10q10k10q10k.net
Embecta Corp.

Embecta Corp.EMBCEarnings & Financial Report

Nasdaq

What changed in Embecta Corp.'s 10-K — 2022 vs 2023

Top changes in Embecta Corp.'s 2023 10-K

369 paragraphs added · 331 removed · 259 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

41 edited+4 added−1 removed31 unchanged
For existing and potential new products, failure to comply with ongoing regulatory requirements can result in enforcement actions by the FDA and other regulatory agencies, which may include warning letters that require corrective action, fines, injunctions, rescissions of previously granted clearances and/or approvals and other penalties. 2 We maintain a robust FDA Quality System Regulation and ISO Quality Systems that establish standards for our product design, manufacturing, and distribution processes, inclusive of Current Good Manufacturing Practices.
For existing and potential new products, failure to comply with ongoing regulatory requirements can result in enforcement actions by the FDA and other regulatory agencies, which may include warning letters that require corrective action, fines, injunctions, rescissions of previously granted clearances and/or approvals and other penalties. 2 We maintain robust FDA Quality System Regulation and ISO Quality Systems that establish standards for our product design, manufacturing, and distribution processes, inclusive of Current Good Manufacturing Practices.
We have a broad portfolio of marketed products, including a variety of pen needles, syringes and safety injection devices, which are complemented by our proprietary digital application designed to assist people with managing their diabetes. Our pen needles are sterile, single-use, medical devices, designed to be used in conjunction with pen injectors that inject insulin or other diabetes medications.
We have a broad portfolio of marketed products, including a variety of pen needles, syringes and safety injection devices, which are complemented by our proprietary digital application designed to assist people with managing their diabetes. Our conventional pen needles are sterile, single-use, medical devices, designed to be used in conjunction with pen injectors that inject insulin or other diabetes medications.
Prior to marketing or selling most of our products, we must secure approval from the FDA and counterpart non-United States regulatory agencies. These regulatory controls, as well as any changes in agency policies, can affect the time and cost associated with the development, introduction and continued availability of new and existing products.
Prior to marketing or selling most of our products, we must secure clearance or approval from the FDA and counterpart non-United States regulatory agencies. These regulatory controls, as well as any changes in agency policies, can affect the time and cost associated with the development, introduction and continued availability of new and existing products.
The cannula supply 3 agreement will be terminable by BD without cause by providing at least 36 months’ written notice; however, such termination can be effective no earlier than ten years from the Separation. However, in the event of a change of control of Embecta, BD has the right to terminate the cannula supply agreement in its sole discretion.
The cannula supply agreement will be terminable by BD without cause by providing at least 36 months’ written notice; however, such termination can be effective no earlier than ten years from the Separation. However, in the event of a change of control of Embecta, BD has the right to terminate the cannula supply agreement in its sole discretion.
At Embecta, long term succession planning and capability building are integral to our talent practices that 4 are aimed at helping our employees be the best versions of themselves while simultaneously building our future talent pipeline.
At Embecta, long term succession planning and capability building are integral to our talent practices that are aimed at helping our employees be the best versions of themselves while simultaneously building our future talent pipeline.
As we develop these products we intend to apply for clearance from the U.S. Food and Drug Administration (the “FDA”) and similar regulatory authorities in jurisdictions outside of the United States. For example, we are currently working on developing an insulin patch pump focused on serving the needs of people living with Type 2 diabetes.
As we develop these products we intend to apply for clearance from the United States Food and Drug Administration (the “FDA”) and similar regulatory authorities in jurisdictions outside of the United States. For example, we are currently working on developing an insulin patch pump focused on serving the needs of people living with Type 2 diabetes.
In addition to selling pen needles, syringes and safety devices, we seek to promote advances in diabetes care through thought leadership, and engagement with the diabetes community, healthcare providers and other stakeholders. To foster connection with and offer support to people with diabetes, we launched our diabetes care app in 2018, which has been downloaded more than 550,000 times.
In addition to selling pen needles, syringes and safety devices, we seek to promote advances in diabetes care through thought leadership, and engagement with the diabetes community, healthcare providers and other stakeholders. To foster connection with and offer support to people with diabetes, we launched our diabetes care app in 2018, which has been downloaded more than 600,000 times.
Companies with whom we currently compete in the diabetes drug injection business include Novo Nordisk, HTL-Strefa, Terumo Medical Corporation, and Ypsomed. We also compete with providers of insulin pumps and other insulin administration devices. We compete in the marketplace based on a number of factors, including product quality, clinical innovation, price, service and reputation.
Companies with whom we currently compete in the diabetes drug injection business include Novo Nordisk, HTL-Strefa, Terumo Medical Corporation, and Ypsomed. We also compete with providers of insulin pumps and other insulin administration devices. We compete in the marketplace based on a number of factors, including product quality, clinical innovation, price, service, reputation and commercial excellence.
We also sell safety pen needles, which have shields on both ends of the cannula that automatically deploy after the injection to help prevent needlestick exposure and injury during injection and disposal. Our traditional and safety pen needles are compatible and frequently used with widely available pen injectors in the market today.
We also sell safety pen needles, which have shields on both ends of the cannula that automatically deploy after the injection to help prevent needlestick exposure and injury during injection and disposal. Our conventional and safety pen needles are compatible and frequently used with widely available pen injectors in the market today.
These regulations not only affect our existing markets products, but also our ability to market new products under development.
These regulations not only affect products in our existing markets, but also our ability to market new products under development.
In addition, during the period ending two years after the Separation, these covenants include specific restrictions on Embecta’s (i) discontinuing the active conduct of Embecta’s trade or business; (ii) issuance or sale of stock or other securities (including securities convertible into Embecta stock, but excluding certain compensatory arrangements); (iii) liquidating, merging, or consolidating with any other person; (iv) amending Embecta’s certificate of incorporation (or other organizational documents) or taking any other action, whether through a stockholder vote or otherwise, affecting the voting rights of Embecta common stock; (v) sales of assets outside the ordinary course of business; and (vi) entering into any other corporate transaction which would cause Embecta to undergo a 50% or greater change in its stock ownership. • Logistics Services Agreement - Embecta and BD entered into a logistics services agreement whereby BD provides Embecta with certain order-to-cash and logistics services to support certain commercial operations for a maximum term of two years.
In addition, during the period ending two years after the Separation, these covenants include specific restrictions on Embecta’s (i) discontinuing the active conduct of Embecta’s trade or business; (ii) issuance or sale of stock or other securities (including securities convertible into Embecta stock, but excluding certain compensatory arrangements); (iii) liquidating, merging, or consolidating with any other person; (iv) amending Embecta’s certificate of incorporation (or other organizational documents) or taking any other action, whether through a stockholder vote or otherwise, affecting the voting rights of Embecta common stock; (v) sales of assets outside the ordinary course of business; and (vi) entering into any other corporate transaction which would cause Embecta to undergo a 50% or greater change in its stock ownership. • Logistics Services Agreement - Embecta and BD entered into a logistics services agreement whereby BD provides Embecta with certain order-to-cash and logistics services to support certain commercial operations for a maximum term of two years, which BD has agreed to extend through March 31, 2024.
In the case of sole sourced parts, we manage risk through holding inventory ourselves and at the supplier to ensure continuity of supply and lower the risk of disruption. 1 Research and Development Our strategy seeks to update and develop enhanced technology for our portfolio of current and future products by focusing on patient unmet needs and market expansion.
In the case of sole sourced parts, we manage risk through holding inventory ourselves and at our suppliers' facilities to ensure continuity of supply and lower the risk of disruption. 1 Research and Development Our strategy seeks to update and develop enhanced technology for our portfolio of current and future products by focusing on patient unmet needs and market expansion.
Embecta will pay BD (i) reimbursable costs, including all shipping costs, selling costs, general administration costs, costs of goods, research and development services costs, and other income and expenses related solely to the diabetes care business, that are incurred by BD directly, as allocated costs or as costs payable to a third party and (ii) a monthly administrative fee of 1.0% of net revenue. • Other agreements that Embecta entered into with BD include, but are not limited to, an 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 location in Holdrege, Nebraska.
Embecta will pay BD (i) reimbursable costs, including all shipping costs, selling costs, general administration costs, costs of goods, research and development services costs, and other income and expenses related solely to the diabetes care business, that are incurred by BD directly, as allocated costs or as costs payable to a third party and (ii) a monthly administrative fee of 1.0% of net revenue (which will increase to 1.25% of net revenue after January 1, 2024). • Other agreements that Embecta entered into with BD include, but are not limited to, an 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 location in Holdrege, Nebraska.
In addition, potential features of our insulin patch pump technology and finer gauge pen needle currently under development and software we market to end users for managing diabetes are covered by a variety of patents and patent applications. Generally, patent protection for these products and technologies is sought in the United States, Canada, Europe, China and Japan.
In addition, potential features of our insulin patch pump technology currently under development and software we market to end users for managing diabetes are covered by a variety of patents and patent applications. Generally, patent protection for these products and technologies is sought in the United States, Canada, Europe, China and Japan.
The majority of our U.S. and foreign patents for individual products are in force for twenty years from the initial filing date. The actual protection afforded by a patent, which can vary from country to country, depends upon the type of patent, the scope of its coverage and the availability of legal remedies in the country.
The majority of our United States and foreign patents for individual products are in force for twenty years from the initial filing date. The actual protection afforded by a patent, which can vary from country to country, depends upon the type of patent, the scope of its coverage and the availability of legal remedies in the country.
We estimate that our products are used by nearly 30 million people in over 100 countries for insulin administration and to aid with the daily management of diabetes.
We estimate that our products are used by more than 30 million people in over 100 countries for insulin administration and to aid with the daily management of diabetes.
The distribution agreements will each continue until either (1) certain governmental approvals needed to distribute products in the defined territory are obtained and order-to-cash processes and other services of the Company for such territory are migrated to an alternative commercial arrangement between the parties or (2) the applicable services are transitioned to a third-party distributor or independently performed by Embecta, but in any event no longer than the maximum term of two years.
The distribution agreements will each continue until either (1) certain governmental approvals needed to distribute products in the defined territory are obtained and order-to-cash processes and other services of the Company for such territory are migrated to an alternative commercial arrangement between the parties or (2) the applicable services are transitioned to a third-party distributor or independently performed by Embecta, but in any event no longer than the maximum term of two 3 years, except certain such agreements may be extended in connection with the Extension.
Embecta shall pay BD a return of 1.5% to 2.0% of net revenue for each territory. • Cannula Supply Agreement - Embecta and BD entered into a cannula supply agreement whereby BD sells to Embecta cannulas for incorporation into Embecta's existing syringes and pen needles, safety syringes and safety pen needles, and insulin patch pump, pen needles and safety pen needle currently under development.
Embecta shall pay BD a return of 1.5% to 2.0% of net revenue for each territory. • Cannula Supply Agreement - Embecta and BD entered into a cannula supply agreement whereby BD sells to Embecta cannulas for incorporation into Embecta's existing syringes and pen needles, safety syringes and safety pen needles, and products currently under development.
Printed copies of these materials, this Annual Report on Form 10-K, and Embecta’s reports and statements filed with, or furnished to, the SEC, may also be obtained, without charge, by contacting the Corporate Secretary, Embecta, 300 Kimball Dr., Suite 300, Parsippany, New Jersey 07054, telephone 201-847-6880.
Printed copies of these materials, this Annual Report on Form 10-K, and Embecta’s reports and statements filed with, or furnished to, the SEC, may also be obtained, without charge, by contacting the Corporate Secretary, Embecta, 300 Kimball Dr., Suite 300, Parsippany, New Jersey 07054, telephone 862-401-0000.
As of September 30, 2022, we had about 400 trademark registrations in the United States and in various foreign countries in which we conduct business, as well as about 220 trademark applications pending worldwide. Embecta owns, and BD provides Embecta a license to use, intellectual property rights necessary to operate our business.
As of September 30, 2023, we had about 250 trademark registrations in the United States and in various foreign countries in which we conduct business, as well as about 200 trademark applications pending worldwide. Embecta owns, and BD provides Embecta a license to use, intellectual property rights necessary to operate our business.
We are not aware of any pending third-party claims or challenges that would be expected to materially affect the patent protection of these products or technologies. As of September 30, 2022, we held about 1,100 patents in the United States and in various foreign countries in which we conduct business, as well as about 280 patents pending.
We are not aware of any pending third-party claims or challenges that would be expected to materially affect the patent protection of these products or technologies. As of September 30, 2023, we held about 750 patents in the United States and in various foreign countries in which we conduct business, as well as about 130 patents pending.
We are a leading global medical device company focused on providing solutions to improve the health and well-being of people living with diabetes. In our close to 100-year history of our business, we believe that our products have become one of the most widely recognized and respected brands in diabetes management in the world.
We are a leading global medical device company focused on providing solutions to improve the health and well-being of people living with diabetes. As we approach our 100-year centennial, we believe that our products have become one of the most widely recognized and respected brands in diabetes management throughout the world.
The agreed-upon charges for such services are generally intended to allow the servicing party to charge a price comprised of out-of-pocket costs and expenses and a predetermined profit in the form of a mark-up of such out-of-pocket costs and expenses. The services will terminate no later than 24 months following the Separation.
The agreed-upon charges for such services are generally intended to allow the servicing party to charge a price comprised of out-of-pocket costs and expenses and a predetermined profit in the form of a mark-up of such out-of-pocket costs and expenses.
Human Resources ("HR") As of September 30, 2022, we had approximately 1,900 regular employees globally (approximately 2,200 if deferred closing countries are included – China, Mexico, Italy), with approximately 900 employees in the United States. Our talented employees are an integral reason for our standing as one of the world's leading diabetes care companies.
Human Resources ("HR") As of September 30, 2023, we had approximately 2,200 regular employees globally (which includes deferred closing countries), with approximately 925 employees in the United States. Our talented employees are an integral reason for our standing as one of the world's leading diabetes care companies.
The diabetes care app serves as a channel for our support, education of and engagement with the diabetes community. In addition, we intend to explore strategic collaborative partnerships and acquisition opportunities that enable us to accelerate our growth. We intend to selectively pursue strategic collaborative opportunities that give us access to innovative technologies, complementary product lines, and new markets.
The diabetes care app serves as a channel for our support, education of and engagement with the diabetes community. In addition, we intend to continue to explore strategic collaborative partnerships and acquisition opportunities that enable us to accelerate our growth.
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: • Transition Services Agreements ("TSA") - Pursuant to the TSA, Embecta and BD and their respective affiliates provide each other, on an interim, transitional basis, various services, including, but not limited to, information technology, procurement, quality and regulatory affairs, medical affairs, tax and treasury services.
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: • Transition Services Agreements ("TSA") - Pursuant to the TSA, and the related Logistics Services Agreement (“LSA”), Embecta and BD and their respective affiliates provide each other, on an interim, transitional basis, various 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 (collectively, the “Interim Business Continuity Processes”).
In addition to helping make life better for people living with diabetes, our employee value proposition includes factors such as a strong rewards package, a focus on development, and engaging with our employees as we shape our new company together.
In addition to helping make life better for people living with diabetes, our employee value proposition includes a strong rewards package, a focus on development, and engaging with our employees as we shape our new company together. At Embecta, our Total Rewards programs enable behaviors that drive performance, reward results and create long-term value for our stockholders and employees.
