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2016 ANNUAL REPORT
FISCAL
Document #ANNRPT16.2016-05, Rev. A
©2016 STERIS plc.
All rights reserved. Printed in USA.
STERIS plc
Chancery House,
190 Waterside Road
Hamilton Industrial Park,
Leicester LE5 1QZ
United Kingdom
www.steris.com
Dear Fellow Shareholders,
This was an extraordinary year for STERIS. As a result of the collective contributions of our people, our
business grew both organically and through strategic acquisitions to deliver 21% growth in revenue and record
adjusted earnings per share of $3.39.
Topping the year’s achievements was the landmark completion of the Synergy Health combination in addition
to closing two other strategic acquisitions, General Econopak and Black Diamond. At the same time, we grew
organically as a result of our continued investment in product development, and manufacturing and service
operations, that enable us to bring improved products and services to our Customers and the people whose
health and safety they improve.
Full year 2016 organic revenue growth was 5%, with growth in all four segments. In particular, our IMS
business, which is the legacy STERIS component of our new Healthcare Specialty Services segment, delivered
double digit growth even as the multiple companies that form IMS settled into new, combined sales territories.
We also saw solid, mid-single-digit organic revenue growth in our Life Sciences and Applied Sterilization
Technologies (AST) segments, which I will review in more detail later on. Our Healthcare Products segment’s
organic revenue grew 3% for the full year, with strong growth in the United States offsetting softness outside of
the U.S.
Synergy was a meaningful contributor to our overall growth as well, growing revenue 4% and profit 9% in
constant currency for the full year 2016. As is always the case, some parts of the business are doing better
than others. We are particularly pleased with the strength of the AST portion of the company, and believe the
Hospital Sterilization Services (HSS) business in the United Kingdom and Europe have good opportunity for
continued growth and profitability. As we have said all along, the U.S. HSS business is a nascent business
opportunity that we believe could be significant in the long run, but will take time and investment to develop.
While we continue to engage in conversations with Customers in the U.S. about potential outsourcing
opportunities, we believe there is still substantial lead time before significant new contracts will materially
impact STERIS.
We have generated approximately $5 million of cost synergies in fiscal 2016 related to the Synergy combination
and continue to expect that we will save about $15 million more in fiscal 2017, and an additional $20 million
thereafter. We will incur some additional cash expenses during fiscal 2017 to obtain those overall synergies.
This is all consistent with our original Synergy plan, except for the extended time it took to close the deal.
Diving into the segments a bit further:
Healthcare Products grew 6% for the year, with contributions from Black Diamond and Synergy Health and
low-single-digit organic revenue growth. Capital equipment in healthcare products increased low-single-digits
for the year, driven by double-digit growth in the U.S. which was offset by declines in all other regions. Newer
capital products that contributed to the year include a new AMSCO washer line, Harmony lights and booms,
the Orthovision table and V-PRO 60.
Healthcare Products consumable revenue climbed low-double-digits, with organic revenue making up more
than half of that growth. We saw healthy increases for consumables in the major geographic regions other
than the EMEA. The Middle East in particular reflects lower revenue due to the current macroeconomic issues
in the region and follows particularly strong consumable orders in the prior year. Our instrument cleaning
chemistries, V-PRO dedicated chemistries and new products for US Endoscopy, all saw solid improvements
this year. Service revenue grew mid-single digits driven by strength in the U.S. and Latin America.
The Healthcare Specialty Services segment grew 70% in the year with strong organic revenue growth
bolstered by the addition of the two businesses from Synergy, Hospital Sterilization Services and Linen
Management Services. As mentioned earlier, our strong organic revenue growth was produced by IMS, our
instrument repair business. IMS’s double-digit revenue growth was fueled by several large contract wins as
well as our ability to capitalize on shorter-term engagements that arose during the year.
Our Life Sciences team had an outstanding year with 18% revenue growth, about one-third of which was
organic. We completed the purchase of General Econopak last summer. That has been a strategic addition to
the STERIS portfolio which capitalized on our strong, global field support for our pharmaceutical Customers.
We believe the addition of these product lines strengthen our overall position around the world. Even in the
face of economic headwinds outside the U.S., all three Life Sciences product areas: capital equipment,
consumables, and service experienced organic growth last year. All major Life Sciences geographic regions
grew as well. Operating margins for Life Sciences continued to expand as a result of the volume increases and
favorable product mix.
Applied Sterilization Technologies (AST) grew 51% for the year, with 7% organic revenue growth and the
previously discussed contribution from Synergy. The integration of Synergy and STERIS people is complete
across our global platform. Combined, we have a network of 59 facilities in 16 countries strategically located
around the world. Our Customers rely on us to sterilize over 1 billion medical products each year.
We continue to be excited about the opportunities ahead of this combined organization. If anything, we feel
that we may have been conservative in our original thinking about how well we will be able to serve our global
Customers. We are working on a number of facility expansions - both in the U.S. and in Europe - that will
facilitate our ability to meet anticipated Customer demand, and will impact our growth in the coming years.
Switching gears to total Company profitability, our adjusted operating profit improved 30% year-over-year due
to the inclusion of our new businesses, our organic volume growth, favorable foreign currency and our cost
reduction efforts. We did have increased interest expense and a higher share count impacting earnings per
share for the year, some of which was offset by a lower tax rate.
All-in-all, we are quite pleased with our organic achievements as well as the strategic businesses that joined
STERIS. The combination of the two allowed us to post another year of record results. More importantly, it
provides a springboard for an anticipated fifth consecutive year of record performance in fiscal 2017.
Free cash flow exceeded our expectations, ending the year at $129 million. This was driven by lower capital
spending and improved working capital. Fiscal 2016 was an unusual year for free cash flow, as we had almost
$100 million in cash expenses due to acquisitions and the elimination of our U.S. pension liabilities, which
reduced our free cash for the year. We no longer have any defined benefit pension exposure in the U.S.
We ended the year with a solid balance sheet, having secured favorable refinancing of our debt in conjunction
with closing the Synergy Health deal. Our leverage is higher than it has been in the past, but well within
comfortable ranges. We remain committed to our capital allocation priorities; maintaining and growing our
dividend, investing for organic growth in our current businesses, targeting acquisitions in adjacent product and
market areas, reducing our total Company leverage, and finally, share repurchases if the other uses of cash are
lower than our desires and do not offset dilution. And speaking of dividends, we increased our dividend for the
10th consecutive year.
We have made meaningful progress in achieving our strategic goals over the past several years, and it is
remarkable to look back at all our people have achieved in just this past year. We have been and will continue to
look across our business portfolio for opportunities to continue to optimize our products and services.
In closing, I would like to thank each of our STERIS team members around the world. Your unique contributions
made this a truly memorable year – one that is paving the way for STERIS’s continued success.
I would also like to thank our Board of Directors for their counsel during a particularly challenging year, and
would like to welcome our new board members from Synergy Health.
I am honored to have the opportunity to lead your Company, and appreciate your ongoing support. I believe the
future for STERIS is bright, indeed.
Until next year,
Walt Rosebrough
President and Chief Executive Officer
June 2016
(Adjusted financials have been included in this document. Please refer to the reconciliation of adjusted results to GAAP
results contained at the end of this annual report under “Non-GAAP Financial Measures”).
United States Securities and Exchange Commission
Washington, D. C. 20549
___________________________________________________________________
FORM 10-K
Annual Report Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
For the fiscal year ended March 31, 2016
OR
Transition Report Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
For the transition period from to
Commission file number 1-37614
STERIS plc
(Exact name of registrant as specified in its charter)
United Kingdom
(State or other jurisdiction of
incorporation or organization)
98-1203539
(IRS Employer Identification No.)
Chancery House, 190 Waterside Road,
Hamilton Industrial Park Leicester
(Address of principal executive offices)
LE51QZ
(Zip Code)
44-116-276-8636
(Registrant’s telephone number
including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class
Ordinary Shares, 10 pence par value
Name of Exchange on Which Registered
New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large Accelerated Filer
Non-Accelerated Filer
(Do not check if a smaller reporting company)
Accelerated Filer
Smaller Reporting Company
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
As of September 30, 2015, the aggregate market value of shares held by non-affiliates of STERIS Corporation (the predecessor issuer
pursuant to Rule 12g-3(a) under the Securities Exchange Act of 1934), based upon the closing sale price of its shares on September 30, 2015,
was approximately $3,849.5 million.
The number of Ordinary Shares outstanding as of May 27, 2016: 86,000,348
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2016 Annual Meeting – Part III
1
STERIS plc and Subsidiaries
Table of Contents
Part I
Page
Item 1
Business
Introduction
Information Related to Business Segments
Information with Respect to Our Business in General
Item 1A
Risk Factors
Item 1B Unresolved Staff Comments
Item 2
Item 3
Item 4
Properties
Legal Proceedings
Mine Safety Disclosures
Item 5
Item 6
Item 7
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Part II
Introduction
Financial Measures
Revenues-Defined
General Overview & Executive Summary
Matters Affecting Comparability
Non-GAAP Financial Measures
Results of Operations
Liquidity and Capital Resources
Capital Expenditures
Contractual and Commercial Commitments
Critical Accounting Policies, Estimates, and Assumptions
Recently Issued Accounting Standards Impacting the Company
Inflation
Forward-Looking Statements
Item 7A Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Foreign Currency Risk
Commodity Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Item 8
Item 9
Item 9A
Item 9B Other Information
Item 10 Directors, Executive Officers and Corporate Governance
Item 11
Executive Compensation
Part III
Item 12
Item 13
Item 14
Item 15
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedule
Signatures
Part IV
2
3
3
4
6
10
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19
24
24
25
26
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27
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30
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PART I
Throughout this Annual Report, STERIS plc and its subsidiaries together are called “STERIS,” “the Company,” “we,”
“us,” or “our,” unless otherwise noted. References in this Annual Report to a particular “year” or “year-end” mean our fiscal
year, which ends on March 31. For example, fiscal year 2016 ended on March 31, 2016.
ITEM 1.
BUSINESS
INTRODUCTION
STERIS plc is a leading provider of infection prevention and other procedural products and services. Our mission is to help
our Customers create a healthier and safer world by providing innovative healthcare and life science product and service
solutions around the globe. We offer our Customers a unique mix of innovative capital equipment products, such as sterilizers
and surgical tables, and connectivity solutions such as operating room (“OR”) integration; consumable products, such as
detergents and skin care products, gastrointestinal ("GI") endoscopy accessories, barrier product solutions, and other products
and services, including: equipment installation and maintenance, microbial reduction of medical devices, instrument and scope
repair solutions, laboratory testing services, linen management and off-site reprocessing.
On October 9, 2014, STERIS plc, a public limited company organized under the laws of England and Wales, was
incorporated as a private limited company under the name New STERIS Limited and was re-registered effective November 2,
2015 as a public limited company under the name STERIS plc. New STERIS Limited was established to effect the combination
(“Combination”) of STERIS Corporation, an Ohio corporation (“Old STERIS”), and Synergy Health plc, a public limited
company organized under the laws of England and Wales (“Synergy”). The Combination closed on November 2, 2015 and as a
result STERIS plc became the ultimate parent company of Old STERIS and STERIS completed the acquisition of Synergy in a
cash and stock transaction. Synergy has been re-registered under the name Synergy Health Limited. The acquisition of Old
STERIS was accounted for in the consolidated financial statements as a merger between entities under common control;
accordingly the historical consolidated financial statements of Old STERIS for periods prior to November 2, 2015 are
considered to be the historical financial statements of STERIS plc. Due to the timing of the Combination, the results of Synergy
are only reflected in the results of operations of the Company from November 2, 2015 forward, which will affect the
comparability to the prior period historical operations of the Company throughout this Annual Report on Form 10-K.
With registered offices located in Leicester, UK, STERIS plc has approximately 14,000 employees. Through our field sales
and service and a network of dealers and distributors, we serve Customers in more than 100 countries around the world.
We operate and report in four reportable business segments: Healthcare Products, Healthcare Specialty Services, Life
Sciences, and Applied Sterilization Technologies. Corporate and other, which is presented separately, contains the Defense and
Industrial business unit plus costs that are associated with being a publicly traded company and certain other corporate costs.
These costs include executive office costs, Board of Directors compensation, shareholder services and investor relations,
external audit fees, and legacy pension and post-retirement benefit costs.
Our Healthcare Products segment offers infection prevention and procedural solutions for healthcare providers worldwide,
including capital equipment and related maintenance and installation services, as well as consumables.
Our Healthcare Specialty Services segment provides a range of specialty services for healthcare providers including
hospital sterilization services, instrument and scope repairs, and linen management.
Our Life Sciences segment offers capital equipment and consumable products, and equipment maintenance and specialty
services for pharmaceutical manufacturers and research facilities.
Our Applied Sterilization Technologies segment offers contract sterilization and laboratory services for medical device and
pharmaceutical Customers and others.
The bulk of our revenues are derived from the healthcare and pharmaceutical industries. Much of the growth in these
industries is driven by the aging of the population throughout the world, as an increasing number of individuals are entering
their prime healthcare consumption years, and is dependent upon advancement in healthcare delivery, acceptance of new
technologies, government policies, and general economic conditions. The pharmaceutical industry has been impacted by
increased regulatory scrutiny of cleaning and validation processes, mandating that manufacturers improve their processes.
Within healthcare, there is increased concern regarding the level of hospital acquired infections around the world; increased
demand for medical procedures, including preventive screenings such as endoscopies and colonoscopies; and a desire by our
Customers to operate more efficiently, all of which are driving increased demand for many of our products and services.
3
INFORMATION RELATED TO BUSINESS SEGMENTS
Our chief operating decision maker is our President and Chief Executive Officer (“CEO”). The CEO is responsible for
performance assessment and resource allocation. The CEO regularly receives discrete financial information about each
reportable segment, and uses this information to assess performance and allocate resources. The accounting policies of the
reportable segments are the same as those described in note 1 to the Consolidated Financial Statements titled, “Nature of
Operations and Summary of Significant Accounting Policies,” of this Annual Report. Segment performance information for
fiscal years 2016, 2015, and 2014 is presented in note 12 to our Consolidated Financial Statements titled, “Business Segment
Information” and in Item 7 titled, “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” (“MD&A”), of this Annual Report.
HEALTHCARE PRODUCTS SEGMENT
Description of Business. Our Healthcare Products segment provides a broad portfolio of infection prevention, surgical and
gastrointestinal ("GI") solutions to healthcare providers, including acute care hospitals and ambulatory surgery centers and GI
clinics. These solutions aid our Customers in improving the safety, quality, productivity, and utility consumption of their
surgical, sterile processing, gastrointestinal, and emergency environments.
Products Offered. These perioperative solutions include:
•
Steam, vaporized hydrogen peroxide and ethylene oxide (“EO”) sterilizers, as well as liquid chemical sterilant
processing systems, that allow Customers to meet rigorous standards and regulations and assist in the safe and
effective re-use of medical equipment and devices.
• Automated washer/disinfector systems that clean and disinfect a wide range of items from rolling instrument carts and
other large healthcare equipment to small surgical instruments.
• General and specialty surgical tables, surgical and examination lights, equipment management systems, operating
room storage cabinets, warming cabinets, scrub sinks, and other complementary products and accessories for use in
hospitals and other ambulatory surgery sites.
• Gastrointestinal devices and accessories for a variety of GI procedure areas including bleed management and
procedure irrigation, foreign body retrieval, polypectomy, and tissue acquisition.
• Connectivity solutions such as OR integration, OR and sterile processing department ("SPD") workflow, patient
tracking and instrument management that allow for high quality transfer of information and images throughout the
hospital and between hospitals throughout the world.
• Cleaning chemistries and sterility assurance products used in instrument cleaning and decontamination systems.
• Cleansing products, including hard surface disinfectants, skin care and hand hygiene solutions, for use by caregivers
and patients throughout healthcare institutions.
Significant brand names for these products include SYSTEM 1E®, Amsco®, Hamo®, Reliance®, Cmax®, Harmony®,
Kindest Kare®, Alcare®, Verify®, Cal Stat®, Roth Net®, Little Sister®, and T-Series®.
Services Offered. Our Healthcare Products segment provides various preventive maintenance programs and repair services to
support the effective operation of capital equipment over its lifetime. We offer these corrective and preventive service solutions
to Customers who have internal clinical/biomedical engineering departments and Customers who rely on us to provide those
services. Field service personnel install, maintain, upgrade, repair, and troubleshoot equipment throughout the world. We also
offer comprehensive sterilization and surgical management consulting services allowing healthcare facilities to achieve safety,
quality, and productivity improvements in the perioperative loop that flows between and among surgical suites and the central
sterilization services department. We offer remote equipment monitoring technology to anticipate potential failure modes and
take corrective action thereby improving Customers' equipment uptime. Finally, our Healthcare segment provides other
support services such as construction and facility planning, engineering support, device testing, Customer education, hand
hygiene process excellence, asset management/planning, and the sale of replacement parts. These solutions also include
information management and decision support solutions to operating room and central sterilization managers to help in
managing these environments and identifying opportunities to improve performance.
Customer Concentration. Our Healthcare Products segment sells capital equipment, consumables, and services to Customers
in the United Kingdom, United States and many other countries throughout the world. For the year ended March 31, 2016, no
Customer represented more than 10% of the Healthcare Product segment's total revenues and the loss of any single Customer is
not expected to have a material impact on the segment's results of operations or cash flows.
Competition. We compete with a number of large companies that have significant product portfolios and global reach, as well
as a number of small companies with very limited product offerings and operations in one or a limited number of countries. On
4
a product basis, competitors include 3M, Belimed, Cantel Medical, Ecolab, Getinge, Go Jo, Hill-Rom, Johnson & Johnson,
Kimberly-Clark, Skytron, and Stryker.
HEALTHCARE SPECIALTY SERVICES SEGMENT
Description of Business. Our Healthcare Specialty Services segment provides a range of solutions and outsourced and
managed services for acute care hospitals and other healthcare settings that aid our Customers in improving the safety, quality
and productivity of their operations.
Services Offered.
• Comprehensive instrument and endoscope repair and maintenance solutions (on site or at one of our dedicated repair
facilities).
• On site and off site reprocessing of surgical instruments as well as custom process improvement consulting.
• Linen management services including outsourced linen rental, reprocessing and managed supply chain solutions for
healthcare Customers.
Customer Concentration. Our Healthcare Specialty Services segment offers an array of services to Customers in the United
States, United Kingdom and many other countries throughout the world. For the year ended March 31, 2016, no Customer
represented more than 10% of the Healthcare Specialty Services segment's total revenues and the loss of any single Customer is
not expected to have a material impact on the segment's results of operations or cash flows.
Competition. We compete with a number of large companies that have significant product portfolios and global reach, as well
as a number of small companies with very limited service offerings and operations in one or a limited number of countries. On
a service line basis, competitors include Owens & Minor, Stryker, Olympus, Pentax, Karl Storz, Mobile, Prezio, Northfield,
Integrated Healthcare Sterile Service, BBraun Sterilog Limited, Berendsen plc, CleanLease (Clean Lease Fortex), Rentex Awé
and Rentex Floren.
LIFE SCIENCES SEGMENT
Description of Business. Our Life Sciences segment designs, manufactures and sells a broad range of capital equipment,
service solutions and contamination control solutions, including formulated chemistries, barrier products and sterility assurance
products, to pharmaceutical companies and private and public research facilities around the world.
Products Offered. These capital equipment and formulated cleaning chemistries include:
•
Formulated cleaning chemistries that are used to prevent biological and chemical contamination and to monitor
sterilization and decontamination processes, including products used to clean components used in manufacturing,
decontaminate systems, and disinfect or sterilize hard surfaces.
• Vaporized Hydrogen Peroxide (“VHP”®) generators used to decontaminate many high value spaces, from small
isolators to large pharmaceutical processing and laboratory animal rooms.
• High-purity water equipment, which generates water for injection and pure steam.
•
Steam sterilizers used in the manufacture of pharmaceuticals and biopharmaceuticals as well as sterilizers for
equipment and instruments used in research studies, mitigating the risk of contamination.
• Washer/disinfectors that decontaminate various large and small components in pharmaceutical and industrial
manufacturing processes and in research labs, such as glassware, vessels, equipment parts, drums, hoses, and animal
cages.
Significant brand names for these products include Amsco®, Reliance®, Finn-Aqua®, VHP®, and the CIP® Products.
Services Offered. Our Life Sciences segment offers various preventive maintenance programs and repair services to support
the effective operation of capital equipment over its lifetime. Field service personnel install, maintain, upgrade, repair, and
troubleshoot equipment throughout the world. We utilize remote equipment monitoring technology to improve Customers’
equipment uptime. We also offer consulting services and technical support to architecture and engineering firms and laboratory
planners. Our services deliver expertise in decontamination and infection control technologies and processes to end users. Our
service personnel also provide higher-end validation services in support of our pharmaceutical Customers.
Customer Concentration. Our Life Sciences segment sells capital equipment, consumables, and services to Customers in the
United Kingdom, United States and many other countries throughout the world. For the year ended March 31, 2016, no
Customer represented more than 10% of the Life Sciences segment’s total revenues and the loss of any single Customer is not
expected to have a material impact on the segment’s results of operations or cash flows.
Competition. Our Life Sciences segment operates in highly regulated environments where the most intense competition
results from technological innovations, product performance, convenience and ease of use, and overall cost-effectiveness. In
5
recent years, our pharmaceutical Customer base has also undergone consolidation and reduced capital spending, resulting in
fewer project opportunities. We compete for pharmaceutical, research and industrial Customers with a number of large
companies that have significant product portfolios and global reach, as well as a number of small companies with very limited
product offerings and operations in one or a limited number of countries. Competitors include Belimed, Ecolab, Fedegari,
Getinge, MECO, Stilmas, and Techniplast.
APPLIED STERILIZATION TECHNOLIGIES SEGMENT
Description of Business. Our Applied Sterilization Technologies segment operates through a network of 59 facilities located in
16 countries. We sell a comprehensive array of contract sterilization services using gamma, electron beam and X-ray
technologies, as well as ethylene oxide gas (“EO”). In addition, we offer an array of laboratory testing and validation services.
Our Customers include many of the world's largest manufacturers of medical devices, as well as innovative start up companies.
Services Offered. We use Gamma, EO, electron beam and X-ray technologies to provide a wide range of processing services at
our facilities. Gamma is an irradiation process which utilizes cobalt-60. Electron beam utilizes high energy electrons as its
radiation source. EO is a gaseous process. In addition, we offer an array of laboratory testing services that complements the
manufacturing of sterilized products. Our locations are in major population centers and core distribution corridors throughout
the Americas, Europe and Asia. We adapt to increasing imports and changes in manufacturing points-of-origin by monitoring
trends in supply chain management. Demographics partially drive this segment's growth. The aging population and rising life
expectancy increase the demand for surgical procedures, which increases the consumption of medical devices and surgical kits.
Our technical services group supports Customers in all phases of product development, materials testing, and process
validation.
Customer Concentration. Our Applied Sterilization Technologies segment’s services are offered to Customers throughout its
network. For the year ended March 31, 2016, no Customer represented more than 10% of the segment’s revenues. Because of a
largely fixed cost structure, the loss of a single Customer is not expected to have a material impact on the segment’s results of
operations or cash flows and would not be expected to have a material impact on STERIS.
Competition. Applied Sterilization Technologies operates in a highly regulated industry and competes with Sterigenics
International, Inc., other smaller contract sterilization companies and manufacturers that sterilize products in-house.
INFORMATION WITH RESPECT TO OUR BUSINESS IN GENERAL
Sources and Availability of Raw Materials. We purchase raw materials, sub-assemblies, components, and other supplies
needed in our operations from numerous suppliers in the United States and internationally. The principal raw materials and
supplies used in our operations include stainless steel, organic and inorganic chemicals, fuel, and plastic components. These
raw materials and supplies are generally available from several suppliers and in sufficient quantities that we do not currently
expect any significant sourcing problems in fiscal 2017. We have long-term supply contracts for certain materials for which
there are few suppliers, such as ethylene oxide and radioisotope (cobalt-60).
Intellectual Property. We protect our technology and products by, among other means, obtaining United States and foreign
patents. There can be no assurance, however, that any patent will provide adequate protection for the technology, system,
product, service, or process it covers. In addition, the process of obtaining and protecting patents can be long and expensive.
We also rely upon trade secrets, technical know-how, and continuing technological innovation to develop and maintain our
competitive position.
As of March 31, 2016, we held approximately 390 United States patents and 1,100 in other jurisdictions and had
approximately 90 United States patent applications and 380 patent applications pending in other jurisdictions. Patents for
individual products extend for varying periods according to the date of filing or grant and legal term of patents in various
countries where a patent is obtained. The actual protection a patent provides varies from country to country and depends in part
upon the type of patent, the scope of its coverage, and the availability of legal remedies in each country.
Our products are sold around the world under various brand names and trademarks. We consider our brand names and
trademarks to be valuable in the marketing of our products. As of March 31, 2016, we had a total of approximately 1,660
trademark registrations worldwide.
Research and Development. Research and development is an important factor in our long-term strategy. For the years ended
March 31, 2016, 2015, and 2014, research and development expenses were $56.7 million, $54.1 million, and $48.6 million,
respectively. We incurred these expenses primarily for the research and development of commercial products.
We are focused on introducing products that increase efficiencies for our Customers. We have new healthcare products
throughout our portfolio including a new smaller footprint V-PRO 60® Low Temperature Sterilization System and accessories,
6
Harmony AIR ™ Surgical Lighting System and Harmony AIR™ Equipment Booms and Accessories, and a number of new
products in US Endoscopy.
Quality Assurance. We manufacture, assemble, and package products in several countries. Each of our production facilities
are dedicated to particular processes and products. Our success depends upon Customer confidence in the quality of our
production process and the integrity of the data that supports our product safety and effectiveness. We have implemented
quality assurance procedures to support the quality and integrity of scientific information and production processes.
Government Regulation. Our business is subject to various degrees of governmental regulation in the countries in which we
operate. In the United States, the United States Food and Drug Administration (“FDA”), the United States Environmental
Protection Agency (“EPA”), the United States Nuclear Regulatory Commission (“NRC”), and other governmental authorities
regulate the development, manufacture, sale, and distribution of our products and services. Our international operations also are
subject to a significant amount of government regulation, including country-specific rules and regulations and U.S. regulations
applicable to our international operations. Government regulations include detailed inspection of, and controls over, research
and development, clinical investigations, product approvals and manufacturing, marketing and promotion, sampling,
distribution, record-keeping, storage, and disposal practices.
