the adjustment for differences between the Diabetes Care Business’s historical combined balance sheet prepared on a carve-out basis and assets and liabilities expected to be contributed by BD to Embecta;

the effect of Embecta’s anticipated post-separation capital structure, including the incurrence of indebtedness of approximately $1,650 million in aggregate principal amount and the distribution of approximately $1,440 million to BD in connection with the separation and distribution. Approximately $1,240 million of the proceeds will be distributed in cash, while the remainder is to be distributed through senior secured notes;

the distribution of 100% of Embecta’s issued and outstanding common stock by BD in connection with the separation; and

other adjustments as described in the notes to these unaudited pro forma condensed combined financial statements.

the impact of, and transactions contemplated by a cannula supply agreement, the contract manufacturing agreements, a transition services agreement, a logistics services agreement, distribution agreements and other transaction agreements; and

other adjustments as described in the notes to these unaudited pro forma condensed combined financial statements.

The impact of, and transactions contemplated by, the separation and distribution agreement and employee matters agreement; and

the incremental costs Embecta expects to incur as a standalone entity.

($ in millions except per share data)

Revenues

Cost of products sold

Gross profit

Operating expenses:

Selling and administrative expense

Research and development expense

Other operating expense

Total operating costs and expenses

Operating Income

Other income (expense), net

Interest expense

Income before income taxes

Income tax (benefit) provision

Net Income

Basic earnings per common share

Diluted earnings per common share

Weighted-average common shares outstanding

Basic

Diluted

($ in millions except per share data)

Revenues

Cost of products sold

Gross profit

Operating expenses:

Selling and administrative expense

Research and development expense

Other operating expense

Total operating costs and expenses

Operating Income

Other income (expense), net

Interest expense

Income before income taxes

Income tax (benefit) provision

Net Income

Basic earnings per common share

Diluted earnings per common share

Weighted-average common shares outstanding

Basic

Diluted

($ in millions except per share data)

Assets

Current assets

Cash and cash equivalents

Trade receivables, net

Inventories

Prepaid expenses and other

Total current assets

Property, plant and equipment, net

Goodwill and other intangible assets

Other assets

Total assets

Liabilities and Equity

Current liabilities

Accounts payable

Accrued expenses

Salaries, wages and related items

Income taxes

Total current liabilities

Deferred income taxes and other liabilities

Long-term Debt

Equity

Net parent investment

Common stock, $0.1 par value, 250,000,0000 shares authorized; 56,937,000 shares issued and outstanding on a pro forma basis

Retained earnings (Accumulated deficit)

Accumulated other comprehensive income (loss)

Total equity

Total liabilities and equity

The historical combined financial statements of the Diabetes Care Business include operations which are related to other BD businesses that will be retained by BD but which reside in a certain legal entity that will be contributed to Embecta in connection with the spin-off, historically owned by BD that will transfer to Embecta in connection with the spin-off, or were historically part of the Diabetes Care Business but will be retained by BD. Pro forma adjustments, including income tax, represent the impact of removing the historical results of such retained BD businesses and assets from the Diabetes Care Business’ historical combined financial statements, or, including assets expected to be transferred over that were not historically reflected in the historical combined financial statements.

The unaudited pro forma condensed combined balance sheet reflects financing transactions of $1,650 million, consisting of approximately $950 million in a term loan, $500 million in senior secured 5.000% notes, and $200 million in senior secured 7.000% notes, and related debt issuance costs of $50 million which are to be incurred in connection with the separation and distribution. Approximately $1,440 million is expected to be distributed to BD in connection with the separation and distribution, comprised of approximately $1,240 million in cash and the remainder through senior secured notes. As a result of such transactions, Embecta will have approximately $160 million in cash upon completion of the distribution. The terms of such indebtedness will be finalized prior to the separation and distribution.

The interest rate on the $950 million term loan is 300 basis points over the secured overnight financing rate (“SOFR”), with a SOFR floor of 50 basis points. The interest rate on the $500 million senior secured notes and the $200 million senior secured notes is 5.000% and 7.000%, respectively. The unaudited pro forma condensed combined statements of income reflect estimated interest expense of approximately $20 million and $78 million for three-month period ended December 31, 2021 and the year ended September 30, 2021 respectively, related to the debt and amortization of related deferred issuance costs. Interest expense was calculated assuming constant debt levels throughout the periods. A 1/8% change to these annual rates would change interest expense by approximately $1 million for the three-month period ended December 31, 2021 and $2 million for the year ended September 30, 2021.

Reflects the tax effects of the pro forma adjustments at the applicable statutory income tax rates and the expected effects of the tax matters agreement.

Represents the reclassification of BD’s net investment in Embecta, and other pro forma adjustments, into Retained earnings (Accumulated deficit) and Common stock, par value $0.01, to reflect the number of shares of Embecta common stock expected to be outstanding at the distribution date. The assumed number of outstanding shares of common stock is based on the number of BD common shares of 284,685,000 outstanding as of December 31, 2021 and an assumed pro-rata distribution ratio of one share of Embecta common stock for every five shares of BD common stock.

Reflects the effect of manufacturing and supply agreements (MSAs) and reverse manufacturing and supply agreements (RMSAs) that Embecta and BD have entered into or will enter into prior to the separation. The historical combined statement of income reflects certain Revenues and Cost of products sold relating to the inventory transfers pursuant to newly entered or pre-existing intercompany arrangements between Embecta and BD during the three-month period ended December 31, 2021 and the year ended September 30, 2021, respectively.

