Notes to Condensed Consolidated Financial Statements
Embecta Corp.
Note 1—Background
Embecta ("embecta" or the "Company") is a leading global medical device company focused on providing solutions to improve the health and well-being of people living with diabetes. The Company has a broad portfolio of marketed products, including a variety of pen needles, syringes and safety devices, which are complemented by proprietary digital applications designed to assist people with managing their diabetes. The Company primarily sells products to wholesalers and distributors, which in turn sell such products to customers in primarily retail and institutional channels.
On April 1, 2022, embecta and Becton, Dickinson and Company ("BD") entered into a Separation and Distribution Agreement (the "Separation and Distribution Agreement"). Pursuant to the Separation and Distribution Agreement, BD agreed to spin off its diabetes care business ("Diabetes Care Business") into embecta, a new, publicly traded company (the "Separation").
The Separation occurred by means of a pro-rata distribution of all of embecta’s issued and outstanding shares of common stock on the basis of one share of embecta common stock, par value $0.01 per share, for every five shares of BD common stock, par value $1.00 per share, held as of the close of business on March 22, 2022, the record date for the distribution. embecta is now a standalone publicly traded company and, on April 1, 2022, regular-way trading of embecta common stock commenced on the Nasdaq Global Select Market under the ticker symbol "EMBC".
In connection with the Separation, BD and embecta entered into various agreements to provide a framework for the relationship between BD and embecta after the Separation, including, but not limited to, a separation and distribution agreement, a transition services agreement, a tax matters agreement, an employee matters agreement, a cannula supply agreement, contract manufacturing agreements, an intellectual property matters agreement, a logistics services agreement, distribution agreements, factoring and receivables agreements, local support and service agreements and other transaction documents.
Note 2 - Basis of Presentation
On April 1, 2022, the Company became a standalone publicly traded company, and its financial statements are now presented on a consolidated basis. Prior to the Separation on April 1, 2022, the Company’s historical combined financial statements were prepared on a standalone basis and were derived from BD's consolidated financial statements and accounting records. The unaudited financial statements for all periods presented, including the historical results of the Company prior to April 1, 2022, are now referred to as "Condensed Consolidated Financial Statements", and have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and disclosures required by U.S. generally accepted accounting principles ("GAAP") for complete consolidated financial statements are not included herein. The results of operations of any interim period are not necessarily indicative of the results of operations for the full year. In the Company’s opinion, all adjustments necessary for a fair statement of these interim statements have been included and are of a normal and recurring nature. These interim statements should be read in conjunction with the audited financial statements and notes thereto included in embecta’s Registration Statement on Form 10, as amended, filed on February 2, 2022 (the "Form 10").
Periods Prior to Separation
Prior to the Separation, the Company was referred to as the Diabetes Care Business. The assets, liabilities, revenue and expenses of the Diabetes Care Business were reflected in the Condensed Combined Financial Statements on a historical cost basis, as included in the consolidated financial statements of BD, using the historical accounting policies applied by BD.
The Diabetes Care Business had historically functioned together with the other businesses controlled by BD. Accordingly, the Diabetes Care Business relied on BD’s corporate and other support functions for its business. Therefore, for the period prior to the Separation, certain corporate and shared costs were allocated to the Diabetes Care Business based on a specific identification basis or, when specific identification was not practicable, a proportional cost allocation method, including:
i.expenses related to BD support functions, including expenses for facilities, executive oversight, treasury, finance, legal, human resources, shared services, compliance, procurement, information technology and other corporate functions.
ii.certain manufacturing and supply costs incurred by BD, including facility management, distribution, logistics, planning and global quality.
iii.certain costs incurred by BD’s Medication Delivery Solutions organizational unit in relation to selling and marketing activities, and related administrative support functions.
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| Dollar amounts are in millions except per share amounts or as otherwise specified. | | |
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iv.certain costs incurred by BD for activities related to device research and development, as well as medical and regulatory affairs.
v.share-based compensation expenses (see Note 8).
vi.certain compensation expenses maintained on a centralized basis such as certain employee benefit expenses.
Management believes these cost allocations were a reasonable reflection of the utilization of services provided to, or the benefit derived by, the Diabetes Care Business during the period prior to the Separation, though the allocations may not be indicative of the actual costs that would have been incurred had the Diabetes Care Business operated as a standalone public company. 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.
BD utilized a centralized approach to cash management and the financing of its operations. Cash generated by the Diabetes Care Business was routinely transferred into accounts managed by BD’s centralized treasury function and cash disbursements related to operations prior to the Separation were funded as needed by BD. Balances held by the Diabetes Care Business with BD for cash transfers and loans were reflected as Due to related party prior to Separation. All other cash and cash equivalents and related transfers between BD and the Diabetes Care Business were generally held centrally through accounts controlled and maintained by BD and were not specifically identifiable to the Diabetes Care Business. Accordingly, such balances were accounted for through Net Investment from Becton, Dickinson and Company. BD’s third-party debt and related interest expense were not attributed to the Diabetes Care Business because the business was not the legal obligor of the debt and the borrowings were not specifically identifiable to the business.
For the Diabetes Care Business, transactions with BD affiliates were included in the Condensed Consolidated Statements of Income and related balances were reflected as Due to related party, Due from related party or Related Party Loans Payable. Other balances between the Diabetes Care Business and BD were considered to be effectively settled in the Condensed Consolidated Financial Statements at the time the transactions were recorded.
As the separate legal entities that made up the Diabetes Care Business were not historically held by a single legal entity, Net Investment from Becton, Dickinson and Company was shown in lieu of stockholders’ equity in these Condensed Consolidated Financial Statements. Net Investment from Becton, Dickinson and Company represented BD’s interest in the recorded assets of the Diabetes Care Business and the cumulative investment by BD through the date of Separation, inclusive of operating results.
Income tax expense and tax balances in the Condensed Consolidated Financial Statements were calculated on a separate tax return basis. The separate tax return method applies the accounting guidance for income taxes to the standalone financial statements as if we were a separate taxpayer and a standalone enterprise. Management believes the assumptions supporting the allocation and presentation of income taxes on a separate return basis are reasonable.
