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Unaudited Pro Forma Condensed Combined Financial Information
References in this section to the Diabetes Care Business refer to the Diabetes Care Business as defined in the historical combined financial
statements referenced elsewhere in this Current Report on Form 8-K.
On February 1, 2022, the Board of
Directors of Becton, Dickinson and Company ( BD ) approved the distribution of all of the issued and outstanding shares of common stock of Embecta Corp. ( Embecta ) on the basis of one share of Embecta common stock for every five
shares of BD common stock held as of the close of business on March 22, 2022, the record date for the distribution. Subject to the satisfaction or waiver of the conditions to the distribution, the distribution will occur at 12:01 a.m., Eastern
Time, on April 1, 2022, the distribution date. On February 10, 2022, the U.S. Securities and Exchange Commission declared effective Embecta s registration statement on Form 10-12B, as amended
(the Form 10 ). The following unaudited pro forma condensed combined financial information of Embecta gives effect to the separation and related adjustments in accordance with Article 11 of Regulation
S-X under the Securities Exchange Act of 1934, as amended.
The unaudited pro forma condensed combined balance
sheet gives effect to the separation and related transactions described below as if they had occurred on December 31, 2021. The unaudited pro forma adjustments to the condensed combined statements of income for the three-month period ended
December 31, 2021 and the year ended September 30, 2021 assume that the separation and related transactions occurred as of October 1, 2020.
The unaudited pro forma condensed combined financial information has been derived from and should be read in conjunction with the historical financial
statements and related notes of Embecta reported in previous filings and referenced elsewhere in this Current Report on Form 8-K.
The unaudited pro forma condensed combined statements of income for the three-month period ended December 31, 2021 and the year ended September 30,
2021, and the unaudited pro forma condensed combined balance sheet as of December 31, 2021 have been prepared to reflect adjustments to the Diabetes Care Business s historical combined financial information for transaction and autonomous
Transaction accounting adjustments that reflect the effects of Embecta s legal separation from BD include the following
Autonomous entity adjustments, which consist of contractual obligations or other changes necessary to reflect the
operations and financial position of Embecta as an autonomous entity, include the following adjustments:
Management s adjustments, which consist of reasonably estimated transaction effects expected to occur, include the
following adjustments:
The unaudited pro forma financial information is for informational purposes only and does not purport to represent what the Diabetes Care Business s
financial position and results of operations actually would have been had the separation and distribution occurred on the dates indicated, or to project the Diabetes Care Business s financial performance for any future period. The audited
annual combined financial statements and the interim condensed combined financial statements of the Diabetes Care Business have been derived from BD s historical accounting records and reflect certain allocation of expenses. All of the
allocations and estimates in such financial statements are based on assumptions that BD s management believes are reasonable. The historical combined financial statements of the Diabetes Care Business do not necessarily represent the financial
position or results of operations of the Diabetes Care Business had it been a standalone company during the periods or at the dates presented. As a result, autonomous entity adjustments have been reflected in the pro forma condensed combined
financial information.
The unaudited pro forma condensed combined financial information should be read in conjunction with the Diabetes Care
Business s historical combined financial information and Management s Discussion and Analysis of Financial Condition and Results of Operations included in the Form 10 and Embecta s Quarterly Report on Form 10-Q for the quarter ended December 31, 2021 (the Form 10-Q ). The unaudited pro forma condensed combined financial information constitutes forward-looking
information and is subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. See Cautionary Statements Regarding Forward-Looking Statements included in the Form 10-Q.
DIABETES CARE BUSINESS
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
| Three months ended December 31, 2021 | ||||||||||||||||||||||||
| ($ in millions except per share data) | Historical | Transaction Accounting Adjustments | Autonomous Entity Adjustments | Pro Forma | ||||||||||||||||||||
| Revenues | $ | 289 | $ | $ | 7 | (f | ) | $ | 296 | |||||||||||||||
| Cost of products sold | 85 | (1 | ) | (a | ) | 11 | (f | ), (g), (k) | 95 | |||||||||||||||
| Gross profit | 204 | 1 | (4 | ) | 201 | |||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Selling and administrative expense | 62 | 62 | ||||||||||||||||||||||
| Research and development expense | 17 | 17 | ||||||||||||||||||||||
| Other operating expense | 8 | 8 | ||||||||||||||||||||||
| Total operating costs and expenses | 87 | 87 | ||||||||||||||||||||||
| Operating Income | 117 | 1 | (4 | ) | 114 | |||||||||||||||||||
| Other income (expense), net | ||||||||||||||||||||||||
| Interest expense | (20 | ) | (c | ) | (20 | ) | ||||||||||||||||||
| Income before income taxes | 117 | (19 | ) | (4 | ) | 94 | ||||||||||||||||||
| Income tax (benefit) provision | 18 | (5 | ) | (d | ) | (1 | ) | (d | ) | 12 | ||||||||||||||
| Net Income | $ | 99 | $ | (14 | ) | $ | (3 | ) | $ | 82 | ||||||||||||||
| Basic earnings per common share | (i | ) | $ | 1.44 | ||||||||||||||||||||
| Diluted earnings per common share | (j | ) | $ | 1.44 | ||||||||||||||||||||
| Weighted-average common shares outstanding | ||||||||||||||||||||||||
| Basic | (i | ) | 56,937,000 | |||||||||||||||||||||
| Diluted | (j | ) | 56,978,497 |
See accompanying notes to unaudited pro forma condensed combined financial information.