Our employee benefit programs provide flexibility and choice, and enrich the health, well-being and security of our employees. We are building a learning culture where employees at all levels of the organization are encouraged to grow and improve, including company-wide training on our Code of Conduct, job related technical training, and easy access to virtual on demand learning.
We are building a learning culture where employees at all levels of the organization are encouraged to grow and improve, including company-wide training on compliance, job related technical training, leadership development, and easy access to virtual on demand learning.
We distribute our products through a variety of channels, including retail, hospitals, pharmacies and other institutional channels. Our commercial team and distribution networks enable us to reach a broad base of customers across the globe. Raw Materials and Components We use a broad range of raw materials in the manufacture of our products.
Our commercial team and distribution networks enable us to reach a broad base of customers across the globe. Raw Materials and Components We use a broad range of raw materials in the manufacture of our products. We purchase all our raw materials and certain components from third-party suppliers.
The service recipient may terminate any services by giving prior written notice to the provider of such services and paying any applicable wind-down charges. • Distribution Agreements - Embecta and BD entered into distribution agreements for certain territories, principally in the Asia Pacific Region and Latin America, whereby a subsidiary of BD has been appointed as a distributor of Embecta or its relevant subsidiaries to support certain commercial operations of the diabetes care business on a transitional basis in these regions for a maximum of two years.
The Extension is conditioned upon BD obtaining a supplemental private letter ruling to the private letter ruling that it received in connection with the Separation and the distribution, in form and substance reasonably satisfactory to BD (the "Supplemental PLR"). • Distribution Agreements - Embecta and BD entered into distribution agreements for certain territories, principally in the Asia Pacific Region and Latin America, whereby a subsidiary of BD has been appointed as a distributor of Embecta or its relevant subsidiaries to support certain commercial operations of the diabetes care business on a transitional basis in these regions for a maximum of two years.
Global Operations Our global manufacturing, commercial team and distribution networks enable us to produce and distribute our products to end users and healthcare providers in over 100 countries. We have three manufacturing sites located in Ireland, the United States and China. We believe that these manufacturing sites enable us to efficiently and consistently produce high-quality, safe and reliable products.
We have three manufacturing sites located in Ireland, the United States and China. We believe that these manufacturing sites enable us to efficiently and consistently produce high-quality, safe and reliable products. We distribute our products through a variety of channels, including retail, hospitals, pharmacies and other institutional channels.
All employees are encouraged to establish individual, team and development goals in partnership with their manager to ensure clarity and alignment while retaining focus on growth and development. In alignment with our continuous improvement culture, we seek feedback through surveys and other means so that employees can share their perspectives on ways to continuously improve our workplace climate.
All employees are encouraged to establish individual, team and development goals in partnership with their manager to ensure clarity and alignment to our business goals while retaining focus on growth and development.
We purchase some of these and other materials from a single or limited number of sources for various reasons, including quality assurance, cost-effectiveness, and continuity of supply, among others. In connection with the Separation, we entered into a cannula supply agreement with BD, whereby BD sells to us cannulas for incorporation into our pen needles and syringes.
In connection with the Separation, we entered into a cannula supply agreement with BD, whereby BD sells to us cannulas for incorporation into our pen needles and syringes.
At Embecta, our Total Rewards programs enable behaviors that drive performance, reward for results and create long-term value for our stockholders and employees. We continually monitor our programs and policies to ensure they are competitive and have a clear link to our business and talent strategy. We pay for performance and are committed to compensating employees fairly and equitably.
We continually monitor our programs and policies to ensure they are competitive and have a clear link to our business and talent strategy. We pay for performance and are committed to compensating employees fairly and equitably. Our employee benefit programs provide flexibility and choice, and enrich the health, well-being and security of our employees.
The focus in fiscal year 2022 was primarily evaluation, as Embecta’s risks and impacts are different to those of BD. This evaluation phase commenced with a Sustainability Materiality Assessment and an internal review of the United Nations Sustainable Development Goals. Separately, the governance structures for managing ESG topics and updates were documented via the Company's Enterprise Risk Committee charter.
Corporate Responsibility ("CR") and Environmental, Social and Governance ("ESG") Embecta is in the process of developing a standalone multi-year strategy to advance its ESG initiatives. The focus in fiscal year 2023 was to evaluate Embecta’s global ESG risks and impacts. This evaluation phase commenced with a Sustainability Materiality Assessment and an internal review of the United Nations Sustainable Development Goals.
As a newly independent company with agility at its core, employee feedback helps us make adjustments in our ways of working and embedding our values. What we do at Embecta is personal to Embecta employees, and our HR practices are designed to enable our employees in fulfilling our mission of helping people with diabetes.
In alignment with our continuous improvement culture, we seek feedback through surveys and other means so that employees can share their perspectives on ways to continuously improve our workplace climate. As a newly independent company with agility at its core, employee feedback helps us make adjustments in our ways of working and embedding our values.
We purchase all our raw materials and certain components from third-party suppliers. The primary materials that comprise our pen needles and insulin syringes are cannula, plastic resin, adhesive, needle lubricants, rubber stoppers and packaging material.
The primary materials that make up our pen needles and insulin syringes are cannula, plastic resin, adhesive, needle lubricants, rubber stoppers and packaging material. We purchase most of these and other materials from a single or limited number of sources for various reasons, including quality assurance, cost-effectiveness, and continuity of supply, among others.
As we exit our transition service agreements with BD and stand up our own Embecta HR Operations and Service Delivery model, we have the unique opportunity to integrate Environment, Social, Governance ("ESG") as well as Inclusion, Diversity and Equity ("ID&E") principles into the foundation of our HR practices.
As a new company, we have the unique opportunity to integrate Environment, Social, Governance ("ESG") as well as Diversity, Equity & Inclusion ("DE&I") principles into the foundation of our HR practices. 4 We focus on providing a personalized experience from the moment an employee considers joining the Embecta team.
We are committed to creating and sustaining an environment where everyone brings their authentic selves to work, to help us fulfil our mission of helping people with diabetes. Corporate Responsibility ("CR") and ESG As part of the Separation from BD, Embecta is in process of developing a standalone multi-year strategy to advance its ESG initiatives.
Our commitment to DE&I is embedded in our values. We believe that employee diversity makes us better at identifying opportunities and solving problems. We are committed to creating and sustaining an environment where everyone brings their authentic selves to work, to help us fulfill our mission of helping people with diabetes.
Inclusion, Diversity & Equity Embecta engages a workforce that reflects the communities it operates in. Our workforce possesses a broad range of thoughts and experiences, starting with a diverse leadership team and board of directors. Our commitment to ID&E is embedded in our values. We believe that diversity of our teams makes us better at identifying opportunities and solving problems.
What we do at Embecta is personal to Embecta employees, and our HR practices are designed to enable our employees in fulfilling our mission of helping people with diabetes. Diversity, Equity & Inclusion Embecta engages a workforce that reflects the communities where we operate. Our workforce, including our leadership team, and our board of directors, includes diverse members and teams.
Embecta plans to publish its inaugural Sustainability Report in mid fiscal year 2023. Available Information Embecta maintains a website at www.embecta.com.
Separately, the governance structures for managing ESG topics and updates were documented via the Company's Enterprise Risk Committee charter. Embecta plans to provide an updated Sustainability Report during its 2024 fiscal year. Available Information Embecta maintains a website at www.embecta.com.
Removed
We believe that we are seen as an employer of choice and we focus on providing a personalized experience from the moment an employee considers joining the Embecta team.
Added
We intend to selectively pursue strategic collaborative opportunities that give us access to innovative technologies, complementary product lines, and new markets. Global Operations Our global manufacturing and distribution network, together with our commercial team, enable us to produce and distribute our products to end users and healthcare providers in over 100 countries.
Added
The service recipient may terminate any services by giving prior written notice to the provider of such services and paying any applicable wind-down charges.
Added
Such services provided pursuant to the TSA were to terminate no later than April 1, 2024, 24 months following the Separation, and such services provided pursuant to the LSA were to terminate no later than January 1, 2024, which BD has agreed to extend through March 31, 2024.
Added
However, BD has granted a limited extension until November 1, 2024 of certain services under the TSA, LSA and other transaction documents in a limited set of markets (the "Extension") to support the Interim Business Continuity Processes, subject to the condition in the next sentence.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

145 edited+74 added−9 removed156 unchanged
If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, or if the quality or accuracy of the data they obtain is compromised due to failure to adhere to Embecta’s clinical protocols or regulatory requirements or for other reasons, Embecta’s pre-clinical development activities or clinical trials may be extended, delayed, suspended or terminated, and Embecta may not be able to obtain regulatory clearance or approval for, or successfully commercialize, its products on a timely basis, or at all, and Embecta’s business and operating results may be adversely affected.
If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, or if the quality or accuracy of the data they obtain is compromised due to failure to adhere to the clinical protocols or regulatory requirements or for other reasons, Embecta’s pre-clinical development activities or clinical trials may be extended, delayed, suspended or terminated, and Embecta may not be able to obtain regulatory clearance or approval for, or successfully commercialize, its products on a timely basis, or at all, and Embecta’s business and operating results may be adversely affected.
Following the end of the transition period, Embecta will be required to rebrand its products to remove the BD name, transfer or obtain new manufacturing, supply chain, regulatory and product licenses and registrations in the name of Embecta, which could adversely affect its ability to attract and maintain end users or which could result in delays or interruptions of Embecta's commercialization and distribution operations or the loss of customers and revenue, all of which could adversely affect its financial conditions and results of operations.
Following the end of the transition period, Embecta will be required to rebrand its products to remove the BD name, transfer or obtain new manufacturing, supply chain, regulatory and product licenses and registrations in the name of Embecta, which could adversely affect its ability to attract and maintain customers and end users or which could result in delays or interruptions of Embecta's commercialization and distribution operations or the loss of customers and revenue, all of which could adversely affect its financial conditions and results of operations.
This significant amount of debt could potentially have important consequences to Embecta and its debt and equity investors, including: • requiring a substantial portion of its cash flow from operations to make interest payments; • making it more difficult to satisfy debt service and other obligations; • increasing the risk of a future credit ratings downgrade of its debt, which could increase future debt costs and limit the future availability of debt financing; • increasing its vulnerability to general adverse economic and industry conditions; • reducing the cash flow available to fund capital expenditures and other corporate purposes and to grow its business; • limiting Embecta’s flexibility in planning for, or reacting to, changes in its business and the industry; • placing Embecta at a competitive disadvantage relative to its competitors that may not be as highly leveraged with debt; and • limiting Embecta’s ability to borrow additional funds as needed or take advantage of business opportunities as they arise, pay cash dividends or repurchase ordinary shares.
This significant amount of debt could potentially have important consequences to Embecta and its debt and equity investors, including: • requiring a substantial portion of its cash flow from operations to make interest payments; • making it more difficult to satisfy debt service and other obligations; • increasing the risk of a future credit ratings downgrade of its debt, which could increase future debt costs and limit the future availability of debt financing; • increasing its vulnerability to general adverse economic and industry conditions; • reducing the cash flow available to fund capital expenditures and other corporate purposes and to grow its business; • limiting Embecta’s flexibility in planning for, or reacting to, changes in its business and the industry; 24 • placing Embecta at a competitive disadvantage relative to its competitors that may not be as highly leveraged with debt; and • limiting Embecta’s ability to borrow additional funds as needed or take advantage of business opportunities as they arise, pay cash dividends or repurchase ordinary shares.
Embecta’s amended and restated certificate of incorporation provides that, unless Embecta (through approval of the Board of Directors) consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (1) any derivative action brought on behalf of Embecta, (2) any action asserting a claim of breach of a fiduciary duty owed by any director or officer or other employee of Embecta to Embecta or Embecta’s stockholders, (3) any action asserting a claim against Embecta or any director or officer or other employee of Embecta arising pursuant to, or seeking to enforce any right, obligation or remedy under, any provision of the Delaware General Corporation Law (“DGCL”) or Embecta’s amended and restated certificate of incorporation or amended and restated bylaws (as either may be amended from time to time), (4) any action asserting a claim against Embecta or any director or officer or other employee of Embecta governed by the internal affairs doctrine, which is a conflict of laws principle which recognizes that only one state should have the authority to regulate a corporation’s internal affairs or (5) any action as to which the DGCL (as it may be amended from time to time) confers jurisdiction on the Court of Chancery of the State of Delaware.
Embecta’s amended and restated certificate of incorporation provides that, unless Embecta (through approval of the Board of Directors) consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (1) any derivative action brought on behalf of Embecta, (2) any action asserting a 28 claim of breach of a fiduciary duty owed by any director or officer or other employee of Embecta to Embecta or Embecta’s stockholders, (3) any action asserting a claim against Embecta or any director or officer or other employee of Embecta arising pursuant to, or seeking to enforce any right, obligation or remedy under, any provision of the Delaware General Corporation Law (“DGCL”) or Embecta’s amended and restated certificate of incorporation or amended and restated bylaws (as either may be amended from time to time), (4) any action asserting a claim against Embecta or any director or officer or other employee of Embecta governed by the internal affairs doctrine, which is a conflict of laws principle which recognizes that only one state should have the authority to regulate a corporation’s internal affairs or (5) any action as to which the DGCL (as it may be amended from time to time) confers jurisdiction on the Court of Chancery of the State of Delaware.
In addition to the risks discussed elsewhere, other risks associated with doing business internationally, include, but are not limited to: • political instability and actual or anticipated military or political conflicts; • trade protection measures, such as tariffs, and import and export licensing and control requirements; • negative consequences from changes in or interpretations of tax laws; • difficulty in establishing, staffing and managing international operations; • difficulties associated with foreign legal systems, including increased costs associated with enforcing contractual obligations in foreign jurisdictions; • changes in regulatory requirements; • adapting to the differing laws and regulations, business and clinical practices, and consumer preferences in foreign markets; • difficulties in managing foreign relationships and operations, including any relationships that we establish with foreign partners, distributors or sales or marketing agents; and • difficulty in collecting accounts receivable and longer collection periods.
In addition to the risks discussed elsewhere, other risks associated with doing business internationally, include, but are not limited to: • political instability and actual or anticipated military or political conflicts; • trade protection measures and barriers, such as tariffs, and import and export licensing and control requirements; • negative consequences from changes in or interpretations of tax laws; • difficulty in establishing, staffing and managing international operations; • difficulties associated with foreign legal systems, including increased costs associated with enforcing contractual obligations in foreign jurisdictions; • changes in regulatory requirements; • adapting to the differing laws and regulations, business and clinical practices, and consumer preferences in foreign markets; • difficulties in managing foreign relationships and operations, including any relationships that we establish with foreign partners, distributors or sales or marketing agents; and • difficulty in collecting accounts receivable and longer collection periods.
Embecta may not achieve these and other anticipated benefits for a variety of reasons, including, among others: (1) the ongoing transition and separation activities may demand significant management resources and require significant amounts of management’s time and effort, which may divert management’s attention from operating and growing Embecta’s 19 business; (2) Embecta may be more susceptible to market fluctuations, and other adverse events than if it were still a part of BD because Embecta’s business is less diversified than BD’s businesses prior to the completion of the Separation; (3) as a standalone company, Embecta may be unable to obtain certain goods, services and technologies at prices or on terms as favorable as those BD obtained prior to completion of the Separation; (4) the Separation may require Embecta to pay costs that could be substantial and material to its financial resources, including accounting, tax, legal and other professional services costs, recruiting and relocation costs associated with hiring key senior management and personnel new to Embecta, tax costs and costs to separate information systems, including its enterprise resource planning systems; (5) under the terms of the tax matters agreement that Embecta entered into with BD, it is restricted from taking certain actions that could cause the distribution or certain related transactions to fail to qualify as tax-free to BD and BD shareholders, or could result in certain other taxes to BD, and these restrictions may limit us for a period of time from pursuing certain strategic transactions and equity issuances or engaging in other transactions that might increase the value of its business; and (6) the contractual arrangements between Embecta and BD are on less favorable terms than the prior existing intercompany arrangements from which Embecta benefited, and such arrangements may be inadequate to provide for the ongoing operation and growth of Embecta’s business.
