Embecta Corp.EMBC
Embecta Corp. Income Taxes Disclosure
Note 14 — Income Taxes
Income Before Income Taxes
The components of Income Before Income Taxes for the fiscal years ended September 30 consisted of:
| 2025 | 2024 | 2023 | |||||||||||||||
| Domestic | $ | (39.0) | $ | (116.7) | $ | (100.9) | |||||||||||
| Foreign | 175.3 | 160.9 | 206.6 | ||||||||||||||
| Income before income taxes | $ | 136.3 | $ | 44.2 | $ | 105.7 | |||||||||||
Provision (benefit) for Income Taxes
The provision (benefit) for income taxes for the fiscal years ended September 30 consisted of:
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 1.0 | $ | 23.4 | $ | 2.6 | |||||||||||
| State | 1.5 | 2.0 | (0.8) | ||||||||||||||
| Foreign | 20.8 | 11.1 | 19.2 | ||||||||||||||
| $ | 23.3 | $ | 36.5 | $ | 21.0 | ||||||||||||
| Deferred: | |||||||||||||||||
| Federal | $ | 10.3 | $ | (44.1) | $ | 5.9 | |||||||||||
| State | (3.0) | (4.6) | 0.7 | ||||||||||||||
| Foreign | 10.3 | (21.9) | 7.7 | ||||||||||||||
| $ | 17.6 | $ | (70.6) | $ | 14.3 | ||||||||||||
| Income tax provision (benefit) | $ | 40.9 | $ | (34.1) | $ | 35.3 | |||||||||||
Tax Rate Reconciliation
A reconciliation of federal statutory tax rate to the Company's effective income tax rate was as follows:
| 2025 | 2024 | 2023 | |||||||||||||||
| Federal statutory tax rate | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||
| State and local income taxes, net of federal tax benefit | (1.3) | (6.8) | — | ||||||||||||||
| Foreign income tax at rates other than 21% | (8.4) | (43.4) | (17.3) | ||||||||||||||
| US tax on foreign earnings | 2.3 | 2.7 | 12.5 | ||||||||||||||
| Taxes on unremitted foreign earnings | 2.9 | (40.6) | 11.1 | ||||||||||||||
| Tax reserves | 3.0 | 14.5 | (0.4) | ||||||||||||||
| Valuation allowances | 30.7 | 41.9 | 14.0 | ||||||||||||||
| Tax credits | (0.4) | (7.5) | (1.5) | ||||||||||||||
| Tax law changes | — | (65.0) | — | ||||||||||||||
| Nontaxable items | — | (12.2) | (8.6) | ||||||||||||||
| Nondeductible expenses | 3.4 | 16.5 | 2.5 | ||||||||||||||
| Tax basis adjustments | (17.4) | — | — | — | |||||||||||||
| Other, net | (5.8) | 1.8 | 0.1 | ||||||||||||||
| Effective income tax rate | 30.0 | % | (77.1) | % | 33.4 | % | |||||||||||
The increase in the Company's effective income tax rate for fiscal year 2025 as compared to fiscal year 2024 was primarily due to the absence of 2024 tax benefits from the recognition of deferred tax assets related to tax reform in Switzerland, the absence of 2024 tax benefits from the reduction of withholding tax accruals on unremitted foreign earnings resulting from the expiration of certain stock ownership holding period requirements, fewer nontaxable items of income and the correlative tax impacts of these changes on higher overall earnings in 2025; partially offset by approximately $5.1 million of tax benefits from various tax return true ups for filings made during 2025 which are reflected above in the Other, net category.
The decrease in the Company's effective income tax rate for fiscal year 2024 as compared to fiscal year 2023 was primarily due to a reduction in withholding taxes on unremitted earnings of foreign subsidiaries related to the expiration of a two-year stock holding period requirement in Switzerland, the recognition of deferred tax assets from Switzerland tax reform, changes in the geographical mix of earnings and overall lower pre-tax earnings; partially offset by an increase in uncertain tax positions and non-deductible expenses.
The Organization for Economic Cooperation and Development ("OECD") has developed major reform of the international tax system with respect to a global minimum 15% tax rate. European Union member states agreed to adopt the OECD’s minimum tax rules, which went into effect for tax years beginning on January 1, 2024 or later. Certain countries have enacted the law changes and other countries are considering changes to their tax laws. The impact of the changes went into effect for the Company beginning in fiscal year 2025. The global minimum tax rules did not have a material impact to our provision for income taxes for the fiscal year ended September 30, 2025.
On July 4, 2025, the U.S. One Big Beautiful Bill Act ("OBBBA") was enacted which includes permanent extensions of certain expiring provisions of the Tax Cuts and Jobs Act and makes significant modifications to the U.S. international tax framework. The legislation has multiple effective dates, with certain provisions effective beginning in fiscal year ended September 30, 2025 and others becoming effective through the fiscal year ended September 30, 2027. OBBBA did not have a material impact to our provision for income taxes for the fiscal year ended September 30, 2025.