DIABETES CARE BUSINESS
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
| Year ended September 30, 2021 | ||||||||||||||||||||||||
| ($ in millions except per share data) | Historical | Transaction Accounting Adjustments | Autonomous Entity Adjustments | Pro Forma | ||||||||||||||||||||
| Revenues | $ | 1,165 | $ | $ | 23 | (f | ) | $ | 1,188 | |||||||||||||||
| Cost of products sold | 365 | (3 | ) | (a | ) | 45 | (f | ), (g), (k) | 407 | |||||||||||||||
| Gross profit | 800 | 3 | (22 | ) | 781 | |||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Selling and administrative expense | 240 | 1 | (k | ) | 241 | |||||||||||||||||||
| Research and development expense | 63 | 63 | ||||||||||||||||||||||
| Other operating expense | 5 | 5 | ||||||||||||||||||||||
| Total operating costs and expenses | 308 | 1 | 309 | |||||||||||||||||||||
| Operating Income | 492 | 3 | (23 | ) | 472 | |||||||||||||||||||
| Other income (expense), net | 3 | (1 | ) | (h | ) | 2 | ||||||||||||||||||
| Interest expense | (78 | ) | (c | ) | (78 | ) | ||||||||||||||||||
| Income before income taxes | 495 | (75 | ) | (24 | ) | 396 | ||||||||||||||||||
| Income tax (benefit) provision | 80 | (18 | ) | (d | ) | (3 | ) | (d | ) | 59 | ||||||||||||||
| Net Income | $ | 415 | $ | (57 | ) | $ | (21 | ) | $ | 337 | ||||||||||||||
| Basic earnings per common share | (i | ) | $ | 5.82 | ||||||||||||||||||||
| Diluted earnings per common share | (j | ) | $ | 5.82 | ||||||||||||||||||||
| Weighted-average common shares outstanding | ||||||||||||||||||||||||
| Basic | (i | ) | 57,857,600 | |||||||||||||||||||||
| Diluted | (j | ) | 57,899,097 |
See accompanying notes to unaudited pro forma condensed combined financial information.
DIABETES CARE BUSINESS
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
| As of December 31, 2021 | ||||||||||||||||||||||||
| ($ in millions except per share data) | Historical | Transaction Accounting Adjustments | Autonomous Entity Adjustments | Pro Forma | ||||||||||||||||||||
| Assets | ||||||||||||||||||||||||
| Current assets | ||||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | 160 | (b | ) | $ | 101 | (h | ) | $ | 261 | |||||||||||||
| Trade receivables, net | 118 | (102 | ) | (h | ) | 16 | ||||||||||||||||||
| Inventories | 119 | (1 | ) | (a | ) | 118 | ||||||||||||||||||
| Prepaid expenses and other | 21 | 21 | ||||||||||||||||||||||
| Total current assets | 258 | 159 | (1 | ) | 416 | |||||||||||||||||||
| Property, plant and equipment, net | 437 | (75 | ) | (a | ) | 362 | ||||||||||||||||||
| Goodwill and other intangible assets | 34 | (7 | ) | (a | ) | 27 | ||||||||||||||||||
| Other assets | 11 | (d | ) | 45 | (d | ), (g) | 56 | |||||||||||||||||
| Total assets | $ | 740 | $ | 77 | $ | 44 | $ | 861 | ||||||||||||||||
| Liabilities and Equity | ||||||||||||||||||||||||
| Current liabilities | ||||||||||||||||||||||||
| Accounts payable | $ | 58 | $ | (2 | ) | (a | ) | $ | $ | 56 | ||||||||||||||
| Accrued expenses | 73 | 3 | (g | ) | 76 | |||||||||||||||||||
| Salaries, wages and related items | 28 | 3 | (a | ) | 31 | |||||||||||||||||||
| Income taxes | ||||||||||||||||||||||||
| Total current liabilities | 159 | 1 | 3 | 163 | ||||||||||||||||||||
| Deferred income taxes and other liabilities | 30 | (1 | ) | (d | ) | 32 | (d | ), (g) | 61 | |||||||||||||||
| Long-term Debt | 1,600 | (b | ) | 1,600 | ||||||||||||||||||||
| Equity | ||||||||||||||||||||||||
| Net parent investment | 830 | (830 | ) | (e | ) | |||||||||||||||||||
| Common stock, $0.1 par value, 250,000,0000 shares authorized; 56,937,000 shares issued and outstanding on a pro forma basis | 1 | (e | ) | 1 | ||||||||||||||||||||
| Retained earnings (Accumulated deficit) | (694 | ) | (e | ) | 9 | (e | ) | (685 | ) | |||||||||||||||
| Accumulated other comprehensive income (loss) | (279 | ) | (279 | ) | ||||||||||||||||||||
| Total equity | 551 | (1,523 | ) | 9 | (963 | ) | ||||||||||||||||||
| Total liabilities and equity | $ | 740 | $ | 77 | $ | 44 | $ | 861 |
See accompanying notes to unaudited pro forma condensed combined financial information.