Embecta may not achieve these and other anticipated benefits for a variety of reasons, including, among others: (1) the ongoing transition and separation activities may demand significant management resources and require significant amounts of management’s time and effort, which may divert management’s attention from operating and growing Embecta’s 22 business; (2) Embecta may be more susceptible to market fluctuations, and other adverse events than if it were still a part of BD because Embecta’s business is less diversified than BD’s businesses prior to the completion of the Separation; (3) as a standalone company, Embecta may be unable to obtain certain goods, services and technologies at prices or on terms as favorable as those BD obtained prior to completion of the Separation; (4) the Separation may require Embecta to pay costs that could be substantial and material to its financial resources, including accounting, tax, legal and other professional services costs, recruiting and relocation costs associated with hiring key senior management and personnel new to Embecta, tax costs and costs to separate information systems, including its enterprise resource planning systems; (5) under the terms of the tax matters agreement that Embecta entered into with BD, it is restricted from taking certain actions that could cause the distribution or certain related transactions to fail to qualify as tax-free to BD and BD shareholders, or could result in certain other taxes to BD, and these restrictions may limit us for a period of time from pursuing certain strategic transactions and equity issuances or engaging in other transactions that might increase the value of its business; and (6) the contractual arrangements between Embecta and BD are on less favorable terms than the prior existing intercompany arrangements from which Embecta benefited, and such arrangements may be inadequate to provide for the ongoing operation and growth of Embecta’s business.
This indebtedness may adversely affect Embecta's ability to operate or grow its business or could have other material adverse consequences, including by: • limiting Embecta's ability to obtain additional financing in the future for working capital, capital expenditures and acquisitions; • limiting Embecta's ability to refinance its indebtedness on terms acceptable to Embecta or at all; • restricting Embecta's operations or development plans; • requiring Embecta to dedicate a significant portion of its cash flows from operations to paying amounts due under its indebtedness, thereby reducing funds available for other corporate purposes; • impeding Embecta's ability to pay dividends; • making Embecta more vulnerable to economic downturns; or • limiting Embecta's ability to withstand competitive pressures.
This indebtedness may adversely affect Embecta's ability to operate or grow its business or could have other material adverse consequences, including by: 20 • limiting Embecta's ability to obtain additional financing in the future for working capital, capital expenditures and acquisitions; • limiting Embecta's ability to refinance its indebtedness on terms acceptable to Embecta or at all; • restricting Embecta's operations or development plans; • requiring Embecta to dedicate a significant portion of its cash flows from operations to paying amounts due under its indebtedness, thereby reducing funds available for other corporate purposes; • impeding Embecta's ability to pay dividends; • making Embecta more vulnerable to economic downturns; or • limiting Embecta's ability to withstand competitive pressures.
The risks we face include, but are not limited to, the following: 5 Risks Related to Embecta’s Business • The medical technology industry is very competitive. • Embecta generates a significant amount of its profits and cash flows from a few key products, and any events that adversely affect the sale or profitability of these products could have an adverse impact on Embecta’s sales, results of operations and cash flows. • Technological breakthroughs in diabetes treatment or prevention may reduce demand for Embecta’s products. • Embecta obtains components and raw materials for its products from third parties, including BD.
The risks we face include, but are not limited to, the following: Risks Related to Embecta’s Business • The medical technology industry is very competitive. • Embecta generates a significant amount of its profits and cash flows from a few key products, and any events that adversely affect the sale or profitability of these products could have an adverse impact on Embecta’s sales, results of operations and cash flows. • Technological breakthroughs in diabetes treatment or prevention may reduce demand for Embecta’s products. • Embecta obtains components and raw materials for its products from third parties, including BD.
It was a condition to the distribution that BD receive (i) a private letter ruling from the IRS, satisfactory to the BD Board of Directors, regarding certain United States federal income tax matters relating to the Separation and Distribution and (ii) an opinion of its outside tax counsel, satisfactory to the BD Board of Directors, regarding the qualification of the contribution of assets from BD to Embecta and the distribution, taken together, as a “reorganization” within the meaning of Sections 368(a)(1)(D) and 355 of the Code and such opinion has not been withdrawn or rescinded.
It was a condition to the distribution that BD receive (i) a private letter ruling from the IRS, satisfactory to the BD Board of Directors, regarding certain United States federal income tax matters relating to the Separation and Distribution and (ii) an opinion of its outside tax counsel, satisfactory to the BD Board of Directors, regarding the qualification of the contribution of assets from BD to Embecta and the distribution, taken together, as a “reorganization” within the meaning of Sections 25 368(a)(1)(D) and 355 of the Code and such opinion has not been withdrawn or rescinded.
It is also possible that other federal, state or foreign enforcement authorities might take action if they consider Embecta’s promotional or training materials to constitute off-label, false or misleading, unfair or deceptive promotion of its products, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement, and reputational harm.
It is also possible that other federal, state or foreign enforcement authorities might take action if they consider Embecta’s promotional, educational or training materials to constitute off-label, false or misleading, unfair or deceptive promotion of its products, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement, and reputational harm.
Embecta’s ability to compete will also be affected by changing preferences and requirements of people with diabetes, as well as changes in the ways healthcare services are delivered. Efforts to contain healthcare costs by governments and the private sector are also resulting in increased emphasis on products that reduce costs, improve clinical results and expand 7 access.
Embecta’s ability to compete will also be affected by changing preferences and requirements of people with diabetes, as well as changes in the ways healthcare services are delivered. Efforts to contain healthcare costs by governments and the private sector are also resulting in increased emphasis on products that reduce costs, improve clinical results and expand access.
Investors and prospective investors should consider the risks described below and the information contained under the caption “Cautionary Statements Regarding Forward-Looking Statements” and elsewhere in this Annual Report on Form 10-K before deciding whether to invest in our securities. We may update these risk factors in our future periodic reports.
Investors and prospective investors should consider the risks described below and the information 7 contained under the caption “Cautionary Statements Regarding Forward-Looking Statements” and elsewhere in this Annual Report on Form 10-K before deciding whether to invest in our securities. We may update these risk factors in our future periodic reports.
If any strikes or other work stoppages occur, or if additional employees become represented by a union, a disruption of Embecta’s operations and higher labor costs could result. Labor relations matters affecting Embecta’s suppliers of products and services could also adversely affect Embecta’s business from time to time. Embecta is subject to extensive regulation.
If any strikes or other work stoppages occur, or if additional employees become represented by a union, a disruption of Embecta’s operations and higher labor costs could result. Labor relations matters affecting Embecta’s suppliers of products and services could also adversely affect Embecta’s business from time to time. 17 Embecta is subject to extensive regulation.
The summary below provides an overview of many of the risks and uncertainties we encounter that are described in this Annual Report on Form 10-K that could materially and adversely affect Embecta’s business, financial condition or results of operations. An investment in our common stock involves a variety of risks and uncertainties.
The summary below provides an overview of many of the risks and uncertainties we encounter that are described in this Annual Report on Form 10-K that could materially and adversely affect Embecta’s business, financial condition or results of operations. An investment in our common stock involves a variety of risks and 5 uncertainties.
Embecta relies on a number of third parties to supply and manufacture the components and raw materials for its products. For example, in connection with the Separation and prior to the distribution, Embecta and BD entered into a cannula supply agreement, whereby BD sells to Embecta cannulas for incorporation into Embecta’s products for sale within the diabetes care sector.
Embecta relies on a number of third parties to supply and manufacture the components, services and raw materials for its products. For example, in connection with the Separation and prior to the distribution, Embecta and BD entered into a cannula supply agreement, whereby BD sells to Embecta cannulas for incorporation into Embecta’s products for sale within the diabetes care sector.
Embecta’s or its customer’s inability to properly achieve these transitions could result in disruptions to Embecta’s product end-to-end product flow management and end-user access to products, which could adversely affect Embecta’s financial condition and results of operations. 20 Embecta has incurred debt obligations that could adversely affect its business and profitability and its ability to meet other obligations.
Embecta’s or its customer’s inability to properly achieve these transitions could result in disruptions to Embecta’s product end-to-end product flow management and end-user access to products, which could adversely affect Embecta’s financial condition and results of operations. Embecta has incurred debt obligations that could adversely affect its business and profitability and its ability to meet other obligations.
Embecta’s operations are global and are affected by complex state, federal and international laws relating to healthcare, environmental protection, antitrust, anti-corruption, marketing, fraud and abuse (including anti-kickback and false claims laws), export control, product safety and efficacy, employment, privacy, financial transparency, conflict minerals and other areas.
Embecta’s operations are global and are affected by complex state, federal and international laws relating to healthcare, environmental protection, antitrust, anti-corruption, marketing, fraud and abuse (including anti-kickback and false claims laws), import and export control, product safety and efficacy, employment, privacy, financial transparency, conflict minerals and other areas.
Foreign currency exchange rate, inflation, commodity price, energy prices and supply, and interest rate fluctuations may adversely affect Embecta’s financial condition and results of operations. Embecta is exposed to a variety of market risks, including the effects of changes in foreign currency exchange rates, commodity prices, energy resource prices and uninterrupted energy supply, and interest rates.
Foreign currency exchange rate, inflation, commodity price, energy and oil prices and supply, and interest rate fluctuations may adversely affect Embecta’s financial condition and results of operations. Embecta is exposed to a variety of market risks, including the effects of changes in foreign currency exchange rates, commodity prices, energy resource prices and uninterrupted energy supply, and interest rates.
If Embecta fails to maintain these formulary positions or reduces prices on its products to maintain these formulary positions, it could adversely affect Embecta’s results of operations. In addition to the evolving payer market that continues to put price pressure on Embecta’s products, new competitors have emerged.
If Embecta fails to maintain these formulary positions or reduces prices on its 10 products to maintain these formulary positions, it could adversely affect Embecta’s results of operations. In addition to the evolving payer market that continues to put price pressure on Embecta’s products, new competitors have emerged.
Under the terms of the agreements entered into with BD in connection with the Separation and Distribution, Embecta received a temporary license to use the “BD” and “Becton Dickinson” name and logo on its products, certain legal entities and relevant regulatory registrations.
Under the terms of the agreements entered into with BD in connection with the Separation and Distribution, Embecta received a temporary license to use the “BD” and “Becton Dickinson” name and logo on its products and marketing, certain legal entities and relevant regulatory registrations.
Following the expiration of this license, Embecta will be required to rebrand and update, as applicable, its products, manufacturing, supply chain, and regulatory registrations and licenses using the “Embecta” name or other names and marks and remove the “BD” name and logo on its products, registrations and licenses.
Following the expiration of this license, Embecta will be required to rebrand and update, as applicable, its products and marketing, manufacturing, supply chain, and regulatory registrations and licenses using the “Embecta” name or other names and marks and remove the “BD” name and logo on its products and marketing, registrations and licenses.
Any such failure to perform or a reduction or interruption in supply could have a material adverse effect on Embecta’s business and operations. Embecta may experience difficulties and delays in the manufacturing of its products or sterilization operations, and any such difficulties and delays could adversely affect Embecta’s business.
Any such failure to perform or a reduction or interruption in supply could have a material adverse effect on Embecta’s business and operations. 9 Embecta may experience difficulties and delays in the manufacturing of its products or sterilization operations, and any such difficulties and delays could adversely affect Embecta’s business.
If they are successful in developing these technologies or treatment therapies, the demand for Embecta’s products could decline. Furthermore, the National Institutes of Health and other supporters of diabetes research are continually seeking ways to prevent diabetes.
If they are successful in developing and commercializing these technologies or treatment therapies, the demand for Embecta’s products could decline. Furthermore, the National Institutes of Health and other supporters of diabetes research are continually seeking ways to prevent diabetes.
Embecta is subject to complex and frequently changing laws in the United States and elsewhere regarding privacy and the collection, use, storage and protection of personal information, and noncompliance with these laws could result in substantial fines or litigation.
Embecta is subject to complex and frequently changing laws in the United States and elsewhere regarding privacy and the processing, collection, use, storage and protection of personal information, and noncompliance with these laws could result in substantial fines or litigation.
In addition, during the transition 21 services periods under the transition services agreement, Embecta’s management and employees may be required to divert their attention away from its business in order to provide services to BD, which could adversely affect Embecta’s business.
In addition, during the transition services periods under the transition services agreement, Embecta’s management and employees may be required to divert their attention away from its business in order to provide services to BD, which could adversely affect Embecta’s business.
These arrangements are subject to a variety of risks, including: • Embecta may not identify or secure these collaborations in a timely manner, on a cost-effective basis, on acceptable terms or at all; • these collaborations may not result in the development of products that achieve commercial success or result in any revenue to Embecta; 10 • Embecta may not exercise sole decision making authority with respect to material commercial decisions under these collaborations, resulting in gridlock with its partners, and its collaborators may have economic or business interests or goals that are, or that may become, inconsistent with its business interests or goals; • Embecta may have limited control over the amount and timing of resources that its current collaborators or any future collaborators devote to its collaborators’ or its future products; • disputes between Embecta and its collaborators may result in litigation or arbitration that would increase Embecta’s expenses and divert the attention of its management; and • these collaborations may be terminated or dissolved in accordance with their terms prior to the development of any Embecta products or any realization by Embecta of any other benefits.
These arrangements are subject to a variety of risks, including: • Embecta may not identify or secure these collaborations in a timely manner, on a cost-effective basis, on acceptable terms or at all; • these collaborations may not result in the development of products that achieve commercial success or result in any revenue to Embecta; • Embecta may not exercise sole decision making authority with respect to material development, regulatory submission, or commercial decisions under these collaborations, resulting in gridlock with its partners, and its collaborators may have economic or business interests or goals that are, or that may become, inconsistent with its business interests or goals; • Embecta may have limited control over the amount and timing of resources that its current collaborators or any future collaborators devote to its collaborators’ or its future products; • disputes between Embecta and its collaborators may result in litigation or arbitration that would increase Embecta’s expenses and divert the attention of its management; and • these collaborations may be terminated or dissolved in accordance with their terms prior to the development of any Embecta products or any realization by Embecta of any other benefits.
If Embecta does not successfully execute on its acquisition strategy, it could adversely affect its financial condition and results of operations. Embecta’s international operations subject it to certain business risks.
If Embecta does not successfully execute on its acquisition strategy, it could adversely affect its financial condition and results of operations. 12 Embecta’s international operations subject it to certain business risks.
Embecta believes that a significant portion of its sales will continue to be to independent distributors for the foreseeable future, and it is possible that the percentage of its sales to independent distributors could increase.
Embecta believes that a significant portion of its sales will continue to be from independent distributors for the foreseeable future, and it is possible that the percentage of its sales from independent distributors could increase.
Embecta’s ability to generate profits and operating cash flow depends largely upon the continued profitability of its key products, such as its pen needles and syringes. For example, for the fiscal year ended September 30, 2022, sales of pen needles (including both conventional and safety pen needles) accounted for $912 million, or 81%, of total net revenues.