The provision for income taxes for the period prior to Separation, was calculated by applying an estimated effective income tax rate for the full year to ordinary income adjusted by the tax impact of discrete items.
As of Separation Date
Certain assets and liabilities, including patents and unrecognized tax benefits that were included on the Condensed Consolidated Balance Sheet prior to the Separation, have been retained by BD post-Separation and therefore were transferred to BD through Net Investment from Becton, Dickinson and Company in the Company's Condensed Consolidated Financial Statements.
In connection with the Separation, additional pension assets, deferred tax assets, other compensation obligations, and certain other assets and liabilities were transferred to the Company through Net Investment from Becton, Dickinson and Company, and the Company recorded these on the Condensed Consolidated Balance Sheet.
As part of the Separation, Net Investment from Becton, Dickinson and Company was reclassified as Common Stock and Accumulated Deficit.
Periods Post Separation
Following the Separation, certain functions continue to be provided by BD under the Transition Services Agreements or are being performed using embecta’s own resources or third-party service providers. Additionally, under manufacturing and supply agreements, the Company manufactures certain products for BD, or its applicable affiliate and BD manufactures certain products for the Company. The Company incurred certain costs in its establishment as a standalone public company and expects to incur ongoing additional costs associated with operating as an independent, publicly traded company.
As a standalone entity, the Company will file tax returns on its own behalf, and tax balances and effective income tax rate may differ from the amounts reported in the historical periods.
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| Dollar amounts are in millions except per share amounts or as otherwise specified. | | |
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The provision for income taxes for the three months ended June 30, 2022, was calculated by applying an estimated effective income tax rate for the six months post Separation to ordinary income for the three months ended June 30, 2022, adjusted by the tax impact of discrete items.
All intercompany transactions and accounts within embecta have been eliminated. Certain amounts presented in the prior period have been reclassified to conform to the current period presentation.
The following provides updates to our "Summary of Significant Accounting Policies" as disclosed in the Form 10.
Leases
We determine whether an arrangement contains a lease at inception. If a lease is identified in an arrangement, we recognize a right-of-use asset and liability on our Condensed Consolidated Balance Sheets and determine whether the lease should be classified as a finance or operating lease. We do not recognize assets or liabilities for leases with lease terms of less than 12 months.
A lease qualifies as a finance lease if any of the following criteria are met at the inception of the lease: (i) there is a transfer of ownership of the leased asset to embecta by the end of the lease term, (ii) we hold an option to purchase the leased asset that we are reasonably certain to exercise, (iii) the lease term is for a major part of the remaining economic life of the leased asset, (iv) the present value of the sum of lease payments equals or exceeds substantially all of the fair value of the leased asset, or (v) the nature of the leased asset is specialized to the point that it is expected to provide the lessor no alternative use at the end of the lease term. All other leases are recorded as operating leases.
Finance and operating lease assets and liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term using the discount rate implicit in the lease. If the rate implicit is not readily determinable, we utilize our incremental borrowing rate at the lease commencement date. Operating lease assets are further adjusted for prepaid or accrued lease payments. Operating lease payments are expensed using the straight-line method as an operating expense over the lease term. Finance lease assets are amortized to depreciation expense using the straight-line method over the shorter of the useful life of the related asset or the lease term. Finance lease payments are bifurcated into (i) a portion that is recorded as imputed interest expense and (ii) a portion that reduces the finance liability associated with the lease.
For lease arrangements that are recognized on the Company’s Condensed Consolidated Balance Sheets, the right-of-use asset and lease liability is initially measured at the commencement date based upon the present value of the lease payments due under the lease. These payments represent the combination of the fixed lease and fixed non-lease components that are due under the arrangement. Variable lease payments are expensed as incurred. If a lease includes an option to extend or terminate the lease, we reflect the option in the lease term if it is reasonably certain we will exercise the option.
Finance leases are recorded in “Property, Plant and Equipment, Net”, “Current finance lease liabilities”, and “Non Current Finance Lease Liabilities” and operating leases are recorded in “Other Assets”, “Accrued expenses”, and “Deferred Income Taxes and Other Liabilities” on our Condensed Consolidated Balance Sheets.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates or assumptions affect reported assets, liabilities, revenues and expenses, including determining the allocation of shared costs and expenses from BD, depreciable and amortizable lives, sales returns and allowances, rebate accruals, inventory reserves and taxes on income as reflected in the Condensed Consolidated Financial Statements. Actual results could differ from these estimates.
Note 3 — Third Party Arrangements and Related Party Disclosures
Pursuant to the Separation, BD ceased to be a related party to embecta and accordingly, no related party transactions or balances are reported subsequent to April 1, 2022.
In connection with the Separation, the Company entered into the Separation and Distribution Agreement, which contains provisions that, among other things, relate to (i) assets, liabilities and contracts to be transferred, assumed and assigned to each of embecta and BD (including certain delayed assets and liabilities) as part of the Separation, (ii) cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of embecta's business with embecta and financial responsibility for the obligations and liabilities of BD’s remaining businesses with BD, (iii) procedures with respect to claims subject to indemnification and related matters, (iv) the allocation among embecta and BD of rights and obligations under existing insurance policies with respect to occurrences prior to completion of the Separation, as well as the right to proceeds and the obligation to incur certain deductibles under certain insurance policies, and (v) procedures
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| Dollar amounts are in millions except per share amounts or as otherwise specified. | | |
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governing embecta’s and BD’s obligations and allocations of liabilities with respect to ongoing litigation matters that may implicate each of BD’s business and embecta’s business.
Agreements that embecta entered into with BD that govern aspects of embecta's relationship with BD following the separation include, but are not limited to:
•Transition Services Agreements ("TSA") - Pursuant to the TSA, embecta and BD and their respective affiliates will 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. 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 expenses. The services will terminate no later than 24 months following the Separation. 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.