Notes to the Unaudited Pro Forma Condensed Combined Financial Information
This note should be read in conjunction with other notes in the unaudited pro forma condensed combined financial information.
Additionally, we expect to complete financing of a $500 million senior secured 5-year revolving credit facility following the separation. The revolving credit facility will be available for immediate working capital needs and for general corporate purposes, but we do not expect to draw upon
the revolving credit facility upon consummation of the spin-off, and as a result, we expect there to be $500 million available for borrowings thereafter. As such, impacts related to the credit revolver
facility are not reflected in the unaudited pro forma financial information.
The net adjustment to Revenues of $7 million and $23 million reflects sales price adjustments relating to such
historical inventory transfers to reflect the pricing terms set forth in the RMSAs, as well as additional revenue for other inventory transfers from Embecta to BD that will commence upon the separation pursuant to the RMSAs during the three-month
period ended December 31, 2021 and the year ended September 30, 2021, respectively.
The Cost of products sold adjustment of
$10 million and $42 million reflects the approximate incremental cost of products sold by BD to Embecta at the supply price set forth in the MSAs, as well as additional costs incurred for other inventory transfers from BD to Embecta that
will commence upon the separation pursuant to the MSAs. Historically, inventory transfers from BD to Embecta were recorded at cost during the three-month period ended December 31, 2021 and the year ended September 30, 2021, respectively.
As a standalone public company,
Embecta expects to incur certain costs in addition to those incurred pursuant to the transition services agreement as described in (k) above, including costs resulting from:
The three-month period ended December 31, 2021 reflects Embecta s expectation to incur approximately
$22 million of expenses, including one-time expenses of $6 million expected to be incurred within the first three months of the fiscal year following the completion of the separation as well as
$16 million of estimated recurring expenses as a standalone public company, in addition to BD s corporate and shared costs allocated in the historical combined financial statements and the costs to be incurred pursuant to the transition
services agreement that are included as an autonomous entity adjustment.
The year ended September 30, 2021 reflects Embecta s expectation to incur
approximately $89 million of expenses, including one-time expenses of approximately $56 million expected to be incurred within 12 months following the completion of the separation as well as
$33 million of estimated recurring expenses as a standalone public company, in addition to BD s corporate and shared costs allocated in the historical combined financial statements and the costs to be incurred pursuant to the transition
services agreement that are included as an autonomous entity adjustment.
The additional expenses have been estimated based on assumptions
that Embecta management believes are reasonable. However, actual additional costs that will be incurred could be different from the estimates and would depend on several factors, including the economic environment and strategic decisions made in
areas such as separation, manufacturing, selling and marketing, research and development, information technology and infrastructure. Additionally, the separation and distribution agreement will provide for the allocation between BD and Embecta of
rights and obligations under existing insurance policies with respect to occurrences prior to the distribution and set forth procedures for the administration of insured claims and related matters.
For the three-months ended December 31, 2021
| Millions of dollars | ||||
| Pro forma condensed combined net income* | $ | 82 | ||
| Management s adjustments | (22 | ) | ||
| Income tax benefit | 3 | |||
| Pro forma condensed combined net income after management s adjustments | $ | 63 | ||
| Basic earnings per share after management s adjustments | $ | 1.11 | ||
| Diluted earnings per share after management s adjustments | $ | 1.11 |
For the Year Ended September 30, 2021
| Millions of dollars | ||||
| Pro forma condensed combined net income* | $ | 337 | ||
| Management s adjustments | (89 | ) | ||
| Income tax benefit | 10 | |||
| Pro forma condensed combined net income after management s adjustments | $ | 258 | ||
| Basic earnings per share after management s adjustments | $ | 4.46 | ||
| Diluted earnings per share after management s adjustments | $ | 4.46 |