Compliance with applicable regulations is a significant expense for us. Past, current or future regulations, their
interpretation, or their application could have a material adverse impact on our operations. Also, additional governmental
regulation may be passed that could prevent, delay, revoke, or result in the rejection of regulatory clearance of our products. We
cannot predict the effect on our operations resulting from current or future governmental regulation or the interpretation or
application of these regulations.
If we fail to comply with any applicable regulatory requirements, sanctions could be imposed on us. For more information
about the risks we face regarding regulatory requirements, see Part I, Item 1A of this Annual Report titled, “Risk Factors, We
are subject to extensive regulatory requirements and must receive and maintain regulatory clearance or approval for many
products and operations. Failure to receive or maintain, or delays in receiving, clearance or approvals may hurt our revenues,
profitability, financial condition, or value."
We have received warning letters, paid civil penalties, conducted product recalls and field corrections, and been subject to
other regulatory sanctions. We believe that we are currently compliant in all material respects with applicable regulatory
requirements. However, there can be no assurance that future or current regulatory, governmental, or private action will not
have a material adverse affect on us or on our performance, results, or financial condition.
Environmental Matters. We are subject to various laws and governmental regulations concerning environmental matters and
employee safety and health in the United Kingdom, United States and in other countries. We have made, and continue to make,
significant investments to comply with these laws and regulations. We cannot predict the future capital expenditures or
operating costs required to comply with environmental laws and regulations. We believe that we are currently compliant with
applicable environmental, health, and safety requirements in all material respects. However, there can be no assurance that
future or current regulatory, governmental, or private action will not have a material adverse affect on our performance, results,
or financial condition. Please refer to note 11 of our consolidated financial statements titled, "Commitments and Contingencies"
for further information.
In the future, if a loss contingency related to environmental matters, employee safety, health or conditional asset retirement
obligations is significantly greater than the current estimated amount, we would record a liability for the obligation and it may
result in a material impact on net income for the annual or interim period during which the liability is recorded. The
investigation and remediation of environmental obligations generally occur over an extended period of time, and therefore we
do not know if these events would have a material adverse affect on our financial condition, liquidity, or cash flow, nor can
there be any assurance that such liabilities would not have a material adverse affect on our performance, results, or financial
condition.
Competition. The markets in which we operate are highly competitive and generally highly regulated. Competition is intense
in all of our business segments and includes many large and small competitors. Brand, design, quality, safety, ease of use,
serviceability, price, product features, warranty, delivery, service, and technical support are important competitive factors to us.
We expect to face continued competition in the future as new infection prevention, sterile processing, contamination control,
gastrointestinal and surgical support products and services enter the market. We believe many organizations are working with a
variety of technologies and sterilizing agents. Also, a number of companies have developed disposable medical instruments and
other devices designed to address the risk of contamination.
We believe that our long-term competitive position depends on our success in discovering, developing, and marketing
innovative, cost-effective products and services. We devote significant resources to research and development efforts and we
believe STERIS is positioned as a global competitor in the search for technological innovations. In addition to research and
7
development, we invest in quality control, Customer programs, distribution systems, technical services, and other information
services.
There can be no assurance that we will develop significant new products or services, or that new products or services we
provide or develop in the future will be more commercially successful than those provided or developed by our competitors. In
addition, some of our existing or potential competitors may have greater resources than us. Therefore, a competitor may
succeed in developing and commercializing products more rapidly than we do. Competition, as it relates to our business
segments and product categories, is discussed in more detail in the section above titled, “Information Related to Business
Segments.”
Employees. As of March 31, 2016, we had approximately 14,000 employees throughout the world. We believe we generally
have good relations with our employees.
Methods of Distribution. Sales and service activities are supported by a staff of regionally based clinical specialists, system
planners, corporate account managers, and in-house Customer service and field support departments. We also contract with
distributors and dealers in select markets.
Customer training is important to our business. We provide a variety of courses at Customer locations, at our training and
education centers, and over the internet. Our training programs help Customers understand the science, technology, and
operation of our products and services. Many of our operator training programs are approved by professional certifying
organizations and offer continuing education credits to eligible course participants.
Seasonality. Our financial results have been, from time to time, subject to seasonal patterns. We cannot assure you that these
patterns will continue.
International Operations. We believe we have opportunity to expand internationally, as we currently serve only a portion of
the world that could benefit from our products. Through our subsidiaries, we operate in various international locations. United
States revenues represented 74% of our fiscal 2016 revenues. Revenues from the United Kingdom and Europe, Middle East
and Africa ("EMEA") were 7% and 10%, respectively, of our fiscal 2016 revenues. The remaining 9% was generated in Canada
and the Asia Pacific and Latin American regions.
Also see note 12 to our Consolidated Financial Statements titled, “Business Segment Information,” and Item 7, “MD&A”,
for a geographic presentation of our revenues for the three years ended March 31, 2016, 2015 and 2014.
We conduct manufacturing in the United States, United Kingdom, Canada, Mexico, Brazil, China and various other
European countries. Cost of revenues incurred in currencies other than the United States dollar have represented approximately
one-third of our total cost of revenues. There are, in varying degrees, a number of inherent risks to our international operations.
We describe some of these risks in Part I, Item 1A of this Annual Report titled, "Risk Factors. We conduct manufacturing, sales,
and distribution operations on a worldwide basis and are subject to a variety of risk associated with doing business
internationally."
Fluctuations in the exchange rate of the U.S. dollar relative to the currencies of other countries in which we operate can
also increase or decrease our reported net assets and results of operations. During fiscal 2016, revenues were unfavorably
impacted by $41.9 million, or 1.8%, and income before taxes was favorably impacted by $20.4 million, or 13.6%, as a result of
foreign currency movements relative to the U.S. dollar. We cannot predict future changes in foreign currency exchange rates or
the effect they will have on our operations.
Backlog. We define backlog as the amount of unfilled capital equipment purchase orders at a point in time. At March 31, 2016,
we had a backlog of $164.7 million. Of this amount, $119.4 million and $45.3 million related to our Healthcare Products and
Life Sciences segments, respectively. At March 31, 2015, we had backlog orders of $143.2 million. Of this amount $97.7
million and $45.5 million related to our Healthcare Products and Life Sciences segments, respectively. A significant portion of
the backlog orders at March 31, 2016, is expected to ship in the next fiscal year.
Availability of Securities and Exchange Commission Filings. We make available free of charge on or through our website
our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, and amendments to
these reports, as soon as reasonably practicable after we electronically file such material with, or furnish such material to the
Securities and Exchange Commission (“SEC”). You may access these documents, as well as other SEC filings related to the
Company, on the Investor Relations page of our website at http://www.steris-ir.com. You may also obtain copies of these
documents by visiting the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549 or by accessing the
SEC’s website at http://www.sec.gov. You may obtain information on the Public Reference Room by calling the SEC at 1-800-
SEC-0330. The content on or accessible through any website referred to in this Annual Report on Form 10-K is not
incorporated by reference into this Form 10-K unless expressly noted.
8
We also make available free of charge on our website our Corporate Governance Guidelines, our Director Code of Ethics,
and our Code of Business Conduct, as well as the Charters of the Audit Committee, the Compensation Committee, the
Nominating and Governance Committee, and the Compliance Committee of the Company’s Board of Directors.
Executive Officers of the Registrant. The following table presents certain information regarding our executive officers at March
31, 2016. All executive officers serve at the pleasure of the Board of Directors.
Name
Kathleen L. Bardwell
Daniel A. Carestio
Dr. Adrian Coward
Suzanne V. Forsythe
Gulam A. Khan
Sudhir K. Pahwa
Walter M Rosebrough, Jr.
Michael J. Tokich
J. Adam Zangerle
Age
Position
60
43
46
62
49
63
62
47
49
Senior Vice President and Chief Compliance Officer
Senior Vice President, STERIS Applied Sterilization Technologies
and Life Sciences
Senior Vice President, Healthcare Specialty Services
Vice President, Human Resources
Senior Vice President, Procedural Solutions
Senior Vice President, Infection Prevention Technologies
President and Chief Executive Officer
Senior Vice President, Chief Financial Officer and Treasurer
Vice President, General Counsel, and Secretary
The following discussion provides a summary of each executive officer's recent business experience:
Kathleen L. Bardwell serves as Senior Vice President and Chief Compliance Officer. She assumed this role in February 2014.
From March 2008 to February 2014, she served as Vice President, Chief Compliance Officer.
Daniel A. Carestio serves as Senior Vice President, STERIS Applied Sterilization Technologies and Life Sciences. He assumed
this role in August 2015. From 2011 to August 2015, he served as Vice President, Sales and Marketing for Isomedix Services and
General Manager of Life Sciences.
Dr. Adrian Coward serves as Senior Vice President, Healthcare Specialty Services. He assumed this role in November 2015.
From April 2014 to November 2015 he served as Chief Operating Officer of Synergy Health plc. From April 2010 to March 2014,
Dr. Coward served as CEO UK & Ireland of Synergy Health plc.
Suzanne V. Forsythe serves as Vice President, Human Resources. She assumed this role in August 2011. From April 2008
through August 2011 she served as Senior Director, Human Resources.
Gulam A. Khan serves as Senior Vice President, Procedural Solutions. He assumed this role in August 2015. He served as Chief
Executive Officer of United States Endoscopy Group, Inc. from January 2003, prior to its acquisition by STERIS in August 2012,
remaining with STERIS until June 2013. From April 2014 until August 2015 he provided independent consulting services to
corporations, including business integration consulting services to STERIS.
Sudhir K. Pahwa serves as Senior Vice President, Infection Prevention Technologies. He assumed this role in February 2014.
From December 2008 to February 2014 he served as Vice President and General Manager, Infection Prevention Technologies.
Walter M Rosebrough, Jr. serves as President and Chief Executive Officer. He assumed this role when he joined STERIS in
October 2007.
Michael J. Tokich serves as Senior Vice President, Chief Financial Officer and Treasurer. He assumed this role in February 2014.
From March 2008 to February 2014 he served as Senior Vice President and Chief Financial Officer.
J. Adam Zangerle serves as Vice President, General Counsel, and Secretary. He assumed this role in July 2013. From May 2007
to July 2013 he served as Associate General Counsel and Group General Counsel, Healthcare.
9
ITEM 1A. RISK FACTORS
This item describes certain risk factors that could affect our business, financial condition and results of operations. You
should consider these risk factors when evaluating the forward-looking statements contained in this Annual Report on Form 10-
K, because our actual results and financial condition might differ materially from those projected in the forward-looking
statements should these risks occur. We face other risks besides those highlighted below. These other risks include additional
uncertainties not presently known to us or that we currently believe are immaterial, but may ultimately have a significant
impact. Should any of these risks, described below or otherwise, actually occur, our business, financial condition, performance,
prospects, value, or results of operations could be negatively affected.
Risks related to our business.
The economic climate may adversely affect us.
Adverse economic cycles or conditions and Customer, regulatory or government response to those cycles or conditions,
could affect our results of operations. There can be no assurance when these cycles or conditions will occur or when they will
begin to improve after they occur. There also can be no assurance as to the strength or length of any recovery from a business
downturn or recession. United States and worldwide financial and business conditions are uncertain, and recovery has been
slow from the recent severe recession, which had a significant adverse effect on U.S. and global economies.
Credit and liquidity problems may make it difficult for some businesses to access credit markets and obtain financing and
may cause some businesses to curtail spending to conserve cash in anticipation of persistent business slowdowns and liquidity
needs. If our Customers have difficulty financing their purchases due to tight credit markets or related factors or because of
other operational or utilization problems they may be experiencing or otherwise decide to curtail their purchases, our business
could be adversely affected. Our exposure to bad debt losses could also increase if Customers are unable to pay for products
previously ordered and delivered.
Global economic conditions, in Europe in particular, may have adverse effects on our business and financial condition.
Many of our global Customers are governmental entities or other entities that rely on government healthcare systems or
government funding. If government funding for healthcare becomes limited or restricted in countries in which we operate, our
Customers may be unable to pay their obligations on a timely basis or to make payment in full and it may become necessary to
increase reserves. In addition, there can be no assurance that there will not be an increase in collection difficulties.
Prospectively, additional adverse effects resulting from these conditions may include decreased healthcare utilization, further
pricing pressure on our products and services, and/or weaker overall demand for our products and services, particularly capital
products. Should the current economic conditions continue or worsen, our business, performance, prospects, value, financial
condition, bad debt expense or results of operations may be adversely affected.
Our businesses are highly competitive, and if we fail to compete successfully, our revenues and results of operations may be
hurt.
We operate in a highly competitive global environment. Our businesses compete with other broad line manufacturers, as
well as many smaller businesses specializing in particular products or services, primarily on the basis of brand, design, quality,
safety, ease of use, serviceability, price, product features, warranty, delivery, service, and technical support. We face increased
competition from new infection prevention, sterile processing, contamination control, surgical support, cleaning consumables,
gastrointestinal endoscopy accessories, contract sterilization, and other products and services entering the market. Competitors
and potential competitors also are attempting to develop alternate technologies and sterilizing agents, as well as disposable
medical instruments and other devices designed to address the risk of contamination. If our products, services, support,
distribution and/or cost structure do not enable us to compete successfully, our business, performance, prospects, value,
financial condition, and results of operations may be adversely affected.
Our success depends, in part, on our ability to design, manufacture, distribute, and achieve market acceptance of, new
products with higher functionality and lower costs.
Many of our Customers operate businesses characterized by technological change, product innovation and evolving
industry standards. Price is a key consideration in their purchasing decisions. To successfully compete, we must continue to
design, develop, and improve innovative products. We also must achieve market acceptance of and effectively distribute those
products, and reduce production costs. Our business, performance, prospects, value, financial condition, and results of
operations might be adversely effected if our competitors’ product development capabilities become more effective, if they
10
introduce new or improved products that displace our products or gain market acceptance, or if they produce and sell products
at lower prices.
Decreased availability or increased costs of raw materials or energy supplies or other supplies might increase our
production costs or limit our production capabilities or curtail our operations.
We purchase raw materials, fabricated and other components, and energy supplies from a variety of suppliers. Key
materials include stainless steel, organic and inorganic chemicals, fuel, cobalt-60, ethylene oxide, and plastic components. The
availability and prices of raw materials and energy supplies are subject to volatility and are influenced by worldwide economic
conditions, speculative action, world supply and demand balances, inventory levels, availability of substitute materials,
currency exchange rates, anticipated or perceived shortages, and other factors. In some situations, we may be able to
temporarily limit price increases or support availability through supply agreements. Otherwise, raw material prices and
availability are subject to numerous factors outside of our control, including those described above. Increases in prices or
decreases in availability of raw materials and oil and gas might impair our procurement of necessary materials or our product
production, or might increase production costs. In addition, energy costs impact our transportation and distribution and other
supply and sales costs. Also, a number of our key materials and components have a limited number of suppliers. Some are
single-sourced in certain regions of the world, such as cobalt-60 and ethylene oxide, which are necessary to our AST
operations; the unavailability or short supply of these products might disrupt or cause shutdowns of portions of our AST
operations or have other adverse consequences. Shortages in supply, regulatory or security requirements, or increases in the
price of raw materials, components and energy supplies may adversely impact our business, performance, prospects, value,
financial condition, or results of operations.
Our operations, and those of our suppliers, are subject to a variety of business continuity hazards and risks, any of which
could interrupt production or operations or otherwise adversely affect our performance, results, or value.
Business continuity hazards and other risks include:
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explosions, fires, earthquakes, inclement weather, and other disasters;
utility or other mechanical failures;
unscheduled downtime;
labor difficulties;
inability to obtain or maintain any required licenses or permits;
disruption of communications;
data security, preservation and redundancy disruptions;
inability to hire or retain key management or employees;
disruption of supply or distribution; and
regulation of the safety, security or other aspects of our operations.
The occurrence of any of these or other events might disrupt or shut down operations, or otherwise adversely impact the
production or profitability of a particular facility, or our operations as a whole. Certain casualties also might cause personal
injury and loss of life, or severe damage to or destruction of property and equipment, and for casualties occurring at our
facilities, result in liability claims against us. Although we maintain property and casualty insurance and liability and similar
insurance of the types and in the amounts that we believe are customary for our industries, our insurance coverages have limits
and we are not fully insured against all potential hazards and risks incident to our business. Should any of the hazards or risks
occur, or should our insurance coverage be inadequate or unavailable, our business, performance, prospects, value, financial
condition, and results of operations might be adversely affected, both during and after the event.
We conduct manufacturing, sales and distribution operations on a worldwide basis and are subject to a variety of risks
associated with doing business internationally.
We maintain significant international operations, including operations in the U.S., Canada, Mexico, Europe, Asia Pacific
and Latin America. As a result, we are subject to a number of risks and complications associated with international
manufacturing, sales, services, and other operations. These include:
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risks associated with foreign currency exchange rate fluctuations;
difficulties in enforcing agreements and collecting receivables through some foreign legal systems;
enhanced credit risks in certain European countries as well as emerging market regions;
foreign Customers with longer payment cycles than Customers in the United States;
tax rates in certain countries that exceed those in the United States, and earnings subject to withholding tax
requirements;
tax laws that restrict our ability to use tax credits, offset gains, or repatriate funds;
tariffs, exchange controls or other trade restrictions including transfer pricing restrictions when products produced in
one country are sold to an affiliated entity in another country;
11
•
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general economic and political conditions in countries where we operate or where end users of our products are
situated, including the impact of the U.K. voting to leave the European Union in its proposed “Brexit” referendum on
June 23, 2016;
difficulties associated with managing a large organization spread throughout various countries;
difficulties in enforcing intellectual property rights or weaker intellectual property right protections in some countries;
and
difficulties associated with compliance with a variety of laws and regulations governing international trade, including
the U.S. Foreign Corrupt Practices Act.
Implementation and achievement of international growth objectives also may be impeded by political, social, and economic
uncertainties or unrest in countries in which we conduct operations or market or distribute our products. In addition,
compliance with multiple, and potentially conflicting, international laws and regulations, import and export limitations,
anti-corruption laws, and exchange controls may be difficult, burdensome or expensive.
For example, we are subject to compliance with various laws and regulations, including the U.S. Foreign Corrupt Practices
Act, the U.K. Bribery Act, and similar anti-bribery laws, which generally prohibit companies and their intermediaries from
making improper payments to officials for the purpose of obtaining or retaining business. While our employees and agents are
required to comply with these laws, we cannot assure you that our internal policies and procedures will always protect us from
violations of these laws, despite our commitment to legal compliance and corporate ethics. The occurrence or allegation of
these types of events may adversely affect our business, performance, prospects, value, financial condition, and results of
operations.
Consolidations among our healthcare and pharmaceutical Customers may result in a loss of Customers or more significant
pricing pressures.
A number of our Customers have consolidated. These consolidations are due in part to healthcare cost reduction measures
initiated by competitive pressures as well as legislators, regulators and third-party payors. In an effort to attract Customers,
some of our competitors have also reduced production costs and lowered prices. This has resulted in greater pricing pressures
on us and in some cases loss of Customers. Additional consolidations could result in a loss of Customers or more significant
pricing pressures. Additional consolidations and pricing pressures also may occur as a result of recent healthcare legislation
and economic conditions. A loss of Customers or more significant pricing pressure also could have an adverse effect on our
business, performance, prospects, value, financial conditions or results of operations.
Changes in healthcare laws or government and other third-party payor reimbursement levels to healthcare providers, or
failure to meet healthcare reimbursement or other requirements might negatively impact our business.
We sell many of our products and services to hospitals and other healthcare providers and pharmaceutical manufacturers.
Many of these Customers are subject to or supported by government programs or receive reimbursement for services from
third-party payors, such as government programs, including Medicare and Medicaid, private insurance plans, and managed care
programs. In the United States, many of these programs set maximum reimbursement levels for these healthcare services and
can have complex reimbursement requirements. Outside the United States, reimbursement systems vary significantly by
country. However, government-managed healthcare systems control reimbursement for healthcare services in many foreign
countries. In these countries, as well as in the United States, public budgetary constraints may significantly impact the ability of
hospitals, pharmaceutical manufacturers, and other Customers supported by such systems to purchase our products. If
government or other third-party payors deny or change coverage, reduce their current levels of reimbursement for healthcare
services, or otherwise implement measures to regulate pricing or contain costs or if our costs increase more rapidly than
reimbursement level or permissible pricing increases or we do not satisfy the standards or requirements for reimbursement, our
revenues or profitability may suffer and our business, performance, value, prospects, financial condition or results of operations
may be adversely affected.
In addition, the U.S. Patient Protection and Affordable Care Act, as amended by the Health Care and Education
Affordability Reconciliation Act, contains provisions that could have a material impact on our business. Among other
provisions, this legislation imposes an excise tax on medical devices manufactured or offered for sale in the United States. Late
in 2015 Congress enacted legislation that suspended the excise tax for 2016 and 2017. We incurred $5.8 million and $7.9
million in medical device excise taxes for fiscal 2016 and fiscal 2015, respectively. In addition, we have been required to
commit significant resources to “Sunshine Act” compliance. Various health care reform proposals have also emerged at the
state level, and we are unable to predict which, if any, of those proposals will be enacted. However, the ultimate effect of health
care reform legislation or any future legislation or regulation could have a material adverse effect on our business, performance,
value, prospects, financial condition or results of operation.
12
We are subject to extensive regulatory requirements and must receive and maintain regulatory clearance or approval for
many products and operations. Failure to receive or maintain, or delays in receiving, clearance or approvals may hurt our
revenues, profitability, financial condition, or value.
Our operations are subject to extensive regulation in both the United States and in other countries where we do business.
In the United States, our products and services are regulated by the FDA and other regulatory authorities. In many foreign
countries, sales of our products and services are subject to extensive regulations that may or may not be comparable to those of
the FDA. In Europe, our products are regulated primarily by country and community regulations of those countries within the
European Economic Area and must conform to the requirements of those authorities.
Government regulation applies to nearly all aspects of testing, manufacturing, safety, labeling, storing, recordkeeping,
reporting, promoting, distributing, and importing or exporting of medical devices, products, and services. In general, unless an
exemption applies, a sterilization, decontamination or medical device or product or service must receive regulatory approval or
clearance before it can be marketed or sold. Modifications to existing products or the marketing of new uses for existing
products also may require regulatory approvals, approval supplements or clearances. If we are unable to obtain any required
approvals, approval supplements or clearances for any modification to a previously cleared or approved device, we may be
required to cease manufacturing and sale, or recall or restrict the use of such modified device, pay fines, or take other action
until such time as appropriate clearance or approval is obtained.
Regulatory agencies may refuse to grant approval or clearance, or review and disagree with our interpretation of approvals
or clearances, or with our decision that regulatory approval is not required or has been maintained. Regulatory submissions
may require the provision of additional data and may be time consuming and costly, and their outcome is uncertain. Regulatory
agencies may also change policies, adopt additional regulations, or revise existing regulations, each of which could prevent or
delay approval or clearance of devices, or could impact our ability to market a previously cleared, approved, or unregulated
device. Our failure to comply with the regulatory requirements of the FDA or other applicable regulatory requirements in the
United States or elsewhere might subject us to administratively or judicially imposed sanctions. These sanctions include,
among others, warning letters, fines, civil penalties, criminal penalties, injunctions, debarment, product seizure or detention,
product recalls and total or partial suspension of production, sale and/or promotion. The failure to receive or maintain, or delays
in the receipt of, relevant United States or international qualifications could have a material adverse effect on our business,
performance, prospects, value, financial condition or results of operations.
Refer also for further information to the “Risk Factor” below titled, “We may be adversely affected by product liability
claims or other legal actions or regulatory or compliance matters.
Our products are subject to recalls and restrictions, even after receiving United States or foreign regulatory clearance or
approval.
Ongoing medical device reporting regulations require that we report to appropriate governmental authorities in the United
States and/or other countries when our products cause or contribute to a death or serious injury or malfunction in a way that
would be reasonably likely to contribute to a death or serious injury if the malfunction were to recur. Governmental authorities
can require product recalls or impose restrictions for product design, manufacturing, labeling, clearance, or other issues. For the
same reasons, we may voluntarily elect to recall or restrict the use of a product. Any recall or restriction could divert
managerial and financial resources and might harm our reputation among our Customers and other healthcare professionals
who use or recommend the products. Product recalls, restrictions, suspensions, re-labeling, or other change might have a
material adverse effect on our business, performance, prospects, value, financial condition, or results of operations.
We may be adversely affected by product liability claims or other legal actions or regulatory or compliance matters.
We face an inherent business risk of exposure to product liability claims and other legal and regulatory actions. A
significant increase in the number, severity, amount, or scope of these claims and actions may result in substantial costs and
harm our reputation or otherwise adversely affect product sales and our business. Product liability claims and other legal and
regulatory actions may also distract management from other business responsibilities.
We are also subject to a variety of other types of claims, proceedings, investigations, and litigation initiated by government
agencies or third parties and other potential risks and liabilities. These include compliance matters, product regulation or safety,
taxes, employee benefit plans, employment discrimination, health and safety, environmental, antitrust, customs, import/export,
government contract compliance, financial controls or reporting, intellectual property, allegations of misrepresentation, false
claims or false statements, commercial claims, claims regarding promotion of our products and services, or other similar or
different matters. Any such claims, proceedings, investigations or litigation, regardless of the merits, might result in substantial
costs, restrictions on product use or sales, or otherwise injure our business.
Administratively or judicially imposed or agreed sanctions might include warning letters, fines, civil penalties, criminal
penalties, loss of tax benefits, injunctions, product seizure, recalls, suspensions or restrictions, re-labeling, detention, and/or
13
debarment. We also might be required to take actions such as payment of substantial amounts, or revision of financial
statements, or to take the following types of actions with respect to our products, services, or business:
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redesign, re-label, restrict, or recall products;
cease manufacturing and selling products;
seizure of product inventory;
comply with a court injunction restricting or prohibiting further marketing and sale of products or services;
comply with a consent decree, which could result in further regulatory constraints;
dedication of significant internal and external resources and costs to respond to and comply with legal and regulatory
issues and constraints;
respond to claims, litigation, and other proceedings brought by Customers, users, governmental agencies, and others;
disruption of product improvements and product launches;
discontinuation of certain product lines or services; or
other restrictions or limitations on product sales, use or operation, or other activities or business practices.
Some product replacements or substitutions may not be possible or may be prohibitively costly or time consuming.
The impact of any legal, regulatory, or compliance claims, proceeding, investigation, or litigation, is difficult to predict.