•Trade Receivables Factoring Agreements - embecta and BD entered into trade receivables factoring agreements (the "Factoring Agreements"), under which embecta transfers certain trade receivable assets to BD, and pays a service fee calculated as 0.1% of annual revenues related to countries subject to the Factoring Agreements in exchange for the services provided by BD. Per the terms of the Factoring Agreements, the Company and its relevant subsidiaries sells receivables to the corresponding BD subsidiary in the same jurisdiction and such BD subsidiary collects the receivables from Company's customers. The BD subsidiary assumes the credit risk in respect of the receivables, and accordingly deducts a factoring fee from the purchase price of such receivables. Accordingly, embecta accounts for the transfer as sales of trade receivables by recognizing an increase to Cash and cash equivalents and a decrease to Trade Receivables, net on the Condensed Consolidated Balance Sheets when proceeds from the transactions are received. The transfers are presented on the Condensed Consolidated Statements of Cash Flows as operating activities and the related service fee is presented as a component of Other income (expense), net in the Condensed Consolidated Statements of Income.
•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 will be 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 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. 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 will sell 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. BD will retain ownership of all cannula technology, cannula production activities and the intellectual property rights therein. embecta is limited to a maximum number of cannulas that it can purchase under the cannula supply agreement, which will be an absolute upper limit of cannulas per year and yearly limits that vary with annual demand. The cannula supply agreement will be terminable by embecta without cause by providing at least 36 months’ written notice; however, such termination can be effective no earlier than five years from the Separation. 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 will have the right to terminate the cannula supply agreement in its sole discretion. The cannula supply agreement will also terminate automatically, subject to a 36-month wind-down period, if embecta’s yearly forecast is below the required minimum purchase amount, and the parties will have other customary termination rights for material breach or bankruptcy of the other party.
•Tax Matters Agreement - Pursuant to the Tax Matters Agreement, embecta agreed to certain covenants that contain restrictions intended to preserve the tax-free status of the distribution and certain related transactions. embecta may take certain actions prohibited by these covenants only if embecta obtains and provides to BD an opinion from a U.S. tax counsel or accountant of recognized national standing, in either case satisfactory to BD, to the effect that such action would not jeopardize the tax-free status of these transactions, or if embecta obtains prior written consent of BD. embecta is barred from taking any action, or failing to take any action, where such action or failure to act adversely affects or could reasonably be expected to adversely affect the tax-free status of these transactions or result in certain other taxes to BD, for all relevant time periods. 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,
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| Dollar amounts are in millions except per share amounts or as otherwise specified. | | |
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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 will provide embecta with certain order-to-cash and logistics services to support certain commercial operations for a maximum term of two years. 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 direct income statement, 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, the Employee Matters Agreement, the Intellectual Property Matters Agreement, local support services agreements, certain other manufacturing arrangements and a process services agreement and lease agreement for Holdrege. See Note - 15 for more information on the lease agreement for Holdrege.
The amount due from BD under the above agreements was $97.0 million at June 30, 2022 and is reflected in Amounts due from Becton, Dickinson and Company. The amount due to BD under these agreements was $33.8 million at June 30, 2022 and is included in Accounts payable.
For the three and nine months ended June 30, 2022, the periods subsequent to the Separation included costs of products sold in the amount of $11.1 million attributed to inventory purchased from BD prior to Separation.
Prior to the Separation, the Company did not operate as a standalone business and the Condensed Consolidated Financial Statements were derived from the consolidated financial statements and accounting records of BD. The following disclosure summarizes activity between the Company and BD up to the Separation, including the affiliates of BD that were not part of the Separation.
Corporate and Medical Segment Allocations from BD
BD provided significant corporate, finance, human resources, information technology, facilities, and legal services, among others (collectively, “General Corporate Expenses”) to the Company. Some of these services continue to be provided by BD to the Company on a temporary basis under the Transition Services Agreement. For purposes of these Condensed Consolidated Financial Statements for the periods prior to Separation, the General Corporate Expenses have been allocated to the Company.
The allocations of General Corporate Expenses are reflected in the Condensed Consolidated Statements of Income as follows:
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| | | | Three months ended June 30, | | Nine months ended June 30, |
| | | | 2021 | | 2022 | | 2021 |
| Cost of products sold | | | $ | 3.1 | | | $ | 2.3 | | | $ | 11.0 | |
| Selling and administrative expense | | | 25.2 | | 47.9 | | 73.3 |
| Research and development expense | | | 1.3 | | 3.5 | | 3.8 |
| Other (income) expense, net | | | (0.7) | | (0.6) | | (2.8) |
| Total General Corporate Expenses | | | $ | 28.9 | | | $ | 53.1 | | | $ | 85.3 | |
These expenses were allocated to the Company on a pro rata basis of global and regional revenues, headcount, research and development spend and other drivers. Management believes the assumptions underlying the Condensed Consolidated Financial Statements, including the assumptions regarding allocating General Corporate Expenses from BD, are reasonable. Nevertheless, the Condensed Consolidated Financial Statements for periods prior to the Separation may not include all of the actual expenses that would have been incurred and may not reflect the Company’s Condensed Consolidated results of operations, financial position and cash flows had it been a standalone public company during the periods presented. Actual costs that would have been incurred if the Company had been a standalone public company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure.
Related party transactions
The following transaction represent activity in the ordinary course of business between the Company and BD prior to the Separation for certain materials for use in production of certain medical products that were not at arm’s length. The
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| Dollar amounts are in millions except per share amounts or as otherwise specified. | | |
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following table summarizes related party purchases for the three month period ended June 30, 2021 and nine month periods ended June 30, 2022 and 2021:
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| | | | Three months ended June 30, | | Nine months ended June 30, |
| | | | 2021 | | 2022 | | 2021 |
| Purchases from BD | | | $ | 12.1 | | | $ | 28.0 | | | $ | 32.4 | |
All significant intercompany transactions between the Company and BD have been included in the Condensed Consolidated Financial Statements and are considered to be effectively settled for cash at the time the transaction is recorded. For the period prior to the Separation, the total net effect of the settlement of these intercompany transactions is reflected in the Condensed Consolidated Statements of Cash Flows as a financing activity and in the Condensed Consolidated Balance Sheets as Net Investment from Becton, Dickinson and Company.