Embecta’s ability to generate profits and operating cash flow depends largely upon the continued profitability of its key products, such as its pen needles and syringes. For example, for the fiscal year ended September 30, 2023, sales of pen needles (including both conventional and safety pen needles) accounted for $912 million, or 81%, of total net revenues.
The departure of the United Kingdom from the European Union (“EU”) (commonly known as “Brexit”) on January 31, 2020 has created uncertainties affecting business operations in the United Kingdom, the EU and a number of other countries, including with respect to compliance with the regulatory regimes regarding the labeling and registration of the products Embecta sells in these markets.
The departure of the United Kingdom from the European Union (“EU”) (commonly known as “Brexit”) on January 31, 2020 created uncertainties affecting business operations in the United Kingdom, the EU and a number of other countries, including with respect to compliance with the regulatory regimes regarding the labeling and registration of the products 13 Embecta sells in these markets.
The EU MDR has been fully operational for previously approved self-certified medical devices (class I) since May 2021, and companies have until May 2024 to meet the requirements for medical devices with a valid conformity assessment certificate (class II and III). Complying with and maintaining devices under these regulations requires us to incur significant expenditures.
The EU MDR has been fully operational for previously approved self-certified medical devices (class I) since May 2021, and companies have until May 2024 to meet the requirements for medical devices with a valid conformity assessment certificate (class II and III). Complying with and maintaining devices under these regulations requires Embecta to incur significant expenditures.
The transfer of certain of these contracts, permits and other assets and rights may require consents or approvals of third parties or 22 governmental authorities or provide other rights to third parties.
The transfer of certain of these contracts, permits and other assets and rights may require consents or approvals of third parties or governmental authorities or provide other rights to third parties.
In China, the most notable threat continues to be access through volume-based procurement and Group Purchasing Organizations ("GPOs"), with potential significant price erosions and cost containment within the healthcare landscape. These continued pricing pressures could adversely affect Embecta’s financial condition and results of operations.
In China, the most notable threat continues to be access through volume-based procurement and Group Purchasing Organizations ("GPOs"), with potential significant price erosion and cost containment within the healthcare landscape. These continued pricing pressures could adversely affect Embecta’s financial condition and results of operations.
In addition, the United States government reported that United States sanctions against Russia in response to the conflict could lead to an increased threat of cyberattacks against United States companies. These increased threats could pose risks to the security of our Information Technology systems, networks and product offerings, as well as the confidentiality, availability and integrity of our data.
In addition, the United States government reported that United States sanctions against Russia in response to the conflict could lead to an increased threat of cyberattacks against United States companies. These increased threats could pose risks to the security of Embecta’s Information Technology systems, networks and product offerings, as well as the confidentiality, availability and integrity of Embecta’s data.
These new names and brands may not benefit from the same recognition and association with product quality as the BD name, which could adversely affect Embecta’s ability to attract and maintain its customers, who may prefer to use products with a stronger brand identity.
These new names and brands may not benefit from the same recognition and association with product quality as the BD name, which could adversely affect Embecta’s ability to attract and maintain its customers and end users, who may prefer to use products with a stronger brand identity.
Any technological breakthroughs in diabetes prevention or treatment could decrease demand for Embecta’s products and have a material adverse effect on its business or results of operations. Embecta obtains components and raw materials for its products from third parties, including BD.
Any technological breakthroughs in diabetes prevention or treatment could decrease demand for Embecta’s products and have a material adverse effect on its business or results of operations. 8 Embecta obtains components, services and raw materials for its products from third parties, including BD.
Political or financial instability, currency fluctuations, the outbreak of pandemics such as COVID-19, labor unrest, transport capacity and costs, port security, supply chain disruptions, wars, weather conditions, natural disasters, or other events that could slow or disrupt port activities and affect foreign trade are beyond our control and could materially disrupt our supply of product from any of these locations, increase our costs, and/or adversely affect our results of operations.
Political or financial instability, currency fluctuations, the outbreak of pandemics such as COVID-19, labor unrest, transport capacity and costs, port security, supply chain disruptions, wars, weather conditions, natural disasters, or other events that could slow or disrupt port activities and affect foreign trade are beyond Embecta’s control and could materially disrupt its supply of product from any of these locations, increase its costs, and/or adversely affect its results of operations.
To the extent Embecta or third parties (including BD) are unable to sterilize Embecta’s products, whether due to lack of capacity, regulatory requirements or otherwise, Embecta may be unable to transition sterilization to other sites or modalities in a timely or cost effective manner, or at all, which could have an adverse impact on Embecta’s business.
To the extent Embecta or third parties (including BD) are unable to sterilize Embecta’s products, whether due to lack of capacity, increased demand, regulatory requirements or changes or otherwise, Embecta may be unable to transition sterilization to other sites or modalities in a timely or cost effective manner, or at all, which could have an adverse impact on Embecta’s business.
BD received a private letter ruling from the Internal Revenue Service ("IRS") to the effect that, among other things, the Separation and the Distribution will qualify as a transaction that is tax-free for United States federal income tax purposes under Sections 368(a)(1)(D), 355, and 361 of the Internal Revenue Code of 1986, as amended (the "Code").
BD received a private letter ruling from the Internal Revenue Service (“IRS”) to the effect that, among other things, the Separation and the Distribution will qualify as a transaction that is tax-free for United States federal income tax purposes under Sections 368(a)(1)(D), 355, and 361 of the Internal Revenue Code of 1986, as amended (the “Code”).
Under the tax matters agreement that Embecta entered into with BD, Embecta generally is required to indemnify BD for any taxes incurred by BD that arise as a result of any representations made by Embecta being inaccurate or Embecta taking or failing to take, as the case may be, certain actions, including in each case those provided in connection with the private letter ruling from the IRS or the opinion of its outside tax counsel that result in the distribution and certain related transactions failing to qualify as tax-free for United States federal income tax purposes or result in certain other taxes to BD.
Under the tax matters agreement that Embecta entered into with BD, Embecta generally is required to indemnify BD for any taxes incurred by BD that arise as a result of any representations made by Embecta being inaccurate or Embecta taking or failing to take, as the case may be, certain actions, including in each case those provided in connection with the private letter ruling from the IRS or the opinion of its outside tax counsel that result in the distribution and certain related transactions failing to qualify as tax-free for United States federal income tax purposes or result in certain other taxes to BD, which indemnity is also applicable in connection with the Extension.
In addition, the diversification of Embecta’s revenues, costs, and cash flows will diminish as a standalone company, such that its results of operations, cash flows, working capital and financing requirements may be subject to increased volatility and its ability to fund capital expenditures and investments, pay dividends and service debt may be diminished.
In addition, the diversification of Embecta’s revenues, costs, and cash flows has diminished as a standalone company, such that its results of operations, cash flows, working capital and financing requirements may be subject to increased volatility and its ability to fund capital expenditures and investments, pay dividends and service debt may be diminished.
In addition, for the fiscal year ended September 30, 2022, direct gross sales to the five largest retail pharmacies for Embecta’s products together represented approximately 14% of Embecta’s worldwide gross sales.
In addition, for the fiscal year ended September 30, 2023, direct gross sales to the five largest retail pharmacies for Embecta’s products together represented approximately 14% of Embecta’s worldwide gross sales.
In addition, the misuse of our products or the failure of customers to adhere to operating guidelines could cause significant harm to customers, including death, which could result in product liability claims.
In addition, the misuse of Embecta’s products or the failure of customers to adhere to operating guidelines could cause significant harm to customers, including death, which could result in product liability claims.
However, notwithstanding that each of these communities has experienced a relative recovery in COVID-19 transmission and a lessening of restrictions related to COVID-19, a future outbreak of COVID-19 at any of Embecta’s manufacturing sites in China, Ireland and/or the United States or in the surrounding communities, could lead to delays in the manufacturing of Embecta’s products, which could have a material adverse effect on Embecta’s business and results of operations.
However, notwithstanding that each of these communities has experienced a relative recovery in COVID-19 transmission and a lessening of restrictions related to COVID-19, a future outbreak of a public health threat, including COVID-19, at any of Embecta’s manufacturing sites in China, Ireland and/or the United States or in the surrounding communities, could lead to delays in the manufacturing of Embecta’s products, which could have a material adverse effect on Embecta’s business and results of operations.
These disruptions may lead to manufacturing shutdowns, component shortages, logistics constraints, project delays, loss of productivity, divergent product standards and regulations, trade policies, labor shortages, commodity shortages, and price increases, among others. Embecta relies on uninterrupted energy to power its manufacturing facilities and any disruption could adversely affect its operations.
These disruptions may lead to manufacturing shutdowns, raw material and component shortages, supply chain and logistics constraints, project delays, loss of productivity, divergent product standards and regulations, trade policies, labor shortages, commodity shortages, and price increases, among others. Embecta relies on uninterrupted energy to power its manufacturing facilities and any disruption could adversely affect its operations.
We may also lose capital allocation efficiency and flexibility, as Embecta no longer has access to cash flows from BD to fund Embecta’s business. Embecta may not achieve some or all of the expected benefits of the Separation.
We also have less capital allocation efficiency and flexibility, as Embecta no longer has access to cash flows from BD to fund Embecta’s business. Embecta may not achieve some or all of the expected benefits of the Separation.
In addition, the European Union (“EU”) has adopted the EU Medical Device Regulation (the “EU MDR”), which imposes stricter requirements for the marketing and sale of medical devices, including in the area of labeling requirements, clinical evidence requirements, quality systems and post-market surveillance.
In addition, the EU has adopted the EU Medical Device Regulation (the “EU MDR”), which imposes stricter requirements for the marketing and sale of medical devices, including in the area of labeling requirements, clinical evidence requirements, quality systems and post-market surveillance.
The results of Embecta’s product development efforts may be affected by a number of factors, including Embecta’s ability to anticipate the needs of people with diabetes, successfully complete clinical trials, obtain regulatory clearance and approvals for its products, manufacture such products in a cost-effective manner, obtain appropriate intellectual property protection for such products, gain and maintain market acceptance of such products and obtain reimbursement for such products.
The results of Embecta’s product development efforts may be affected by a number of factors, including Embecta’s ability to anticipate the needs of people with diabetes, successfully complete clinical trials, obtain regulatory clearance and approvals for its products, manufacture such products in a cost-effective manner, obtain appropriate intellectual property protection for such products, gain and maintain market acceptance of such products, secure distribution channels, and obtain access, coverage and reimbursement for such products.
With or without insurance, damage to our facility, manufacturing equipment, inventory or other property or to any of our suppliers, may have a material adverse effect on our business, financial condition and results of operations.
With or without insurance, damage to Embecta’s facility, manufacturing equipment, inventory or other property or to any of its suppliers, may have a material adverse effect on Embecta’s business, financial condition and results of operations.
However, vandalism, terrorism, unplanned power outages, cyberattacks or a natural disaster, such as an earthquake, fire or flood, or other catastrophic event, could damage or destroy our inventories of component supplies and finished goods, cause substantial delays in our operations, result in the loss of key information, result in reduced sales, and cause us to incur additional expenses.
However, vandalism, terrorism, unplanned power outages, cyberattacks or a natural disaster, such as an earthquake, fire or flood, or other catastrophic event, could damage or destroy Embecta’s inventories of component supplies and finished goods, cause substantial delays in its operations, result in the loss of key information, result in reduced sales, and cause Embecta to incur additional expenses.
We will continue to evaluate organization risk priorities and dedicate resources to protect against unauthorized access, work to align to industry-leading cybersecurity frameworks to incorporate cybersecurity into our enterprise systems, manufacturing processes and products. Our results of operations could be adversely affected if these systems are interrupted or damaged or fail for any extended period.
Embecta will continue to evaluate organization risk priorities and dedicate resources to protect against unauthorized access, and work to align to industry-leading cybersecurity frameworks to incorporate cybersecurity into its enterprise systems, manufacturing processes and products. Embecta’s results of operations could be adversely affected if these systems are interrupted or damaged or fail for any extended period.
Our insurance coverage may not be sufficient to provide coverage with respect to the damages incurred in any particular case, and our insurance carrier may deny coverage with respect to all or a portion of our claims.
Embecta’s insurance coverage may not be sufficient to provide coverage with respect to the damages incurred in any particular case, and its insurance carrier may deny coverage with respect to all or a portion of its claims.
Embecta relies on third parties, such as contract research organizations, medical institutions, clinical investigators, contract laboratories and other third parties, to conduct some of its clinical trials and pre-clinical investigations.
Embecta relies on third parties, such as contract research organizations, medical institutions, clinical investigators, contract laboratories and other third parties, to conduct some of its clinical trials, human factors studies and pre-clinical investigations.
Despite our security measures, however, our information technology and infrastructure may be vulnerable to attacks by increasingly sophisticated intruders or others who try to cause harm to or interfere with our normal use of our systems. They are also 14 susceptible to breach due to employee error, malfeasance, or other disruptions.
Despite Embecta’s security measures, however, its information technology and infrastructure may be vulnerable to attacks by increasingly sophisticated intruders or others who try to cause harm to or interfere with its normal use of its systems. They are also susceptible to breach due to employee error, malfeasance, or 16 other disruptions.
Embecta currently has approximately $1,645 million in aggregate principal amount of indebtedness outstanding as of September 30, 2022 (not including undrawn commitments of $500 million under its revolving credit facility). Embecta may also incur additional indebtedness in the future.
Embecta currently has approximately $1,636 million in aggregate principal amount of indebtedness outstanding as of September 30, 2023 (not including undrawn commitments of $500 million under its revolving credit facility). Embecta may also incur additional indebtedness in the future.
We are subject to product liability lawsuits alleging that component failures, manufacturing flaws, manufacturing defects, negligence in manufacturing, design defects, negligence in design, or inadequate disclosure of product-related risks, warnings, or product-related information resulted in an unsafe condition, injury or death to customers.
Embecta is subject to product liability lawsuits alleging that component failures, manufacturing flaws, manufacturing defects, negligence in manufacturing, design defects, negligence in design, or inadequate disclosure of product-related risks, warnings, or product-related information resulted in an unsafe condition, injury or death to customers.
Embecta is subject to risks associated with public health threats, including the ongoing COVID-19 pandemic, which could have a material adverse effect on Embecta's financial condition and results of operation. Embecta is subject to risks associated with public health threats, including the COVID-19 pandemic.
Embecta is subject to risks associated with public health threats, such as the COVID-19 pandemic, which could have a material adverse effect on Embecta's financial condition and results of operation. Embecta is subject to risks associated with public health threats, such as the COVID-19 pandemic.
A substantial portion of Embecta’s revenue is derived from sales to a few customers. For example, for the fiscal year ended September 30, 2022, gross sales to McKesson Corporation, Cardinal Health and AmerisourceBergen Drug Corporation, Embecta’s three largest distributors, together represented approximately 40% of Embecta’s worldwide gross sales.
A substantial portion of Embecta’s revenue is derived from sales to a few customers. For example, for the fiscal year ended September 30, 2023, gross sales to McKesson Corporation, Cardinal Health and Cencora, Embecta’s three largest distributors, together represented approximately 40% of Embecta’s worldwide gross sales.