The occurrence of any new legal, regulatory or compliance claim or problem respecting any of our significant products,
particularly should such events occur in the near term, could adversely affect our reputation with current and prospective
Customers and could otherwise materially and adversely affect our business, performance, prospects, value, financial condition,
or results of operations.
We maintain product liability and other insurance with coverages believed to be adequate. However, product liability or
other claims may exceed insurance coverage limits, fines, penalties and regulatory sanctions may not be covered by insurance,
or insurance may not continue to be available or available on commercially reasonable terms. Additionally, our insurers might
deny claim coverage for valid or other reasons or may become insolvent.
We engage in acquisitions and affiliations, divestitures, and other business arrangements. Our growth may be adversely
affected if we are unable to successfully identify, price, and integrate strategic business candidates or otherwise optimize our
business portfolio.
Our success depends, in part, on strategic acquisitions and joint ventures, which are intended to complement or expand our
businesses, divestiture of non-strategic businesses, and other actions to optimize our portfolio of businesses. This strategy
depends upon our ability to identify, appropriately price, and complete these types of business development transactions or
arrangements and to obtain any necessary financing. In fiscal 2014 we acquired the assets of Florida Surgical Repair, Inc., and
Life Systems, Inc., and purchased the shares of Eschmann Holdings Ltd. In fiscal 2015 we acquired the shares of Integrated
Medical Systems International, Inc., a newly formed subsidiary of ours acquired the assets of and assumed certain liabilities of
AGAPE Instruments Service, Inc., and we purchased all the outstanding shares of capital stock of Dana Products, Inc. In fiscal
2016, we completed the share acquisitions of General Econopak, Inc., Black Diamond Video, Inc., and a minor business, and
asset purchases of six minor businesses.
We also completed the acquisition of Synergy Health plc (the “Combination”) in fiscal 2016. The risk factors related to the
Combination are treated separately below.
Our success will depend on our ability to integrate the businesses acquired, retain key personnel and otherwise execute our
strategies. Our success will also depend on our ability to develop satisfactory working arrangements with our strategic partners
in joint ventures or other affiliations, or to divest or realign businesses. Competition for strategic business candidates may result
in increases in costs and price for acquisition candidates and market valuation issues may reduce the value available for
divestiture of non-strategic businesses. These types of transactions are also subject to a number of other risks and uncertainties,
including:
•
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•
delays in realizing or failure to realize anticipated benefits of the transactions;
diversion of management’s time and attention from other business concerns;
difficulties in retaining key employees, Customers, or suppliers of the acquired or divested businesses;
difficulties in maintaining uniform standards, controls, procedures and policies, or other integration or divestiture
difficulties;
adverse effects on existing business relationships with suppliers or Customers;
other events contributing to difficulties in generating future cash flows;
risks associated with the assumption of contingent or other liabilities of acquisition targets or retention of liabilities for
divested businesses; and
difficulties in obtaining financing.
•
•
•
•
If we are unable to realize the anticipated operating efficiencies and synergies or other expected transaction benefits, our
business, prospects, performance, value, financial condition or results of operation may be adversely impacted.
14
Our acquisition activity and ability to grow organically may be adversely affected if we are unable to continue to access the
financial markets.
Our recent acquisitions have been financed largely through borrowings under our bank credit facilities and issuance of
private placement notes. Future acquisitions or other capital requirements will necessitate additional cash. To the extent our
existing sources of cash are insufficient to fund these or other future activities, we may need to raise additional funds through
new or expanded borrowing arrangements or the sale of equity securities. There can be no assurance that we will be able to
obtain additional funds beyond existing bank credit facilities on terms favorable to us, or at all.
If our cost reduction and restructuring efforts are ineffective, our profitability may be hurt or our business otherwise might
be adversely affected.
We have undertaken various cost reduction and restructuring activities, including the targeted restructuring activities
announced in March 2014. This latter restructuring involves primarily the closure of our Hopkins Production Facility in
Mentor, Ohio and the transfer of the System 1E manufacturing operations conducted there to other North American
manufacturing facilities. We have recorded a $20 million charge for the restructuring. These efforts may not produce the full
efficiencies and cost reduction benefits we expect or efficiencies and benefits might be delayed. Implementation costs also
might exceed expectations and further cost reduction measures might become necessary, resulting in additional future charges.
If these cost reduction and restructuring efforts are not properly implemented or are unsuccessful, we might experience
business disruptions or our business otherwise might be adversely affected.
If our continuing efforts to create a Lean business and in-source production to reduce costs are not successful, our
profitability may be hurt or our business otherwise might be adversely affected.
We have undertaken various activities to create a Lean business. One of those activities is in-sourcing. We have major
projects underway to in-source production that is currently provided by third parties. We have made investments during the
past few fiscal years. There have been delays in the in-sourcing projects and, as a result, the expected savings have been
delayed due to a variety of reasons. These activities may not produce the full efficiencies and cost reduction benefits that we
expect or efficiencies and benefits might be further delayed. Implementation costs also might exceed expectations. If these in-
sourcing or other Lean activities are not properly implemented or are unsuccessful, we might experience business disruptions,
unanticipated additional expense or our business otherwise might be adversely affected.
Our business and results of operations may be adversely affected if we are unable to recruit and retain qualified
management and other personnel or other compliance matters adversely impact our personnel.
Our continued success depends, in large part, on our ability to hire and retain highly qualified people and if we are unable
to do so, our business and operations may be impaired or disrupted. Competition for highly qualified people is intense and there
is no assurance that we will be successful in attracting or retaining replacements to fill vacant positions, successors to fill
retirements or employees moving to new positions, or other highly qualified personnel. In addition legal, regulatory or
compliance matters create significant distraction or diversion of significant or unanticipated resources or attention, that could
have a material adverse effect on the responsibilities and retention of qualified employees, and on our business, performance,
prospects, value, financial condition or results of operation.
Our business and financial condition could be adversely affected by difficulties in acquiring or maintaining a proprietary
intellectual ownership position.
To maintain our competitive position, we need to obtain patent or other proprietary rights for new and improved products
and to maintain and enforce our existing patents and other proprietary rights. We typically apply for patents in the United States
and in strategic foreign countries. We may also acquire patents through acquisitions. A 2007 United States Supreme Court
decision increases the difficulty of obtaining patent protection in the United States.
We rely on a combination of patents, trade secrets, know-how, and confidentiality agreements to protect the proprietary
aspects of our technology. These measures afford only limited protection, and competitors may gain access to our intellectual
property and proprietary information. Litigation may be necessary to enforce or defend our intellectual property rights, to
protect our trade secrets, and to determine the validity and scope of our proprietary rights. Litigation may also be brought
against us claiming that we have violated the intellectual property rights of others. Litigation may be costly and may divert
management’s attention from other matters. Additionally, in some foreign countries with weaker intellectual property rights, it
may be difficult to maintain and enforce patents and other proprietary rights or defend against claims of infringement. If we are
unable to obtain necessary patents, our patents and other proprietary rights are successfully challenged, or competitors
independently develop substantially equivalent information and technology or otherwise gain access to our proprietary
technology, our business, performance, value, financial condition, or results of operations may be adversely affected.
15
The failure of key IT systems would have significant impacts on business performance.
Information technology is an integral part of our business and operations systems. The increasing threat of cyber-attack
and the vulnerabilities of cloud computing in this respect could present business disruption and potential liability if such threats
and vulnerabilities become a reality.
Risks related to our Redomiciliation and the Combination
We may not realize all of the anticipated benefits of the Combination or those benefits may take longer to realize than
expected. We may also encounter significant unexpected difficulties in integrating the two businesses.
Our ability to realize all of the anticipated benefits of the Combination will depend on our ability to integrate the
businesses of Old STERIS and Synergy. The combination of two independent businesses is a complex, costly and time-
consuming process. As a result, we are being required to devote significant management attention and resources to integrating
the business practices and operations of Old STERIS and Synergy. The integration process may disrupt the businesses and, if
implemented ineffectively, would preclude realization of the full benefits that we expect from the Combination. Our failure to
meet the challenges involved in integrating the two businesses to realize the anticipated benefits of the Combination could
cause an interruption of, or a loss of momentum in, our activities and could adversely affect our results of operations.
In addition, the overall integration of the businesses may result in material unanticipated problems, expenses, liabilities,
competitive responses, loss of Customer relationships, and diversion of management’s attention. The difficulties of combining
the operations of the companies include, among others:
•
•
•
•
•
the diversion of management’s attention to integration matters;
difficulties in achieving anticipated cost savings, business opportunities and growth prospects from combining the
business of Synergy with that of Old STERIS;
difficulties in the integration of operations and systems; and
difficulties in managing the expanded operations of a larger and more complex company.
unforeseen changes in tax legislation.
Many of these factors will be outside of our control and any of them could result in increased costs, decreases in the
amount of expected revenues and diversion of management’s time and energy, which could materially impact our business,
financial condition and results of operations. In addition, even if the operations of the businesses of Old STERIS and Synergy
are integrated successfully, we may not realize the full benefits of the Combination, including the cost savings or sales or
growth opportunities that we expect. These benefits may not be achieved within the anticipated time frame, or at all, or
additional unanticipated costs may be incurred in the integration of the businesses of Old STERIS and Synergy. All of these
factors could cause dilution to our earnings per share, decrease or delay the expected accretive effect of the Combination, or
negatively impact the price of STERIS ordinary shares. As a result, we cannot provide assurance that the combination of the
Old STERIS and Synergy businesses will result in the realization of the full benefits anticipated from the Combination.
We may not be able to timely and effectively implement controls and procedures over Synergy operations as required under
the Sarbanes-Oxley Act of 2002.
Prior to the Combination, Synergy was not subject to the information and reporting requirements of the Securities
Exchange Act of 1934, as amended, and other federal securities laws, and the compliance obligations of the Sarbanes-Oxley
Act of 2002. We will need to timely and effectively implement the internal controls necessary to satisfy the requirements of
Section 404 of the Sarbanes-Oxley Act of 2002, which requires annual management assessments of the effectiveness of internal
controls over financial reporting and a report by an independent registered public accounting firm addressing these
assessments. We are taking appropriate measures to establish or implement an internal control environment at Synergy aimed at
successfully adopting the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. However, it is possible that we may
experience delays in implementing or are unable to implement the required internal financial reporting controls and procedures.
The laws of England and Wales differ from the laws in effect in the United States and may afford less protection to holders
of our securities.
It may not be possible to enforce court judgments obtained in the United States against us in England and Wales based on
the civil liability provisions of the U.S. federal or state securities laws. In addition, there is some uncertainty as to whether the
courts of England and Wales would recognize or enforce judgments of U.S. courts obtained against us or our directors or
officers based on the civil liabilities provisions of the U.S. federal or state securities laws or hear actions against us or our
directors or officers based on those laws. The United States currently does not have a treaty with England and Wales providing
for the reciprocal recognition and enforcement of judgments in civil and commercial matters in each of the U.K.’s jurisdictions.
Therefore, a final judgment for the payment of money rendered by any U.S. federal or state court based on civil liability,
whether or not based solely on U.S. federal or state securities laws, would not automatically be enforceable in the U.K.
16
A judgment obtained against us will be enforced by English courts if the following general requirements are met: (i) The
U.S. court must have been a competent jurisdiction in relation to the particular defendant according to English conflict of laws
rules (the submission to jurisdiction by the defendant in the U.S. court would satisfy this rule), (ii) the judgment must be for a
sum of money, but not for taxes, a fine or other penalty and (iii) the judgment must be final and conclusive and unalterable in
the court which pronounced it. A judgment may be final and conclusive even though an appeal is pending in the U.S. court
where it was given, although in such a case a stay of execution would likely be ordered by the U.S. court pending a possible
appeal. A judgment given in default of appearance may be considered by the English courts as final and conclusive. However
the English courts may refuse to enforce a judgment of the U.S. courts that meets the above requirements for one of the
following reasons: (i) if the judgment was obtained by fraud, (ii) the enforcement or recognition of the judgment would be
contrary to public policy or the European Convention on Human Rights, (iii) the proceedings in which the judgment was
obtained were opposed to natural justice, (iv) the judgment is inconsistent with a prior judgment on the same subject matter and
between the same parties, (v) the judgment is for multiple damages and is therefore unenforceable under the Protection of
Trading Interests Act 1980 or (vi) the proceedings in which the judgment was obtained were brought contrary to a jurisdiction
or arbitration agreement.
As a company incorporated under the laws of England and Wales, we are governed by the Companies Act, which differs in
some material respects from laws generally applicable to U.S. corporations and shareholders, including, among others,
differences relating to interested director and officer transactions and shareholder lawsuits. Likewise, the duties of directors and
officers of an English company generally are owed to the company only. Shareholders of English companies generally do not
have a personal right of action against directors or officers of the company and may exercise such rights of action on behalf of
the company only in limited circumstances. Accordingly, holders of our securities may have more difficulty protecting their
interests than would holders of securities of a corporation incorporated in a jurisdiction of the United States.
As a result of different shareholder voting requirements in the U.K. relative to Ohio, we have less flexibility with respect to
certain aspects of capital management than we had as an Ohio corporation.
Under Ohio law and Old STERIS’s articles of incorporation, prior to the Combination our directors could issue, without
shareholder approval or any preemptive rights, any shares authorized by Old STERIS’s articles of incorporation that were not
already issued. Under English law, our directors may issue new STERIS ordinary shares up to a maximum amount equal to the
allotment authority granted to the directors under our articles of association without further shareholder approval or by an
ordinary resolution of our shareholders. Additionally, subject to specified exceptions, English law grants statutory preemption
rights to existing shareholders to subscribe for new issuances of shares for cash, but allows shareholders to waive their statutory
preemption rights by way of special resolution with respect to any particular allotment of shares or generally, subject to a five-
year limit on such waiver. Accordingly, our articles of association contain, as permitted by English law, a provision authorizing
our board of directors to issue new shares for cash without preemption rights. The authorization of the directors to issue shares
without further shareholder approval and the authorization of the waiver of the statutory preemption rights must both be
renewed by the shareholders at least every five years, and we cannot provide any assurance that these authorizations will
always be approved, which could limit our ability to issue equity and thereby adversely affect the holders of our securities.
While we do not believe that the differences between Ohio law and English law relating to our capital management will have
an adverse effect on us, situations may arise where the flexibility Old STERIS had under Ohio law would have provided
benefits to our shareholders that are not available under English law.
English law also generally prohibits a company from repurchasing its own shares by way of “off market purchases”
without the prior approval of its shareholders. Such approval lasts for a maximum period of up to five years. Our shares are
traded on the NYSE, which is not a recognized investment exchange in the U.K. Consequently, any repurchase of our shares is
currently considered an “off market purchase.” At present, we have no share repurchase authorization. We are seeking
shareholder repurchase authorization at our 2016 Annual General Meeting of Shareholders.
Transfers of your STERIS shares, other than one effected by means of the transfer of book-entry interests in the Depository
Trust Company (the “DTC”), may be subject to U.K. stamp duty.
No liability to stamp duty or stamp duty reserve tax ("SDRT") should generally arise on the issue of STERIS ordinary
shares, including into DTC.
Transfers of STERIS ordinary shares within the DTC system should not be subject to stamp duty or SDRT provided no
instrument of transfer is entered into and no election that applies to the STERIS ordinary shares is made or has been made
under section 97A of the U.K. Finance Act of 1986. If such an election is or has been made, transfer of STERIS ordinary shares
within DTC will generally be liable to SDRT at the rate of 0.5% of the amount or value of the consideration.
Subsequent transfer of STERIS ordinary shares to an issuer of depository receipts or the operator of a clearance system
(including DTC) will generally be liable to SDRT at a rate of 1.5% of the consideration given or received or, in certain cases,
the value of the STERIS ordinary shares transferred.
17
Transfer of shares held in certificated form will generally be liable to stamp duty at the rate of 0.5% of the consideration
given (rounded up to the nearest £5). SDRT may also be chargeable on an agreement to transfer such shares although such
liability would be cancelled provided an instrument of transfer implementing such agreement was duly stamped within a period
of six years from the agreement.
The purchaser or transferee of the STERIS ordinary shares will generally be responsible for paying any stamp duty or
SDRT payable.
Dividends received by U.K. residents and certain other shareholders may be subject to U.K. income tax.
A STERIS shareholder who is an individual resident in the U.K. for tax purposes and who receives a dividend from us will
be subject to U.K. income tax. With effect from April 6, 2016, dividends no longer have an associated tax credit. Instead, the
STERIS shareholder will have an annual tax-free dividend allowance of £5,000. After this, the rate of income tax payable on
the dividend will depend upon the STERIS shareholder's other taxable income (and is currently set at 7.5% for basis rate
taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers).
Future changes to U.S. and non-U.S. tax laws could adversely affect us.
The U.S. Congress, the Organization for Economic Co-operation and Development and other government agencies in
jurisdictions where we and our affiliates do business have had an extended focus on issues related to the taxation of
multinational corporations. One example is in the area of “base erosion and profit shifting,” including situations where
payments are made between affiliates from a jurisdiction with high tax rates to a jurisdiction with lower tax rates. As a result,
the tax laws in the United States and other countries in which we and our affiliates do business could change on a prospective
or retroactive basis, and any such changes could adversely affect us and our affiliates.
Proposed legislation relating to the denial of U.S. federal or state governmental contracts to U.S. companies that redomicile
abroad could adversely affect our business.
Various U.S. federal and state legislative proposals that would deny governmental contracts to redomiciled companies may
affect us if adopted into law. We are unable to predict the likelihood that any such proposed legislation might become law, the
nature of regulations that may be promulgated under any future legislative enactments, or the effect such enactments or
increased regulatory scrutiny could have on our business.
The tax rate that will apply to us is uncertain and may vary from expectations.
There can be no assurance that we will be able to maintain any particular worldwide effective corporate tax rate. We cannot
give any assurance as to what our effective tax rate will be in the future because of, among other things, uncertainty regarding
the tax policies of the jurisdictions in which we and our affiliates operate, including if the U.K. votes to leave the European
Union in its proposed “Brexit” referendum on June 23, 2016. Our actual effective tax rate may vary from our expectations, and
such variance may be material. Additionally, tax laws or their implementation and applicable tax authority practices in any
particular jurisdiction could change in the future, possibly on a retroactive basis, and any such change could have a material
adverse impact on us and our affiliates.
The U.S. Internal Revenue Service (the “IRS”) may not agree that we are a foreign corporation for U.S. federal tax
purposes.
Although we are incorporated under the laws of England and Wales and are a tax resident in the U.K. for U.K. tax
purposes, the IRS may assert that we should be treated as a U.S. corporation (and, therefore, a U.S. tax resident) for U.S.
federal tax purposes pursuant to Section 7874 of the Internal Revenue Code of 1986, as amended (the “Code” and such Section,
“Section 7874”). For U.S. federal tax purposes, a corporation generally is considered to be a tax resident in the jurisdiction of
its organization or incorporation. Because we are incorporated under the laws of England and Wales, we would generally be
classified as a non-U.S. corporation (and, therefore, a non-U.S. tax resident) under these rules. Section 7874, however, provides
an exception to this general rule under which a non-U.S. incorporated entity may, in certain circumstances (including a
transaction pursuant to which a U.S. corporation is acquired by a non-U.S. corporation such as the Combination), be treated as
a U.S. corporation for U.S. federal tax purposes.
Generally, for us to be treated as a non-U.S. corporation for U.S. federal tax purposes following the Combination under
Section 7874, the former shareholders of Old STERIS must own (within the meaning of Section 7874) less than 80% (by both
vote and value) of all of the outstanding STERIS ordinary shares after the Combination by reason of holding shares in Old
STERIS (including the receipt of STERIS ordinary shares in exchange for Old STERIS shares) (the “80% Ownership
Requirement”). Based on the terms of the Combination, Old STERIS shareholders owned less than 80% (by both vote and
value) of all of the outstanding STERIS ordinary shares after the Combination by reason of holding shares in Old STERIS and
thus the 80% Ownership Requirement is expected to have been satisfied. As a result, under current law, we are expected to be
treated as a non-U.S. corporation for U.S. federal income tax purposes. However, ownership for purposes of Section 7874 is
subject to various adjustments under the Code and the Treasury Regulations promulgated thereunder (including the temporary
18
regulations under Section 7874 issued by the IRS on April 4, 2016 (the “Temporary Regulations”), some of which apply
retroactively to the Combination), and there is limited guidance regarding these provisions, including the application of the
ownership test. Thus, there can be no assurance that the IRS will agree with the position that the ownership test was satisfied
following the Combination or that the IRS would not successfully challenge our status as a non-U.S. corporation for U.S. tax
purposes.
If we were to be treated as a U.S. corporation for U.S. federal tax purposes, we could be subject to substantial additional
U.S. tax liability. Additionally, if we were treated as a U.S. corporation for U.S. federal tax purposes, non-U.S. holders of
STERIS ordinary shares would be subject to U.S. withholding tax on the gross amount of any dividends we paid to such
shareholders. For U.K. tax purposes, we are expected, regardless of any application of Section 7874, to be treated as a U.K. tax
resident. Consequently, if we are treated as a U.S. corporation for U.S. federal tax purposes under Section 7874, we could be
liable for both U.S. and U.K. taxes, which could have a material adverse effect on our financial condition and results of
operations.
Section 7874 may adversely affect our and our U.S. affiliates’ effective tax rate, and our and their ability to utilize certain
U.S. tax attributes following the Combination.
Following the acquisition of a U.S. corporation by a non-U.S. corporation, Section 7874 can limit the ability of the
acquired U.S. corporation and its U.S. affiliates to utilize certain U.S. tax attributes (including net operating losses and certain
tax credits) to offset U.S. taxable income resulting from certain transactions. Based on the limited guidance available, we
currently expect that, following the Combination, this limitation will apply and, as a result, we currently do not expect that we
or our U.S. affiliates will be able to utilize certain U.S. tax attributes to offset their U.S. taxable income, if any, resulting from
certain specified taxable transactions. In addition, the Temporary Regulations referred to above generally aim to limit or
eliminate certain U.S. tax benefits that may arise in connection with so-called inversion transactions. Among other things, the
Temporary Regulations curtail an inverted group’s ability to access earnings of certain non-U.S. affiliates without incurring
additional tax cost (such rules apply retroactively to September 22, 2014).
Our status as a foreign corporation for U.S. tax purposes and the U.S. tax liability of us and our affiliates could be affected
by a change in law.
Under current law, we are expected to be treated as a non-U.S. corporation for U.S. federal tax purposes. However,
changes to the rules in Section 7874 or the Treasury Regulations promulgated thereunder, or other changes in law, could
adversely affect our status as a non-U.S. corporation for U.S. federal tax purposes, our effective tax rate and/or future tax
planning for the combined group, and any such changes could have prospective or retroactive application to us, Old STERIS,
our shareholders, the former shareholders of Old STERIS, our affiliates, and/or the Combination.
Recent legislative proposals have aimed to expand the scope of Section 7874, or otherwise address certain perceived issues
arising in connection with so-called inversion transactions. For example, proposals introduced by certain Democratic members
of both houses of Congress which, if enacted in their present form, would be effective retroactively to any transactions
completed after May 8, 2014 would, among other things, treat a foreign acquiring corporation as a U.S. corporation under
Section 7874 if the former shareholders of the U.S. corporation own more than 50% of the shares of the foreign acquiring
corporation after the transaction. These proposals, if enacted in their present form and if made retroactively effective to
transactions completed during the period in which the Combination occurred, would cause us to be treated as a U.S.
corporation for U.S. federal tax purposes. It is presently uncertain whether any such legislative proposals or any other
legislation relating to Section 7874 or so-called inversion transactions will be enacted into law and, if so, what impact such
legislation would have on us and our affiliates.
In addition, the U.S. Department of Treasury may take further regulatory action in connection with so-called inversion
transactions or perceived issues relating to base erosion and profit shifting and we cannot be certain that any such regulatory
action would not have an adverse impact on us. For example, the IRS issued proposed regulations on April 4, 2016 that would,
in many circumstances, limit or deny U.S. tax deductions for interest on certain intragroup loans issued on or after April 4,
2016. Any change of law or regulatory action relating to Section 7874 or so-called inversion transactions, inverted groups or
earnings stripping techniques could adversely impact our tax status as well as our financial position and results in a material
manner.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
19
ITEM 2. PROPERTIES
The following table sets forth the principal plants and other materially important properties of the Company and its
subsidiaries as of March 31, 2016. The Company believes that its facilities are adequate for operations and are maintained in
good condition. The Company is confident that, if needed, it will be able to acquire additional facilities at commercially
reasonable rates.
In the table below, “Contract Sterilization” refers to locations of the Applied Sterilization Technologies segment.
“Manufacturing,” “Warehousing,” “Operations,” or “Sales Offices” refer to locations serving one or more of the Healthcare
Products, Healthcare Specialty Services and Life Sciences segments.