Prior to the Separation, net transfers to BD were included within Net Investment from Becton, Dickinson and Company. on the Condensed Consolidated Statements of Equity and represent the net effect of transactions between the Company and BD.
The following table summarizes the components of net transfers to BD for the three months ended June 30, 2021:
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Cash pooling and general financing activities(1) | | | $ | 170.2 | |
| Corporate and segment allocations, excluding non-cash share-based compensation | | | (28.4) |
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| Taxes deemed settled with BD | | | (19.8) | |
| Net transfers to BD as reflected in the Condensed Consolidated Statements of Cash Flows | | | 122.0 | |
| Share-based compensation expense | | | (2.9) |
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| Pension expense | | | (2.1) |
| Other transfers to (from) BD, net | | | (8.3) |
| Net transfers to BD | | | $ | 108.7 | |
(1)The nature of activities includes financing activities for capital transfers, cash sweeps and other treasury services. As part of this activity, cash balances were swept to BD on a daily basis under the BD Treasury function and the Company receives capital from BD for its cash needs.
The following table summarizes the components of the net transfers to BD for the nine months ended June 30, 2022 and 2021:
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| | 2022 | | 2021 |
Cash pooling and general financing activities(1) | $ | 255.9 | | | $ | 473.3 | |
| Corporate and segment allocations, excluding non-cash share-based compensation | (50.4) | | | (82.1) |
| Taxes deemed settled with BD | (16.2) | | | (46.3) |
| Other Separation related adjustments, net | (6.6) | | | — |
| Net transfers to BD as reflected in the Condensed Consolidated Statements of Cash Flows | 182.7 | | | 344.9 |
| Share-based compensation expense | (8.5) | | | (9.6) |
| Pension expense | (3.6) | | | (7.0) | |
| Net Consideration paid to BD in connection with the Separation | 1,266.0 | | | — | |
| Related party senior secured notes | 197.0 | | | — | |
| Other transfers to (from) BD, net | 84.1 | | | (18.6) | |
| Net transfers to BD | $ | 1,717.7 | | | $ | 309.7 | |
(1)The nature of activities includes financing activities for capital transfers, cash sweeps and other treasury services. As part of this activity, cash balances were swept to BD on a daily basis under the BD Treasury function and the Company receives capital from BD for its cash needs.
Related Party Senior Secured Notes
On March 31, 2022, embecta issued $200.0 million of senior secured notes to BD (the "Related Party Notes"). The Related Party Notes issued to BD were not issued for cash and instead were subject to a debt-for-debt exchange which occurred on April 1, 2022. As of April 1, 2022 the Related Party Notes were reclassified to Long-Term Debt on the Condensed
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| Dollar amounts are in millions except per share amounts or as otherwise specified. | | |
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Consolidated Balance Sheets as the Related Party Notes are third party debt for periods post Separation. Refer to Note 10 for further information.
Note 4 — Other Operating Expenses
In connection with the Separation further described in Note 1, the Company incurred separation and stand-up costs of approximately $7.7 million and $23.5 million during the three and nine months ended June 30, 2022, respectively. The costs incurred primarily consist of costs associated with legal, supply chain, employee retention, and certain other costs to establish certain stand-alone functions to assist with the transition to being a stand-alone entity. There were $2.1 million of separation and stand-up costs incurred during the three and nine months ended June 30, 2021.
Note 5 — Contingencies
The Company regularly monitors and evaluates the status of product liability and other legal matters, and may, from time-to-time, engage in settlement and mediation discussions taking into consideration developments in the matters and the risks and uncertainties surrounding litigation. These discussions could result in settlements of one or more of these claims at any time. The Company has not identified material legal matters where it believes an unfavorable, material outcome is probable and estimable and, therefore, no reserve is established. Although management currently believes that resolving claims against the Company, including claims where an unfavorable outcome is reasonably possible, will not have a material impact on the liquidity, results of operations, or financial condition of the Company, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future. It is possible that an unfavorable outcome resulting from legal matters or other contingencies could have a material impact on the liquidity, results of operations or financial condition of the Company.
Significant judgment is required in both the determination of probability of loss and the determination as to whether the amount can be reasonably estimated. Accruals are based only on information available at the time of the assessment, due to the uncertain nature of such matters. As additional information becomes available, management reassesses potential liabilities related to pending claims and litigation and may revise its previous estimates, which could materially affect the Company’s results of operations in a given period. The Company was not a party to any material legal proceedings at June 30, 2022 or September 30, 2021, nor is it a party to any material legal proceedings as of the date of issuance of these Condensed Consolidated Financial Statements.
Note 6 — Revenues
The Company’s policies for recognizing sales have not changed from those described in the Company’s Registration Statement on Form 10. The Company sells syringes, pen needles and other products used in the management of diabetes which are primarily sold to wholesalers and distributors, which in turn sell these products to customers through retail and acute care hospitals, clinics and other institutional channels. End-users of the Company’s products include healthcare institutions, physicians, life science researchers, clinical laboratories, the pharmaceutical industry, and the general public.
Measurement of Revenues
Payment terms extended to the Company’s customers are based upon commercially reasonable terms for the markets in which the Company’s products are sold. Because the Company generally expects to receive payment within one year or less from when control of a product is transferred to the customer, the Company does not generally adjust its revenues for the effects of a financing component. The Company’s allowance for doubtful accounts reflects the current estimate of credit losses expected to be incurred over the life of its trade receivables. Such estimated credit losses are determined based on historical loss experiences, customer specific credit risk, and reasonable and supportable forward-looking information, such as country or regional risks that are not captured in the historical loss information. Amounts are written off against the allowances for doubtful accounts when the Company determines that a customer account is uncollectible. The allowance for doubtful accounts for trade receivables is not material to the Company’s Condensed Consolidated financial results.