Accordingly, the historical financial information included in this Annual Report on Form 10-K does not necessarily reflect the financial condition, results of operations or cash flows that we would have achieved as a separate, publicly traded company during those periods presented or those that Embecta will achieve in the future primarily as a result of the factors described below: • Generally, Embecta’s working capital requirements and capital for its general corporate purposes, including capital expenditures and acquisitions, were historically satisfied as part of the corporate-wide cash management policies of BD.
Accordingly, certain historical financial information included in this Annual Report on Form 10-K does not necessarily reflect the financial condition, results of 21 operations or cash flows that we would have achieved in previous fiscal years as a separate, publicly traded company during such periods or those that Embecta will achieve in the future primarily as a result of the factors described below: • Generally, prior to the Separation, Embecta’s working capital requirements and capital for its general corporate purposes, including capital expenditures and acquisitions, were historically satisfied as part of the corporate-wide cash management policies of BD.
In particular, under the tax matters agreement, for the two-year period following the Separation Date, as described in the section entitled “Agreements Related to the Separation,” in Item 1, Embecta is subject to specific restrictions on its ability to pursue or enter into acquisition, merger, sale and redemption transactions with respect to Embecta stock.
In particular, under the tax matters agreement, for the two-year period following the Separation Date, as described in the section entitled “Agreements Related to the Separation,” in Item 1 of this Annual Report on Form 10-K, Embecta is subject to specific restrictions on its ability to pursue or enter into acquisition, merger, sale and redemption transactions with respect to Embecta stock.
The COVID-19 pandemic has the potential to significantly impact Embecta’s supply chain if the manufacturing plants that produce its products, raw materials or product components, the distribution centers where Embecta manages its inventory or the operations of its logistics and other service providers, including third parties that sterilize its products, are disrupted, temporarily closed or experience worker shortages for a sustained period of time.
Public health threats have the potential to significantly impact Embecta’s supply chain if the manufacturing plants that produce its products, raw materials or product components, the distribution centers where Embecta manages its inventory or the operations of its logistics and other service providers, including third parties that sterilize its products, are disrupted, temporarily closed or experience worker shortages for a sustained period of time.
The historical financial results for the periods from October 1, 2021 to March 31, 2022 reflect allocations of corporate expenses from BD for such functions, which are likely to be less than the expenses we would have incurred had we operated as a separate publicly traded company. • Embecta’s business shared economies of scope and scale in costs, employees, vendor relationships and customer relationships with BD.
The historical financial results for the periods prior to the Separation reflect allocations of corporate expenses from BD for such functions, which are likely to be less than the expenses we would have incurred had we operated as a separate publicly traded company. • Embecta’s business shared economies of scope and scale in costs, employees, vendor relationships and customer relationships with BD.
In addition to the ongoing challenges faced across the United States, Embecta faces similar access, pricing and reimbursement trends outside of the United States. Although payers’ preferences for particular devices varies regionally, key foundational considerations for choice include: product specifications, clinical evidence demonstrating efficacy and positive clinical outcomes and pricing.
In addition to the ongoing challenges faced across the United States, Embecta faces similar access, pricing and reimbursement trends outside of the United States. Although payers’ preferences for particular devices varies regionally, key foundational considerations for choice include: product specifications, clinical evidence demonstrating efficacy, positive clinical outcomes, investment in proper injection technique training for customers and patients, and pricing.
For more information, see the section entitled “Agreements Related to the Separation” in Item 1. Embecta may be held liable to BD if it fails to perform under its agreements with BD, and the performance of such services may negatively affect Embecta’s business and operations.
For more information, see the section entitled “Agreements Related to the Separation” in Item 1 of this Annual Report on Form 10-K. Embecta may be held liable to BD if it fails to perform under its agreements with BD, and the performance of such services may negatively affect Embecta’s business and operations.
If BD fails to perform under this agreement or BD terminates this agreement in accordance with its terms and, in either case, Embecta cannot find a way to purchase cannula from another party or manufacture cannula, or if Embecta needs to purchase more cannula than it is permitted under cannula supply agreement, Embecta may have insufficient cannulas for its products, which could materially adversely affect Embecta’s business, financial condition or results of operations. 8 Embecta also obtains other component parts and raw materials from other third parties.
If BD fails to perform under this agreement or BD terminates this agreement in accordance with its terms and, in either case, Embecta cannot find a way to purchase cannula from another party or manufacture cannula, or if Embecta needs to purchase more cannula than it is permitted under cannula supply agreement, Embecta may have insufficient cannulas for its products, which could materially adversely affect Embecta’s business, financial condition or results of operations.
Our business exposes us to potential product liability claims that are inherent in the design, manufacture, testing, inspection, and sale of medical devices.
Embecta’s business exposes it to potential product liability claims that are inherent in the design, manufacture, testing, inspection, and sale of medical devices.
A disruption at one of our facilities could adversely affect our business and operating results. Although we operate in multiple locations, our manufacturing of our pen needles and syringes is conducted, and our components for such products are stored, at our facilities in the United States, Ireland and China.
A disruption at one of Embecta's facilities could adversely affect our business and operating results. Although Embecta operates in multiple locations, manufacturing of its pen needles and syringes is conducted, and its components for such products are primarily stored, at its facilities in the United States, Ireland and China.
For the fiscal year ended September 30, 2022, McKesson Corporation, Cardinal Health and AmerisourceBergen Drug Corporation, Embecta’s three largest distributors, together represented approximately 40% of Embecta’s worldwide gross sales.
For the fiscal year ended September 30, 2023, McKesson Corporation, Cardinal Health and Cencora, Embecta’s three largest distributors, together represented approximately 40% of Embecta’s worldwide gross sales.
In many cases, Embecta does not have long-term supply agreements with suppliers of these component parts and raw materials, and its arrangements with these suppliers are on a purchase-order basis.
Embecta also obtains other component parts and raw materials from other third parties. In many cases, Embecta does not have long-term supply agreements with suppliers of these component parts and raw materials, and its arrangements with these suppliers are on a purchase-order basis.
Any such delays, or any failure to meet these requirements could adversely impact our business in the EU and other non-EU regions that tie their product registrations to EU conformity requirements. 15 Healthcare reform may have a material adverse effect on Embecta’s financial condition and results of operations.
Any such delays, or any failure to meet these requirements could adversely impact our business in the EU and other non-EU regions that tie their product registrations to EU conformity requirements. Healthcare reform may have a material adverse effect on Embecta’s financial condition and results of operations. Political, economic and regulatory developments have effected fundamental changes in the healthcare industry.
In addition, future clinical studies or other articles regarding Embecta’s existing products or any competing products may be published that either support a claim, or are perceived to support a claim, that a competitor’s product is clinically more effective or easier to use than Embecta’s insulin patch pump and/or finer gauged pen needle in development 11 or that any such product is not as effective as Embecta claims.
In addition, future clinical studies or other articles regarding Embecta’s existing products or any competing products may be published that either support a claim, or are perceived to support a claim, that a competitor’s product is clinically more effective or easier to use than Embecta’s existing products or products in development or that any such product is not as effective as Embecta claims.
In some instances, competitors, including pharmaceutical companies, also offer, or are attempting to develop, alternative therapies for disease states (including diabetes) that may be delivered without a medical device, such as pen needles. Lower cost producers have also created pricing pressure, particularly in emerging markets.
In some instances, competitors, including pharmaceutical companies, also offer, or are attempting to develop, alternative therapies, including oral anti-diabetic drugs, GLP-1s and GLP-1 combination products, for disease states (including diabetes) that may be delivered without a medical device, such as pen needles. Lower cost producers have also created pricing pressure, particularly in emerging markets.
However, a natural or other disaster, such as a fire or flood, could cause substantial delays in our operations, damage or destroy our manufacturing equipment and/or inventory and cause us to incur additional expenses. The insurance we maintain may not be adequate to cover our losses in any particular case.
However, a natural or other disaster, such as a fire or flood, could cause substantial delays in Embecta’s operations, damage or destroy its manufacturing equipment and/or inventory and cause it to incur additional expenses. The insurance Embecta maintains may not be adequate to cover its losses in any particular case.
The market price of Embecta common stock may fluctuate significantly due to a number of factors, some of which may be beyond our control, including: • actual or anticipated fluctuations in Embecta’s operating results; • Embecta’s liquidity and ability to obtain additional capital, including the market’s reaction to any capital-raising transaction Embecta may pursue; • changes in earnings estimated by securities analysts or Embecta’s ability to meet those estimates; 23 • the operating and stock price performance of comparable companies; • sales of substantial amounts of Embecta’s common stock, or the perception that substantial amounts of Embecta’s common stock may be sold, by stockholders in the public market; • changes to the regulatory and legal environment under which Embecta operates; • any negative decisions by the FDA or similar regulatory bodies inside and outside of the United States regarding Embecta’s products and product candidates; • actual or anticipated fluctuations in commodities prices; • analyst research reports, recommendation and changes in recommendations, price targets, and withdrawals of coverage; and • domestic and worldwide economic conditions.
The market price of Embecta common stock may fluctuate significantly due to a number of factors, some of which may be beyond our control, including: • actual or anticipated fluctuations in Embecta’s operating results, including those associated with the Interim Business Continuity Processes; • Embecta’s liquidity and ability to obtain additional capital, including the market’s reaction to any capital-raising transaction Embecta may pursue; • changes in earnings estimated by securities analysts or Embecta’s ability to meet those estimates; • the operating and stock price performance of comparable companies; • sales of substantial amounts of Embecta’s common stock, or the perception that substantial amounts of Embecta’s common stock may be sold, by stockholders in the public market; • changes to the regulatory and legal environment under which Embecta operates; • any negative decisions by the FDA or similar regulatory bodies inside and outside of the United States regarding Embecta’s products and product candidates; • actual or anticipated fluctuations in commodities prices; • analyst research reports, recommendation and changes in recommendations, price targets, and withdrawals of coverage; • changes in the diabetes care landscape, including changes to consumer habits and market dynamics for means and methods of insulin delivery or alternative means of diabetes management without the use of insulin or by delaying the use of insulin; and • domestic and worldwide economic conditions.
Some of Embecta’s products include information systems that collect data regarding patients and patient therapy on behalf of Embecta’s customers and some connect to Embecta’s systems for maintenance and management purposes.
Some of Embecta’s products, and products in development may, include information systems that collect data, including sensitive medical information, regarding patients and patient therapy on behalf of Embecta’s customers and some connect to Embecta’s systems for maintenance and management purposes.
There can be no assurance that the various procedures and controls we utilize to mitigate these threats will be sufficient to prevent disruptions to our systems, in part because (i) cyber-attack techniques change frequently and, at times, new techniques are not recognized until launched, and (ii) cyber-attacks can originate from a wide variety of sources.
There can be no assurance that the various procedures and controls Embecta utilizes to mitigate these threats will be sufficient to prevent disruptions to its systems, in part because (i) cyberattack techniques change frequently and, at times, new techniques are not recognized until launched, and (ii) cyberattacks can originate from a wide variety of sources.
Pursuant to the Separation and Distribution Agreement and certain other agreements Embecta entered into with BD in connection with the separation and distribution, BD agreed to indemnify Embecta for certain liabilities, and Embecta will agree to indemnify BD for certain liabilities as discussed further in “Agreements Related to the Separation” in Item 1.
Pursuant to the Separation and Distribution Agreement and certain other agreements Embecta entered into with BD in connection with the separation and distribution, BD agreed to indemnify Embecta for certain liabilities, and Embecta will agree to indemnify BD for certain liabilities as discussed further in “Agreements Related to the Separation” in Item 1 of this Annual Report on Form 10-K.
In addition, increases in energy prices could increase the production and other costs of Embecta’s operations and products. 13 Increases in interest rates may adversely affect the financial condition of Embecta’s distributors and suppliers, thereby adversely affecting their ability to buy Embecta’s products and supply the components or raw materials needed by Embecta, in each case adversely affecting Embecta’s financial condition or results of operations.
Increases in interest rates may adversely affect the financial condition of Embecta’s distributors and suppliers, thereby adversely affecting their ability to buy Embecta’s products and supply the components or raw materials needed by Embecta, in each case adversely affecting Embecta’s financial condition or results of operations.
Extreme weather or other conditions caused by climate change could adversely impact our supply chain and the availability and cost of raw materials and components required for the operation of our business.
Extreme weather, natural disasters or other conditions caused by climate change could adversely impact its supply chain and the availability and cost of raw materials and components, energy supply, transportation or other inputs required for the operation of its business.
Regardless of the level of insurance coverage or other precautions taken, damage to our facilities may have a material adverse effect on our business, financial condition and operating results. Insurance coverage may be inadequate or unavailable to cover any product liability losses we incur.
Regardless of the level of insurance coverage or other precautions taken, damage to Embecta’s facilities may have a material adverse effect on is business, financial condition and results of operations. Insurance coverage may be inadequate or unavailable to cover any product liability losses Embecta incurs.

… 148 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed2 unchanged
Embecta and BD have agreed to defer this local affiliate closing at this location to the time when such regulatory approvals are received. 25
Embecta and BD have agreed to defer this local affiliate closing at this location to the time when such regulatory approvals are received.
Item 2. Properties. Embecta's corporate headquarters is located in Parsippany, New Jersey, USA. The Company also maintains a secondary regional headquarters at a leased office facility located in Eysins, Switzerland. The Company has a global research and development center in a leased office/lab facility located in Andover, Massachusetts, USA.
Item 2. Properties. Embecta's corporate headquarters is located in Parsippany, New Jersey, USA. The Company also maintains secondary regional headquarters at leased office facilities in Eysins, Switzerland and Shanghai, China. The Company has a global research and development center in a leased office/lab facility located in Andover, Massachusetts, USA.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

3 edited+0 added−0 removed2 unchanged
We accrue a liability for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher or lower than the amounts accrued for those claims. As of September 30, 2022, we are not a party to or subject to any material proceedings.
We accrue a liability for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher or lower than the amounts accrued for those claims. As of September 30, 2023, we were not a party to or subject to any material proceedings.
These claims and litigation may include, among other things, allegations of violations of United States and foreign health regulation and privacy laws and related regulations, as well as claims or litigation relating to product liability, intellectual property, breach of contract and tort.
These claims and litigation may include, among other things, allegations of violations of United States and foreign health regulation and privacy laws and related regulations, as well as claims or litigation relating to product liability, intellectual property, breach of contract and tort, environmental, securities and employment matters.
Item 4. Mine Safety Disclosures. Not applicable. 26 PART II.
Item 4. Mine Safety Disclosures. Not applicable. 29 PART II.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+5 added−1 removed0 unchanged
This number does not include beneficial owners who hold Embecta's common stock in nominee or "street name" accounts through brokers or banks. During the fiscal year ended September 30, 2022, Embecta did not repurchase any of its outstanding common stock. Dividends 1.
This number does not include beneficial owners who hold Embecta's common stock in nominee or "street name" accounts through brokers or banks. During the fiscal year ended September 30, 2023, Embecta did not repurchase any of its outstanding common stock. Dividends 1.
On December 20, 2022, Embecta's Board of Directors declared a quarterly dividend of $0.15 for each issued and outstanding share of Embecta's common stock. The dividend is payable on January 11, 2023 to stockholders of record at the close of business on December 30, 2022.
On December 20, 2022, Embecta's Board of Directors declared a quarterly dividend of $0.15 for each issued and outstanding share of Embecta's common stock. The dividend was paid on January 11, 2023 to stockholders of record at the close of business on December 30, 2022. 2.
