chief Executive Officer, pursuant to SEC Rule 13a–14(a). (Filed herewith.)
31.2 Certification of Chief Financial Officer, pursuant to SEC Rule 13a–14(a). (Filed herewith.)
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350. (Furnished herewith.)
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350. (Furnished herewith.)
97.1 Embecta Corp. Dodd-Frank Clawback Policy (Incorporated by reference to the Company’s Annual Report on Form 10-K filed on November 29, 2023.)
97.2 Embecta Corp. Supplemental Policy Regarding the Recovery of Compensation, Effective December 1, 2023 (Incorporated by reference to the Company’s Annual Report on Form 10-K filed on November 29, 2023.)
101 The following materials from this Annual Report on Form 10-K, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Equity, (v) the Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements. (Filed herewith.)
104 Cover Page Interactive Data File. (Formatted as Inline XBRL and contained in Exhibit 101.)
(+) Management contract or compensatory plan or arrangement.
* Certain information contained in this document has been omitted because it is both (i) not material and (ii) is the type that the Company treats as private or confidential.
** Schedules and exhibits omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish a supplemental copy of any omitted schedule to the Securities and Exchange Commission upon request.
Item 16. Form 10-K Summary.
Embecta is not providing summary information.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
EMBECTA CORP.
By: /s/ DEVDATT KURDIKAR
Name: Devdatt Kurdikar
Title: President and Chief Executive Officer
(Principal Executive Officer)
Date: December 11, 2024
By: /s/ JACOB ELGUICZE
Name: Jacob Elguicze
Title: Senior Vice President, Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
Date: December 11, 2024
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Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name Capacity Date
/s/ LTG (RET.) DAVID F. MELCHER
LTG (Ret.) David F. Melcher Director December 11, 2024
and Chairman of the Board
/s/ DAVID J. ALBRITTON
David J. Albritton Director December 11, 2024
/s/ CARRIE L. ANDERSON
Carrie L. Anderson Director December 11, 2024
/s/ ROBERT (BOB) J. HOMBACH
Robert (Bob) J. Hombach Director December 11, 2024
/s/ MILTON M. MORRIS, PH.D.
Milton M. Morris, Ph.D. Director December 11, 2024
/s/ CLAIRE POMEROY, M.D.
Claire Pomeroy, M.D. Director December 11, 2024
/s/ KAREN N. PRANGE
Karen N. Prange Director December 11, 2024
/s/ CHRISTOPHER R. REIDY
Christopher R. Reidy Director December 11, 2024
/s/ DEVDATT KURDIKAR
Devdatt Kurdikar President and Chief Executive Officer December 11, 2024
(Principal Executive Officer)
/s/ JACOB ELGUICZE
Jacob Elguicze Senior Vice President, Chief Financial Officer December 11, 2024
(Principal Financial Officer and Principal Accounting Officer)
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