United Kingdom (U.K.) United States (U.S.) Locations (including Puerto Rico) and International Locations (INTL)
Location
Montgomery, AL
Ontario, CA
San Diego, CA
Temecula, CA
Libertyville, IL (2 locations)
Northborough, MA
Brooklyn Park, MN
St. Louis, MO (4 locations)
South Plainfield, NJ
Whippany, NJ
Chester, NY (2 locations)
Groveport, OH
Mentor, OH (14 locations)
Philadelphia, PA
Spartanburg, SC
El Paso, TX (2 locations)
Grand Prairie, TX
Sandy, UT
Minneapolis, MN (2 locations)
Birmingham, AL (5 locations)
Oldsmar, FL
Houston, TX
Chattanooga, TN
Mason, OH
Vega Alta, PR
Mogi das Cruzes, Brazil
Quebec City, Canada
Whitby, Canada
U.K/U.S./
INTL*
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
INTL
INTL
INTL
Use
Manufacturing
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Manufacturing
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
U.S. Headquarters
Sales/Marketing Offices
Administrative Offices
Manufacturing/Warehousing
Manufacturing/Operations
Research and Development
Lobby, Showroom and Customer Service
Education Center
Manufacturing/Warehousing
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Manufacturing/ Office Space/ Warehousing
Contract Sterilization
Operations
Operations
Operations
Contract Sterilization
Manufacturing/Sales Office
Manufacturing
Contract Sterilization
20
Owned/Leased
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
United Kingdom (U.K.) United States (U.S.) Locations (including Puerto Rico) and International Locations (INTL)
Location
Suzhou, China
Alajuela, Costa Rica (2 locations)
Velka Bites, Czech Republic
Berkshire, England
Derby, England (2 locations)
Lancashire, England
Lancing, England
Leicester, England
Northamptonshire, England
Swindon, England (3 locations)
Yorkshire, England (3 locations)
Tuusula, Finland
Bordeaux, France
Chusclan, France
Tullamore, Ireland (2 locations)
Westport, Ireland
Calcinate, Italy
Bastia di Rovolon, Italy
Spresiano, Italy
Rawang, Malaysia
Duiven, Netherlands
Emmen, Netherlands
Goes, Netherlands
Hoorn, Netherlands
Raalte, Netherlands
SH Etten-Leur, Netherlands
SH Venlo, Netherlands
Textielservice, Netherlands
Tiel, Netherlands
WVZ Alkmaar, Netherlands
Michalovce, Slovakia
Pribenik, Slovakia
Johannesburg, South Africa
Daniken, Switzerland
Thailand AST, Thailand
St. Louis, MO
Reno, NV
Mentor, OH (2 locations)
Stow, OH (2 locations)
Hillsborough, NJ
Keller, TX
Houston, TX
Tustin, CA
U.K/U.S./
INTL*
INTL
INTL
INTL
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
Use
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Administration Offices/Operations
Administration Offices/Operations
Manufacturing/Administration Offices
Global Corporate Headquarters/
Manufacturing
Contract Sterilization
Contract Sterilization
Contract Sterilization
Manufacturing/Sales Office
Manufacturing/Sales Office/Showroom
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Operations
Operations
Operations
Operations
Operations
Contract Sterilization
Contract Sterilization
Sales Office/Administration Office
Operations
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Warehousing/Distribution
Warehousing
Administrative Offices
Sales/Administration Offices
Sales/Administration Offices
Sales/Administration Offices
Sales/Administration Offices
Sales/Administration Offices
21
Owned/Leased
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
United Kingdom (U.K.) United States (U.S.) Locations (including Puerto Rico) and International Locations (INTL)
Location
Montgomery Village, MD
U.K/U.S./
INTL*
U.S.
Melville, NY
Santa Clara, CA
Chesterfield, MO
Cooper City, FL
Rockville, MD
Charlotte, NC
Springdale, OH
Stone Mountain, GA
Franklin Park, IL
Bensenville, IL
Montgomery, AL
Ooltewah, TN
Bethlehem, PA
Westborough, MA
Belair, MD
Point Richmond, CA
Feasterville, PA
San Diego, CA
Denver, CO
Lima, OH
Saxonburg, PA
Petaluma, CA
Tampa, FL (2 locations)
Miami, FL
Raleigh, NC
Los Angeles, CA
Baltimore, MA
Salt Lake, UT
Atlanta, GA
Louisville, KY
Detroit, MI
Nashville, TN
Westbury, NY (2 locations)
Aartselaar, Belgium
Malle, Belgium
Antwerpen, Belgium
Sao Paulo, Brazil
Mississauga, Canada
Beijing, China
Guangzhou, China
Nanjing, China
Shanghai, China
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
Use
Sales/Administration Offices
Sales/Administration Offices
Sales Office
Sales/Administration Offices
R&D, Engineering, Repair
Repair Lab
Administration Offices
Offices/Warehousing
Instrument Repair Lab
Manufacturing/ Administration Offices
Offices/ Warehousing/ Lab
Warehousing
Office/Warehousing
Sales/ Administration Offices
Sales/ Administration Offices
Sales/ Administration Offices
Manufacturing/ Administration Offices/
Sales/ Warehousing
Warehousing
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Sales/Administration Offices/Operations
Operations
Operations
Operations
Operations
Operations
Operations
Operations
Operations
Operations
Operations
Sales Office/ Service/ Warehousing
Sales Office/ Service/ Warehousing
Sales Office/Service
Sales Office
Sales Office/Warehousing
Sales Office
Sales/Administration Offices/ Assembly
Operations
Sales Office/ Manufacturing
22
Owned/Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
United Kingdom (U.K.) United States (U.S.) Locations (including Puerto Rico) and International Locations (INTL)
Location
Suzhou, China
Wuhan, China
Abergavenny, England
Basingstoke, England
Derby, England
Dunstable, England
Hebden Bridge, England
Lancashire, England
Leicester, England (2 locations)
Lincoln, England
Lincolnshire, England
Merseyside, England
Oxfordshire, England
Sheffield, England (2 locations)
Strathclyde, England
Swindon, England
Wythenshawe, England (2 locations)
La Chapelle St. Mesmin, France
Marseille, France
Orleans, France
Saint Jean d'illac, France
Paris, France
Toussieu, France
Allershausen, Germany
Cologne, Germany
Radeberg, Germany
Gokul Nagar, India
Poggio Rusco, Italy
Segrate, Italy
Seriate, Italy (4 locations)
Tokyo, Japan
Kuala Ketil, Malaysia
Kulim Kedah, Malaysia
MINT Bangi, Malaysia
Petaling Jaya, Malaysia
Guadalupe, Mexico
Doetinchem, Netherlands
Ede, Netherlands
Gemert, Netherlands
Nieuwegein, Netherlands
Nieuwerkerk, Netherlands
Rotterdam, Netherlands
Tilburg, Netherlands
U.K/U.S./
INTL*
INTL
INTL
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
Use
Operations
Operations
Laboratory Services
Sales Office
Operations
Operations
Laboratory Services
Operations
Warehousing/Operations
Operations
Operations
Operations
Contract Sterilization
Operations
Operations
Administration Offices
Operations
Sales Office
Contract Sterilization
Showroom
Warehousing
Sales Office
Warehousing
Contract Sterilization
Sales Office
Contract Sterilization
Sales Office
Contract Sterilization
Sales Office
Sales/Administration Offices/Contract
Sterilization
Sales Office
Contract Sterilization
Contract Sterilization
Contract Sterilization
Sales Office
Manufacturing
Operations
Operations
Operations
Operations
Operations
Operations
Operations
23
Owned/Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
United Kingdom (U.K.) United States (U.S.) Locations (including Puerto Rico) and International Locations (INTL)
Location
Utrecht, Netherlands
Voorburg, Netherlands
Zutphen, Netherlands
Zwolle, Netherlands
Moscow, Russia
Singapore (2 locations)
Madrid, Spain
U.K/U.S./
INTL*
INTL
INTL
INTL
INTL
INTL
INTL
INTL
Use
Laboratory Services
Operations
Operations
Operations
Sales Office
Sales Office, Warehousing
Sales Office
Owned/Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
* International includes all foreign countries other than the U.K.
ITEM 3.
LEGAL PROCEEDINGS
Information regarding our legal proceedings is included in Item 7, "MD&A" and note 11 of our consolidated financial
statements titled, "Commitments and Contingencies," and incorporated herein by reference thereto.
ITEM 4. MINE SAFETY DISCLOSURES
None.
24
PART II
ITEM 5. MARKET FOR REGISTRANT’S ORDINARY EQUITY, RELATED
SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Market Information. Our ordinary shares are traded on the New York Stock Exchange under the symbol “STE.” The
following table presents, for the quarters ending on the dates indicated, the high and low sales prices for our shares. The
information given for periods prior to the Combination is for common shares of Old STERIS.
Quarters Ended
Fiscal 2016
High
Low
Fiscal 2015
High
Low
March 31
December 31
September 30
June 30
$
$
$
75.10
61.38
$
78.77
63.19
$
69.76
60.75
70.65
$
68.04
$
57.72
$
62.56
52.29
49.78
71.39
62.09
55.36
47.24
Holders. As of March 31, 2016, there were approximately 56 holders of record of our ordinary shares. However, we believe
that we have a significantly larger number of beneficial holders of our shares.
Dividend Policy. The Company’s Board of Directors decides the timing and amount of any dividends we may pay. During
fiscal 2016, we paid cash dividends totaling $0.98 per outstanding share in respect for all shares outstanding for the entire fiscal
year ($0.23 per outstanding share to shareholders of record on June 3, 2015, and $0.25 per outstanding share to shareholders of
record on the following dates: August 25, 2015, October 30, 2015 and March 1, 2016). During fiscal 2015, we paid cash
dividends totaling $0.90 per outstanding share ($0.21 per outstanding share to shareholders of record on June 5, 2014, and
$0.23 per outstanding share to shareholders of record on the following dates: August 26, 2014, November 26, 2014 and
February 25, 2015).
Recent Sales of Unregistered Securities. On November 2, 2015, we issued 100,000 preferred shares, par value of £0.10
($0.15) each, for an aggregate consideration of £10,000, or approximately $15,000, to one of our service providers in
satisfaction of debt owed to such service provider. This issuance of preferred shares was made pursuant to the exemption from
registration provided for in Section 4(a)(2) of the Securities Act of 1933 by virtue of it being a private placement. Please refer
to note 13 of our Consolidated Financial Statements for more information regarding our preferred stock.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers. The following table presents information with
respect to purchases STERIS made of its ordinary shares of common stock during the fourth quarter of the 2016 fiscal year:
(a)
Total Number of
Shares Purchased
—
—
—
— (1) $
$
January 1-31
February 1-28
March 1-31
Total
(b)
Average Price Paid
Per Share
(c)
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans (2)
(d)
Maximum Dollar Value of
Shares that May Yet Be
Purchased Under the
Plans at Period End
(dollars in thousands)
—
—
—
— (1)
—
—
—
—
$
$
—
—
—
—
(1) Does not include 23 shares purchased during the quarter at an average price of $69.06 per share by the STERIS
Corporation 401(k) Plan on behalf of certain executive officers of the Company who may be deemed to be affiliated
purchasers.
25
ITEM 6.
SELECTED FINANCIAL DATA
(in thousands, except per share data)
2016 (1)
Statements of Income Data:
Years Ended March 31,
2014(1)
2015 (1)
2013(2)
2012(2)
Revenues
Gross profit
Restructuring expenses
Income from continuing operations
Income taxes
Net income attributable to
shareholders
Basic income per ordinary share:
Net income
Shares used in computing net
income per ordinary share – basic
Diluted income per ordinary share:
Net income
Shares used in computing net
income per ordinary share – diluted
Dividends per ordinary share
Balance Sheets Data:
Working capital
Total assets
Long-term indebtedness
Total liabilities
Total shareholders’ equity
$ 2,238,764
$ 1,850,263
$ 1,622,252
$ 1,501,902
$ 1,406,810
895,481
(820)
212,927
60,299
111,585
1.57
$
$
774,301
(391)
227,211
73,756
135,064
2.27
$
$
649,622
13,204
206,807
58,934
129,442
2.20
$
$
621,263
(565)
242,829
67,121
159,977
2.74
$
$
568,465
644
222,316
74,993
136,115
2.33
70,698
59,413
58,966
58,305
58,367
1.56
$
2.25
$
2.17
$
2.72
$
2.31
71,184
0.98
571,919
5,346,416
1,567,796
2,307,524
60,045
0.90
437,101
$
$
59,745
0.82
420,239
$
$
58,884
0.74
395,103
$
$
58,963
0.66
373,488
$
$
2,097,291
1,887,162
1,761,109
1,405,696
621,075
1,023,645
493,480
845,916
492,290
814,129
210,000
583,032
$
$
$
$
$
$ 3,023,034
$ 1,071,632
$ 1,038,705
$
944,942
$
821,401
(1) See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
(2) Presented amounts include the impact of the SYSTEM 1 Rebate Program and the SYSTEM 1 class action settlement.
26
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
In Management’s Discussion and Analysis (“MD&A”), we explain the general financial condition and the results of
operations for STERIS and its subsidiaries including:
• what factors affect our business;
• what our earnings and costs were;
• why those earnings and costs were different from the year before;
• where our earnings came from;
•
how this affects our overall financial condition;
• what our expenditures for capital projects were; and
• where cash will come from to fund future debt principal repayments, growth outside of core operations, repurchase
ordinary shares, pay cash dividends and fund future working capital needs.
The MD&A also analyzes and explains the annual changes in the specific line items in the Consolidated Statements of
Income. As you read the MD&A, it may be helpful to refer to information in Item 1, “Business,” Item 6, “Selected Financial
Data,” and our consolidated financial statements, which present the results of our operations for fiscal 2016, 2015 and 2014, as
well as Part I, Item 1A, “Risk Factors” and note 11 of our consolidated financial statements titled, "Commitments and
Contingencies" for a discussion of some of the matters that can adversely affect our business and results of operations. This
information, discussion, and disclosure may be important to you in making decisions about your investments in STERIS.
FINANCIAL MEASURES
In the following sections of the MD&A, we may, at times, refer to financial measures that are not required to be presented
in the consolidated financial statements under U.S. GAAP. We sometimes use the following financial measures in the context of
this report: backlog; debt-to-total capital; net debt-to-total capital; and days sales outstanding. We define these financial
measures as follows:
• Backlog – We define backlog as the amount of unfilled capital equipment purchase orders at a point in time. We use
this figure as a measure to assist in the projection of short-term financial results and inventory requirements.
• Debt-to-total capital – We define debt-to-total capital as total debt divided by the sum of total debt and shareholders’
equity. We use this figure as a financial liquidity measure to gauge our ability to borrow and fund growth.
• Net debt-to-total capital – We define net debt-to-total capital as total debt less cash (“net debt”) divided by the sum of
net debt and shareholders’ equity. We also use this figure as a financial liquidity measure to gauge our ability to
borrow and fund growth.
• Days sales outstanding (“DSO”) – We define DSO as the average collection period for accounts receivable. It is
calculated as net accounts receivable divided by the trailing four quarters’ revenues, multiplied by 365 days. We use
this figure to help gauge the quality of accounts receivable and expected time to collect.
We, at times, may also refer to financial measures which are considered to be “non-GAAP financial measures” under SEC
rules. We have presented these financial measures because we believe that meaningful analysis of our financial performance is
enhanced by an understanding of certain additional factors underlying that performance. These financial measures should not
be considered an alternative to measures required by accounting principles generally accepted in the United States. Our
calculations of these measures may differ from calculations of similar measures used by other companies and you should be
careful when comparing these financial measures to those of other companies. Additional information regarding these financial
measures, including reconciliations of each non- GAAP financial measure, is available in the subsection of MD&A titled,
"Non-GAAP Financial Measures."
REVENUES– DEFINED
As required by Regulation S-X, we separately present revenues generated as either product revenues or service revenues
on our Consolidated Statements of Income for each period presented. When we discuss revenues, we may, at times, refer to
revenues summarized differently than the Regulation S-X requirements. The terminology, definitions, and applications of terms
27
that we use to describe revenues may be different from terms used by other companies. We use the following terms to describe
revenues:
• Revenues – Our revenues are presented net of sales returns and allowances.
•
Product Revenues – We define product revenues as revenues generated from sales of consumable and capital
equipment products.
Service Revenues – We define service revenues as revenues generated from parts and labor associated with the
maintenance, repair, and installation of our capital equipment. Service revenues also include hospital sterilization
services, instrument and scope repairs, and linen management as well as revenues generated from contract sterilization
and laboratory services offered through our Applied Sterilization Technologies segment.
•
• Capital Revenues – We define capital revenues as revenues generated from sales of capital equipment, which includes
steam sterilizers, low temperature liquid chemical sterilant processing systems, including SYSTEM 1 and 1E, washing
systems, VHP® technology, water stills, and pure steam generators; surgical lights and tables; and integrated OR.
• Consumable Revenues – We define consumable revenues as revenues generated from sales of the consumable family
of products, which includes SYSTEM 1 and 1E consumables, V-Pro consumables, gastrointestinal endoscopy
accessories, sterility assurance products, skin care products, cleaning consumables, and surgical instruments.
• Recurring Revenues – We define recurring revenues as revenues generated from sales of consumable products and
service revenues.
GENERAL OVERVIEW AND EXECUTIVE SUMMARY
Our Business. STERIS plc, a public limited company organized under the laws of England and Wales, was incorporated on
October 9, 2014 as a private limited company under the name New STERIS Limited and was re-registered effective November
2, 2015 as a public limited company under the name STERIS plc. New STERIS Limited was established to effect the
combination ("Combination") of STERIS Corporation, an Ohio corporation ("Old STERIS"), and Synergy Health plc, a public
limited company organized under the laws of England and Wales ("Synergy"). The Combination closed on November 2, 2015
and as a result STERIS plc became the ultimate parent company of Old STERIS and STERIS completed the acquisition of
Synergy in a cash and stock transaction. Synergy has been re-registered under the name Synergy Health Limited. The
Combination was accounted for in the consolidated financial statements as a merger between entities under common control;
accordingly the historical consolidated financial statements of Old STERIS for periods prior to November 2, 2015, are
considered to be the historical financial statements of STERIS plc.
Due to the timing of the closing of the Combination, the results of Synergy are only reflected in the results of operations of
the Company from November 2, 2015 forward, which will affect comparability to the prior period historical operations of the
Company throughout this Annual Report on Form 10-K.
As a result of the Combination, we have reorganized our operations into four reportable business segments: Healthcare
Products, Healthcare Specialty Services, Life Sciences, and Applied Sterilization Technologies. We describe our business
segments in note 12 to our consolidated financial statements, titled "Business Segment Information."
Our mission is to help our Customers create a healthier and safer world by providing innovative healthcare and life science
product and service solutions around the globe. Our dedicated employees around the world work together to supply a broad
range of solutions by offering a combination of capital equipment, consumables, and services to healthcare, pharmaceutical,
industrial, and governmental Customers.
The bulk of our revenues are derived from the healthcare and pharmaceutical industries. Much of the growth in these
industries is driven by the aging of the population throughout the world, as an increasing number of individuals are entering
their prime healthcare consumption years, and is dependent upon advancement in healthcare delivery, acceptance of new
technologies, government policies, and general economic conditions. The pharmaceutical industry has been impacted by
increased FDA scrutiny of cleaning and validation processes, mandating that manufacturers improve their processes. Within
healthcare, there is increased concern regarding the level of hospital acquired infections around the world; increased demand
for medical procedures, including preventive screenings such as endoscopies and colonoscopies; and a desire by our Customers
to operate more efficiently, all which are driving increased demand for many of our products and services.
We also are pursuing a strategy of expanding into adjacent markets with acquisitions in the Healthcare Products,
Healthcare Specialty Services and Life Sciences segments. On July 31, 2015 we acquired all of the outstanding shares of
General Econopak, Inc. (“Gepco”), a Pennsylvania-based manufacturer of consumable product solutions in the areas of sterility
maintenance, barrier protection, and sterile cleanroom products for pharmaceutical, biotechnology and veterinary Customers.
On June 12, 2015 we acquired the capital stock of Black Diamond Video, Inc. ("Black Diamond"), a California-based
developer and provider of operating room integration systems. We also completed several other minor purchases that continued
to expand our service offerings in the Healthcare Products, Healthcare Specialty Services and Life Sciences segments.
28
We continue to invest in manufacturing in-sourcing projects for the purpose of improving quality, cost and delivery of our
products to our Customers.
Highlights. Revenues increased $388.5 million, or 21.0%, to $2,238.8 million for the year ended March 31, 2016, as
compared to $1,850.3 million for the year ended March 31, 2015, reflecting growth within all four business segments and the
Combination with Synergy.
Fiscal 2016 operating income decreased 6.3% to $212.9 million over the fiscal 2015 operating income of $227.2 million.
Contributing to this decrease were additional acquisition costs related to our Combination with Synergy of $50.1 million, in
fiscal 2016 over fiscal 2015. In addition, we incurred $26.5 million in the second quarter of fiscal 2016 in connection with a
settlement of a legacy pension obligation (see Note 10 to our financial statements titled ,"Benefit Plans" for more information).
Net cash flows from operations were $254.7 million and free cash flow was $129.1 million in fiscal 2016 compared to Net
cash flows from operations of $246.0 and free cash flow of $161.6 in fiscal 2015, (see subsection of MD&A titled, "Non-
GAAP Financial Measures" for additional information and related reconciliation of non-GAAP financial measures to the most
comparable GAAP measures). Cash flow from operations and free cash flow were negatively impacted by expenses related to
the Combination with Synergy and other acquisitions. In addition, the amount paid in fiscal 2016 in connection with our annual
compensation program was higher than the amount paid in fiscal 2015 and a pension contribution was made in connection with
the settlement of a legacy pension obligation (see Note 8 to our financial statements titled,"Benefit Plans" for more information
on the pension obligation settlement). Free cash flow was further impacted by an increase in purchases of property, plant,
equipment and intangibles. Our debt-to-total capital ratio was 34.2% at March 31, 2016. We increased our quarterly dividend
for the tenth consecutive year to $0.25 per share per quarter.
Outlook. Fluctuations in foreign currency rates can impact revenues and costs outside of the United States, creating variability
in our results for fiscal 2016 and beyond.
In fiscal 2017 and beyond, we expect to continue to manage our costs, grow our business with internal product and service
development, invest in greater capacity, and augment these value creating methods with acquisitions of adjacent products and
services. We plan to continue our efforts to in-source some of the production that we have traditionally out-sourced.
MATTERS AFFECTING COMPARABILITY
International Operations. Through our subsidiaries, we operate in various international locations. Fluctuations in the
exchange rate of our reporting currency, the U.S. dollar, relative to the currencies of other countries in which we operate can
increase or decrease our reported net assets and results of operations. During fiscal 2016, our revenues were unfavorably
impacted by $41.9 million, or 1.8%, and income before taxes was favorably impacted by $20.4 million, or 13.6%, as a result of
foreign currency movements relative to the U.S. dollar.
NON-GAAP FINANCIAL MEASURES
We, at times, refer to financial measures which are considered to be “non-GAAP financial measures” under SEC rules. We,
at times, also refer to our results of operations excluding certain transactions or amounts that are non-recurring or are not
indicative of future results, in order to provide meaningful comparisons between the periods presented.
These non-GAAP financial measures are not intended to be, and should not be, considered separately from or as an
alternative to the most directly comparable GAAP financial measures.
These non-GAAP financial measures are presented with the intent of providing greater transparency to supplemental
financial information used by management and the Board of Directors in their financial analysis and operational decision-
making. These amounts are disclosed so that the reader has the same financial data that management uses with the belief that it
will assist investors and other readers in making comparisons to our historical operating results and analyzing the underlying
performance of our operations for the periods presented.
We believe that the presentation of these non-GAAP financial measures, when considered along with our GAAP financial
measures and the reconciliation to the corresponding GAAP financial measures, provide the reader with a more complete
understanding of the factors and trends affecting our business than could be obtained absent this disclosure. It is important for
the reader to note that the non-GAAP financial measure used may be calculated differently from, and therefore may not be
comparable to, a similarly titled measure used by other companies.
We define free cash flow as net cash provided by operating activities as presented in the Consolidated Statements of Cash
Flows less purchases of property, plant, equipment, and intangibles plus proceeds from the sale of property, plant, equipment,
29
and intangibles, which are also presented in the Consolidated Statements of Cash Flows. We use this as a measure to gauge our
ability to fund future debt principal repayments and growth outside of core operations, repurchase shares, and pay cash
dividends. The following table summarizes the calculation of our free cash flow for the years ended March 31, 2016, 2015 and
2014:
(dollars in thousands)
Net cash flows provided by operating activities
Purchases of property, plant, equipment and intangibles, net
Proceeds from the sale of property, plant, equipment and intangibles
Free cash flow
Years Ended March 31,
2015
$ 246,040
(85,255)
829
$ 161,614
2016
$ 254,675
(126,407)
844
$ 129,112
2014
$ 209,631
(86,367)
4,774
$ 128,038
RESULTS OF OPERATIONS
In the following subsections, we discuss our earnings and the factors affecting them. We begin with a general overview of
our operating results and then separately discuss earnings for our operating segments.
FISCAL 2016 AS COMPARED TO FISCAL 2015
Revenues. The following table compares our revenues, in total and by type and geography, for the year ended March 31, 2016
to the year ended March 31, 2015:
(dollars in thousands)
Total revenues
Revenues by type:
Capital equipment revenues
Consumable revenues
Service revenues
Revenues by geography:
United Kingdom revenues
United States revenues
Other foreign revenues
Years Ended March 31,
2016
2,238,764
$
2015
Change
$
1,850,263
$
388,501
21.0%
Percent
Change
613,904
516,142
1,108,718
597,809
449,996
802,458
16,095
66,146
306,260
144,577
1,662,050
432,137
51,889
1,449,223
349,151
92,688
212,827
82,986
2.7%
14.7%
38.2%
178.6%
14.7%
23.8%
Revenues increased $388.5 million, or 21.0%, to $2,238.8 million for the year ended March 31, 2016, as compared to
$1,850.3 million for the year ended March 31, 2015. This increase is attributable to the Combination, along with growth within
all reportable business segments. Recent acquisitions contributed 16.4% and impacted all three revenue types.
Capital equipment revenues increased by $16.1 million, or 2.7%, to $613.9 million, during fiscal 2016 as compared to
fiscal 2015. This increase was driven by growth within the Healthcare Products and Life Sciences business segments.
Geographically, the North American region was strong with 9% growth offset by declines in other regions. Consumable
revenues increased $66.1 million, or 14.7%, during fiscal 2016 from fiscal 2015. Consumable revenues grew in both the
Healthcare Product and Life Sciences business segments and experienced growth in all regions. Service revenues for fiscal
2016 increased $306.3 million, or 38.2%, over fiscal 2015 driven by the continued expansion of service offerings and the
Combination with Synergy. In addition, all reportable segments also experienced organic service revenue growth.
United Kingdom revenues for fiscal 2016 were $144.6 million, an increase of $92.7 million, or 178.6%, over fiscal 2015
revenues of $51.9 million. This increase reflects growth in both consumable and service revenues due primarily to the
Combination with Synergy, partially offset by a decline in capital equipment revenues.
30
United States revenues for fiscal 2016 were $1,662.1 million, an increase of $212.8 million, or 14.7%, over fiscal 2015
revenues of $1,449.2 million. This increase reflects growth in capital equipment, consumable and service revenues.
Revenues from other foreign locations for fiscal 2016 were $432.1 million, an increase of 23.8% over the fiscal 2015
revenues of $349.2 million. This increase reflects revenue growth within the rest of EMEA and the Asia Pacific region which
were partially offset by declines within the Latin America region and Canada.