Performance Graph The following graph compares the cumulative total stockholder returns for the period from the Separation Date of April 1, 2022 to September 30, 2022 for (i) Embecta's common stock; (ii) the Nasdaq Composite Index; and (iii) the Dow Jones U.S. Select Medical Equipment Index, which is comprised of medical equipment companies.
Performance Graph The following graph compares the cumulative total stockholder returns for the period from the Separation Date of April 1, 2022 to September 30, 2023 for (i) Embecta's common stock; (ii) the Nasdaq Composite Index; (iii) the Dow Jones U.S.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Embecta’s common stock is listed on the Nasdaq Global Select Market ("Nasdaq") under the symbol "EMBC". As of November 30, 2022, there were approximately 7,400 stockholders of record.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Embecta’s common stock is listed on the Nasdaq Global Select Market ("Nasdaq") under the symbol "EMBC". As of October 31, 2023, there were approximately 6,900 stockholders of record.
On August 15, 2022, Embecta's Board of Directors declared a quarterly dividend of $0.15 for each issued and outstanding share of Embecta's common stock. The dividend was paid on September 14, 2022 to stockholders of record at the close of business on August 26, 2022. 2.
On August 8, 2023, Embecta's Board of Directors declared a quarterly dividend of $0.15 for each issued and outstanding share of Embecta's common stock. The dividend was paid on September 13, 2023 to stockholders of record at the close of business on August 25, 2023. 5.
The performance shown is not necessarily indicative of future performance. 27 Unregistered Sales Of Equity Securities And Use Of Proceeds We did not sell any unregistered equity securities during the three months ended September 30, 2022, nor did we repurchase any shares of our common stock during the three months ended September 30, 2022. Item 6. [ Reserved ]
The calculation of cumulative stockholder return includes reinvestment of dividends in the common stock and in each index. The performance shown is not necessarily indicative of future performance. 30 Unregistered Sales Of Equity Securities And Use Of Proceeds We did not sell any unregistered equity securities during the three months ended September 30, 2023. Item 6. [ Reserved ]
Removed
The graph assumes an investment of $100 on April 1, 2022 through the last trading day of fiscal 2022. The calculation of cumulative stockholder return includes reinvestment of dividends in the common stock and in each index.
Added
On February 14, 2023, Embecta's Board of Directors declared a quarterly dividend of $0.15 for each issued and outstanding share of Embecta's common stock. The dividend was paid on March 13, 2023 to stockholders of record at the close of business on February 27, 2023. 3.
Added
On May 12, 2023, Embecta's Board of Directors declared a quarterly dividend of $0.15 for each issued and outstanding share of Embecta's common stock. The dividend was paid on June 13, 2023 to stockholders of record at the close of business on May 29, 2023. 4.
Added
On November 21, 2023, Embecta's Board of Directors declared a quarterly dividend of $0.15 for each issued and outstanding share of Embecta's common stock. The dividend is payable on December 15, 2023 to stockholders of record at the close of business on December 4, 2023.
Added
Select Medical Equipment Index which is comprised of medical equipment companies; and (iv) the S&P Smallcap 600 Health Care Index. For the year ended September 30, 2023, the Company has elected to present the S&P Smallcap 600 Healthcare index for its peer group comparison. The Company believes that the holdings of this index more accurately reflect its peer companies.
Added
Since the Dow Jones U.S. Select Medical Equipment Index was presented in the prior year, it has also been presented in the current year for comparison purposes. The graph assumes an investment of $100 on April 1, 2022 through the last trading day of the year ended September 30, 2023.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

57 edited+26 added−61 removed30 unchanged
The credit agreement and the indentures for the 5.00% and 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 indenture governing the 5.00% Notes.
The credit agreement and the indentures for the 5.00% Notes and 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 indentures governing the 5.00% Notes and the 6.75% Notes.
We have a broad portfolio of marketed products, including a variety of pen needles, syringes and safety injection devices, which are complemented by our proprietary digital application designed to assist people with managing their diabetes. Our pen needles are sterile, single-use, medical devices, designed to be used in conjunction with pen injectors that inject insulin or other diabetes medications.
We have a broad portfolio of marketed products, including a variety of pen needles, syringes and safety injection devices, which are complemented by our proprietary digital application designed to assist people with managing their diabetes. Our conventional pen needles are sterile, single-use, medical devices, designed to be used in conjunction with pen injectors that inject insulin or other diabetes medications.
Management believes the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of the Consolidated Financial Statements: 38 Revenue Recognition Our revenues are primarily recognized when the customer obtains control of the product sold, which is generally upon shipment or delivery, depending on the delivery terms specified in the distribution or sales agreement.
Management believes the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of the Consolidated Financial Statements: Revenue Recognition Our revenues are primarily recognized when the customer obtains control of the product sold, which is generally upon shipment or delivery, depending on the delivery terms specified in the distribution or sales agreement.
Periods Post Separation For the period subsequent to April 1, 2022, as a standalone publicly traded company, Embecta presents its financial statements on a consolidated basis. The Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K have been prepared in accordance with accounting principles generally accepted in the United States of America.
Periods Post Separation For the periods subsequent to April 1, 2022, as a standalone publicly traded company, Embecta presents its financial statements on a consolidated basis. The Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K have been prepared in accordance with accounting principles generally accepted in the United States of America.
Although Embecta believes that the expectations reflected in any forward-looking statements it makes are based on reasonable assumptions, it can give no assurance that these expectations will be 39 attained and it is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties.
Although Embecta believes that the expectations reflected in any forward-looking statements it makes are based on reasonable assumptions, it can give no assurance that these expectations will be attained and it is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties.
Our gross revenues are subject to a variety of deductions, which include rebates, sales discounts and sales returns. These deductions represent estimates of the related obligations, and judgment is required when determining the impact of these revenue deductions on gross revenues for a reporting period. Rebates are based upon prices determined under our agreements with the end-user customers.
Our gross revenues are subject to a variety of deductions, which include rebates, chargebacks, sales discounts and sales returns. These deductions represent estimates of the related obligations, and judgment is required when determining the impact of these revenue deductions on gross revenues for a reporting period. Rebates are based upon prices determined under our agreements with the end-user customers.
The Company conducts business and files tax returns in numerous jurisdictions based on its interpretation of tax laws and regulations. In evaluating the Company’s tax provision, the Company establishes a reserve for uncertain tax positions unless such positions are determined to be more likely than not of being sustained upon examination based on the technical merits.
The Company conducts business and files tax returns in numerous jurisdictions based on its interpretation of tax laws and regulations. In evaluating the Company’s tax provision, the Company establishes a reserve for uncertain tax positions 39 unless such positions are determined to be more likely than not of being sustained upon examination based on the technical merits.
We also sell safety pen needles, which have shields on both ends of the cannula that automatically deploy after the injection to help prevent needlestick exposure and injury during injection and disposal. Our traditional and safety pen needles are compatible and frequently used with widely available pen injectors in the market today.
We also sell safety pen needles, which have shields on both ends of the cannula that automatically deploy after the injection to help prevent needlestick exposure and injury during injection and disposal. Our conventional and safety pen needles are compatible and frequently used with widely available pen injectors in the market today.
In particular, tariffs or other trade barriers imposed by the United States or other countries could adversely impact its supply chain costs or otherwise adversely impact its results of operations. • Any continuing impact of the COVID-19 pandemic or geopolitical instability on Embecta’s business, including disruptions in its operations and supply chains. • New or changing laws and regulations affecting Embecta’s domestic and foreign operations, or changes in enforcement practices, including laws relating to healthcare, environmental protection, trade, monetary and fiscal policies, taxation (including tax reforms that could adversely impact multinational corporations) and licensing and regulatory requirements for products. • The expected benefits of the Separation from BD. • Risks associated with indebtedness and our use of indebtedness available to us. • The risk that dis-synergy costs, costs of restructuring transactions and other costs incurred in connection with the Separation will exceed Embecta's estimates. • The impact of the Separation on Embecta's businesses and the risk that the Separation may be more difficult, time-consuming or costly than expected, including the impact on its resources, systems, including enterprise resource planning, procedures and controls, diversion of management’s attention and the impact on relationships with customers, suppliers, employees and other business counterparties. • The Risk that we may not complete strategic collaborative partnerships and acquisition opportunities that enable us to accelerate our growth or strategic collaborative opportunities that give us access to innovative technologies, complementary product lines, and new markets.
In particular, tariffs or other trade barriers imposed by the United States or other countries could adversely impact its supply chain costs or otherwise adversely impact its results of operations. • Any new pandemic, such as COVID-19, or any geopolitical instability on Embecta’s business, including disruptions in its operations and supply chains. 40 • New or changing laws and regulations affecting Embecta’s domestic and foreign operations, or changes in enforcement practices, including laws relating to healthcare, environmental protection, trade, monetary and fiscal policies, taxation (including tax reforms that could adversely impact multinational corporations) and licensing and regulatory requirements for products. • The expected benefits of the Separation from BD. • Risks associated with indebtedness and our use of indebtedness available to us. • The risk that ongoing dis-synergy costs, costs of restructuring transactions and other costs incurred in connection with the Separation will exceed Embecta's estimates of these costs. • The impact of the Separation on Embecta's businesses and the risk that the full Separation may be more difficult, time-consuming or costly than expected, including the impact on its resources, systems, including enterprise resource planning, procedures and controls, diversion of management’s attention and the impact on relationships with customers, suppliers, employees and other business counterparties. • The risk that we may not complete strategic collaborative partnerships and acquisition opportunities that enable us to accelerate our growth or strategic collaborative opportunities that give us access to innovative technologies, complementary product lines, and new markets.
We continue to face increases in the cost and disrupted availability of raw materials, components, and other inputs necessary to manufacture and distribute our products due to constraints and inflation within the global supply chain, as well as increases in the cost and time to distribute our products.
Recent Developments We continue to face increases in the cost and disrupted availability of raw materials, components, and other inputs necessary to manufacture and distribute our products due to constraints and inflation within the global supply chain, as well as increases in the cost and time to distribute our products.
See "Liquidity and Capital Resources" below and Note 11 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for a further description of our long-term debt.
See "Liquidity and Capital Resources" below and Note 12 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for a further description of our long-term debt.
Other operating expenses We incurred other operating expenses of $44.7 million and $4.8 million for the years ended September 30, 2022 and 2021, respectively. The costs incurred primarily relate to accounting, auditing, and legal services, including costs to establish certain stand-alone corporate functions and other costs associated with the abandonment of certain manufacturing production lines discussed above.
Other operating expenses We incurred other operating expenses of $99.4 million and $44.7 million for the years ended September 30, 2023 and 2022, respectively. The costs incurred primarily relate to accounting, auditing, and legal services, including costs to establish certain stand-alone corporate functions and other costs associated with the abandonment of certain manufacturing production lines discussed above.
As of September 30, 2022, we were in compliance with all of such covenants. The credit agreement and the senior secured notes are secured by substantially all assets of Embecta and each subsidiary guarantor, subject to certain exceptions.
As of September 30, 2023, we were in compliance with all of such covenants. The credit agreement and the senior secured are secured by substantially all assets of Embecta and each subsidiary guarantor, subject to certain exceptions.
This method incorporates various assumptions such as the risk-free interest rate, expected volatility, expected dividend yield and expected life of the options.
This method incorporates various assumptions such as the risk-free interest rate, expected volatility, expected dividend yield and expected life of the awards.
References to years throughout this discussion relate to our fiscal years, which end on September 30. Company Overview Embecta is a leading global medical device company focused on providing solutions to improve the health and well-being of people living with diabetes.
References to years throughout this discussion relate to our fiscal years, which end on September 30. Company Overview We are a leading global medical device company focused on providing solutions to improve the health and well-being of people living with diabetes.
In February 2022, and in connection with the Separation, Embecta issued $500.0 million aggregate principal amount of 5.00% senior secured notes due February 15, 2030. Interest payments on the 5.00% Notes are due semi-annually in February and August until maturity.
Debt-Related Activities In February 2022, and in connection with the Separation, Embecta issued $500.0 million aggregate principal amount of 5.00% senior secured notes due February 15, 2030 (the "5.00% Notes"). Interest payments on the 5.00% Notes are due semi-annually in February and August until maturity. Interest payments began in August 2022 .
In addition, our revenues and results of operations may be affected by various fluctuations in macroeconomic conditions and regulatory and policy changes, both on a global level and in particular markets, which include inflation and slowing economic growth and contractions, a rising interest rate environment, supply chain interruptions, tariff policy changes, volatility in capital markets and the availability of credit, tax rates and the rate of exchange between the U.S. dollar and foreign currencies.
In addition, our revenues and results of operations have been affected by various fluctuations in macroeconomic conditions and regulatory and policy changes, both on a global level and in particular markets, which include inflation and slowing economic growth and contractions, a rising interest rate environment, supply chain interruptions, tariff policy changes, volatility in capital markets and the availability of credit, tax rates and the rate of exchange between the United States dollar and foreign currencies.
Separation from BD Pursuant to the Separation and Distribution Agreement, the Separation from BD was completed on April 1, 2022 (the "Separation Date"). 57,012,925 issued and outstanding shares of Embecta common stock were distributed pro-rata to BD stockholders as of the close of business on March 22, 2022, the record date for the distribution, determined by applying a ratio of one share of Embecta common stock for every five shares of BD common stock.
On March 22, 2022, the record date for the distribution, 57,012,925 issued and outstanding shares of Embecta common stock were distributed pro-rata to BD stockholders as of the close of business, determined by applying a ratio of one share of Embecta common stock for every five shares of BD common stock.
Such risks and uncertainties include, but are not limited to: • Competitive factors that could adversely affect Embecta’s operations, including new product introductions by Embecta’s competitors, the development of new technologies, lower cost producers that create pricing pressure and consolidation resulting in companies with greater scale and market presence than Embecta. • Any events that adversely affect the sale or profitability of one of Embecta’s key products or the revenue delivered from sales to its key customers. • Any failure by BD to perform its obligations under the various separation agreements entered into in connection with the Separation and Distribution, including the cannula supply agreement. • Increases in operating costs, including fluctuations in the cost and availability of oil-based resins, other raw materials, and energy as well as certain components, used in its products, the ability to maintain favorable supplier arrangements and relationships, and the potential adverse effects of any disruption in the availability of such items. • Changes in reimbursement practices of governments or private payers or other cost containment measures. • The adverse financial impact resulting from unfavorable changes in foreign currency exchange rates, as well as regional, national and foreign economic factors, including inflation, deflation, and fluctuations in interest rates, and their potential effect on its operating performance. • The impact of changes in United States, federal laws, and policy that could affect fiscal and tax policies, healthcare and international trade, including import and export regulation and international trade agreements.
Such risks and uncertainties include, but are not limited to: • Competitive factors that could adversely affect Embecta’s operations, including adoption of new drug therapies for treatment of diabetes, new product introductions by Embecta’s competitors, the development of new technologies, lower cost producers that create pricing pressure and consolidation resulting in companies with greater scale and market presence than Embecta. • The risk that Embecta is unable to extend the TSA, the LSA, and other transaction agreements or replace the services, including the Interim Business Continuity Processes, that BD currently provides to it on substantially similar terms as the terms on which BD is providing these services or that BD terminates such services. • Any failure by BD to perform its obligations under the various separation agreements entered into in connection with the Separation and distribution, including the cannula supply agreement. • Any events that adversely affect the sale or profitability of one of Embecta’s key products or the revenue delivered from sales to its key customers. • Increases in operating costs, including fluctuations in the cost and availability of oil-based resins, other raw materials, and energy as well as certain components, used in its products, the ability to maintain favorable supplier arrangements and relationships, and the potential adverse effects of any disruption in the availability of such items. • Changes in reimbursement practices of governments or private payers or other cost containment measures. • The adverse financial impact resulting from unfavorable changes in foreign currency exchange rates, as well as regional, national and foreign economic factors, including inflation, deflation, and fluctuations in interest rates, and their potential effect on its operating performance. • The impact of changes in United States, federal laws, and policy that could affect fiscal and tax policies, healthcare and international trade, including import and export regulation and international trade agreements.