The Company’s gross revenues are subject to a variety of deductions which are recorded in the same period that the underlying revenues are recognized. Such variable consideration includes rebates, sales discounts, and sales returns. Because these deductions represent estimates of the related obligations, judgment is required when determining the impact of these revenue deductions on gross revenues for a reporting period. Rebates provided by the Company are based upon prices determined under the Company’s agreements primarily with its end-user customers. Additional factors considered in the estimate of the Company’s rebate liability include the quantification of inventory that is either in stock at or in transit to the Company’s distributors, as well as the estimated lag time between the sale of product and the payment of corresponding rebates.
The Company’s liability attributed to variable consideration at June 30, 2022 and September 30, 2021 was $39.5 million and $71.7 million, respectively. The decrease is primarily attributed to the Factoring Agreement by which certain trade
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| Dollar amounts are in millions except per share amounts or as otherwise specified. | | |
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receivables are factored to BD net of variable consideration. Sales deductions recorded as a reduction of gross revenues during the three months ended June 30, 2022 and 2021 were $73.7 million and $64.9 million, respectively. Sales deductions recorded as a reduction of gross revenues during the nine months ended June 30, 2022 and 2021 were $219.2 million and $208.0 million, respectively.
Disaggregation of Revenues
Disaggregation of revenue by geographic region is provided within Note 7.
Contract Assets and Liabilities
The Company does not have contract liabilities. Contract assets consist of the Company’s right to consideration that is conditional upon its future performance pursuant to private label agreements and are presented within Prepaid expenses and other on the Condensed Consolidated Balance Sheets.
The Company’s contract asset balance was $1.2 million as of June 30, 2022 and $1.4 million as of September 30, 2021.
Note 7 — Segment and Geographical Data
Operating segments are identified as components of an enterprise in which discrete financial information is available for evaluation by the chief operating decision-maker (“CODM”) in making decisions regarding assessing business performance and allocating resources and capital. Management has concluded that the Company operates in one segment based upon the information used by the CODM in evaluating the performance of the Company’s business and allocating resources and capital.
Disaggregation of Revenues
The Company has distribution agreements with regional or national distributors (including wholesalers and medical suppliers) to ensure broad availability of its products as well as a direct sales force in certain countries and regions around the world. In the United States and Canada, the Company utilizes its field-based sales representatives and internal sales teams. In certain markets within Europe, the Company has dedicated sales representatives and in certain regions of the Middle East and Africa, the Company has distribution agreements. In Greater Asia, the Company has distribution agreements and in China, the Company relies on its own commercial team to support sales execution. In Latin America, the Company maintains distribution agreements and direct sales representatives.
The Company disaggregates its revenue by geography as management believes this category best depicts how the nature, amount, and timing of revenues and cash flows are affected by economic factors.
Revenues by geographic region are as follows:
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| | Three months ended June 30, | | Nine months ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| United States | $ | 158.0 | | | $ | 151.8 | | | $ | 450.4 | | | $ | 450.1 | |
International(1) | 133.1 | | 143.2 | | 404.5 | | 414.4 |
| Total | $ | 291.1 | | | $ | 295.0 | | | $ | 854.9 | | | $ | 864.5 | |
(1)During the three and nine months ended June 30, 2022 and 2021, no individual country outside of the United States generated revenue that represented more than 10.0% of total revenues.
Note 8 — Share-Based Compensation
Periods Prior to Separation
Prior to the Separation, certain of the Company's employees participated in stock-based compensation plans sponsored by BD. Under these plans BD granted time-vested restricted stock units ("TVUs"), stock appreciation rights ("SARs"), and performance share units ("PSUs") to certain management level employees.
Prior to the Separation on April 1, 2022, share-based compensation expense in the Condensed Consolidated Statements of Income is representative of those employees who were dedicated to the Diabetes Care Business. Additionally, share-based compensation expense was allocated to the Diabetes Care Business for BD Corporate and Medical Segment employees who were not dedicated solely to the Diabetes Care Business. This share-based compensation expense was allocated using a proportional cost allocation method and is included as a component of corporate allocations for periods prior to the Separation. The amounts presented for the periods prior to the Separation are not necessarily indicative of future awards and do not necessarily reflect the costs that the Company would have incurred as an independent company.
| | | | | | | | |
| Dollar amounts are in millions except per share amounts or as otherwise specified. | | |
14
As of Separation Date and Periods Post Separation
In connection with the Separation, and in accordance with the EMA, embecta's employees with outstanding former BD share-based awards received replacement share-based awards under the Embecta 2022 Employee and Director Equity Based Compensation Plan. The ratio used to convert the BD share-based awards was designed to preserve the aggregate intrinsic value of the award immediately after the Separation when compared to the aggregate intrinsic value of the award immediately prior to Separation. As a result of the award modification, embecta will incur $6.9 million of incremental stock-based compensation expense. Of this amount, $0.8 million was related to vested SARs, TVUs and PSUs awards and was recognized during the third quarter of 2022. $6.1 million will be recognized at a future date over the awards' remaining weighted average vesting period of 2.75 years.
Effective April 1, 2022, embecta established the 2022 Employee and Director Equity Based Compensation Plan (the "Plan"). A total of 7,000,000 shares of common stock are authorized under the Plan. The Plan provides for the grant of various types of awards including restricted stock unit awards, stock appreciation rights, stock options, performance-based awards and other stock-based awards. Under the Plan, the exercise price of awards, if any, is set on the grant date and may not be less than the fair market value per share on that date. Generally, stock options and SARs have a term of ten years and a three or four year vesting period, subject to limited exceptions.
The Company measures share-based compensation for equity awards at fair value utilizing a Black-Scholes-Merton (“BSM”) model on the date of grant and records share-based compensation as a charge to earnings net of the estimated impact of forfeited awards. Accordingly, the Company recognizes share-based compensation cost only for those stock-based awards that are estimated to ultimately vest over their requisite service period, based on the vesting provisions of the individual grants. The cumulative effect on current and prior periods of a change in the estimated forfeiture rate is recognized as compensation cost in earnings in the period of the change.
On April 1, 2022, embecta granted 48,192 of potential shares to non-employee directors in the form of restricted stock units ("RSUs"), which vest at the earlier of (i) the first anniversary of the grant date or (ii) the date of the first annual meeting of shareholders, subject to continued employment of the recipients.