Gross Profit. The following table compares our gross profit for the year ended March 31, 2016 to the year ended March 31,
2015:
(dollars in thousands)
Gross profit:
Product
Service
Total gross profit
Gross profit percentage:
Product
Service
Total gross profit percentage
Years Ended March 31,
2015
2016
Change
Percent
Change
$
$
511,885
383,596
895,481
$
$
463,595
310,706
774,301
$
$
48,290
72,890
121,180
10.4%
23.5%
15.7%
45.3%
34.6%
40.0%
44.2%
38.7%
41.8%
Our gross profit is affected by the volume, pricing and mix of sales of our products and services, as well as the costs
associated with the products and services that are sold. Our gross profit increased $121.2 million and gross profit percentage
decreased 180 basis points to 40.0% for fiscal 2016 as compared to 41.8% for fiscal 2015. Although our recent acquisitions
expanded our gross profit, they negatively impacted our gross margin percentage by approximately 290 basis points. As
anticipated, the addition of Synergy’s hospital sterilization services and linen management businesses is a key factor in the
declines in gross margin percentages. We have applied our "four walls" approach to the operation of Synergy, which reports all
direct and indirect costs related to the delivery of services as costs of goods sold. This approach caused additional costs to be
included in costs of goods sold rather than in selling, general and administrative costs as Synergy would have previously
reported. Our gross profit percentage was impacted positively by foreign currency fluctuations (120 basis points.) Other factors
such as favorable pricing, productivity and material costs served to offset inflation and the negative impact of product mix shift
(10 basis points).
Operating Expenses. The following table compares our operating expenses for the year ended March 31, 2016 to the year
ended March 31, 2015:
(dollars in thousands)
Operating expenses:
Selling, general, and administrative
Research and development
Restructuring expenses
Total operating expenses
NM - Not meaningful
Years Ended March 31,
2015
2016
Change
Percent
Change
$
$
626,710
56,664
(820)
682,554
$
$
493,342
54,139
$ 133,368
2,525
(391)
547,090
(429)
$ 135,464
27.0%
4.7%
NM
24.8%
Significant components of total selling, general, and administrative expenses (“SG&A”) are compensation and benefit
costs, fees for professional services, travel and entertainment, facilities costs, and other general and administrative expenses.
SG&A increased 27.0% in fiscal 2016 over fiscal 2015. Contributing to this increase was additional acquisition and integration
costs related to recent acquisitions, including Synergy, of $50.1 million over the prior year period. Higher amortization of
acquired intangible assets also contributed to the increase in SG&A in both periods. In addition, we incurred $26.5 million in
the second quarter of fiscal 2016 in connection with the settlement of a legacy pension obligation (see Note 10 to our financial
statements titled, "Benefit Plans" for more information).
Research and development expenses increased $2.5 million during fiscal 2016, as compared to fiscal 2015. The increase in
fiscal 2016 is attributable to additional spending in connection with the development of healthcare products and accessories.
Research and development expenses are influenced by the number and timing of in-process projects and labor hours and other
31
costs associated with these projects. Our research and development initiatives continue to emphasize new product development,
product improvements, and the development of new technological platform innovations. During fiscal 2016, our investments in
research and development continued to be focused on, but were not limited to, enhancing capabilities of sterile processing
combination technologies, procedural products and accessories, and devices and support accessories used in gastrointestinal
endoscopy procedures.
Restructuring Expenses. We recognize restructuring expenses as they are incurred. We also evaluate the inventory and
property, plant and equipment associated with our restructuring actions for impairment. Asset impairment and accelerated
depreciation expenses primarily relate to inventory write-downs for rationalized products and adjustments in the carrying value
of the closed facilities to their estimated fair value. In addition, the remaining useful lives of other property, plant and
equipment associated with the related operations were re-evaluated based on the respective plan, resulting in the acceleration of
depreciation and amortization of certain assets.
Fiscal 2014 Restructuring Plan. During the fourth quarter of fiscal 2014, we adopted and announced a targeted restructuring
plan primarily focused on the closure of the Hopkins manufacturing facility located in Mentor, Ohio (the “Fiscal 2014
Restructuring Plan”). We believe that by closing the operations at Hopkins we will more effectively utilize our existing North
American manufacturing network while reducing operating costs. We have incurred pre-tax expenses totaling $19.0 million
related to these actions, of which $10.9 million was recorded as restructuring expenses and $8.1 million was recorded in cost of
revenues, with restructuring expenses of $15.6 million, $1.3 million, $0.8 million, and $1.3 million related to the Healthcare
Products, Healthcare Specialty Services, Life Sciences and Applied Sterilization Technologies segments, respectively.
Fiscal 2010 Restructuring Plan. During the fourth quarter of fiscal 2010 we adopted a restructuring plan primarily related to
the transfer of the remaining operations in our Erie, Pennsylvania facility to the U.S. headquarters in Mentor, Ohio and the
consolidation of our European Healthcare manufacturing operations into two central locations within Europe (the “Fiscal 2010
Restructuring Plan”). In addition, we rationalized certain products and eliminated certain positions. Since the inception of the
Fiscal 2010 Restructuring Plan, we have incurred pre-tax expenses totaling $9.3 million related to these actions, of which $8.2
million was recorded as restructuring expenses and $1.1 million was recorded in cost of revenues. We do not expect to incur
any significant additional restructuring expenses related to this plan. These actions are intended to enhance profitability and
improve efficiencies.
For more information regarding our Restructuring activities please refer to note 2 of our consolidated financial statements
titled, "Restructuring".
Non-Operating Expenses, Net. Non-operating expense (income), net consists of interest expense on debt, offset by interest
earned on cash, cash equivalents, short-term investment balances, and other miscellaneous expense. The following table
compares our non-operating expense (income), net for the year ended March 31, 2016 to the year ended March 31, 2015:
(dollars in thousands)
Non-operating expenses, net:
Interest expense
Interest income and miscellaneous expense
Non-operating expenses, net
Years Ended March 31,
2016
2015
Change
$
$
42,708
(1,665)
41,043
$
$
19,187
$
23,521
(796)
18,391
$
(869)
22,652
Interest expense during fiscal 2016 increased due to higher interest costs resulting from our May 2015 issuance of senior
notes in a private placement offering, additional borrowings under our credit facilities to fund acquisitions, including the
Combination, and the operations of acquired companies, and payments associated with paying off Synergy’s debt. Since the
Combination our weighted average cost of borrowing has decreased due to an increase in the proportion of lower-cost, variable-
rate bank debt. Interest income and miscellaneous expense is immaterial.
Additional information regarding our outstanding debt is included in note 7 to our consolidated financial statements titled,
“Debt,” and in the subsection of MD&A titled, “Liquidity and Capital Resources.”
32
Income Tax Expense. The following table compares our income tax expense and effective income tax rates for the years ended
March 31, 2016 and March 31, 2015:
(dollars in thousands)
Income tax expense
Effective income tax rate
Years Ended March 31,
2016
2015
Change
$
60,299
$
73,756
$
(13,457)
35.1%
35.3%
Percent
Change
(18.2)%
The effective income tax rate for fiscal 2016 was 35.1% as compared to 35.3% for fiscal 2015. In fiscal 2016, the favorable
impact of foreign tax benefits associated with actions taken in conjunction with the mid-year Combination with Synergy were
offset by the unfavorable impact of significant costs associated with the Combination that are capitalized for tax purposes or are
simply non-deductible. Additional information regarding our income tax expense is included in note 9 to our consolidated
financial statements titled, “Income Taxes.”
Business Segment Results of Operations. As a result of the recent Combination with Synergy, we have reassessed the
organization of our business. We have concluded that we operate and will report in four reportable business segments:
Healthcare Products, Healthcare Specialty Services, Life Sciences, and Applied Sterilization Technologies.
Our Healthcare Products segment offers infection prevention and procedural solutions for healthcare providers worldwide,
including capital equipment and related maintenance and installation services, as well as consumables.
Our Healthcare Specialty Services segment provides a range of specialty services for healthcare providers including
hospital sterilization services, instrument and scope repairs, and linen management.
Our Life Sciences segment offers capital equipment and consumable products, and equipment maintenance and specialty
services for pharmaceutical manufacturers and research facilities.
Our Applied Sterilization Technologies segment offers contract sterilization and laboratory services for medical device and
pharmaceutical Customers and others.
Corporate and other, which is presented separately, contains the Defense and Industrial business unit plus costs that are
associated with being a publicly traded company and certain other corporate costs. These costs include executive office costs,
Board of Directors compensation, shareholder services and investor relations, external audit fees, and legacy pension and post-
retirement benefit costs.
The accounting policies for reportable segments are the same as those for the consolidated Company. Management will
evaluate performance and allocate resources based on a segment operating income measure. Operating income (loss) for each
segment is calculated as the segment’s gross profit less direct expenses and indirect cost allocations, which result in the full
allocation of all distribution and research and development expenses, and the partial allocation of corporate costs. These
allocations are based upon variables such as segment headcount and revenues. In addition, the Healthcare Products segment is
responsible for the management of all but two manufacturing facilities and uses standard cost to sell products to the other
segments. Corporate and other includes the gross profit and direct expenses of the Defense and Industrial business unit, as well
as certain unallocated corporate costs related to being a publicly traded company and legacy pension and post-retirement
benefits. Segment operating income excludes certain adjustments which include acquisition related costs, amortization of
acquired intangibles, restructuring costs and other charges that management believes may or may not recur with similar
materiality or impact on operating income in future periods. Management believes that by adjusting for these items they gain
better insight and greater transparency of the operating performance of the segments, thus aiding them in more meaningful
financial trend analysis and operational decision making. For more information regarding our segments please refer to Note 12
to our consolidated financial statements titled “Business Segment Information,” and Item 1, “Business,” provide detailed
information regarding each business segment. The following table compares business segment and Corporate and other
revenues and operating income for the year ended March 31, 2016 to the year ended March 31, 2015:
33
(dollars in thousands)
Years Ended March 31,
Revenues:
Healthcare Products
Healthcare Specialty Services
Life Sciences
Applied Sterilization Technologies
Total reportable segments
Corporate and other
Total revenues
Segment operating income (loss):
Healthcare Products
Healthcare Specialty Services
Life Sciences
Applied Sterilization Technologies
Total reportable segments
Corporate and other
Total segment operating income
Less: Adjustments
Amortization of inventory and property "step up" to fair value (1)
Amortization and impairment of acquired intangible assets (1)
Acquisition related transaction and integration costs (2)
Loss (gain) on fair value adjustment of acquisition related
contingent consideration
Settlement of pension obligation (3)
Restructuring charges (4)
Total operating income
2016
2015
Change
Percent
Change
5.6%
70.1%
18.0%
50.8%
21.0%
nm
21.0%
8.9%
45.3%
52.4%
66.9%
30.6%
nm
30.1%
$
1,207,158
$
1,143,336
$
422,860
295,970
310,120
248,538
250,845
205,675
2,236,108
1,848,394
2,656
1,869
63,822
174,322
45,125
104,445
387,714
787
$
2,238,764
$
1,850,263
$
388,501
14,780
7,536
29,394
39,766
91,476
(3,946)
87,530
$
$
181,295
24,165
85,466
99,224
390,150
(11,488)
378,662
9,907
47,704
82,891
(736)
26,470
(501)
$
$
166,515
16,629
56,072
59,458
298,674
(7,542)
291,132
$
1,330
28,317
32,762
2,271
—
(759)
$
212,927
$
227,211
(1) For more information regarding our recent acquisitions see Note 3 to our consolidated financial statements titled, "Business
Acquisitions".
(2) Acquisition and integration related charges include transaction costs and integration expenses associated with acquisitions.
(3) See Note 10 to our consolidated financial statements titled, "Benefit Plans" for more information related to the settlement of the
pension obligation.
(4) See Note 2 to our consolidated financial statements titled, "Restructuring" for more information related to restructuring.
Healthcare Product revenues increased 5.6% in the fiscal 2016 year as compared to fiscal 2015. This increase reflects
growth in capital equipment, consumable and service revenues of 2.2%, 12.0% and 4.1%, respectively. While the Combination
with Synergy and the acquisition of Black Diamond were key factors behind the increases, we also experienced strong growth
in all three categories in the United States which more than offset weakness in other geographies. At March 31, 2016, the
Healthcare Products segment’s backlog amounted to $119.4 million, increasing $21.7 million, or 22.2%, compared to the
backlog of $97.7 million at March 31, 2015. The higher backlog level is partially due to our fiscal 2016 acquisition of Black
Diamond and an increase in project orders, which tend to have longer lead times than replacement orders.
Healthcare Specialty Services revenues increased 70.1% in the fiscal 2016 year as compared to fiscal 2015. The fiscal 2016
period includes five months of revenues, or approximately $146.1 million, from the operations acquired in the Combination
with Synergy and 11% growth in legacy operations.
Life Sciences revenues increased 18.0% in the fiscal 2016 year, as compared to fiscal 2015. Consumable revenue grew
33.7% partly due to our fiscal 2016 acquisition of General Econopak, Inc. (“Gepco”) and partly due to 9.0% organic revenue
growth. Growth in capital equipment and service revenues was 5.0% and 13.3%, respectively. Service revenue in fiscal 2016
reflect the addition of new service offerings. Life Sciences backlog at March 31, 2016 amounted to $45.3 million, decreasing
$0.2 million compared to the backlog of $45.5 million at March 31, 2015.
Applied Sterilization Technologies revenues increased 50.8% in the fiscal year 2016, as compared to fiscal 2015. The fiscal
2016 period includes 4.2% organic revenue growth plus five months, or approximately $90.6 million, from the Combination
with Synergy. The segment continues to experience increased demand from our core medical device Customers.
34
The Healthcare Products segment’s operating income increased $14.8 million to $181.3 million in fiscal year 2016, as
compared to $166.5 million in fiscal year 2015. The segment's operating margin was 15.0% for fiscal year 2016 compared to
14.6% for fiscal year 2015. The increases in fiscal year 2016 are primarily due to the positive impact of increased volumes and
favorable foreign currency exchange rate fluctuations.
The Healthcare Specialty Services segment’s operating income increased $7.5 million to $24.2 million for fiscal year 2016
as compared to $16.6 million in fiscal year 2015. The increase in the fiscal 2016 was the result of additional volume in service
offerings both from the Combination with Synergy and organic revenue growth. The segment’s operating margin was 5.7% for
fiscal year 2016 compared to 6.7% for fiscal year 2015.
The Life Sciences business segment’s operating income increased $29.4 million to $85.5 million for fiscal year 2016 as
compared to $56.1 million in fiscal year 2015. The segment’s operating margin was 28.9% for fiscal year 2016 compared to
22.4% for fiscal year 2015. The increase in operating margin in fiscal 2016 was primarily attributable to increased volumes in
consumable and service offerings which generate higher margins, including expanded products and service offering from our
recent acquisitions.
The Applied Sterilization Technologies segment’s operating income increased $39.8 million to $99.2 million for fiscal year
2016 as compared to $59.5 million for fiscal year 2015. The Applied Sterilization Technologies segment's operating margin was
32.0% for fiscal year 2016 compared to 28.9% for fiscal year 2015. The segment’s operating margin increase in fiscal 2016 was
the result of the positive impact of additional volume both from the acquisition of Synergy and organic revenue growth.
FISCAL 2015 AS COMPARED TO FISCAL 2014
Revenues. The following table compares our revenues, in total and by type and geography, for the year ended March 31, 2015
to the year ended March 31, 2014:
(dollars in thousands)
Total revenues
Revenues by type:
Capital equipment revenues
Consumable revenues
Service revenues
Revenues by geography:
United Kingdom revenues
United States revenues
Other foreign revenues
Years Ended March 31,
2015
2014
Change
Percent
Change
$
1,850,263
$
1,622,252
$
228,011
14.1 %
597,809
449,996
802,458
603,579
407,883
610,790
(5,770)
42,113
191,668
51,889
1,449,223
349,151
27,677
1,244,730
349,845
24,212
204,493
(694)
(1.0)%
10.3 %
31.4 %
87.5 %
16.4 %
(0.2)%
Revenues increased $228.0 million, or 14.1%, to $1,850.3 million for the year ended March 31, 2015, as compared to
$1,622.3 million for the year ended March 31, 2014. This increase was primarily attributable to our fiscal 2015 acquisitions and
growth within all four business segments.
Capital equipment revenues decreased by $5.8 million, or 1.0%, to $597.8 million, during fiscal 2015 as compared to fiscal
2014. Growth within the EMEA and Asia Pacific regions was more than offset by declines within the North American and
Latin American regions. Consumable revenues increased $42.1 million, or 10.3%, during fiscal 2015 from fiscal 2014. This
increase was driven by growth within the Healthcare Products, Healthcare Specialty Services and Life Sciences business
segments and reflected growth in all regions. Service revenues for fiscal 2015 increased $191.7 million, or 31.4%, over fiscal
2014 primarily driven by the fiscal 2015 acquisition of IMS, other service offerings, and growth of $11.5 million, or 5.9%,
within the Applied Sterilization Technologies segment in fiscal 2015 over fiscal 2014. Applied Sterilization Technologies
revenues were favorably impacted by increased demand from our medical device Customers.
United Kingdom revenues for fiscal 2015 were $51.9 million, an increase of $24.2 million, or 87.5%, over fiscal 2014
revenues of $27.7 million. This increase reflected strong growth in capital equipment, consumable and service revenues.
Revenues associated with our late fiscal 2014 acquisition of Eschmann contributed to growth in capital equipment and service
revenues.
35
United States revenues for fiscal 2015 were $1,449.2 million, an increase of $204.5 million, or 16.4%, over fiscal 2014
revenues of $1,244.7 million. This increase was primarily attributable to the fiscal 2015 acquisition of IMS but also reflects
growth in service revenues in the other three business segments, growth in capital equipment revenues within the Healthcare
Specialty Services and Life Sciences business segments and growth in consumable revenues within the Healthcare Products
and Life Science business segments.
Revenues from other foreign locations for fiscal 2015 were $349.2 million, a slight decrease of 0.2%, over the fiscal 2014
revenues of $349.8 million. The decrease was attributable to declines within the Latin America region and in Canada, which
was partially offset by growth within the EMEA and Asia Pacific regions.
Gross Profit. The following table compares our gross profit for the year ended March 31, 2015 to the year ended March 31,
2014:
(dollars in thousands)
Gross profit:
Product
Service
Total gross profit
Gross profit percentage:
Product
Service
Total gross profit percentage
Years Ended March 31,
2014
2015
Change
Percent
Change
$
$
463,595
310,706
774,301
$
$
425,286
224,336
649,622
$
$
38,309
86,370
124,679
9.0%
38.5%
19.2%
44.2%
38.7%
41.8%
42.0%
36.7%
40.0%
Our gross profit is affected by the volume, pricing and mix of sales of our products and services, as well as the costs
associated with the products and services that are sold. Our gross profit increased $124.7 million and gross profit percentage
increased 180 basis points to 41.8% for fiscal 2015 as compared to 40.0% for fiscal 2014. Our gross profit percentage was
impacted by the positive impact of foreign currency (60 basis points) and favorable product mix and other (160 basis points).
Although our recent acquisitions added value in terms of dollars, they negatively impacted our gross margin percentage by
approximately 10 basis points. Rising material costs (10 basis points) and inflation (20 basis points) also negatively impacted
our gross margin percentage.
Operating Expenses. The following table compares our operating expenses for the year ended March 31, 2015 to the year
ended March 31, 2014:
(dollars in thousands)
Operating expenses:
Selling, general, and administrative
Research and development
Restructuring expenses
Total operating expenses
NM - Not meaningful
Years Ended March 31,
2014
2015
Change
Percent
Change
$
$
493,342
54,139
(391)
547,090
$
$
380,970
48,641
13,204
442,815
$ 112,372
5,498
(13,595)
$ 104,275
29.5%
11.3%
NM
23.5%
Significant components of total selling, general, and administrative expenses (“SG&A”) are compensation and benefit
costs, fees for professional services, travel and entertainment, facilities costs, and other general and administrative expenses.
SG&A increased 29.5% during fiscal 2015 over fiscal 2014. This increase was primarily attributable to the addition of
operating expenses incurred within our recently acquired businesses and costs of approximately $22.2 million incurred in
connection with the then proposed Combination with Synergy. For additional information regarding the Combination see note
3 of our consolidated financial statements titled, "Business Acquisitions". Also, during the second quarter of fiscal 2015,
SG&A was impacted by the adoption of a new branding strategy as part of the integration of IMS into the Specialty Services
reporting unit for surgical instrument and endoscope repair services. This strategy resulted in the reduction in the carrying
value of the Spectrum Surgical Instruments Corp. ("Spectrum") trade-name which will be used solely for Specialty Services
product revenues going forward. We have estimated the fair value of the Spectrum trade-name using the relief from royalty
36
method and concluded that the carrying value of the trade-name exceeded its fair value. As a result, an impairment charge of
approximately $5.6 million was recorded to reduce the carrying value of the intangible asset.
Research and development expenses increased $5.5 million during fiscal 2015, as compared to fiscal 2014. The increase in
the fiscal 2015 period was primarily attributable to additional spending in connection with the development of surgical products
and accessories. Research and development expenses are influenced by the number and timing of in-process projects and labor
hours and other costs associated with these projects. Our research and development initiatives continue to emphasize new
product development, product improvements, and the development of new technological platform innovations. During fiscal
2015, our investments in research and development continued to be focused on, but were not limited to, enhancing capabilities
of sterile processing combination technologies, surgical products and accessories, and devices and support accessories used in
gastrointestinal endoscopy procedures.
Restructuring Expenses. We recognize restructuring expenses as they are incurred. We also evaluate the inventory and
property, plant and equipment associated with our restructuring actions for impairment. Asset impairment and accelerated
depreciation expenses primarily relate to inventory write-downs for rationalized products and adjustments in the carrying value
of the closed facilities to their estimated fair value. In addition, the remaining useful lives of other property, plant and
equipment associated with the related operations were re-evaluated based on the respective plan, resulting in the acceleration of
depreciation and amortization of certain assets.
Fiscal 2014 Restructuring Plan. During the fourth quarter of fiscal 2014, we adopted and announced a targeted restructuring
plan primarily focused on the closure of the Hopkins manufacturing facility located in Mentor, Ohio (the “Fiscal 2014
Restructuring Plan”). As a result of this plan we will transfer operations located at Hopkins to other North American locations.
We believe that by closing the operations at Hopkins we will more effectively utilize our existing North American
manufacturing network while reducing operating costs. We have incurred pre-tax expenses totaling $19.5 million related to
these actions, of which $11.7 million was recorded as restructuring expenses and $7.8 million was recorded in cost of revenues,
with restructuring expenses of $15.4 million, $2.0 million, $0.8 million, and $1.3 million related to the Healthcare Products,
Healthcare Specialty Services, Life Sciences and Applied Sterilization Technologies segments, respectively.
Fiscal 2010 Restructuring Plan. During the fourth quarter of fiscal 2010 we adopted a restructuring plan primarily related to
the transfer of the remaining operations in our Erie, Pennsylvania facility to the U.S. headquarters in Mentor, Ohio and the
consolidation of our European Healthcare manufacturing operations into two central locations within Europe (the “Fiscal 2010
Restructuring Plan”). In addition, we rationalized certain products and eliminated certain positions.Since the inception of the
Fiscal 2010 Restructuring Plan, we have incurred pre-tax expenses totaling $9.3 million related to these actions, of which $8.2
million was recorded as restructuring expenses and $1.1 million was recorded in cost of revenues. We do not expect to incur
any significant additional restructuring expenses related to this plan. These actions are intended to enhance profitability and
improve efficiencies.
For more information regarding our restructuring activities please refer to note 2 titled, "Restructuring".
Non-Operating Expenses, Net. Non-operating expense (income), net consists of interest expense on debt, offset by interest
earned on cash, cash equivalents, short-term investment balances, and other miscellaneous expense. The following table
compares our non-operating expense (income), net for the year ended March 31, 2015 to the year ended March 31, 2014:
(dollars in thousands)
Non-operating expenses, net:
Interest expense
Interest income and miscellaneous expense
Non-operating expenses, net
Years Ended March 31,
2015
2014
Change
$
$
19,187
(796)
18,391
$
$
18,770
(339)
18,431
$
$
417
(457)
(40)
Interest expense essentially remained flat in fiscal 2015 over fiscal 2014. Interest income and miscellaneous expense are
immaterial.
Additional information regarding our outstanding debt is included in note 7 to our consolidated financial statements titled,
“Debt,” and in the subsection of MD&A titled, “Liquidity and Capital Resources.”
37
Income Tax Expense. The following table compares our income tax expense and effective income tax rates for the years ended
March 31, 2015 and March 31, 2014:
(dollars in thousands)
Income tax expense
Effective income tax rate
Years Ended March 31,
2015
2014
Change
$
73,756
$
58,934
$
14,822
35.3%
31.3%
Percent
Change
25.2%
The effective income tax rate for fiscal 2015 was 35.3% as compared to 31.3% for fiscal 2014. The effective tax rate in
2014 included the benefit from recognition of previously unrecognized tax benefits due to the settlement of a federal tax
examination. Additional information regarding our income tax expense is included in note 9 to our consolidated financial
statements titled, “Income Taxes.”
Business Segment Results of Operations. As a result of the fiscal 2016 Combination with Synergy, we have reassessed the
organization of our business. We have concluded that we operate and will report in four reportable business segments:
Healthcare Products, Healthcare Specialty Services, Life Sciences, and Applied Sterilization Technologies. Corporate and other,
which is presented separately, contains the Defense and Industrial business unit plus costs that are associated with being a
publicly traded company and certain other corporate costs. These costs include executive office costs, Board of Directors
compensation, shareholder services and investor relations, external audit fees, and legacy pension and post-retirement benefit
costs.