The following is a summary of Embecta's total debt outstanding as of September 30, 2022: Term Loan $ 945.3 5.00% Notes 500.0 6.75% Notes $ 200.0 Total principal debt issued $ 1,645.3 Less: current debt obligations (9.5) Less: debt issuance costs and discounts (37.7) Long-term debt $ 1,598.1 The schedule of principal payments required on long-term debt for the next five years and thereafter is as follows: 2023 $ 9.5 2024 9.5 2025 9.5 2026 9.5 2027 9.5 Thereafter 1,597.8 Certain measures relating to our total debt outstanding as of September 30, 2022 were as follows: Total debt $ 1,607.6 Short-term debt as a percentage of total debt 0.6 % Weighted average cost of total debt 5.2 % Leases In conjunction with the Separation, we entered into a lease agreement with BD pursuant to which the Company would lease approximately 278,000 square feet of manufacturing space and equipment at BD's manufacturing facility in Holdrege, Nebraska for an initial term of 10 years.
The following is a summary of Embecta's total debt outstanding as of September 30, 2023: Term Loan $ 935.8 5.00% Notes 500.0 6.75% Notes $ 200.0 Total principal debt issued $ 1,635.8 Less: current debt obligations (9.5) Less: debt issuance costs and discounts (32.4) Long-term debt $ 1,593.9 36 The schedule of principal payments required on long-term debt for the next five years and thereafter is as follows: 2023 $ 9.5 2024 9.5 2025 9.5 2026 9.5 2028 9.5 Thereafter 1,588.3 Certain measures relating to our total debt outstanding as of September 30, 2023 were as follows: Total debt $ 1,603.4 Short-term debt as a percentage of total debt 0.6 % Weighted average cost of total debt 7.1 % Leases In conjunction with the Separation, we entered into a lease agreement with BD pursuant to which the Company would lease approximately 278,000 square feet of manufacturing space and equipment at BD's manufacturing facility in Holdrege, Nebraska for an initial term of ten years.
For periods prior to April 1, 2022, the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K include certain assets and liabilities that were historically held at the BD corporate level, but are specifically identifiable or otherwise allocable to the Diabetes Care Business. BD used a centralized approach to cash management and financing of its operations.
For periods prior to April 1, 2022, the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K included certain assets and liabilities that were historically held at the BD corporate level, but are specifically identifiable or otherwise allocable to the Diabetes Care Business.
Over the close to 100 year history of our business, we believe that our products have become one of the most widely recognized and respected brands in diabetes management in the world. We estimate that our products are used by nearly 30 million people in over 100 countries for insulin administration and to aid with the daily management of diabetes.
As we approach our 100-year centennial, we believe that our products have become one of the most widely recognized and respected brands in diabetes management throughout the world. We estimate that our products are used by more than 30 million people in over 100 countries for insulin administration and to aid with the daily management of diabetes.
The increased scrutiny by regulators on healthcare spending, which has accelerated in light of the COVID-19 pandemic, along with a shift towards volume-based procurement and GPOs, which generally values lower cost over product features, benefits and quality, have placed significant pressure on Embecta to lower pricing.
The increased scrutiny by regulators on healthcare spending, which accelerated in light of the COVID-19 pandemic, along with a shift towards volume-based procurement and group purchasing organizations, which generally values lower cost over product features, benefits and quality, have placed significant pressure on Embecta to lower price in both developed and emerging markets.
Stock-Based Compensation We expense all stock-based payment awards to employees, including grants of stock options, over the requisite service period based on the grant date fair value of the awards. The fair value of certain stock-based awards is determined using the Black-Scholes-Merton ("BSM") option-pricing model which uses both historical and current market data to estimate the fair value.
Stock-Based Compensation We expense all stock-based payment awards to employees over the requisite service period based on the grant date fair value of the awards. The fair value of certain stock-based awards that have been granted in the past are determined using the Black-Scholes-Merton ("BSM") option-pricing model which uses both historical and current market data to estimate the fair value.
Operating expenses Operating expenses in 2022, 2021, and 2020 were as follows: Increase (Millions of dollars) 2022 2021 2022 vs. 2021 Selling and administrative expense $ 294.8 $ 240.3 $ 54.5 % of revenues 26.1 % 20.6 % Research and development expense $ 66.9 $ 63.3 $ 3.6 % of revenues 5.9 % 5.4 % Impairment expense $ 58.9 $ — nm Other operating expense $ 44.7 $ 4.8 $ 39.9 nm = not meaningful Selling and administrative expenses Our selling and administrative expenses increased by $54.5 million, or 22.7%, to $294.8 million for the year ended September 30, 2022 as compared to $240.3 million for the year ended September 30, 2021.
Operating expenses in 2023 and 2022 were as follows: Increase (Millions of dollars) 2023 2022 2023 vs. 2022 Selling and administrative expense $ 341.3 $ 294.8 $ 46.5 % of revenues 30.5 % 26.1 % Research and development expense $ 85.2 $ 66.9 $ 18.3 % of revenues 7.6 % 5.9 % Impairment expense $ 2.5 $ 58.9 nm Other operating expense $ 99.4 $ 44.7 $ 54.7 nm = not meaningful Selling and administrative expenses Our selling and administrative expenses increased by $46.5 million, or 15.8%, to $341.3 million for the year ended September 30, 2023 as compared to $294.8 million for the year ended September 30, 2022.
For the years ended September 30, 2022 and 2021, our Consolidated Statements of Income are as follows: 2022 2021 Revenues $ 1,129.5 $ 1,165.3 Cost of products sold 354.6 364.9 Gross Profit 774.9 800.4 Operating expenses: Selling and administrative expense 294.8 240.3 Research and development expense 66.9 63.3 Impairment expense 58.9 — Other operating expenses 44.7 4.8 Total Operating Expenses 465.3 308.4 Operating Income 309.6 492.0 Interest expense, net (46.2) — Other income (expense), net (6.8) 2.9 Income Before Income Taxes 256.6 494.9 Income tax provision 33.0 80.1 Net Income $ 223.6 $ 414.8 Net Income per common share: Basic $ 3.92 $ 7.28 Diluted $ 3.89 $ 7.28 Year Ended September 30, 2022 Summary (on a comparative basis) Key GAAP financial results for the year ended September 30, 2022 were as follows: • Revenue decreased by $35.8 million to $1,129.5 million from $1,165.3 million; • Gross profit decreased by $25.5 million to $774.9 million, compared to $800.4 million.
For the years ended September 30, 2023 and 2022, our Consolidated Statements of Income are as follows: 2023 2022 Revenues $ 1,120.8 $ 1,129.5 Cost of products sold 370.9 354.6 Gross Profit 749.9 774.9 Operating expenses: Selling and administrative expense 341.3 294.8 Research and development expense 85.2 66.9 Impairment expense 2.5 58.9 Other operating expenses 99.4 44.7 Total Operating Expenses 528.4 465.3 Operating Income 221.5 309.6 Interest expense, net (107.0) (46.2) Other income (expense), net (8.8) (6.8) Income Before Income Taxes 105.7 256.6 Income tax provision 35.3 33.0 Net Income $ 70.4 $ 223.6 Net Income per common share: Basic $ 1.23 $ 3.92 Diluted $ 1.22 $ 3.89 Year Ended September 30, 2023 Summary (on a comparative basis) Key financial results for the year ended September 30, 2023 were as follows: • Revenue decreased by $8.7 million to $1,120.8 million from $1,129.5 million; • Gross profit decreased by $25.0 million to $749.9 million, compared to $774.9 million.
Factoring Agreements In conjunction with the Separation, we entered into Trade Receivables Factoring Agreements (the "Factoring Agreements") with BD, whereby Embecta owes BD a service fee calculated as 0.1% of annual revenues related to countries subject to the agreement, in exchange for the services provided by BD pursuant to the Trade Receivables Factoring Agreements.
Embecta owes BD a service fee calculated as 0.1% of annual revenues related to countries subject to the agreement, in exchange for the services provided by BD pursuant to the Factoring Agreements.
If the United States Federal Reserve continues to raise the benchmark interest rate, then we would expect the interest expense on our variable rate debt to increase in fiscal 2023.
If the United States Federal Reserve maintains interest rates at these levels, or continues to raise the benchmark interest rate, then we would expect the interest expense on our variable rate debt to increase in fiscal year 2024 as compared to fiscal year 2023.
The separate return method applies the accounting guidance for income taxes to the standalone financial statements as if we were a separate taxpayer and a standalone enterprise.
The separate return method applies the accounting guidance for income taxes to the standalone financial statements as if we were a separate taxpayer and a standalone enterprise. We believe the assumptions supporting the allocation and presentation of income taxes on a separate return basis are reasonable.
The nature and extent of the impact of these factors among others varies by region and remains uncertain and unpredictable and may affect our business. 30 Results of Operations For a discussion of Results of Operations of fiscal year 2021 compared to fiscal year 2020 see Exhibit 99.1 to the Company’s General Form For Registration of Securities on Amendment No. 1 to Form 10 dated February 2, 2022.
The nature and extent of the impact of these factors among others varies by region and remains uncertain and unpredictable and may affect our business. Results of Operations For a discussion of Results of Operations of fiscal year 2022 compared to fiscal year 2021 see our Annual Report on Form 10-K for the year ended September 30, 2022.
Other income (expense), net Other income (expense), net decreased by $9.7 million to $(6.8) million for the year ended September 30, 2022 as compared to $2.9 million for the year ended September 30, 2021. The decrease was mainly driven by amounts due to BD for tax liabilities incurred in deferred jurisdictions where BD is considered the primary obligor.
Other income (expense), net Other income (expense), net decreased by $2.0 million to $(8.8) million for the year ended September 30, 2023 as compared to $(6.8) million for the year ended September 30, 2022. The costs incurred primarily relate to amounts due to BD for income taxes payable incurred in deferred jurisdictions where BD is considered the primary obligor.
Critical Accounting Policies The following discussion supplements the descriptions of our accounting policies contained in Note 3 to the Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K. Financial Statements and Supplementary Data.
Contractual obligations due within the next twelve months approximate $141 million related to purchase commitments and $9 million related to lease obligations. Critical Accounting Policies The following discussion supplements the descriptions of our accounting policies contained in Note 3 to the Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K. Financial Statements and Supplementary Data.
A commitment fee applies to the unused portion of the Revolving Credit Facility, equal to 0.25% per annum . As of September 30, 2022, no amount has been drawn on the Revolving Credit Facility. Additionally in March 2022, Embecta issued $200.0 million of 6.75% senior secured notes to BD (the "Related Party Notes").
A commitment fee applies to the unused portion of the Revolving Credit Facility, equal to 0.25% per annum . As of September 30, 2023, no amount has been drawn on the Revolving Credit Facility. Additionally, Embecta has outstanding $200.0 million of senior secured notes (the "6.75% Notes"), which carry an interest rate of 6.75% and are due February 2030.
Cautionary Statements Regarding Forward-Looking Statements This Annual Report on Form 10-K contains statements that constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995 and other securities laws.
Additional disclosures regarding our accounting for income taxes are provided in Note 14 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K. Cautionary Statements Regarding Forward-Looking Statements This Annual Report on Form 10-K contains statements that constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995 and other securities laws.
As of April 1, 2022, the 6.75% 35 Notes became third party debt of Embecta. The 6.75% Notes are due February 2030. Interest payments on the 6.75% Notes are due semi-annually in February and August until maturity.
Interest payments on the 6.75% Notes are due semi-annually in February and August until maturity. Interest payments began in August 2022.
Gross profit as a percent of revenue was 68.6%, as compared to 68.7% in the prior year comparative period; • Operating income decreased by $182.4 million to $309.6 million from $492.0 million; and • Net income decreased by $191.2 million to $223.6 million from $414.8 million.
Gross profit as a percent of revenue was 66.9%, as compared to 68.6% in the prior year comparative period; • Operating income decreased by $88.1 million to $221.5 million from $309.6 million; and • Net income decreased by $153.2 million to $70.4 million from $223.6 million. 33 Revenues Our revenues decreased by $8.7 million, or 0.8%, to $1,120.8 million for the twelve months ended September 30, 2023 as compared to revenues of $1,129.5 million for the twelve months ended September 30, 2022.
Access to Capital and Credit Ratings In January 2022, Moody’s Investor Services (“Moody’s”) and Standard & Poor’s Ratings Services (“S&P”) assigned credit ratings to Embecta of Ba3 and B+, respectively.
Access to Capital and Credit Ratings In November 2023 and June 2023, Moody’s Investor Services and Standard & Poor’s Ratings Services published updates to our credit ratings of Ba3 and B+, respectively.
Net Cash Flows from Investing Activities Net cash used for investing activities was primarily comprised of capital expenditures of $23.6 million and $36.8 million during the years ended September 30, 2022 and 2021 respectively, to support further expansion of our business and operations.
Net cash used for investing activities was primarily attributable to $26.5 million of capital expenditures during the year to support further expansion of our business and operations.
To date we have been able to successfully mitigate this disruption and provide uninterrupted supply to our customers by increasing our inventory levels and taking other measures.
To date we have been able to successfully mitigate this disruption and provide uninterrupted supply to our customers by increasing our inventory levels and taking other measures. 32 We continue to monitor and respond to the escalating conflict in Ukraine and the associated sanctions and other restrictions. We also are monitoring and responding to the Israel-Hamas war.
In addition to pen needles, we sell sterile, single-use insulin syringes, which are used to inject insulin drawn from insulin vials. We also sell safety insulin syringes, which have a sliding safety arm that can be activated with one-hand after the injection to help prevent needlestick exposure and injury during injection and disposal.
We also sell safety insulin syringes, which have a sliding safety shield that can be activated with one-hand after the injection to help prevent needlestick exposure and injury during injection and disposal. 31 We primarily sell our 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.
Offsetting the amounts above is an increase in amounts due from BD of $47.0 million, and increases of $23.4 million and $44.0 million in inventories and prepaid expenses and other, respectively. The increase in amounts due from BD primarily relates to factored receivables for which payment has not yet been collected from BD as of September 30, 2022.
The increase in amounts due from/due to Becton, Dickinson and Company primarily relates to factored receivables and inventory purchases for which payment has not yet been collected from BD as of September 30, 2023.
The lease is classified as a finance lease. Base rent payments commenced in the third quarter of 2022. The Company has an option to extend the lease term for an additional period of up to five years.
The lease is classified as a finance lease. The Company has an option to extend the lease term for an additional period of up to five years. On April 1, 2022, we entered into a real estate lease for a new Corporate Headquarters located in Parsippany, New Jersey, United States.
Over the next several years, we expect to incur significant costs associated with information technology infrastructure as we transition to our own systems. Lease obligations include lease agreements for which a contract has been signed even if the lease has not yet commenced.
Purchase obligations are enforceable and legally binding obligations for purchases of goods and services which include inventory purchase commitments. Over the next several years, we expect to incur significant costs associated with information technology infrastructure as we continue to transition to our own systems.