On April 4, 2022 and in connection with the Separation, embecta granted 860,611 of potential shares to members of the embecta leadership team as a one-time sign-on equity grant, subject to continued employment, comprised of the following:
•172,787 grants of time-vested RSUs which cliff vest on the third anniversary after grant date;
•528,167 grants of SARs which cliff vest on the third anniversary after grant date and;
•27,653 of TVUs and 132,004 of SARs granted to the CEO which vest evenly over three and four years, respectively.
Share-Based Compensation Expense
Total direct and allocated stock-based compensation expense for the three and nine months ended June 30, 2022 and 2021 and the respective income tax benefits recognized by the Company in the Condensed Consolidated Statements of Income are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Nine months ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Cost of products sold | $ | 0.3 | | | $ | 0.7 | | | $ | 2.0 | | | $ | 2.2 | |
| Selling and administrative expense | 5.0 | | | 1.9 | | | 10.7 | | | 5.8 | |
| Research and development expense | 0.5 | | | 0.3 | | | 1.6 | | | 1.6 | |
| Total Share-Based Compensation Expense | $ | 5.8 | | | $ | 2.9 | | | $ | 14.3 | | | $ | 9.6 | |
| Tax benefit associated with share-based compensation costs recognized | $ | 1.1 | | | $ | 0.7 | | | $ | 3.1 | | | $ | 2.3 | |
| | | | | | | | |
| Dollar amounts are in millions except per share amounts or as otherwise specified. | | |
15
Note 9 — Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets consisted of:
| | | | | | | | | | | |
| June 30, 2022 | | September 30, 2021 |
| Amortized intangible assets | | | |
| Patents – gross | $ | 9.4 | | | $ | 21.2 | |
| Less: accumulated amortization | (3.7) | | | (6.9) | |
| Patents – net | $ | 5.7 | | | $ | 14.3 | |
| Customer Relationships and Other – gross | $ | 5.2 | | | $ | 5.4 | |
| Less: accumulated amortization | (1.6) | | | (1.4) | |
| Customer Relationships and Other – net | $ | 3.6 | | | $ | 4.0 | |
| Total amortized intangible assets | $ | 9.3 | | | $ | 18.3 | |
| Goodwill | 15.7 | | | 15.6 | |
| Total Goodwill and Other Intangible Assets | $ | 25.0 | | | $ | 33.9 | |
Note 10 — Long-Term Debt
5.00% Senior Secured Notes due 2030
On February 10, 2022 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, with the first interest payment due in August 2022.
6.75% Senior Secured Notes due 2030
On March 31, 2022, embecta issued $200.0 million of 6.75% Related Party Notes at a discount of $3.0 million. The Related Party Notes issued to BD were not issued for cash and instead were subject to a debt-for-debt exchange which occurred on April 1, 2022. As such, the issuance of the Related Party Notes is a non-cash financing activity and is not presented on the Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 2022.
On April 1, 2022, BD transferred the Related Party Notes with a notional of $200.0 million issued by embecta to Morgan Stanley in exchange for certain notes of BD that were purchased by Morgan Stanley pursuant to a tender offer. Morgan Stanley then sold the senior secured notes to qualified institutional buyers in the United States pursuant to Rule 144A under the Securities Act of 1933, as amended. As of April 1, 2022, the 6.75% senior secured notes (the "6.75% Notes") became third party debt of embecta. Interest payments on the 6.75% Notes are due semi-annually in February and August until maturity, with the first interest payment due in August 2022.
Credit Agreement
On March 31, 2022, embecta entered into a credit agreement (the “Credit Agreement”), providing for:
•a Term Loan B Facility (the "Term Loan") in the amount of $950.0 million, with a seven-year term that matures in March 2029. The interest rate is 300 basis points over the secured overnight financing rate (“SOFR”), with a 0.50% SOFR floor. The Term Loan was issued at a discount of 0.50%. Principal and interest payments on the Term Loan commenced 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; and
•a Revolving Credit Facility (the "Revolving Credit Facility") in an aggregate principal amount of up to $500.0 million, with a five-year term that matures in 2027. Borrowings under the Revolving Credit Facility bear interest, at embecta’s option, at an annual rate equal to (a) in the case of loans denominated in U.S. dollars (i) the SOFR or (ii) the alternate base rate or (b) in the case of loans denominated in Euros, the EURIBOR rate, in each case plus an applicable margin specified in the credit agreement. A commitment fee applies to the unused portion of the Revolving Credit Facility, equal to 0.25% per annum. As of June 30, 2022, no amount has been drawn on the Revolving Credit Facility.
The Credit Agreement and the indenture for the 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 Notes. In addition, the Credit Agreement contains covenants that will limit, among other things, embecta’s ability to prepay, redeem or repurchase its subordinated and junior lien debt, incur additional debt, make acquisitions, merge with other entities, pay dividends or distributions, redeem or repurchase equity interests, and create or become subject to liens.
| | | | | | | | |
| Dollar amounts are in millions except per share amounts or as otherwise specified. | | |
16
The following is a summary of embecta's total debt outstanding as of June 30, 2022:
| | | | | |
| Term Loan | $ | 947.6 |
5.00% Notes | 500.0 |
6.75% Notes | $ | 200.0 |
| Total principal debt issued | $ | 1,647.6 |
| Less: current debt obligations | (9.5) |
| Less: debt issuance costs and discounts | (38.9) |
| Long-term debt | $ | 1,599.2 |
The debt issuance costs on the Term Loan, 5.00% Notes, 6.75% Notes and the discount on the Term Loan are reported in the Condensed Consolidated Balance Sheets as a reduction of debt and are amortized as a component of Interest expense, net over the term of the related debt using the effective interest method.