The accounting policies for reportable segments are the same as those for the consolidated Company. Management will
evaluate performance and allocate resources based on a segment operating income measure. Operating income (loss) for each
segment is calculated as the segment’s gross profit less direct expenses and indirect cost allocations, which result in the full
allocation of all distribution and research and development expenses, and the partial allocation of corporate costs. These
allocations are based upon variables such as segment headcount and revenues. In addition, the Healthcare Products segment is
responsible for the management of all but two manufacturing facilities and uses standard cost to sell products to the other
segments. Corporate and other includes the gross profit and direct expenses of the Defense and Industrial business unit, as well
as certain unallocated corporate costs related to being a publicly traded company and legacy pension and post-retirement
benefits. Segment operating income excludes certain adjustments which include acquisition related costs, amortization of
acquired intangibles, restructuring costs and other charges that management believes may or may not recur with similar
materiality or impact on operating income in future periods. Management believes that by adjusting for these items they gain
better insight and greater transparency of the operating performance of the segments, thus aiding them in more meaningful
financial trend analysis and operational decision making. For more information regarding our segments please refer to Note 12
to our consolidated financial statements titled “Business Segment Information,” and Item 1, “Business,” provide detailed
information regarding each business segment. The following table has been restated to reflect the new segment structure and
segment operating income measure and compares business segment and Corporate and other revenues and operating income for
the year ended March 31, 2015 to the year ended March 31, 2014:
38
(dollars in thousands)
Years Ended March 31,
Revenues:
Healthcare Products
Healthcare Specialty Services
Life Sciences
Applied Sterilization Technologies
Total reportable segments
Corporate and other
Total revenues
Segment operating income (loss):
Healthcare Products
Healthcare Specialty Services
Life Sciences
Applied Sterilization Technologies
Total reportable segments
Corporate and other
Total segment operating income
Less: Adjustments
Amortization of inventory and property "step up" to fair value (1)
Amortization and impairment of acquired intangible assets (1)
Acquisition related transaction and integration costs (2)
Loss (gain) on fair value adjustment of acquisition related contingent
consideration
Settlement of pension obligation (3)
Restructuring charges (4)
2015
2014
Change
Percent
Change
$
1,143,336
$
1,092,584 $
50,752
4.6%
248,538
250,845
205,675
87,467
246,122
194,183
161,071
184.2%
4,723
11,492
1.9%
5.9%
1,848,394
1,620,356
228,038
14.1%
1,869
1,896
(27)
nm
$
1,850,263
$
1,622,252 $
228,011
14.1%
$
$
166,515
16,629
56,072
59,458
298,674
(7,542)
291,132
1,330
28,317
32,762
2,271
—
(759)
$
$
147,455
2,387
50,772
57,598
258,212
(8,142)
19,060
14,242
5,300
1,860
40,462
600
12.9%
596.6%
10.4%
3.2%
15.7%
nm
250,070 $
41,062
16.4%
620
17,013
3,585
697
—
21,348
206,807
Total operating income
$
227,211
$
(1) For more information regarding our recent acquisitions see Note 3 to our consolidated financial statements titled, "Business
Acquisitions".
(2) Acquisition and integration related charges include transaction costs and integration expenses associated with acquisitions.
(3) See Note 10 to our consolidated financial statements titled, "Benefit Plans" for more information related to the settlement of the
pension obligation.
(4) See Note 2 to our consolidated financial statements titled, "Restructuring" for more information related to restructuring.
Healthcare Products segment revenues increased $50.8 million, or 4.6% to $1,143.3 million for the year ended March 31,
2015, as compared to $1,092.6 million for the prior fiscal year. The increase was attributable to growth in consumable and
service revenues of 8.8% and 9.3%, respectively, and growth within all geographic regions except the Latin America region. At
March 31, 2015, the Healthcare segment’s backlog amounted to $97.7 million, decreasing $12.7 million, or 11.5%, compared to
the backlog of $110.3 million at March 31, 2014. This decrease was partially the result of our success in reducing our
manufacturing lead times allowing us to fulfill orders on a timelier basis. In addition, replacement orders represent a larger
percentage of our order pattern and pipeline, and those orders tend to be filled quicker and reside in backlog for less time.
Healthcare Specialty Services segment revenues increased $161.1 million, or 184.2% to $248.5 million for the year ended
March 31, 2015, as compared to $87.5 million for the prior fiscal year. The addition of service revenues from our acquisition of
IMS combined with growth in other product and service offerings drove total growth in consumable and service revenues of
48.5% and 206.0%, respectively.
Life Sciences segment revenues increased $4.7 million or 1.9% to $250.8 million for the year ended March 31, 2015, as
compared to the prior fiscal year, driven by growth in consumable and service revenues of 10.1% and 5.0%, respectively, which
was offset by a 8.4% decline in capital equipment revenues. At March 31, 2015, the Life Sciences segment’s backlog amounted
to $45.5 million, decreasing $1.1 million, or 2.4%, compared to the backlog of $44.4 million at March 31, 2014. The March 31,
2015 backlog is consistent with historic levels.
Applied Sterilization Technologies segment revenues increased $11.5 million or 5.9% to $205.7 million for the year ended
March 31, 2015, as compared to the prior fiscal year. Revenues were favorably impacted by increased demand from our
medical device Customers.
39
The Healthcare Products segment's operating income increased $19.1 million, or 12.9% to $166.5 million for the year
ended March 31, 2015, as compared to $147.5 million for the prior fiscal year. The increase in operating income in fiscal 2015
over fiscal 2014 was driven by increased volume, favorable foreign currency, and favorable product mix. These increases were
somewhat offset by rising material costs and the Medical Device Excise Tax.
The Healthcare Specialty Services segment's operating income increased $14.2 million, to $16.6 million for the year ended
March 31, 2015, as compared to $2.4 million for the prior fiscal year. The increase in operating income in fiscal 2015 over
fiscal 2014 was driven by our recent acquisition of IMS and increased volume in existing operations.
The Life Science segment's operating income increased $5.3 million, or 10.4% to $56.1 million for the year ended
March 31, 2015, as compared to $50.8 million for the prior fiscal year. The segment's operating margins were 22.4% and
20.6%, respectively, for the years ended March 31, 2015 and March 31, 2014. The improvement was primarily attributable to
higher revenues, favorable foreign currency and favorable product mix.
The Applied Sterilization Technologies segment operating income increased $1.9 million or 3.2% to $59.5 million for the
year ended March 31, 2015, as compared to $57.6 million for the prior fiscal year, reflecting the benefits of increased revenues.
The segment's operating margins were 28.9% and 29.7%, respectively, for the years ended March 31, 2015 and March 31,
2014. The operating margin decline is primarily due to higher regulatory costs.
40
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes significant components of our cash flows for the years ended March 31, 2016, 2015 and
2014:
(dollars in thousands)
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) in financing activities
Debt-to-total capital ratio
Free cash flow
$
$
$
$
2016
254,675
(729,584)
560,289
Years Ended March 31,
2015
246,040
(283,769)
69,750
$
$
$
$
$
$
34.2%
36.7%
2014
209,631
(148,652)
(54,206)
32.2%
129,112
$
161,614
$
128,038
Net Cash Provided By Operating Activities –The net cash provided by our operating activities was $254.7 million for the
year ended March 31, 2016 compared to $246.0 million for the year ended March 31, 2015 and $209.6 million for the year
ended March 31, 2014. The following discussion summarizes the significant changes in our operating cash flows for the years
ended March 31, 2016, 2015 and 2014:
• Net cash provided by operating activities increased 3.5% in fiscal 2016 compared to fiscal 2015. Net cash provided by
operating activities was negatively impacted by expenses related to the Combination with Synergy and other acquisitions.
In addition, the amount paid in fiscal 2016 in connection with our annual compensation program was higher than the
amount paid in fiscal 2015 and a pension contribution was made in connection with the settlement of a legacy pension
obligation.
• Net cash provided by operating activities increased 17.4% in fiscal 2015 compared to fiscal 2014. The increase in net cash
provided by operating activities in fiscal 2015 was primarily due to increased net income and working capital
improvements.
Net Cash Used In Investing Activities – The net cash used in our investing activities was $729.6 million for the year
ended March 31, 2016, compared to $283.8 million for the year ended March 31, 2015 and $148.7 million for the year ended
March 31, 2014. The following discussion summarizes the significant changes in our investing cash flows for the years ended
March 31, 2016, 2015 and 2014:
•
•
•
•
Purchases of property, plant, equipment, and intangibles, net – Capital expenditures totaled $126.4 million during fiscal
2016, $85.3 million during fiscal 2015 and $86.4 million during fiscal 2014. The fiscal 2016 period includes five months of
capital expenditures related to the operations acquired in the Combination with Synergy.
Proceeds from the sale of property, plant, equipment, and intangibles – Proceeds from fiscal 2016 and 2015 proceeds relate
to minor disposals. During the third quarter of fiscal 2014 we sold our former Pieterlen, Switzerland manufacturing facility
in conjunction with our 2010 Restructuring Plan. Total proceeds and net loss on the sale were $4.7 million and $0.8
million, respectively.
Purchases of investments– During the third quarter of fiscal 2015, we invested $4.7 million in common stock of Servizi
Italia, S.p.A., a leading provider of integrated linen washing and outsourced sterile processing services to hospital
Customers.
Investments in business, net of cash acquired – During fiscal 2016, 2015 and 2014, we used $604.0 million, $194.7
million and $67.1 million, respectively for acquisitions. For more information on these acquisitions refer to note 3 to our
consolidated financial statements titled, "Business Acquisitions".
Net Cash Provided By (Used In) Financing Activities – Net cash provided by financing activities was $560.3 million for
the year ended March 31, 2016, compared to net cash provided by financing activities of $69.8 million, and net cash used in
financing activities of $54.2 million for the years ended March 31, 2015 and March 31, 2014, respectively. The following
discussion summarizes the significant changes in our financing cash flows for the years ended March 31, 2016, 2015 and 2014:
•
Proceeds from the issuance of long-term obligations – On May 15, 2015, we issued $350.0 million of senior notes in a
private placement, which are long-term obligations. We provide additional information about our debt structure in note 7 to
41
our consolidated financial statements titled, “Debt,” and in this section of the MD&A titled, “Liquidity and Capital
Resources” in the subsection titled, “Sources of Credit.”
•
Payments on long term obligations- During the third quarter of fiscal 2016, we repaid $20.0 million of senior notes issued
in December 2003, $2.0 million of senior notes issued in February 2013 and $2.0 million of senior notes issued in
December 2012. We also repaid $63.6 million of term debt assumed in the Combination with Synergy. During the fourth
quarter of fiscal 2016 we repaid $5.0 million of our term loan facility. During the second quarter of fiscal 2014, we repaid
$30.0 million for the senior notes issued in August 2008, which matured in August 2013. During the third quarter of fiscal
2014 we repaid $40.0 million for the senior notes issued in December 2003, which matured in December 2013.
•
Proceeds under credit facilities, net – At the end of fiscal 2016, $905.2 million of debt was outstanding under our credit
facilities.
• Repurchases of shares – During fiscal 2016, we obtained shares in connection with our stock-based compensation award
programs in the amount $14.4 million. During fiscal 2015, we obtained shares in connection with our stock-based
compensation award programs in the amount $30.7 million. During fiscal 2014, we paid for the repurchase of 565,887
shares at an average purchase price of $43.63 and obtained shares in connection with our stock-based compensation award
programs in the amount of $0.8 million. We provide additional information about our share repurchases in note 14 to our
consolidated financial statements titled, “Repurchases of Ordinary Shares.”
• Deferred financing fees and debt issuance costs- We paid $5.2 million and $14.4 million in fiscal 2016 and 2015,
respectively, for financing fees and debt issuance costs related to our Credit Agreement, Private Placement debt, and
former Bridge Credit Agreement. For more information on our debt refer to note 7 to our consolidated financial statements
titled, "Debt".
• Cash dividends paid to ordinary shareholders – During fiscal 2016, we paid cash dividends totaling $65.2 million or $0.98
per outstanding share. During fiscal 2015, we paid cash dividends totaling $53.5 million or $0.90 per outstanding share.
During fiscal 2014, we paid cash dividends totaling $48.4 million, or $0.82 per outstanding share.
•
Stock option and other equity transactions, net – We receive cash for issuing shares under our various employee stock
option programs. During fiscal 2016, fiscal 2015 and fiscal 2014, we received cash proceeds totaling $11.2 million $28.3
million, and $14.2 million, respectively, under these programs. In fiscal 2014, we also issued $1.5 million of STERIS
restricted stock in conjunction with the LSI acquisition.
• Excess tax benefit from share-based compensation – For the years ended March 31, 2016, 2015 and 2014, our income
taxes were reduced by $6.3 million, $11.5 million, and $2.8 million, respectively, as a result of deductions allowed for
stock options exercised and restricted share vestings. The increase in fiscal 2015 was primarily due to an increase in both
the quantity and value of restricted shares vesting and stock options exercised.
Cash Flow Measures. Free cash flow was $129.1 million in fiscal 2016 compared to $161.6 million in fiscal 2015. The
decrease in cash flow from operations are primarily due to expenses related to the Combination with Synergy and other
acquisitions. In addition, cash flow from operations was reduced by an increase in the amount paid in fiscal 2016 over fiscal
2015 related to our annual compensation program and a pension contribution made in connection with the settlement of a
legacy pension obligation (see subsection of MD&A titled, "Non-GAAP Financial Measures", for additional information and
related reconciliation of non-GAAP financial measures to the most comparable GAAP measures). Our debt-to-total capital ratio
was 34.2% at March 31, 2016 and 36.7% at March 31, 2015.
Cash Requirements. We intend to use our existing cash and cash equivalent balances and cash generated from operations
for short-term and long-term capital expenditures and our other liquidity needs. Our capital requirements depend on many
uncertain factors, including our rate of sales growth, our Customers’ acceptance of our products and services, the costs of
obtaining adequate manufacturing capacities, the timing and extent of our research and development projects, changes in our
operating expenses and other factors. To the extent that existing and anticipated sources of cash are not sufficient to fund our
future activities, we may need to raise additional funds through additional borrowings or the sale of equity securities. There can
be no assurance that our existing financing arrangements will provide us with sufficient funds or that we will be able to obtain
any additional funds on terms favorable to us or at all.
At March 31, 2016, approximately 98.0% of our consolidated cash and cash equivalents were held in non-United States
legal entities. These funds are considered indefinitely reinvested to be used to expand operations either organically or through
acquisitions outside the United States. Our United States operations generate cash flow sufficient to satisfy United States
operating requirements and service debt. We do not intend to repatriate any significant amounts of cash in the foreseeable
future.
42
Sources of Credit. Our sources of credit as of March 31, 2016 are summarized in the following table:
(dollars in thousands)
Sources of Credit
Private placement
Credit Agreement (1)
Total Sources of Credit
Maximum
Amounts
Available
Reductions in
Available Credit
Facility for Other
Financial
Instruments
March 31, 2016
Amounts
Outstanding
March 31, 2016
Amounts
Available
$
$
666,000
1,245,000
1,911,000
$
$
—
—
666,000
905,216
— $
1,571,216
$
—
339,784
339,784
(1)
Our $500.0 million revolving credit facility contains a sub-limit that reduces the maximum amount available to us
for borrowings by letters of credit outstanding.
Our sources of funding from credit as of March 31, 2016 are summarized below:
•
In order to fund the acquisition of Synergy, including the cash payments made in respect of Synergy shares, the repayment
of Synergy debt and certain transaction expenses, on November 2, 2015, STERIS plc borrowed (under its Credit
Agreement as herein-after defined) (i) $132.0 million, £49.0 million, and €127.8 million under the revolving credit facility
and (ii) $400.0 million under the term loan facility. Borrowings bear interest, at our option, based upon either the Base Rate
or the Eurocurrency Rate, plus the Applicable Margin in effect from time to time under the Credit Agreement. The
Applicable Margin is determined based on the ratio of Consolidated Total Debt to Consolidated EBITDA. Interest on Base
Rate Advances is payable quarterly in arrears and interest on Eurocurrency Rate Advances is payable at the end of the
relevant interest period therefor, but in no event less frequently than every three months.
• On May 15, 2015, Old STERIS issued $350.0 million of senior notes, in a private placement to certain institutional
investors in an offering that was exempt from the registration requirements of the Securities Act of 1933. Of the $350.0
million in senior notes, $125.0 million have a maturity of 10 years from the issue date at an annual interest rate of 3.45%,
$125.0 million have a maturity of 12 years from the issue date at an annual interest rate of 3.55% and $100.0 million have
a maturity of 15 years from the issue date at an annual interest rate of 3.70%. These borrowings will be used for repayment
of credit facility debt and for other corporate purposes. The agreement governing these notes contains leverage and interest
coverage covenants.
• On March 31, 2015, Old STERIS and STERIS entered into a Credit Agreement (the "Credit Agreement") with various
financial institutions as lenders, and JPMorgan Chase Bank, N.A., as Administrative Agent. The Credit Agreement replaced
the Company’s Third Amended and Restated Credit Agreement dated April 13, 2012 with KeyBank National Association,
as Administrative Agent, and the other lenders party thereto, as amended, and the Company’s Swing Line Facility
(Committed Line of Credit) with PNC Bank, National Association, which agreements were terminated and all outstanding
borrowings thereunder were repaid on March 31, 2015. The Credit Agreement currently provides $1,245.0 million of
credit, in the form of a $850.0 million revolver facility, which may be utilized for revolving credit borrowings, swing line
borrowings and letters of credit, with sublimits for swing line borrowings and letters of credit. The Credit Agreement also
contains a $400.0 million term loan facility. The revolver and term loan facilities may be increased in specified
circumstances by up to $500.0 million. Term loans are repayable quarterly pursuant to a specified amortization schedule,
with principal payments increasing from 1.25% to 2.50% over the term, and with a balloon payment for the remaining
unpaid balance at maturity. As of March 31, 2016, a total $905.2 million of indebtedness was outstanding under the Credit
Agreement. The Credit Agreement will mature on March 31, 2020, and all unpaid borrowings, together with accrued and
unpaid interest thereon, are repayable on that date. The Credit Agreement contains leverage and interest coverage
covenants.
•
In February 2013, Old STERIS issued $100.0 million of senior notes, of which $98.0 million currently remain outstanding,
in a private placement to certain institutional investors in an offering that was exempt from the registration requirements of
the Securities Act of 1933. Of the $98.0 million of outstanding notes, $45.5 million have a maturity of nine years and 10
months from issuance and have a current annual interest rate of 3.70%, an additional $40.0 million have a maturity of 11
years and 10 months from issuance and have a current annual interest rate of 3.85%, and the remaining $12.5 million have
a maturity of 14 years and 10 months and have a current annual interest rate of 4.05%. These borrowings were used
primarily for the repayment of then existing credit facility debt. The agreements governing these notes and the notes were
amended and restated in their entirety on March 31, 2015. The amended and restated agreements, which have been
consolidated into a single agreement, contain leverage and interest coverage covenants.
43
•
In December 2012, Old STERIS issued $100.0 million of senior notes, of which $98.0 million currently remain
outstanding, in a private placement to certain institutional investors in an offering that was exempt from the registration
requirements of the Securities Act of 1933. Of the $98.0 million of outstanding notes, $45.5 million have a maturity of 10
years from issuance and have a current annual interest rate of 3.70%, an additional $40.0 million have a maturity of 12
years from issuance and have a current annual interest rate of 3.85%, and the remaining $12.5 million have a maturity of
15 years from issuance and have a current annual interest rate of 4.05%. These borrowings were used primarily for the
repayment of then existing credit facility debt. The agreements governing these notes and the notes were amended and
restated in their entirety on March 31, 2015. The amended and restated agreements, which have been consolidated into a
single agreement, contain leverage and interest coverage covenants.
• On August 15, 2008, Old STERIS issued $150.0 million of senior notes, of which $120.0 million currently remain
outstanding, in a private placement to certain institutional investors in an offering that was exempt from the registration
requirements of the Securities Act of 1933. Of the outstanding notes $85.0 million have a maturity of 10 years from
issuance and have a current annual interest rate of 6.83%, and the remaining $35.0 million have a maturity of 12 years
from issuance and have a current annual interest rate of 6.93%. The agreements governing these notes and the notes were
amended and restated in their entirety on March 31, 2015. The amended and restated agreements, which have been
consolidated into a single agreement, contain leverage and interest coverage covenants.
At March 31, 2016, we had $339.8 million of funding available under the Credit Agreement. The Credit Agreement
includes a sub-limit that reduces the maximum amount available to us by letters of credit outstanding. At March 31, 2016, there
were no letters of credit outstanding under the Credit Agreement.
At March 31, 2016, we were in compliance with all financial covenants associated with our indebtedness. We provide
additional information regarding our debt structure and payment obligations in the section of the MD&A titled, “Liquidity and
Capital Resources” in the subsection titled, “Contractual and Commercial Commitments” and in note 7 to our consolidated
financial statements titled, “Debt.”
CAPITAL EXPENDITURES
Our capital expenditure program is a component of our long-term strategy. This program includes, among other things,
investments in new and existing facilities, business expansion projects, radioisotope (cobalt-60), linens and information
technology enhancements and research and development advances. During fiscal 2016, our capital expenditures amounted to
$126.4 million. We use cash provided by operating activities and our cash and cash equivalent balances to fund capital
expenditures. We expect fiscal 2017 capital expenditures to increase to approximately $190.0 million, which includes
investment in projects to expand capacity for our Applied Sterilization Technologies segment, investments required for service
contracts in our Healthcare Specialty Services segment and to upgrade our IT systems, along with routine maintenance capital
expenditures.
CONTRACTUAL AND COMMERCIAL COMMITMENTS
At March 31, 2016, we had commitments under non-cancelable operating leases totaling $134.9 million.
Our contractual obligations and commercial commitments as of March 31, 2016 are presented in the following tables.
Commercial commitments include standby letters of credit, letters of credit required as security under our self-insured risk
retention policies, and other potential cash outflows resulting from events that require us to fulfill commitments.
Payments due by March 31,
(in thousands)
2017
2018
2019
2020
2021 and
thereafter
Total
Contractual Obligations:
Debt
Operating leases
Purchase obligations
Benefit payments under defined benefit plans
Trust assets available for benefit payments
under defined benefit plans
Benefit payments under other post-retirement
welfare benefit plans
Total Contractual Obligations
$
— $
29,098
39,006
3,567
— $ 85,000
18,402
—
4,571
23,853
16,750
3,942
$ 905,216
10,456
—
3,976
$ 581,000
53,103
—
30,988
$1,571,216
134,912
55,756
47,044
(3,567)
(3,942)
(4,571)
(3,976)
(30,988)
(47,044)
2,463
$ 70,567
2,207
$ 42,810
1,911
$ 105,313
1,709
$ 917,381
7,578
$ 641,681
15,868
$1,777,752
44
The table above includes only the principal amounts of our contractual obligations. We provide information about the
interest component of our long-term debt in the subsection of MD&A titled, “Liquidity and Capital Resources,” and in note 7 to
our consolidated financial statements titled, “Debt.”
Purchase obligations shown in the table above relate to minimum purchase commitments with suppliers for materials
purchases and long term construction contracts.
The table above excludes contributions we make to our defined contribution plan. Our future contributions to this plan
depend on uncertain factors, such as the amount and timing of employee contributions and discretionary employer
contributions. We provide additional information about our defined benefit pension plans, defined contribution plan, and other
post-retirement medical benefit plan in note 10 to our consolidated financial statements titled, “Benefit Plans.”
(in thousands)
Commercial Commitments:
Performance and surety bonds
Amount of Commitment Expiring March 31,
2017
2018
2019
2020
2021 and
thereafter
Totals
$ 44,232
$ 3,723
$
228
$
51
$ 1,365
$ 49,599
Letters of credit as security for self-insured risk
retention policies
Total Commercial Commitments
7,050
—
—
$ 51,282
$ 3,723
$
228
$
—
51
—
7,050
$ 1,365
$ 56,649
CRITICAL ACCOUNTING POLICIES, ESTIMATES, AND ASSUMPTIONS
The following subsections describe our most critical accounting policies, estimates, and assumptions. Our accounting
policies are more fully described in note 1 to our consolidated financial statements titled, “Nature of Operations and Summary
of Significant Accounting Policies.”
Estimates and Assumptions. Our discussion and analysis of financial condition and results of operations is based on our
consolidated financial statements that were prepared in accordance with United States generally accepted accounting principles.
We make certain estimates and assumptions that we believe to be reasonable when preparing these financial statements. These
estimates and assumptions involve judgments with respect to numerous factors that are difficult to predict and are beyond
management’s control. As a result, actual amounts could be materially different from these estimates. We periodically review
these critical accounting policies, estimates, assumptions, and the related disclosures with the Audit Committee of the
Company’s Board of Directors.
Revenue Recognition. We recognize revenue for products when ownership passes to the Customer, which is based on contract
or shipping terms and for services when the service is provided to the Customer. Our Customers include end users as well as
dealers and distributors who market and sell our products. Our revenue is not contingent upon resale by the dealer or
distributor. We have no further obligations related to bringing about resale, and our standard return and restocking fee policies
are applied.
We also have individual Customer contracts that offer extended payment terms and/or discounted pricing. Dealers and
distributors may be offered sales incentives in the form of rebates. We reduce revenue for discounts and estimated returns,
rebates, and other similar allowances in the same period the related revenues are recorded. Returns, rebates, and similar
allowances are estimated based on historical experience and trend analysis.
In transactions that contain multiple elements, such as when products, maintenance services, and other services are
combined, we recognize revenue as each product is delivered or service is provided to the Customer. We allocate the total
arrangement consideration to each element based on its relative fair value, based on the price for the product or service when it
is sold separately.
We offer preventive maintenance agreements to our Customers with contract terms that range from one to five years,
which require us to maintain and repair our products during this time. Amounts received under these Customer contracts are
initially recorded as deferred service revenues and then recognized as service revenues ratably over the contract term.
We classify shipping and handling amounts billed to Customers in sales transactions as revenues.
Allowance for Doubtful Accounts Receivable. We maintain an allowance for uncollectible accounts receivable for estimated
losses in the collection of amounts owed by Customers. We estimate the allowance based on analyzing a number of factors,
including amounts written off historically, Customer payment practices, and general economic conditions. We also analyze
significant Customer accounts on a regular basis and record a specific allowance when we become aware of a specific
45
Customer’s inability to pay. As a result, the related accounts receivable are reduced to an amount that we reasonably believe is
collectible. These analyses require a considerable amount of judgment. If the financial condition of our Customers worsens, or
economic conditions change, we may be required to make changes to our allowance for doubtful accounts receivable.
Allowance for Sales Returns. We maintain an allowance for sales returns based upon known returns and estimated returns for
both capital equipment and consumables. We estimate returns of capital equipment and consumables based upon historical
experience less the estimated inventory value of the returned goods.
Inventories and Reserves. Inventories are stated at the lower of their cost or market value. We determine cost based upon a
combination of the last-in, first-out (“LIFO”) and first-in, first-out (“FIFO”) cost methods. We determine the LIFO inventory
value at the end of the year based on inventory levels and costs at that time. For inventories valued using the LIFO method, we
believe that the use of the LIFO method results in a matching of current costs and revenues. Inventories valued using the LIFO
method represented approximately 31.0% and 35.9% of total inventories at March 31, 2016 and 2015, respectively. Inventory
costs include material, labor, and overhead. If we had used only the FIFO method of inventory costing, inventories would have
been $17.6 million and $19.1 million higher than those reported at March 31, 2016 and 2015, respectively.