The unaudited pro forma condensed combined balance sheet reflects $45 million in Other Assets, $3 million in Accrued expenses and $42 million in Deferred Income Taxes and Other Liabilities related to additional right-of-use assets and corresponding lease liabilities for real estate leases that Embecta and BD have entered into or will enter into prior to the separation and distribution. In addition, the net adjustment to Cost of products sold on the unaudited pro forma condensed combined statements of income includes a decrease of $1 million and $2 million to remove lease expense reflected in the historical Cost of products sold amount during the three-month period ended December 31, 2021 and the year ended September 30, 2021, respectively. Furthermore, there is an increase of $1 million and $3 million to record lease expense relating to real estate leases that Embecta and BD have entered into or will enter into prior to the separation and distribution during the three-month period ended December 31, 2021 and the year ended September 30, 2021, respectively.

The unaudited pro forma condensed combined balance sheet reflects a decrease of $102 million in Trade receivables, net and an increase of $101 million in Cash and cash equivalents estimated in connection with Embecta’s Trade Receivables Factoring Agreement with BD. 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 Agreement. The total estimated service fee under the Trade Receivables Factoring Agreement is immaterial for the three-month period ended December 31, 2021.

The number of Embecta shares used to compute basic earnings per share for the year ended December 31, 2021 is based on the number of shares of Embecta common stock assumed to be outstanding on December 31, 2021, using the distribution ratio of one share of Embecta common stock for every five shares of BD common stock outstanding. The number of BD shares used to determine the assumed distribution reflects the number of shares of BD common stock outstanding as of the balance sheet date.

The number of shares used to compute diluted earnings per share is based on the number of basic shares of Embecta common stock as described in Note (i) above, plus incremental shares assuming exercise of dilutive outstanding options and vesting of other outstanding stock awards expected to be issued by Embecta as replacement awards to BD employees transferring to Embecta.

The unaudited pro forma condensed combined statement of income reflects an estimated $2 million of incremental costs for services to be provided by BD to Embecta under the transition services agreement with respect to information technology services, research and development, distribution, support for operations, legal, payroll, finance, tax and accounting, general administrative services and other support services for the year ended September 30, 2021. The total estimated incremental costs for services to be provided by BD to Embecta under the transition service agreement is immaterial for the three-month period ended December 31, 2021.

In connection with the separation and distribution agreement, there are certain countries in which net benefit plan liabilities are expected to be transferred to Embecta by BD for those employees being transferred in the spin-off. The specific countries in which the net benefit plan liability will transfer include South Korea, France, Germany, and Switzerland. The net benefit plan liabilities are excluded from the historical condensed combined balance sheet as Embecta is not the plan sponsor. Additionally, the amount related to these net benefit plan liabilities cannot be estimated at this time and, therefore, have been excluded from the unaudited pro forma condensed combined balance sheet.

The adjustments shown below include those that management deemed necessary for a fair statement of the pro forma information presented. The adjustments include forward-looking information.

separation and establishment of Embecta as a standalone company including incremental costs related to commercial, manufacturing, research and business support functions that were previously shared with BD;

costs to perform financial reporting and regulatory compliance, and costs associated with accounting, auditing, accounting advisory, legal and tax counsel, information technology, human resources, investor relations, risk management, treasury and other general and administrative related functions;

costs for the services to be provided by BD to Embecta under the transition services agreement with respect to information technology services, research and development, distribution, support for operations, legal, payroll, finance, tax and accounting, general administrative services and other support services;

one-time expenses associated with the separation of Embecta’s information systems and facilities, transfers of certain assets to BD, hiring costs associated with increasing Embecta’s workforce, regulatory filings for the transfer of product registrations, development of Embecta’s brand, and other matters;

compensation including new equity-based awards in connection with the separation;

insurance premiums; and

depreciation and amortization related to information technology infrastructure investments.

Millions of dollars

Pro forma condensed combined net income*

Management’s adjustments

Income tax benefit

Pro forma condensed combined net income after management’s adjustments

Basic earnings per share after management’s adjustments

Diluted earnings per share after management’s adjustments

As shown in the Unaudited Pro Forma Interim Condensed Combined Statement of Income

Millions of dollars

Pro forma condensed combined net income*

Management’s adjustments

Income tax benefit

Pro forma condensed combined net income after management’s adjustments

Basic earnings per share after management’s adjustments

Diluted earnings per share after management’s adjustments

As shown in the Unaudited Pro Forma Condensed Combined Statement of Income

Net income

Income tax provision

Depreciation and amortization

Interest expense

EBITDA

Share-based compensation expense

Separation costs ⁽¹⁾

Impairment losses ⁽²⁾

Adjusted EBITDA

Less: Estimated embecta stand-up/standalone costs

Pro forma - Adjusted EBITDA

Less: Capital expenditures

Pro forma - Adjusted EBITDA less capital expenditures

Relates to spin-off costs incurred in fiscal year 2022 and fiscal year 2021. This expense was not included as a component of adjusted EBITDA in Embecta’s registration statement on Form 10-12B, as amended (the “Form 10”). Starting in the first quarter of 2022, management considers these expenses as relevant components of adjusted EBITDA and therefore has included such expenses for all relevant periods presented.

Relates to impairment charges incurred in fiscal year 2021. This expense was not included as a component of adjusted EBITDA in the Form 10. Starting in the first quarter of 2022, management considers these expenses as relevant components of adjusted EBITDA and therefore has included such expenses for all relevant periods presented.

Revenues