The schedule of principal payments required on long-term debt for the next five fiscal years and thereafter is as follows:
| | | | | |
| 2022 | $ | 2.4 | |
| 2023 | $ | 9.5 | |
| 2024 | $ | 9.5 | |
| 2025 | $ | 9.5 | |
| 2026 | $ | 9.5 | |
| Thereafter | $ | 1,607.3 | |
The estimated fair value of long-term debt (including current portion) at June 30, 2022 was $1,493.8 million compared with a carrying value (which includes a reduction for amortized debt issuance costs and discounts) of $1,608.7 million. Fair value was estimated using inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability and would be considered Level 2 in the fair value hierarchy.
Note 11 — Earnings per Share
On April 1, 2022, the date of the Separation, 57,797,841 shares of embecta's common stock, par value $0.01 per share, were distributed to BD shareholders of record as of March 22, 2022, the record date of the transaction. This share amount is utilized for the calculation of basic and diluted earnings per share for all periods presented prior to the Separation.
In connection with the Separation, and in accordance with the EMA, embecta's employees with outstanding former BD share-based awards received replacement share-based awards under the Plan. The ratio used to convert the BD share-based awards was designed to preserve the aggregate intrinsic value of the award immediately after the Separation when compared to the aggregate intrinsic value of the award immediately prior to Separation (see Note 8 for additional details).
The calculation of basic and diluted earnings per common share for the three and nine months ended June 30, 2022 and 2021 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Nine Months Ended
June 30, |
| ($ in millions and shares in thousands, except per share amounts) | 2022 | | 2021 | | 2022 | | 2021 |
| Net Income attributable to embecta | $ | 62.4 | | | $ | 104.7 | | | $ | 240.8 | | | $ | 317.9 | |
| | | | | | | |
| Basic weighted average number of shares outstanding | 57,802 | | 57,798 | | 57,799 | | 57,798 |
| Stock awards and equity units (share equivalent) | 405 | | — | | | 405 | | — | |
| Diluted weighted average shares outstanding | 58,207 | | 57,798 | | 58,204 | | 57,798 |
| | | | | | | |
| Earnings per common share - Basic | $ | 1.08 | | | $ | 1.81 | | | $ | 4.17 | | | $ | 5.50 | |
| Earnings per common share - Diluted | $ | 1.07 | | | $ | 1.81 | | | $ | 4.14 | | | $ | 5.50 | |
For periods prior to the Separation, it is assumed that there were no dilutive equity instruments as there were no equity awards of embecta outstanding prior to the Separation.
| | | | | | | | |
| Dollar amounts are in millions except per share amounts or as otherwise specified. | | |
17
For periods subsequent to the Separation, diluted earnings per share is computed by giving effect to all potentially dilutive stock awards that are outstanding. The computation of diluted earnings per share excludes the effect of the potential exercise of stock-based awards, when the effect of the potential exercise would be anti-dilutive.
Note 12 — Income Taxes
The Company is subject to income tax in the various jurisdictions in which it operates. A significant portion of the Company's earnings are taxed in jurisdictions with statutory tax rates that are lower than the statutory tax rate of the United States. The effective tax rate can vary from quarter to quarter because of changes in the geographical mix of the Company's earnings, changes in tax laws and matters related to tax audits.
The effective income tax rates were 15.2% and 16.2% for the three months ended June 30, 2022 and 2021, respectively, and 15.2% and 16.0% for the nine months ended June 30, 2022 and 2021, respectively. The decrease in effective tax rates for both comparative periods is primarily driven by the geographical mix of income attributable to various jurisdictions that have income tax rates that vary from the U.S. tax rate.
As part of the Separation from BD, $12.3 million of liabilities for unrecognized tax benefits associated with uncertain tax positions were conveyed to embecta.
Note 13 — Financial Instruments and Fair Value Measurements
The following reconciles Cash and cash equivalents reported within the Condensed Consolidated Balance Sheets as of June 30, 2022 and September 30, 2021, to the total amounts shown on the Condensed Consolidated Statements of Cash Flows:
| | | | | | | | | | | |
| June 30, 2022 | | September 30, 2021 |
| Cash and cash equivalents | $ | 292.3 | | | $ | — | |
Cash and cash equivalents as of June 30, 2022 includes cash held in money market funds and other cash equivalents. All cash and cash equivalents are Level 1 in the fair value hierarchy.
Foreign Currency Risks and Related Strategies
The Company has foreign currency exposures throughout Europe, Greater Asia, Canada and Latin America. Transactional currency exposures that arise from entering into transactions, generally on an intercompany basis, in non-hyperinflationary countries that are denominated in currencies other than the functional currency are mitigated primarily through the use of forward contracts.
The notional amounts of the Company’s foreign currency-related derivative instruments were as follows:
| | | | | | | | | | | | | | | | | |
| Hedge Designation | | June 30, 2022 | | September 30, 2021 |
| Foreign exchange contracts (a) | Undesignated | | $ | 5.0 | | | $ | — | |
a.Represent hedges of transactional foreign exchange exposures resulting primarily from intercompany payables and receivables. Gains and losses on these instruments are recognized immediately in Other income (expense), net. These gains and losses are largely offset by gains and losses on the underlying hedged items, as well as the hedging costs associated with the derivative instruments. Gains and losses recognized to date on these instruments were not material to the Company's Condensed Consolidated Financial Statements.
Nonrecurring Fair Value Measurements
Non-financial assets, including property, plant and equipment as well as intangible assets, are measured at fair value when there are indicators of impairment and these assets are recorded at fair value only when an impairment is recognized. These measurements of fair value are generally based upon Level 3 inputs, including values estimated using the income approach.
During the nine months ended June 30, 2021, the Company recorded impairment charges related to certain construction in progress assets related to discontinued projects totaling $13.8 million. The impairment charges were recorded to adjust the carrying amount of the assets to the assets’ fair values, which were estimated through a discounted cash flow model that utilized Level 3 inputs. The impairment charges are recognized within Cost of products sold in the Condensed Consolidated Statements of Income. There were no impairment charges during the three and nine months ended June 30, 2022.
| | | | | | | | |
| Dollar amounts are in millions except per share amounts or as otherwise specified. | | |
18
Concentration of Credit Risk
Historically and prior to the Separation, the Company’s operations formed part of BD’s monitoring of concentrations of credit risk associated with financial institutions for which BD conducted business. BD minimized exposure to credit risk by dealing with a diversified group of major financial institutions.