Deferred Income Taxes
Deferred income taxes at September 30 consisted of:
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Compensation and benefits | $ | 12.4 | $ | 13.2 | |||||||
| Accruals and reserves | 20.1 | 23.8 | |||||||||
| Intangibles | 40.3 | 46.4 | |||||||||
| Property, plant and equipment | 15.0 | 10.7 | |||||||||
| Capitalized research and development expenses | 24.4 | 25.9 | |||||||||
| Leases | 11.0 | 11.6 | |||||||||
| Deferred income | 11.1 | 13.3 | |||||||||
| Interest expense carryforwards | 40.9 | 27.8 | |||||||||
| Tax loss and credit carryforwards | 35.0 | 12.5 | |||||||||
| Other | 5.3 | 5.9 | |||||||||
| Gross deferred tax assets before valuation allowance | $ | 215.5 | $ | 191.1 | |||||||
| Valuation allowance | $ | (90.7) | $ | (50.2) | |||||||
| Total deferred tax assets | $ | 124.8 | $ | 140.9 | |||||||
| Deferred tax liabilities: | |||||||||||
| Taxes on unremitted foreign earnings | $ | (5.6) | $ | (1.9) | |||||||
| Right of use asset | (10.9) | (12.1) | |||||||||
| Capitalized cloud computing costs | (9.9) | (10.7) | |||||||||
| Total deferred tax liabilities | $ | (26.4) | (24.7) | ||||||||
| Net deferred tax assets (liabilities) (i) | $ | 98.4 | $ | 116.2 | |||||||
i.Net deferred tax assets are included in Deferred Income Taxes and Other Assets and net deferred tax liabilities are included in Deferred Income Taxes and Other Liabilities in the Consolidated Balance Sheets.
Deferred tax assets and liabilities are netted in the Consolidated Balance Sheets by separate tax jurisdictions.
As of September 30, 2025 and September 30, 2024, the Company has recorded deferred taxes on undistributed earnings of its foreign subsidiaries.
During fiscal year 2025, the Company recorded a deferred tax asset of approximately $23.8 million related to tax losses incurred in connection with an internal restructuring which is fully offset by a valuation allowance. As of September 30, 2025, the Company has recorded valuation allowances of approximately $90.7 million due to uncertainty that exists regarding the future realizability of certain deferred tax assets, primarily for interest expense carryforwards in the U.S.
related to limitations on the annual deductibility of such interest, tax loss carryforwards, annual limitations on utilization of amortization deductions and tax credits in Switzerland and deferred tax assets related to certain foreign manufacturing operations.
During fiscal year 2024, the Company recorded a tax benefit of approximately $16.8 million related to a reversal of taxes on unremitted foreign earnings due to the expiration of certain holding period requirements for stock ownership in its foreign affiliates. In addition, the Company recorded a tax benefit of approximately $28.7 million (before valuation allowance) related to the recognition of deferred tax assets for future amortization deductions and tax credits resulting from tax law changes in Switzerland. As of September 30, 2024, the Company has recorded valuation allowances of $50.2 million due to uncertainty that exists regarding the future realizability of certain deferred tax assets, primarily for interest expense carryforwards in the U.S. related to limitations on the annual deductibility of such interest, annual limitations on utilization of amortization deductions and tax credits in Switzerland, state tax credits and deferred tax assets related to certain foreign manufacturing operations.
Beginning in fiscal year 2025, the Company no longer receives tax benefits related to tax holidays. For fiscal year 2024, the approximate tax benefit related to a tax holiday in Switzerland was $0.7 million and $0.01 impact on diluted earnings per share.
As of September 30, 2025, the Company had tax loss and credit carryforwards of approximately $2.9 million of state income tax credit carryforwards, $4.2 million of Switzerland cantonal tax credit carryforwards and $27.9 million in net operating loss carryforwards in various jurisdictions. Approximately $0.4 million of net operating loss carryforwards will not expire and the remaining carryforwards expire in varying amounts from 2026 through 2045.
Unrecognized Tax Benefits
The table below summarizes the gross amounts of unrecognized tax benefits without regard to reduction in tax liabilities or additions to deferred tax assets and liabilities if such unrecognized tax benefits were settled.
| 2025 | 2024 | 2023 | |||||||||||||||
| Balance at October 1 | $ | 13.5 | $ | 9.4 | $ | 5.7 | |||||||||||
| Increase due to current year tax positions | 3.1 | 8.9 | 5.0 | ||||||||||||||
| Increase due to prior year tax positions | 0.9 | 2.1 | 3.7 | ||||||||||||||
| Decrease due to prior year tax positions | (0.9) | (6.9) | (0.3) | ||||||||||||||
| Decrease due to settlements with tax authorities | — | — | — | ||||||||||||||
| Decrease due to lapse of statute of limitations | — | — | (4.7) | ||||||||||||||
| Balance at September 30 | $ | 16.6 | $ | 13.5 | $ | 9.4 | |||||||||||
| Unrecognized tax benefits including interest and penalties that would affect the effective tax rate if recognized | $ | 17.7 | $ | 13.6 | $ | 7.2 | |||||||||||
The Company conducts business and files tax returns in numerous countries and currently has no tax audits in progress as of September 30, 2025.
The following were included for the fiscal years ended September 30 as a component of Income tax provision (benefit) in the Consolidated Statements of Income and the Consolidated Balance Sheets.
| 2025 | 2024 | 2023 | |||||||||||||||
| Interest and penalties expense (benefit) associated with unrecognized tax benefits on the Consolidated Statements of Income | $ | 1.0 | $ | — | $ | (1.2) | |||||||||||
| Interest and penalties associated with unrecognized tax benefits on the Consolidated Balance Sheets | 1.1 | 0.1 | 0.2 | ||||||||||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Nov 25, 2025 | Showing above |
| 2024 | Dec 11, 2024 | |
| 2023 | Nov 29, 2023 | |
| 2022 | Dec 22, 2022 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.