We review the net realizable value of inventory on an ongoing basis, considering factors such as deterioration,
obsolescence, and other items. We record an allowance for estimated losses when the facts and circumstances indicate that
particular inventories will not be usable. If future market conditions vary from those projected, and our estimates prove to be
inaccurate, we may be required to write-down inventory values and record an adjustment to cost of revenues.
Asset Impairment Losses. Property, plant, equipment, and identifiable intangible assets are reviewed for impairment when
events and circumstances indicate that the carrying value of such assets may not be recoverable. Impaired assets are recorded at
the lower of carrying value or estimated fair value. We conduct this review on an ongoing basis and, if impairment exists, we
record the loss in the Consolidated Statements of Income during that period.
When we evaluate assets for impairment, we make certain judgments and estimates, including interpreting current
economic indicators and market valuations, evaluating our strategic plans with regards to operations, historical and anticipated
performance of operations, and other factors. If we incorrectly anticipate these factors, or unexpected events occur, our
operating results could be materially affected.
Asset Retirement Obligations. We incur retirement obligations for certain assets. We record an initial liability for the asset
retirement obligations (ARO) at fair value. Accounting for the ARO at inception and in subsequent periods includes the
determination of the present value of a liability and offsetting asset, the subsequent accretion of that liability and depletion of the
asset, and a periodic review of the ARO liability estimates and discount rates used in the analysis. We provide additional information
about our asset retirement obligations in note 6 to our consolidated financial statements titled, “Property, Plant and Equipment.”
Restructuring. We record specific accruals in connection with plans for restructuring elements of our business. These accruals
include estimates principally related to employee separation costs, the closure and/or consolidation of facilities, and contractual
obligations. Actual amounts could differ from the original estimates.
We review our restructuring-related accruals on a quarterly basis and changes to plans are appropriately recognized in the
Consolidated Statements of Income in the period the change is identified. Note 2 to our consolidated financial statements titled,
“Restructuring,” summarizes our restructuring plans.
Purchase Accounting and Goodwill. Assets and liabilities of the business acquired are accounted for at their estimated fair
values as of the acquisition date. Any excess of the cost of the acquisition over the fair value of the net tangible and intangible
assets acquired is recorded as goodwill. We supplement management expertise with valuation specialists in performing
appraisals to assist us in determining the fair values of assets acquired and liabilities assumed. These valuations require us to
make estimates and assumptions, especially with respect to intangible assets. We generally amortize our intangible assets over
their useful lives with the exception of indefinite lived intangible assets. We do not amortize goodwill, but we evaluate it
annually for impairment. Therefore, the allocation of the purchase price to intangible assets and goodwill has a significant
impact on future operating results.
We evaluate the recoverability of recorded goodwill amounts annually, or when evidence of potential impairment exists.
We may consider qualitative indicators of the fair value of a reporting unit when it is unlikely that a reporting unit has impaired
goodwill. We may also utilize a discounted cash flow analysis that requires certain assumptions and estimates be made
regarding market conditions and our future profitability. In those circumstances we test goodwill for impairment by reviewing
the book value compared to the fair value at the reporting unit level. We calculate the fair value of our reporting units based on
the present value of estimated future cash flows. Considerable management judgment is necessary to evaluate the impact of
operating and macroeconomic changes and to estimate future cash flows to measure fair value. Assumptions used in our
impairment evaluations, such as forecasted growth rates and cost of capital, are consistent with internal projections and
operating plans. We believe such assumptions and estimates are also comparable to those that would be used by other
marketplace participants.
46
We performed our annual goodwill and indefinite lived intangible asset impairment evaluation as of October 31, 2015.
Based on this evaluation, we determined that there was no impairment of the recorded amounts.
We evaluate indefinite lived intangible assets annually, or when evidence of potential impairment exists. We evaluate
several qualitative indicators and assumptions, and trends that influence the valuation of the assets to determine if any evidence
of potential impairment exists.
Income Taxes. Our provision for income taxes is based on our current period income, changes in deferred income tax assets
and liabilities, income tax rates, changes in uncertain tax benefits, and tax planning opportunities available to us in the various
jurisdictions in which we operate. Tax laws are complex and subject to different interpretations by the taxpayer and the
respective governmental taxing authorities. We use significant judgment in determining our annual effective income tax rate
and evaluating our tax positions. We prepare and file tax returns based on our interpretation of tax laws and regulations, and we
record estimates based on these judgments and interpretations. We cannot be sure that the tax authorities will agree with all of
the tax positions taken by us. The actual income tax liability for each jurisdiction in any year can, in some instances, be
ultimately determined several years after the tax return is filed and the financial statements are published.
We evaluate our tax positions using the recognition threshold and measurement attribute in accordance with current
accounting guidance. We determine whether it is more-likely-than-not that a tax position will be sustained upon examination,
including resolution of related appeals or litigation processes, based on the technical merits of the position. In evaluating
whether a tax position has met the more-likely-than-not recognition threshold, we presume that the position will be examined
by the appropriate taxing authority and that the taxing authority will have full knowledge of all relevant information. A tax
position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater
than 50 percent likely of being realized upon ultimate settlement. The appropriate unit of account for determining what
constitutes an individual tax position, and whether the more-likely-than-not recognition threshold is met for a tax position, is a
matter of judgment based on the individual facts and circumstances of that position evaluated in light of all available evidence.
We review and adjust our tax estimates periodically because of ongoing examinations by and settlements with the various
taxing authorities, as well as changes in tax laws, regulations and precedent.
We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts
and the tax basis of assets and liabilities. We regularly review our deferred tax assets for recoverability and establish a valuation
allowance based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing
temporary differences, and the implementation of tax planning strategies. If we are unable to generate sufficient future taxable
income in certain tax jurisdictions, or if there is a material change in the effective income tax rates or time period within which
the underlying temporary differences become taxable or deductible, we could be required to increase our valuation allowance,
which would increase our effective income tax rate and could result in an adverse impact on our consolidated financial position,
results of operations, or cash flows.
We believe that adequate accruals have been made for income taxes. Differences between the estimated and actual amounts
determined upon ultimate resolution, individually or in the aggregate, are not expected to have a material adverse effect on our
consolidated financial position, but could possibly be material to our consolidated results of operations or cash flow for any one
period.
Additional information regarding income taxes is included in note 9 to our consolidated financial statements titled,
“Income Taxes.”
Self-Insurance Liabilities. We record a liability for self-insured risks that we retain for general and product liabilities,
workers’ compensation, and automobile liabilities based on actuarial calculations. We use our historical loss experience and
actuarial methods to calculate the estimated liability. This liability includes estimated amounts for both losses and incurred but
not reported claims. We review the assumptions used to calculate the estimated liability at least annually to evaluate the
adequacy of the amount recorded. We maintain insurance policies to cover losses greater than our estimated liability, which are
subject to the terms and conditions of those policies. The obligation covered by insurance contracts will remain on the balance
sheet as we remain liable to the extent insurance carriers do not meet their obligation. Estimated amounts receivable under the
contracts are included in the "Prepaid expenses and other current assets" line, and the "Other assets" line of our consolidated
balance sheets. Our accrual for self-insured risk retention as of March 31, 2016 and 2015 was $20.2 million and $18.1 million,
respectively.
We are also self-insured for employee medical claims. We estimate a liability for incurred but not reported claims based
upon recent claims experience.
Our self-insured liabilities contain uncertainties because management must make assumptions and apply judgments to
estimate the ultimate cost to settle reported claims and claims incurred but not reported as of the balance sheet date. If actual
results are not consistent with these assumptions and judgments, we could be exposed to additional costs in subsequent periods.
47
Contingencies. We are, and will likely continue to be, involved in a number of legal proceedings, government investigations,
and claims, which we believe generally arise in the course of our business, given our size, history, complexity, and the nature of
our business, products, Customers, regulatory environment, and industries in which we participate. These legal proceedings,
investigations and claims generally involve a variety of legal theories and allegations, including, without limitation, personal
injury (e.g., slip and falls, burns, vehicle accidents), product liability or regulation (e.g., based on product operation or claimed
malfunction, failure to warn, failure to meet specification, or failure to comply with regulatory requirements), product exposure
(e.g., claimed exposure to chemicals, asbestos, contaminants, radiation), property damage (e.g., claimed damage due to leaking
equipment, fire, vehicles, chemicals), commercial claims (e.g., breach of contract, economic loss, warranty, misrepresentation),
financial (e.g., taxes, reporting), employment (e.g., wrongful termination, discrimination, benefits matters), and other claims for
damage and relief.
We record a liability for such contingencies to the extent we conclude that their occurrence is both probable and estimable.
We consider many factors in making these assessments, including the professional judgment of experienced members of
management and our legal counsel. We have made estimates as to the likelihood of unfavorable outcomes and the amounts of
such potential losses. In our opinion, the ultimate outcome of these proceedings and claims is not anticipated to have a material
adverse affect on our consolidated financial position, results of operations, or cash flows. However, the ultimate outcome of
proceedings, government investigations, and claims is unpredictable and actual results could be materially different from our
estimates. We record expected recoveries under applicable insurance contracts when we are assured of recovery. Refer to note
11 of our consolidated financial statements titled, "Commitments and Contingencies" for additional information.
We are subject to taxation from federal, state and local, and foreign jurisdictions. Tax positions are settled primarily
through the completion of audits within each individual tax jurisdiction or the closing of a statute of limitation. Changes in
applicable tax law or other events may also require us to revise past estimates. The IRS of the United States routinely conducts
audits of our federal income tax returns.
Additional information regarding our commitments and contingencies is included in note 11 to our consolidated financial
statements titled, “Commitments and Contingencies.”
Benefit Plans. We provide defined benefit pension plans for certain employees and retirees as determined by collective
bargaining agreements or employee benefit standards set at the time of acquisition of certain businesses. In addition, we
sponsor an unfunded post-retirement welfare benefits plan for two groups of United States retirees. Benefits under this plan
include retiree life insurance and retiree medical insurance, including prescription drug coverage.
Employee pension and post-retirement welfare benefits plans are a cost of conducting business and represent obligations
that will be settled in the future and therefore, require us to use estimates and make certain assumptions to calculate the expense
and liabilities related to the plans. Changes to these estimates and assumptions can result in different expense and liability
amounts. Future actual experience may be significantly different from our current expectations. We believe that the most
critical assumptions used to determine net periodic benefit costs and projected benefit obligations are the expected long-term
rate of return on plan assets and the discount rate. A summary of significant assumptions used to determine the March 31, 2016
projected benefit obligations and the fiscal 2016 net periodic benefit costs is as follows:
Shiloh
Group
Synergy
Health
PLC
Vernon
Carus
Limited
Isotron
BV
Synergy
Health
Daniken
AG
Synergy
Health
Radeberg
Synergy
Health
Allershausen
U.S. Post-
Retirement
Welfare
Benefit Plan
Funded Funded Funded Funded Funded Funded
Funded
Unfunded
3.50% 3.50% 3.50% 1.60% 0.40% 1.60%
1.60%
3.25%
Funding Status
Assumptions used to determine
March 31, 2016
Benefit obligations:
Discount rate
Assumptions used to determine fiscal
2016
Net periodic benefit costs:
Discount rate
Expected return on plan assets
5.14% 6.17% 4.77% 2.10% 1.40%
n/a
3.80% 3.80% 3.80% 2.10% 0.40% 1.60%
1.60%
n/a
3.25%
n/a
NA – Not applicable.
We develop our expected long-term rate of return on plan assets assumptions by evaluating input from third-party
professional advisors, taking into consideration the asset allocation of the portfolios, and the long-term asset class return
48
expectations. Generally, net periodic benefit costs increase as the expected long-term rate of return on plan assets assumption
decreases. Holding all other assumptions constant, lowering the expected long-term rate of return on plan assets assumption for
our funded defined benefit pension plans by 50 basis points would have increased the fiscal 2016 benefit costs by less than $0.1
million.
We develop our discount rate assumptions by evaluating input from third-party professional advisors, taking into
consideration the current yield on country specific investment grade long-term bonds which provide for similar cash flow
streams as our projected benefit obligations. Generally, the projected benefit obligations and the net periodic benefit costs both
increase as the discount rate assumption decreases. Holding all other assumptions constant, lowering the discount rate
assumption for our defined benefit pension plans and for the other post-retirement plan by 50 basis points would have
decreased the fiscal 2016 net periodic benefit costs by less than $0.1 million and would have increased the projected benefit
obligations by approximately $10.2 million at March 31, 2016.
We have made assumptions regarding healthcare costs in computing our other post-retirement benefit obligation. The
assumed rates of increase generally decline ratably over a five year-period from the assumed current year healthcare cost trend
rate of 7% to the assumed long-term healthcare cost trend rate. A 100 basis point change in the assumed healthcare cost trend
rate (including medical, prescription drug, and long-term rates) would have had the following effect at March 31, 2016:
(dollars in thousands)
Effect on total service and interest cost components
Effect on postretirement benefit obligation
100 Basis Point
Increase
Decrease
$
$
1
44
(1)
(42)
We recognize an asset for the overfunded status or a liability for the underfunded status of defined benefit pension and
post-retirement benefit plans in our balance sheets. This amount is measured as the difference between the fair value of plan
assets and the benefit obligation (the projected benefit obligation for pension plans and the accumulated post-retirement benefit
obligation for other post-retirement benefit plans). Changes in the funded status of the plans are recorded in other
comprehensive income in the year they occur. We measure plan assets and obligations as of the balance sheet date. Note 10 to
our consolidated financial statements titled, “Benefit Plans,” contains additional information about our pension and other post-
retirement welfare benefits plans.
Share-Based Compensation. We measure the estimated fair value for share-based compensation awards, including grants of
employee stock options at the grant date and recognize the related compensation expense over the period in which the share-
based compensation vests. We selected the Black-Scholes-Merton option pricing model as the most appropriate method for
determining the estimated fair value of our share-based stock option compensation awards. This model involves assumptions
that are judgmental and affect share-based compensation expense.
Share-based compensation expense was $16.1 million in fiscal 2016, $14.9 million in fiscal 2015 and $11.1 million in
fiscal 2014. Note 15 to our consolidated financial statements titled, “Share-Based Compensation,” contains additional
information about our share-based compensation plans.
RECENTLY ISSUED ACCOUNTING STANDARDS IMPACTING THE COMPANY
Recently issued accounting standards that are relevant to us are presented in note 1 to our consolidated financial statements
titled, “Nature of Operations and Summary of Significant Accounting Policies.”
INFLATION
Our business has not been significantly impacted by the overall effects of inflation. We monitor the prices we charge for
our products and services on an ongoing basis and plan to adjust those prices to take into account future changes in the rate of
inflation. However, we may not be able to completely offset the impact of inflation.
FORWARD-LOOKING STATEMENTS
This Form 10-K may contain statements concerning certain trends, expectations, forecasts, estimates, or other forward-
looking information affecting or relating to STERIS or its industry, products or activities that are intended to qualify for the
protections afforded “forward-looking statements” under the Private Securities Litigation Reform Act of 1995 and other laws
and regulations. Forward-looking statements speak only as to the date of this report and may be identified by the use of
forward-looking terms such as “may,” “will,” “expects,” “believes,” “anticipates,” “plans,” “estimates,” “projects,” “targets,”
“forecasts,” “outlook,” “impact,” “potential,” “confidence,” “improve,” “optimistic,” “deliver,” “comfortable,” “trend”, and
“seeks,” or the negative of such terms or other variations on such terms or comparable terminology. Many important factors
49
could cause actual results to differ materially from those in the forward-looking statements including, without limitation,
disruption of production or supplies, changes in market conditions, political events, pending or future claims or litigation,
competitive factors, technology advances, actions of regulatory agencies, and changes in laws, government regulations,
labeling or product approvals or the application or interpretation thereof. Other risk factors are described herein and in
STERIS’s other securities filings, including Item 1A of this Annual Report on Form 10-K for the year ended March 31, 2016.
Many of these important factors are outside of STERIS’s control. No assurances can be provided as to any result or the timing
of any outcome regarding matters described in this 10-K or otherwise with respect to any regulatory action, administrative
proceedings, government investigations, litigation, warning letters, cost reductions, business strategies, earnings or revenue
trends or future financial results. References to products are summaries only and should not be considered the specific terms of
the product clearance or literature. Unless legally required, STERIS does not undertake to update or revise any forward-looking
statements even if events make clear that any projected results, express or implied, will not be realized. Other potential risks
and uncertainties that could cause actual results to differ materially from those in the forward-looking statements include,
without limitation, (a) STERIS’s ability to meet expectations regarding the accounting and tax treatments of the Combination,
(b) the possibility that the parties may be unable to achieve expected synergies and operating efficiencies in connection with the
Combination within the expected time-frames or at all and to successfully integrate Synergy Health Ltd.'s operations with those
of Old STERIS, (c) the integration of Synergy Health Ltd.'s operations with those of Old STERIS being more difficult, time-
consuming or costly than expected, (d) operating costs, customer loss and business disruption (including, without limitation,
difficulties in maintaining relationships with employees, customers, clients or suppliers) being greater than expected following
the transaction, (e) the retention of certain key employees of Synergy Health Ltd. being difficult, (f) changes in tax laws or
interpretations that could increase our consolidated tax liabilities, including, changes in tax laws that would result in STERIS
being treated as a domestic corporation for United States federal tax purposes, (g) the potential for increased pressure on
pricing or costs that leads to erosion of profit margins, (h) the possibility that market demand will not develop for new
technologies, products or applications or services, or business initiatives will take longer, cost more or produce lower benefits
than anticipated, (i) the possibility that application of or compliance with laws, court rulings, certifications, regulations,
regulatory actions, including without limitation those relating to FDA warning notices or letters, government investigations, the
outcome of any pending FDA requests, inspections or submissions, or other requirements or standards may delay, limit or
prevent new product introductions, affect the production and marketing of existing products or services or otherwise affect
STERIS’s performance, results, prospects or value, (j) the potential of international unrest, economic downturn or effects of
currencies, tax assessments, adjustments or anticipated rates, raw material costs or availability, benefit or retirement plan costs,
or other regulatory compliance costs, (k) the possibility of reduced demand, or reductions in the rate of growth in demand, for
STERIS’s products and services, (l) the possibility that anticipated growth, cost savings, new product acceptance, performance
or approvals, or other results may not be achieved, or that transition, labor, competition, timing, execution, regulatory,
governmental, or other issues or risks associated with STERIS’s businesses, industry or initiatives including, without limitation,
those matters described herein and in STERIS’s other securities filings, may adversely impact STERIS’s performance, results,
prospects or value, (m) the possibility that anticipated financial results or benefits of recent acquisitions, including the
Combination, or of STERIS’s restructuring efforts will not be realized or will be other than anticipated and (n) the effects of the
contractions in credit availability, as well as the ability of STERIS’s Customers and suppliers to adequately access the credit
markets when needed.
50
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
In the ordinary course of business, we are exposed to various risks, including, but not limited to, interest rate, foreign
currency, and commodity risks. These risks are described in the sections that follow.
INTEREST RATE RISK
As of March 31, 2016, we had $666.0 million in fixed rate senior notes outstanding. As of March 31, 2016, we had $905.2
million in outstanding borrowings under our Credit Agreement. Borrowings under the Credit Agreement are exposed to
changes in interest rates. We monitor our interest rate risk, but do not engage in any hedging activities using derivative financial
instruments. For additional information regarding our debt structure, refer to note 7 to our Consolidated Financial Statements
titled, “Debt.”
FOREIGN CURRENCY RISK
We are exposed to the impact of foreign currency exchange fluctuations. This foreign currency exchange risk arises when
we conduct business in a currency other than the U.S. dollar. For most operations, local currencies have been determined to be
the functional currencies. The financial statements of subsidiaries are translated to their U.S. dollar equivalents at end-of-period
exchange rates for assets and liabilities and at average currency exchange rates for revenues and expenses. Translation
adjustments for subsidiaries whose local currency is their functional currency are recorded as a component of accumulated
other comprehensive income (loss) within equity. Note 19 to our consolidated financial statements titled, “Accumulated Other
Comprehensive Income (Loss),” contains additional information about the impact of translation on accumulated other
comprehensive income (loss) and equity. Transaction gains and losses arising from fluctuations in currency exchange rates on
transactions denominated in currencies other than the functional currency are recognized in the Consolidated Statements of
Income. Since we operate internationally and approximately one-fourth of our revenues and one-third of our cost of revenues
are generated outside the United States, foreign currency exchange rate fluctuations can significantly impact our financial
position, results of operations, and competitive position.
We enter into foreign currency forward contracts to hedge assets and liabilities denominated in foreign currencies,
including inter-company transactions. We do not use derivative financial instruments for speculative purposes. At March 31,
2016, we held foreign currency forward contracts to buy 65 million Mexican pesos and 4 million Canadian dollars.
COMMODITY RISK
We are dependent on basic raw materials, sub-assemblies, components, and other supplies used in our operations. Our
financial results could be affected by the availability and changes in prices of these materials. Some of these materials are
sourced from a limited number of suppliers or only a single supplier. These materials are also key source materials for our
competitors. Therefore, if demand for these materials rises, we may experience increased costs and/or limited or unavailable
supplies. As a result, we may not be able to acquire key production materials on a timely basis, which could impact our ability
to produce products and satisfy incoming sales orders on a timely basis. In addition, the costs of these materials can rise
suddenly and result in significantly higher costs of production. We believe that we have adequate sources of supply for many of
our key materials and energy sources. Where appropriate, we enter into long-term supply contracts as a basis to guarantee a
reliable supply. We may also enter into commodity swap contracts to hedge price changes in a certain commodity that impacts
raw materials included in our cost of revenues. At March 31, 2016, we held commodity swap contracts to buy 644,100 pounds
of nickel.
51
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements:
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Cash Flows
Consolidated Statements of Shareholders’ Equity
Notes to Consolidated Financial Statements
Financial Statement Schedule:
Schedule II – Valuation and Qualifying Accounts
Page
53
54
55
56
57
58
59
101
52
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
STERIS plc
We have audited the accompanying consolidated balance sheets of STERIS plc and subsidiaries (collectively “the
Company”) as of March 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income,
shareholders' equity and cash flows for each of the three years in the period ended March 31, 2016. Our audits also included
the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of STERIS plc and subsidiaries at March 31, 2016 and 2015, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended March 31, 2016, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
STERIS plc and subsidiaries’ internal control over financial reporting as of March 31, 2016, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework), and our report dated May 31, 2016 expressed an unqualified opinion thereon.
Cleveland, Ohio
May 31, 2016
/s/ ERNST & YOUNG LLP
53
STERIS PLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31,
Current assets:
Assets
Cash and cash equivalents
Accounts receivable (net of allowances of $11,185 and $9,415, respectively)
Inventories, net
Deferred income taxes, net
Prepaid expenses and other current assets
Total current assets
Property, plant, and equipment, net
Goodwill and intangibles, net
Other assets
Total assets
Liabilities and equity
Current liabilities:
Accounts payable
Accrued income taxes
Accrued payroll and other related liabilities
Accrued expenses and other
Total current liabilities
Long-term indebtedness
Deferred income taxes, net
Other liabilities
Total liabilities
Commitments and contingencies (see note 11)
Preferred shares, with $0.15 par value; 100 shares authorized; 100 issued and
outstanding
Ordinary shares, with $0.15 par value; 170,060 shares authorized and common shares
with no par value; 300,000 shares authorized; 85,920 ordinary and 70,040 common
shares issued; 85,920 ordinary and 59,675 common shares outstanding, respectively
Shares held in treasury, 0 and 10,364 shares, respectively
Retained earnings
Accumulated other comprehensive (loss) income
Total shareholders’ equity
Noncontrolling interests
Total equity
Total liabilities and equity
See notes to consolidated financial statements.
2016
2015
248,841
471,523
192,792
—
59,369
972,525
1,064,319
3,279,942
29,630
5,346,416
139,572
13,683
93,976
153,375
400,606
1,567,796
254,824
84,298
2,307,524
$
$
$
$
167,689
325,289
160,818
31,629
35,007
720,432
493,053
860,645
23,161
2,097,291
99,340
7,154
74,805
102,032
283,331
621,075
71,905
47,334
1,023,645
15
—
2,151,719
—
939,459
(68,159)
3,023,034
15,858
3,038,892
5,346,416
$
264,853
(320,343)
1,193,791
(66,669)
1,071,632
2,014
1,073,646
2,097,291
$
$
$
$
$
54
STERIS PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
Years Ended March 31,
Revenues:
Product
Service
Total revenues
Cost of revenues:
Product
Service
Total cost of revenues
Gross profit
Operating expenses:
Selling, general, and administrative
Research and development
Restructuring expenses
Total operating expenses
Income from operations
Non-operating expenses, net:
Interest expense
Interest income and miscellaneous expense
Total non-operating expenses, net
Income before income tax expense
Income tax expense
Net income
Less: Net income attributable to noncontrolling interests
Net income attributable to shareholders
Net income per share attributable to shareholders:
Basic
Diluted
Cash dividends declared per ordinary share outstanding
2016
2015
2014
$ 1,130,046
1,108,718
2,238,764
$ 1,047,805
802,458
1,850,263
$ 1,011,462
610,790
1,622,252
618,161
725,122
1,343,283
895,481
584,210
491,752
1,075,962
774,301
626,710
56,664
(820)
682,554
212,927
42,708
(1,665)
41,043
171,884
60,299
111,585
822
110,763
1.57
1.56
0.98
$
$
$
$
493,342
54,139
(391)
547,090
227,211
19,187
(796)
18,391
208,820
73,756
135,064
—
135,064
2.27
2.25
0.90
$
$
$
$
$
$
$
$
586,176
386,454
972,630
649,622
380,970
48,641
13,204
442,815
206,807
18,770
(339)
18,431
188,376
58,934
129,442
—
129,442
2.20
2.17
0.82
See notes to consolidated financial statements.
55
STERIS PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Years Ended March 31,
Net income
Less: Net income attributable to noncontrolling interests
Net income attributable to shareholders
2016
2015
2014
$
$
111,585
822
110,763
$
$
135,064
—
135,064
$
$
129,442
—
129,442
Other comprehensive income (loss)
Unrealized gain (loss) on available for sale securities, (net of taxes of
($266), $85 and $0, respectively)
Amortization of pension and postretirement benefit plans costs, (net of
taxes of ($700), $4,007, and ($1,798), respectively)
Pension settlement (net of taxes of $10,563, $0 and $0, respectively)
Change in cumulative foreign currency translation adjustment
Total other comprehensive income (loss) attributable to shareholders
(1,741)
507
(3,032)
17,029
(13,746)
(1,490)
(6,461)
—
(65,196)
(71,150)
275
2,756
—
5,538
8,569
Comprehensive income attributable to shareholders
$
109,273
$
63,914
$
138,011
See notes to consolidated financial statements.