Impairment expenses We incurred impairment charges of $58.9 million during the year ended September 30, 2022 associated with the decision to abandon certain manufacturing production lines in the United States that were previously included as a component of Construction in progress within Property, Plant and Equipment, net in our Consolidated Balance Sheets in Item 8 of this Annual Report on Form 10-K.
These assets were previously included as a component of Construction in progress within Property, Plant and Equipment in our Consolidated Balance Sheets in Item 8 of this Annual Report on Form 10-K. The impairment charges are recognized within Impairment expense in the Consolidated Statements of Income.
The interest rate on the Term Loan is 300 basis points over the secured overnight financing rate (“SOFR”), with a 0.50% SOFR floor. The initial draw of the full amount of the Term Loan was for a 3-month period.
The interest rate on the Term Loan is 300 basis points over the secured overnight financing rate (“SOFR”), with a 0.50% SOFR floor. Principal and interest payments on the Term Loan began on June 30, 2022. Such quarterly principal payments are calculated as 0.25% of the initial principal amount, with the remaining balance payable upon maturity.
Increased penetration of oral anti-diabetic drugs (e.g., SGLT-2s & DDP-4s) and GLP-1s and GLP-1 combination products have delayed initiation of insulin therapy and contributed to less demand for our products. COVID-19 Impacting Delivery and Allocation of Healthcare.
Introduction of new drugs and increased penetration of oral anti-diabetic drugs (e.g., SGLT-2s), GLP-1s and GLP-1 combination products have delayed initiation of insulin therapy and contributed to less demand for our products. New drug therapies in development are targeted to challenge the current diabetes treatment paradigm, including insulin use. Insulin therapy in developed markets continues to transition to infusion pumps.
In addition, our lease portfolio consists of real estate and vehicles that are classified as operating leases. 36 Maturities of our Holdrege finance lease and operating lease liabilities as of September 30, 2022 by fiscal year are as follows: Finance Lease Operating Leases Total 2023 3.6 2.3 5.9 2024 3.6 2.1 5.7 2025 3.7 1.2 4.9 2026 3.7 1.0 4.7 2027 3.8 — 3.8 Thereafter 40.1 — 40.1 Total lease payments $ 58.5 $ 6.6 $ 65.1 On April 1, 2022, we entered into a real estate lease for a new Corporate Headquarters located in Parsippany, New Jersey, United States that has not yet commenced.
Maturities of our finance lease and operating lease liabilities as of September 30, 2023 by fiscal year are as follows: Finance Lease Operating Leases Total 2023 3.6 5.6 9.2 2024 3.7 3.6 7.3 2025 3.7 2.8 6.5 2026 3.8 2.2 6.0 2027 3.9 2.1 6.0 Thereafter 36.2 11.2 47.4 Total lease payments $ 54.9 $ 27.5 $ 82.4 Factoring Agreements In conjunction with the Separation, we entered into Trade Receivable Factoring Agreements (the "Factoring Agreements") with BD.
As of September 30, 2022, total payments due for purchase obligations and lease obligations aggregate to approximately $174 million and $86 million, respectively, and will be expended over the next several years. Contractual obligations due within the next twelve months approximate $111 million related to purchase commitments and $6.0 million related to lease obligations.
Lease obligations include lease agreements for which a contract has been signed even if the lease has not yet commenced. As of September 30, 2023, total payments due for purchase obligations and lease obligations aggregate to approximately $227 million and $82 million, respectively, and will be expended over the next several years.
Cost of products sold as a percentage of revenues were 31.4% for the year ended September 30, 2022 as compared to 31.3% for the year ended September 30, 2021.
Cost of products sold as a percentage of revenues were 33.1% for the year ended September 30, 2023 as compared to 31.4% for the year ended September 30, 2022. The increase in cost of products sold between periods was primarily driven by the impact of inflation on the costs of certain raw materials (including freight), direct labor, and overhead.
Such quarterly principal payments are calculated as 0.25% of the initial principal amount, with the remaining balance payable upon maturity. Principal amounts repaid under the Term Loan may not be reborrowed by us.
Principal amounts repaid under the Term Loan may not be reborrowed by us.
Increases in volume favorably impacted our revenues from customers in countries within Central and Southeast Asia, Eastern Europe, the Middle East, and Africa and Canada while decreases in volume unfavorably impacted our revenues from customers in the United States, Latin America and Mainland China. 2022 2021 United States $ 600.3 $ 609.4 International 529.2 555.9 Total $ 1,129.5 $ 1,165.3 Cost of products sold Cost of products sold decreased by $10.3 million, or 2.8%, to $354.6 million for the year ended September 30, 2022 as compared to $364.9 million for the year ended September 30, 2021.
Revenues by geographic region are as follows: 2023 2022 United States $ 601.4 $ 600.3 International 519.4 529.2 Total $ 1,120.8 $ 1,129.5 Cost of products sold Cost of products sold increased by $16.3 million, or 4.6%, to $370.9 million for the year ended September 30, 2023 as compared to $354.6 million for the year ended September 30, 2022.
As we continue to stand-up various corporate functions as a stand-alone publicly-traded company, we expect to incur similar costs in fiscal 2023. Interest expense, net Interest expense, net increased to $46.2 million for the year ended September 30, 2022, primarily due to the issuance of long-term debt.
As we continue to stand-up various corporate functions as a stand-alone publicly-traded company, we expect to incur costs associated with the same type of activities in fiscal year 2024, however, we currently expect the amount of those costs to be less in fiscal year 2024 as compared to fiscal year 2023.
However, the number of countries we provide products to and our proactive channel management strategies help us manage this variability. Recent Developments COVID-19 Pandemic Impacts and Response and Global Economic Conditions Various governmental measures to slow and control the spread of COVID-19 have led to a shift in healthcare priorities, supply chain constraints and the disruption of economic activities worldwide.
However, the number of countries we provide products to and our proactive channel management strategies help us manage this variability.
The increase was primarily attributed to increased investment in new products which includes our insulin patch pump.
The increase was primarily attributed to increased investment in new products which includes our insulin patch pump as well as amounts paid in connection with a collaboration arrangement. For details on the collaboration arrangement refer to Note 5 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
The lease is expected to commence during the first half of fiscal year 2023 and is in existence for an initial term of 10 years. The Company has an option to extend the lease for additional periods of six years and four years, respectively.
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.
The increase period over period was primarily attributed to compensation and benefit costs resulting from increased headcount to support and enable Embecta to operate as a stand-alone publicly-traded company and, to a lesser extent, increases in marketing and advertising as a result of the Separation. 32 Research and development expenses Our research and development expenses increased by $3.6 million, or 5.7%, to $66.9 million for the year ended September 30, 2022 as compared to $63.3 million for the year ended September 30, 2021.
The increase year over year was primarily driven by an increase in compensation and benefit costs due to increased headcount attributed to the Separation and Embecta becoming a stand-alone publicly-traded company.
Net Cash Flows from Financing Activities Net cash used for financing activities for the year ended September 30, 2022, was attributable to $1,266.0 million of net consideration paid to BD in connection with the Separation, $177.9 million related to net transfers to BD, $33.3 million of payments for long-term debt issuance costs, $8.6 million of dividend payments, $5.6 million of payments for debt fees associated with the Revolving Credit Facility, $4.8 million of required payments on long-term debt, and $1.8 million for finance lease payments.
Net cash used for financing activities was primarily attributable to: Dividend payments (34.4) Payments on long-term debt (9.5) Payments related to tax withholding for stock-based compensation (3.6) Payments on finance lease (1.2) Net cash provided by financing activities $ (48.7) 38 Contractual Obligations Our contractual obligations as of September 30, 2023, which require material cash requirements in the future, consist of purchase obligations and lease obligations.
Removed
We primarily sell our products to wholesalers and distributors that sell to retail and institutional channels who in turn sell to patients.
Added
In addition to pen needles, we sell sterile, single-use insulin syringes, which are used to inject insulin drawn from insulin vials.
Removed
While certain cash and cash equivalents were specifically identifiable to Embecta, the cash and cash equivalents held by BD at the corporate level were not specifically identifiable to the Diabetes Care Business and therefore were not allocated for any of the periods presented prior to Separation.
Added
Separation from BD Pursuant to the Separation and Distribution Agreement, the Separation from BD was completed on April 1, 2022.
Removed
These arrangements are not reflective of the manner in which Embecta would have financed its operations had it been a standalone company separate from BD during the prior periods presented. Cash pooling, related interest and intercompany arrangements were excluded from the asset and liability balances in the Consolidated Balance Sheets in Item 8 of this Annual Report on Form 10-K.
Added
As of November 29, 2023, there is no material impact to our business operations and financial performance in Ukraine and Israel. The full impact of the conflicts on our business operations and financial performance remains uncertain and will depend on future developments, including the severity and duration of the conflicts and their impact on regional and global economic conditions.
Removed
These amounts were instead reported as Net Investment from Becton, Dickinson and Company as a component of equity. 28 Additionally, BD provided certain services, such as legal, accounting, information technology, human resources and other infrastructure support to the Diabetes Care Business.
Added
We will continue to monitor and respond to the conflicts and assess the related restrictions and other effects on our business. See Item 1A of this Annual Report on Form 10-K for further details.
Removed
The costs of these services were allocated to the Diabetes Care Business on the basis of the proportion of net sales, headcount, and other drivers. The Diabetes Care Business and BD considered these allocations to be a reasonable reflection of the benefits received by the Diabetes Care Business.
Added
The decrease in revenues was primarily driven by $26.5 million associated with the negative impact of foreign currency translation primarily due to the strengthening of the U.S. dollar and a $1.9 million decrease in contract manufacturing related to sales of non-diabetes products to BD. This was partially offset by $19.7 million of favorable changes in price and volume.
Removed
Actual costs that may have been incurred if the Diabetes Care Business had been a standalone company would depend on a number of factors, including the chosen organizational structure, whether functions were outsourced or performed by Diabetes Care Business employees, and strategic decisions made in areas such as manufacturing, selling and marketing, research and development, information technology and infrastructure.
Added
The increase was also driven by higher costs associated with the Cannula Supply Agreement with BD post Separation. We intend to continue to work to improve productivity to help partially offset these increased costs.
Removed
The COVID-19 pandemic has accelerated the adoption of, and reimbursement by governments and private payers for, the delivery of healthcare using digital technologies, including telehealth technologies and other at-home self-care solutions and various media for virtual engagement with healthcare providers.
Added
Also contributing to the increase period over period were costs incurred attributed to the LSA with BD whereby BD provides Embecta with certain order-to-cash and logistics services to support certain commercial operations. 34 Research and development expenses Our research and development expenses increased by $18.3 million, or 27.4%, to $85.2 million for the year ended September 30, 2023 as compared to $66.9 million for the year ended September 30, 2022.
Removed
Our ability to adapt the delivery of our products and sales and marketing efforts to these trends, including with the development of our diabetes care app, may materially affect our results of operations. The pandemic has also caused hospitals and other healthcare providers to reassess their prioritization and allocation of their healthcare resources.
Added
Impairment expenses During the year ended September 30, 2023, the Company recorded impairment charges of $2.5 million related to the abandonment of certain manufacturing equipment in China that is no longer in use that were inherited as part of the spin from BD.
Removed
In many cases, providers were forced to balance between diverting resources toward COVID-19 needs and maintaining routine care, including for people living with long term conditions. If this trend persists, particularly in regions where COVID-19 continues to spread, it could have an adverse impact on the delivery of care for people with diabetes and our sales and marketing efforts.
Added
These assets were previously included as a component of Machinery, equipment and fixtures within Property, Plant and Equipment in our Consolidated Balance Sheets in Item 8 of this Annual Report on Form 10-K. The impairment charges are recognized within Impairment expense in the Consolidated Statements of Income.
Removed
As further discussed below, our future 29 operating performance may be subject to further volatility due to the significant uncertainty with respect to the duration and overall impact of the COVID-19 pandemic.
Added
During the year ended September 30, 2022, the Company recorded impairment charges of $58.9 million related to the abandonment of certain manufacturing production lines in the United States that are no longer expected to be completed.
Removed
The impacts of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows is dependent on certain factors including: • the extent to which resurgences in COVID-19 infections or new strains of the virus, result in the imposition of new governmental lockdowns, quarantine requirements or other restrictions that may disrupt our operations; • the continued momentum of the global economy’s recovery from the pandemic and the degree of pressure that a weakened macroeconomic environment would put on the global demand for our products; and • the effectiveness of vaccines and vaccination efforts.
Added
During the year ended September 30, 2023, the Company recorded approximately $5.6 million of severance costs related to the optimization of certain business functions. These costs were primarily recorded in the U.S. and severance costs were not material to any comparable prior year periods presented.
Removed
The military conflict in Russia and Ukraine and the sanctions imposed by the United States government and other nations in response to this conflict have caused significant volatility and disruptions to the global markets. For all fiscal years presented, our net sales in Russia and Ukraine were not material to our consolidated net revenues.

… 64 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+1 added−0 removed2 unchanged
As a result, the impact of foreign currency gains/losses recognized in earnings are partially offset by gains/losses on the related foreign currency forward exchange contracts in the same reporting period. Refer to Note 14, Financial Instruments and Fair Value Measurements of the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for further information.
As a result, the impact of foreign currency gains/losses recognized in earnings are partially offset by gains/losses on the related foreign currency forward exchange contracts in the same reporting period. Refer to Note 15, Financial Instruments and Fair Value Measurements of the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for further information.
Consequently, foreign currency exchange contracts would not subject us to material risk due to exchange rate movements, because gains and losses on these contracts offset gains and losses on the assets, liabilities or transactions being hedged. Interest Rate Risk Debt - Our interest rate risk as of September 30, 2022 relates primarily to our Term Loan.
Consequently, foreign currency exchange contracts would not subject us to material risk due to exchange rate movements, because gains and losses on these contracts offset gains and losses on the assets, liabilities or transactions being hedged. Interest Rate Risk Debt - Our interest rate risk as of September 30, 2023 relates primarily to our Term Loan.
To the extent we borrow on our revolving credit facility, we will also be subject to risks related to changes in SOFR. Refer to Note 11 to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for further information. 41
To the extent we borrow on our revolving credit facility, we will also be subject to risks related to changes in SOFR. Refer to Note 12 to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for further information. 41
The interest rate is set at 300 basis points over the SOFR, with a 0.50% SOFR floor. Based on our outstanding borrowings at September 30, 2022, a 100 basis points change in interest rates would have impacted interest expense on the Term Loan by $9.5 million on an annualized basis.
The interest rate is set at 300 basis points over the SOFR, with a 0.50% SOFR floor. Based on our outstanding borrowings at September 30, 2023, a 100 basis points change in interest rates would have impacted interest expense on the Term Loan by $9.4 million on an annualized basis.
Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in Notes 3, 11 and 14 to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K, and is incorporated herein by reference. 40 Foreign Currency Exchange and Other Rate Risks We operate on a global basis and are exposed to the risk that changes in foreign currency exchange rates could adversely affect our financial condition, results of operations and cash flows.
Foreign Currency Exchange and Other Rate Risks We operate on a global basis and are exposed to the risk that changes in foreign currency exchange rates could adversely affect our financial condition, results of operations and cash flows.
Added
Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in Notes 3, 12 and 15 to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K, and is incorporated herein by reference.

Other EMBC 10-K year-over-year comparisons