As of June 30, 2022, the Company had transferred the majority of its trade receivables to BD under the Factoring Agreement (see Note 3). As a result, the Company is no longer exposed to credit risk associated with those transferred receivables and does not have material credit risk exposure associated with the remaining $22.2 million of trade receivables.
Two of the Company’s customers represent at least 10.0% of total revenues individually and, in the aggregate, represent approximately 30.5% for the three months ended June 30, 2022, and two customers represent at least 10.0% of total revenues individually and, in the aggregate, represent 31.0% of total revenues for the nine months ended June 30, 2022.
Substantially all of the Company’s trade receivables are due from public and private entities involved in the healthcare industry. The Company does not normally require collateral from its customers.
Note 14 — Property, Plant and Equipment
Property, Plant and Equipment, Net consisted of:
| | | | | | | | | | | |
| | As of June 30, 2022 | | As of September 30, 2021 |
| Land | $ | 1.6 | | | $ | 3.6 | |
| Buildings | 130.2 | | | 120.4 | |
| Machinery, equipment and fixtures | 537.9 | | | 570.8 | |
| Leasehold improvements | 6.5 | | | 6.1 | |
| Construction in progress | 119.2 | | | 190.8 | |
| | $ | 795.4 | | | $ | 891.7 | |
| Less: accumulated depreciation | (419.7) | | | (440.7) | |
| Total Property, Plant and Equipment, Net | $ | 375.7 | | | $ | 451.0 | |
The Company's property, plant and equipment assets as of June 30, 2022 decreased by $75.3 million, primarily due to the transfer of certain assets from embecta to BD. These transfers occurred subsequent to September 30, 2021 but prior to the Separation date.
Note 15 — Leases
Finance Leases
Our finance lease assets and liabilities are attributed to our manufacturing site in Holdrege, Nebraska. This lease is classified as a finance lease because the present value of the sum of the lease payments associated with the lease exceeds substantially all of the fair value of the manufacturing site.
Holdrege Lease
In conjunction with the Separation, the Company 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 Company determined that the manufacturing space and equipment are highly interdependent and interrelated. Consequently, the Company concluded that the manufacturing space and equipment represent a single lease component. This finance lease is recorded in "Buildings" within "Property, Plant and Equipment, Net", “Current finance lease liabilities”, and “Non Current Finance Lease Liabilities”.
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.
Operating Leases
Our operating leases primarily relate to our real estate leases that are not classified as finance leases.
| | | | | | | | |
| Dollar amounts are in millions except per share amounts or as otherwise specified. | | |
19
Aggregate Lease Information
Our leases are included on our Condensed Consolidated Balance Sheets as follows:
| | | | | | | | | | | |
| | As of June 30, 2022 | | As of September 30, 2021 |
| Finance Leases | | | |
| Property, Plant, and Equipment, Net | $ | 36.1 | | | $ | — | |
| Total Finance Lease Assets | $ | 36.1 | | | $ | — | |
| | | |
| Current finance lease liabilities | $ | 3.6 | | | $ | — | |
| Non Current Finance Lease Liabilities | 32.9 | | | — | |
| Total Finance Lease Liabilities | $ | 36.5 | | | $ | — | |
| | | |
| Weighted-average remaining lease term (years) | 14.8 | | — | |
| Weighted-average discount rate | 6.8 | % | | — | |
| | | |
| Operating Leases | | | |
| Other Assets | $ | 4.6 | | | $ | 4.0 | |
| Total Operating Lease Assets | $ | 4.6 | | | $ | 4.0 | |
| | | |
| Accrued expenses | $ | 0.8 | | | $ | 1.0 | |
| Deferred Income Taxes and Other Liabilities | 3.9 | | | 3.0 | |
| Total Operating Lease Liabilities | $ | 4.7 | | | $ | 4.0 | |
| | | |
| Weighted-average remaining lease term (years) | 4.0 | | 4.0 |
| Weighted-average discount rate | 5.1 | % | | 2.2 | % |
Supplemental cash flow information related to leases for the nine months ended June 30, 2022 and 2021 were as follows:
| | | | | | | | | | | |
| | June 30, 2022 | | June 30, 2021 |
| Right of use assets obtained in exchange for lease liabilities | | | |
| Financing Leases | $ | 36.7 | | | $ | — | |
| Operating Leases | 0.9 | | | — | |
Maturities of our finance and operating lease liabilities as of June 30, 2022 by fiscal year are as follows:
| | | | | | | | | | | | | | | | | |
| | Finance Leases | | Operating Leases | | Total |
| 2022 | $ | 0.9 | | | $ | 0.8 | | | $ | 1.7 | |
| 2023 | 3.6 | | | 1.2 | | | 4.8 | |
| 2024 | 3.6 | | | 1.2 | | | 4.8 | |
| 2025 | 3.7 | | | 1.2 | | | 4.9 | |
| 2026 | 3.7 | | | 0.4 | | | 4.1 | |
| Thereafter | 43.9 | | | — | | | 43.9 | |
| Total lease payments | $ | 59.4 | | | $ | 4.8 | | | $ | 64.2 | |
| Less: amount representing interest | 22.9 | | | 0.1 | | | 23.0 | |
| Present value of lease liabilities | $ | 36.5 | | | $ | 4.7 | | | $ | 41.2 | |
On April 1, 2022, the Company entered into a real estate lease for a new Corporate Headquarters located in Parsippany, NJ that has not yet commenced. The lease is expected to commence during the first half of fiscal year 2023.
Note 16 — Subsequent Events
| | | | | | | | |
| Dollar amounts are in millions except per share amounts or as otherwise specified. | | |
20
On August 15, 2022, the Company’s Board of Directors declared a quarterly dividend of $0.15 for each issued and outstanding share of the company’s common stock. The dividend is payable on September 14, 2022 to stockholders of record at the close of business on August 26, 2022.
| | | | | | | | |
| Dollar amounts are in millions except per share amounts or as otherwise specified. | | |
21