56
STERIS PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended March 31,
Operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
2016
2015
2014
$
111,585
$
135,064
$
129,442
Depreciation, depletion, and amortization
Deferred income taxes
Share-based compensation expense
Pension settlement expense
Pension contributions made in settlement
Loss on the disposal of property, plant, equipment, and intangibles,
net
Excess tax benefit from share-based compensation
Other items
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable, net
Inventories, net
Other current assets
Accounts payable
Accruals and other, net
Net cash provided by operating activities
Investing activities:
Purchases of property, plant, equipment, and intangibles, net
Proceeds from the sale of property, plant, equipment, and intangibles
Purchases of investments
143,740
704
16,147
26,470
(4,641)
91,541
(4,916)
14,921
—
—
1,813
(151)
(6,281)
(11,526)
(14,328)
(9,238)
(31,560)
1,810
(9,599)
5,249
13,566
254,675
(126,407)
844
—
(2,774)
(9,902)
2,089
(3,146)
44,078
246,040
(85,255)
829
(4,681)
Acquisition of business, net of cash acquired
(604,021)
(194,662)
75,649
15,176
11,100
—
—
5,279
(2,841)
(66)
(28,794)
2,767
(5,482)
19,377
(11,976)
209,631
(86,367)
4,774
—
(67,059)
Net cash used in investing activities
Financing activities:
Proceeds from the issuance of long-term obligations
Payments on long-term obligations
Proceeds under credit facilities, net
Deferred financing fees and debt issuance costs
Acquisition related contingent consideration
Repurchases of common shares
Cash dividends paid to common shareholders
Proceeds from issuance of equity to minority shareholders
Stock option and other equity transactions, net
Excess tax benefit from share-based compensation
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
(729,584)
(283,769)
(148,652)
350,000
(92,567)
369,451
(5,169)
—
(14,369)
(65,203)
625
11,240
6,281
560,289
(4,228)
81,152
167,689
248,841
$
—
—
129,770
(14,370)
(1,250)
(30,687)
(53,513)
—
28,274
11,526
69,750
(17,134)
14,887
152,802
167,689
$
—
(70,000)
71,190
(43)
—
(25,469)
(48,385)
—
15,660
2,841
(54,206)
4,021
10,794
142,008
152,802
$
See notes to consolidated financial statements.
57
Balance at March 31,
2013
Comprehensive income:
Net income
Other comprehensive
loss
Repurchases of
ordinary shares
Equity compensation
programs
Tax benefit of stock
options exercised
Cash dividends – $0.82
per ordinary share
Change in
noncontrolling interest
Balance at March 31,
2014
Comprehensive income:
Net income
Other comprehensive
loss
Repurchases of
ordinary shares
Equity compensation
programs
Tax benefit of stock
options exercised
Cash dividends – $0.90
per ordinary share
Change in
noncontrolling interest
Balance at March 31,
2015
Comprehensive income:
Net income
Other comprehensive
loss
Repurchases of
ordinary shares
Equity compensation
programs and other
Retirement of treasury
shares
Issuance of shares for
Synergy Combination
Purchase of subsidiary
shares from
noncontrolling interest
Issuance of subsidiary
shares to noncontrolling
interest
Tax benefit of stock
options exercised
Cash dividends – $.98
per ordinary share
Other changes in
noncontrolling interest
Balance at March 31,
2016
STERIS PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
Ordinary Shares
Preferred Shares
Treasury Shares
Number
Amount
Number
Amount Number
Amount
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Non-
controlling
Interest
Total
Equity
58,759
$ 239,648
—
—
(624)
833
—
—
—
—
—
—
3,697
2,841
—
—
58,968
$ 246,186
—
—
(542)
1,249
—
—
—
—
—
—
7,141
11,526
—
—
59,675
$ 264,853
—
—
—
—
(267)
(1,020)
664
—
13,624
(20,133)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— 11,281
$(321,801) $ 1,031,183
$
(4,088) $
2,038
$ 946,980
—
—
—
—
—
—
—
—
—
—
—
624
(25,469)
(833)
23,068
—
—
—
—
—
—
129,442
—
—
—
—
(48,385)
—
—
8,569
—
—
—
—
—
—
—
—
—
—
—
129,442
8,569
(25,469)
26,765
2,841
(48,385)
503
503
— 11,072
$(324,202) $ 1,112,240
$
4,481
$
2,541
$1,041,246
—
—
—
—
—
—
—
542
(30,687)
— (1,250)
34,546
—
—
—
—
—
—
—
—
—
135,064
—
—
—
—
(53,513)
—
—
(71,150)
—
—
—
—
—
—
—
—
—
—
—
135,064
(71,150)
(30,687)
41,687
11,526
(53,513)
(527)
(527)
— 10,364
$(320,343) $ 1,193,791
$
(66,669) $
2,014
$1,073,646
110,763
—
822
111,585
—
(1,490)
—
—
—
—
—
—
—
248
(12,974)
(375)
(538)
13,667
—
— (10,074)
319,650
(299,517)
25,839
1,887,479
100
9
635
—
—
—
—
—
6,281
—
—
—
—
—
—
—
85,920
$2,151,719
100
$
15
—
—
—
—
—
15
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(65,203)
—
See notes to consolidated financial statements.
58
— $
— $ 939,459
$
(68,159) $
15,858
$3,038,892
—
—
—
—
(1,490)
(14,369)
27,291
—
13,574
1,901,068
(1,453)
(818)
1,443
—
—
1,443
6,281
(65,203)
(542) $
(542)
—
—
—
—
—
—
—
—
—
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations. STERIS plc, a public limited company organized under the laws of England and Wales, was
incorporated on October 9, 2014 as a private limited company under the name New STERIS Limited and was re-registered
effective November 2, 2015 as a public limited company under the name STERIS plc. New STERIS Limited was established
to effect the combination ("Combination") of STERIS Corporation, an Ohio corporation ("Old STERIS"), and Synergy Health
plc, a public limited company organized under the laws of England and Wales ("Synergy"). The Combination closed on
November 2, 2015 and as a result STERIS plc became the ultimate parent company of Old STERIS and STERIS completed the
acquisition of Synergy in a cash and stock transaction. Synergy has been re-registered under the name Synergy Health Limited.
The acquisition of Old STERIS was accounted for in the consolidated financial statements as a merger between entities under
common control; accordingly the historical consolidated financial statements of Old STERIS for periods prior to November 2,
2015, are considered to be the historical financial statements of STERIS plc. Due to the timing of the Combination, the results
of Synergy are only reflected in the results of operations of the Company from November 2, 2015, forward will affect the
comparability to the prior period historical operations of the Company throughout this Annual Report on Form 10-K.
STERIS develops, manufactures and markets infection prevention, contamination control, microbial reduction, and surgical
and gastrointestinal support products and services for healthcare, pharmaceutical, scientific, research, industrial, and
governmental Customers throughout the world.
As a result of the Combination, we have reorganized our operations into four reportable business segments: Healthcare
Products, Healthcare Specialty Services, Life Sciences, and Applied Sterilization Technologies. We describe our business
segments in note 12 to our consolidated financial statements titled, "Business Segment Information."
Our fiscal year ends on March 31. References in this Annual Report to a particular "year" or "year-end" mean our fiscal
year. The significant accounting policies applied in preparing the accompanying consolidated financial statements of the
Company are summarized below:
Principles of Consolidation. We use the consolidation method to report our investment in our subsidiaries. Therefore, the
accompanying consolidated financial statements include the accounts of the Company and its wholly-owned and majority-
owned subsidiaries. We eliminate inter-company accounts and transactions when we consolidate these accounts. Investments in
equity of unconsolidated affiliates, over which the Company has significant influence, but not control, over the financial and
operating polices, are accounted for primarily using the equity method. These investments are immaterial to the Company's
Consolidated Financial Statements. In prior periods we presented income attributable to noncontrolling interests in the "Interest
income and miscellaneous expense" line of our Consolidated Statements of Income and the amounts were not material.
Use of Estimates. We make certain estimates and assumptions when preparing financial statements according to U.S. GAAP
that affect the reported amounts of assets and liabilities at the financial statement dates and the reported amounts of revenues
and expenses during the periods presented. These estimates and assumptions involve judgments with respect to many factors
that are difficult to predict and are beyond our control. Actual results could be materially different from these estimates. We
revise the estimates and assumptions as new information becomes available.
Cash Equivalents and Supplemental Cash Flow Information. Cash equivalents are all highly liquid investments with a
maturity of three months or less when purchased. We invest our excess cash in short-term instruments including money market
funds and time deposits with major banks and financial institutions. We select investments in accordance with the criteria
established in our investment policy. Our investment policy specifies, among other things, maturity, credit quality and
concentration restrictions with the objective of preserving capital and maintaining adequate liquidity.
59
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Information supplementing our Consolidated Statements of Cash Flows is as follows:
Years Ended March 31,
2016
2015
2014
Cash paid during the year for:
Interest
Income taxes
Cash received during the year for income tax refunds
$ 37,165
60,885
1,697
$
$ 19,124
52,707
2,405
19,268
52,888
3,076
Revenue Recognition. We recognize revenue for products when ownership passes to the Customer, which is based on contract
or shipping terms and for services when the service is provided to the Customer. Our Customers include end users as well as
dealers and distributors who market and sell our products. Our revenue is not contingent upon resale by the dealer or distributor.
We have no further obligations related to bringing about resale and our standard return and restocking fee policies are applied.
Revenues are reported net of sales and value-added taxes collected from Customers.
We also have individual Customer contracts that offer discounted pricing. Dealers and distributors may be offered sales
incentives in the form of rebates. We reduce revenue for discounts and estimated returns, rebates, and other similar allowances
in the same period the related revenues are recorded. Returns, rebates, and similar allowances are estimated based on historical
experience and trend analysis.
In transactions that contain multiple elements, such as when products, maintenance services, and other services are
combined, we recognize revenue as each product is delivered or service is provided to the Customer. We allocate the total
arrangement consideration to each element based on its relative fair value, based on the price for the product or service when it
is sold separately.
We offer preventive maintenance agreements to our Customers with contract terms of one to five years which require us to
maintain and repair our products during this time. Amounts received under these Customer contracts are initially recorded as
deferred service revenues and then recognized as service revenues ratably over the contract term.
Accounts Receivable. Accounts receivable are presented at their face amount, less allowances for sales returns and
uncollectible accounts. Accounts receivable consist of amounts billed and currently due from Customers and amounts earned
but unbilled. We generally obtain and perfect security interest in products sold in the United States when we have a concern
with the Customer's risk profile.
We maintain an allowance for uncollectible accounts receivable for estimated losses in the collection of amounts owed by
Customers. We estimate the allowance based on analyzing a number of factors, including amounts written off historically,
Customer payment practices, and general economic conditions. We also analyze significant Customer accounts on a regular
basis and record a specific allowance when we become aware of a specific Customer’s inability to pay. As a result, the related
accounts receivable are reduced to an amount that we reasonably believe is collectible.
We maintain an allowance for sales returns based upon known returns and estimated returns for both capital equipment and
consumables. We estimate returns of capital equipment and consumables based upon recent historical experience less the
estimated inventory value of the returned goods.
Inventories, net. Inventories are stated at the lower of their cost or market value. We determine cost based upon a combination
of the last-in, first-out (“LIFO”) and first-in, first-out (“FIFO”) cost methods. For inventories valued using the LIFO method,
we believe that the use of the LIFO method results in a matching of current costs and revenues. Inventories valued using the
LIFO method represented approximately 31.0% and 35.9% of total inventories at March 31, 2016 and 2015, respectively.
Inventory costs include material, labor, and overhead. If we had used only the FIFO method of inventory costing, inventories
would have been $17,608 and $19,071 higher than those reported at March 31, 2016 and 2015, respectively.
We review the net realizable value of inventory on an ongoing basis, considering factors such as deterioration,
obsolescence, and other items. We record an allowance for estimated losses when the facts and circumstances indicate that
particular inventories will not be usable. If future market conditions vary from those projected, and our estimates prove to be
inaccurate, we may be required to write-down inventory values and record an adjustment to cost of revenues.
Property, Plant, and Equipment. Our property, plant, and equipment consists of land and land improvements, buildings and
leasehold improvements, machinery and equipment, information systems, radioisotope (cobalt-60), linens and construction in
60
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
progress. Property, plant, and equipment are presented at cost less accumulated depreciation and depletion. We capitalize
additions and improvements. Repairs and maintenance are charged to expense as they are incurred.
Land is not depreciated and construction in progress is not depreciated until placed in service. Depreciation of most assets
is computed on the cost less the estimated salvage value by using the straight-line method over the estimated remaining useful
lives. Depletion of radioisotope is computed using the annual decay factor of the material, which is similar to the sum-of-the-
years-digits method.
We generally depreciate or deplete property, plant, and equipment over the useful lives presented in the following table:
Asset Type
Land improvements
Buildings and leasehold improvements
Machinery and equipment
Information Systems
Radioisotope (cobalt-60)
Linens
Useful Life
(years)
3-40
2-50
2-20
2-20
15 or 20
1-5
When we sell, retire, or dispose of property, plant, and equipment, we remove the asset’s cost and accumulated
depreciation from our Consolidated Balance Sheets. We recognize the net gain or loss on the sale or disposition in the
Consolidated Statements of Income in the period when the transaction occurs.
Interest. We capitalize interest costs incurred during the construction of long-lived assets. We capitalized interest costs of
$723 and $174 for the years ended March 31, 2016 and 2015, respectively.
Total interest expense for the years ended March 31, 2016, 2015, and 2014 was $42,708, $19,187, and $18,770,
respectively.
Identifiable Intangible Assets. Our identifiable intangible assets include product technology rights, trademarks, licenses, and
Customer and vendor relationships. We record these assets at cost, or when acquired as part of a business acquisition, at
estimated fair value. We generally amortize identifiable intangible assets over periods ranging from 5 to 20 years using the
straight-line method. Our intangible assets also include indefinite lived assets including certain trademarks and tradenames that
were acquired. These assets are tested at least annually for impairment.
Investments. Investments in marketable securities are stated at fair value and are included in "Other assets" on the
Consolidated Balance Sheets. Unrealized gains and losses on marketable securities classified as available-for-sale are recorded
in Accumulated Other Comprehensive Income (Loss).
Asset Impairment Losses. Property, plant, equipment, and identifiable intangible assets are reviewed for impairment when
indicators of impairment exist and circumstances indicate that the carrying value of such assets may not be recoverable.
Impaired assets are recorded at the lower of carrying value or estimated fair value. We conduct this review on an ongoing basis
and, if an impairment exists, we record the loss in the Consolidated Statements of Income during that period.
Asset Retirement Obligations. We incur retirement obligations for certain assets. We recorded initial liabilities for the asset
retirement obligations ("ARO") at fair value. Recognition of ARO includes: estimating the present value of a liability and offsetting
asset, the subsequent accretion of that liability and depletion of the asset, and a periodic review of the ARO liability estimates and
discount rates used in the analysis.
We provide additional information about our asset retirement obligations in note 6 to our consolidated financial statements
titled, “Property, Plant and Equipment.”
Acquisitions of Business. Assets acquired and liabilities assumed in a business combination are accounted for at fair value on
the date of acquisition. Costs related to the acquisition are expensed as incurred.
Goodwill. We perform our annual impairment test for goodwill in the third quarter of each year. We may consider qualitative
indicators of the fair value of a reporting unit when it is unlikely that a reporting unit has impaired goodwill. We may also
utilize a discounted cash flow analysis that requires certain assumptions and estimates be made regarding market conditions and
our future profitability. In those circumstances we test goodwill for impairment by reviewing the book value compared to the
61
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
fair value at the reporting unit level. We calculate the fair value of our reporting units based on the present value of estimated
future cash flows. Considerable management judgment is necessary to evaluate the impact of operating and macroeconomic
changes and to estimate future cash flows to measure fair value. Assumptions used in our impairment evaluations, such as
forecasted growth rates and cost of capital, are consistent with internal projections and operating plans. We believe such
assumptions and estimates are also comparable to those that would be used by other marketplace participants.
Self-Insurance Liabilities. We record a liability for self-insured risks that we retain for general and product liabilities,
workers’ compensation, and automobile liabilities based on actuarial calculations. We use our historical loss experience and
actuarial methods to calculate the liability. This liability includes estimates for both losses and incurred but not reported claims.
We review the assumptions used to calculate the estimated liability at least annually to evaluate the adequacy of the amount
recorded. We maintain insurance policies to cover losses greater than our estimated liability, which are subject to the terms and
conditions of those policies.
We are also self-insured for certain employee medical claims. We estimate a liability for incurred but not reported claims
based upon recent claims experience.
Benefit Plans. We sponsor defined benefit pension plans. We also sponsor a post-retirement welfare benefit plan for certain
former employees. We determine our costs and obligations related to these plans by evaluating input from third-party
professional advisors. These costs and obligations are affected by assumptions including the discount rate, expected long-term
rate of return on plan assets, the annual rate of change in compensation for eligible employees, estimated changes in costs of
healthcare benefits, and other factors. We review the assumptions used on an annual basis.
We recognize an asset for the overfunded status or a liability for the underfunded status of defined benefit pension and
post-retirement benefit plans in our consolidated balance sheets. This amount is measured as the difference between the fair
value of plan assets and the benefit obligation (the projected benefit obligation for pension plans and the accumulated post-
retirement benefit obligation for other post-retirement benefit plans). Changes in the funded status of the plans are recorded in
other comprehensive income in the year they occur. We measure plan assets and obligations as of the balance sheet date.
We provide additional information about our pension and other post-retirement welfare benefits plans in note 10 to our
consolidated financial statements titled, “Benefit Plans.”
Fair Value of Financial Instruments. Except for long-term debt, our financial instruments are highly liquid or have short-
term maturities.
We provide additional information about the fair value of our financial instruments in note 18 titled, “Fair Value
Measurements.”
Foreign Currency Translation. Most of our operations use their local currency as their functional currency. Financial
statements of subsidiaries are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and
liabilities and a weighted average exchange rate for each period for revenues, expenses, gains and losses. Translation
adjustments for subsidiaries whose local currency is their functional currency are recorded as a component of accumulated
other comprehensive income (loss) within equity. Transaction gains and losses resulting from fluctuations in currency exchange
rates on transactions denominated in currencies other than the functional currency are recognized as incurred in the
accompanying Consolidated Statements of Income, except for certain inter-company balances designated as long-term
investments.
Forward and Swap Contracts. We enter into foreign currency forward contracts to hedge assets and liabilities denominated
in foreign currencies, including inter-company transactions. We do not use derivative financial instruments for speculative
purposes. These contracts are marked to market, with gains and losses recognized within “Selling, general, and administrative
expenses” or "Cost of revenues" in the accompanying Consolidated Statements of Income.
Warranty. Warranties are provided on the sale of certain of our products and services and an accrual for estimated future
claims is recorded at the time revenue is recognized. We estimate warranty expense based primarily on historical warranty
claim experience.
Shipping and Handling. We record shipping and handling costs in costs of revenues. Shipping and handling costs charged to
Customers are recorded as revenues in the period the product revenues are recognized.
Advertising Expenses. Costs incurred for communicating, advertising and promoting our products are generally expensed
when incurred as a component of Selling, General and Administrative Expense. We incurred $10,785, $9,732, and $8,606 of
advertising costs during the years ended March 31, 2016, 2015, and 2014, respectively.
62
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Research and Development. We incur research and development costs associated with commercial products and expense
these costs as incurred. If a Customer reimburses us for research and development costs, the costs are charged to the related
contracts as costs of revenues.
Income Taxes. We defer income taxes for all temporary differences between pre-tax financial and taxable income and between
the book and tax basis of assets and liabilities. We record valuation allowances to reduce net deferred tax assets to an amount
that we expect will more-likely-than-not be realized. In making such a determination, we consider all available information,
including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent
financial operations. In the event we were to determine that we would be able to realize our deferred income tax assets in the
future in excess of their net recorded amount, we would make an adjustment to the valuation allowance which would reduce the
provision for income taxes and the effective tax rate.
We evaluate uncertain tax positions in accordance with a two-step process. The first step is recognition: The determination
of whether or not it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of any
related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has
met the more-likely-than-not recognition threshold, we presume that the position will be examined by the appropriate tax
authority and that the tax authority will have full knowledge of all relevant information. The second step is measurement: A tax
position that meets the more-likely-than-not threshold is measured to determine the amount of benefit to recognize in the
financial statements. The measurement process requires the determination of the range of possible settlement amounts and the
probability of achieving each of the possible settlements. The tax position is measured at the largest amount of benefit that is
greater than fifty percent likely of being realized upon ultimate settlement. No tax benefits are recognized for positions that do
not meet the more-likely-than-not threshold. Tax positions that previously failed to meet the more-likely-than-not threshold
should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax
positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent
financial reporting period in which the threshold is no longer met.
We describe income taxes further in note 9 to our consolidated financial statements titled, “Income Taxes.”
Medical Device Excise Tax. The Medical Device Excise Tax became effective January 1, 2013. The excise tax was mandated
by the 2010 health care reform legislation and assesses a 2.3% tax on the sale or use of certain medical devices that are sold or
manufactured in the United States. Many of our products are subject to the excise tax. Late in 2015 Congress enacted
legislation that suspended the excise tax for 2016 and 2017. We incurred Medical Device Excise taxes of $5,802, $7,917, and
$7,390 during fiscal years 2016, 2015 and 2014, respectively which is included in cost of revenues in the period of sale.
Share-Based Compensation. We describe share-based compensation in note 15 to our consolidated financial statements titled,
“Share-Based Compensation.” We measure the cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award. We record liability awards at fair value each reporting period and
the change in fair value is reflected as share-based compensation expense in our Consolidated Statements of Income. The
expense is classified as cost of goods sold, selling, general and administrative expenses or research and development expenses
in a manner consistent with the employee’s compensation and benefits. These costs are recognized in the Consolidated
Statement of Income over the period during which an employee is required to provide service in exchange for the award.
Excess tax benefits realized from the exercise of stock options are reported as a financing cash inflow.
Restructuring. We recognize restructuring expenses as incurred. Asset impairment and accelerated depreciation expenses
primarily relate to inventory write-downs for rationalized products and adjustments in the carrying value of the related facilities
and machinery and equipment to their estimated fair value. In addition, the remaining useful lives of other property, plant, and
equipment associated with the related operations are reevaluated based on the respective restructuring plan, which may result in
the acceleration of depreciation and amortization of certain assets
Recently Issued Accounting Standards Impacting the Company
Recently Issued Accounting Standards Impacting the Company are presented in the following table:
63
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Standard
Date of
Issuance
Description
Date of
Adoption
Effect on the financial
statements or other
significant matters
Standards that have recently been adopted
ASU 2015-17
"Balance Sheet
Classification of
Deferred Taxes"
November
2015
The update requires that deferred tax liabilities and
assets be classified as noncurrent in a classified
statement of financial position. Current GAAP
requires an entity to separate deferred income tax
liabilities and assets into current and noncurrent
amounts in a classified statement of financial
position.The current requirement that deferred tax
liabilities and assets of a tax-paying component of an
entity be offset and presented as a single amount is
not affected by the amendments in this update. This
update is effective for financial statements issued for
annual periods beginning after December 15, 2016,
and interim periods within those annual periods.
Early adoption is permitted.
September
2015
ASU 2015-16,
"Business
Combinations -
Simplifying the
Accounting for
Measurement-
Period
Adjustments"
April 2015
ASU 2015-03,
"Simplifying the
Presentation of
Debt Issuance
Costs"
The standard requires the recognition of adjustments
to provisional amounts, that are identified during the
measurement period, in the reporting period in which
the adjustments are determined. The effects of the
adjustments to provisional amounts on depreciation,
amortization or other income effects should be
recognized in current-period earnings as if the
accounting had been completed at the acquisition
date. Disclosure of the portion of the adjustment
recorded in current-period earnings that would have
been reported in prior reporting periods if the
adjustment to the provisional amounts had been
recognized at the acquisition date is also required.
The update requires capitalized debt issuance costs to
be presented as a reduction to the carrying value of
debt instead of being classified as a deferred charge,
as previously required. This update is effective for all
annual and interim periods beginning after December
15, 2015 and is required to be adopted retroactively
for all periods presented. Early adoption is permitted.
May 2014
Standards that have not yet been adopted
ASU 2014-09,
"Revenue from
Contracts with
Customers" and
subsequently
issued
amendments
The standard will replace existing revenue recognition
standards and significantly expand the disclosure
requirements for revenue arrangements. It may be
adopted either retrospectively or on a modified
retrospective basis to new contracts and existing
contracts with remaining performance obligations as
of the effective date. The standard update is effective
for annual periods beginning after December 15, 2017
and interim periods within that period. Early
adoption is not permitted before the original public
entity effective date of December 15, 2016.
Fourth
Quarter
2016
Third
Quarter
Fiscal
2016
First
Quarter
Fiscal
2016
N/A
As a result of the
adoption of this
standard we
reclassified $38,963
of our short term
deferred taxes into
long term deferred
taxes, in our March
31, 2016
Consolidated
Balance Sheet. Prior
periods were not
retrospectively
adjusted.
This update did not
have a material
impact on our
consolidated
financial position,
results of operations
or cash flows.
This update did not
have a material
impact on our
consolidated
financial position,
results of operations
or cash flows.
We are in the
process of evaluating
the impact that the
standard will have
on our consolidated
financial position,
results of operations
and cash flows.
64
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
April 2015
ASU 2015-05,
"Goodwill and
other-Internal-
Use
Software" (Subt
opic 350-40)
ASU 2016-02,
"Leases" (Topic
842)
February
2016
March
2016
March
2016
ASU 2016-07,
"Investments -
Equity Method
and Joint
Ventures,
Simplifying the
Transition to the
Equity Method
of
Accounting"
(Topic 323)
ASU 2016-09,
"Stock
Compensation:
Improvements
to Employee
Share-Based
Payment
Accounting"
(Topic 718)
2. RESTRUCTURING
The standard provides guidance on a customer's
accounting for fees paid in cloud computing
arrangements. Previously, there was no U.S. GAAP
guidance on accounting for such fees from the
customer's perspective. Under the standard,
customers will apply the same criteria as vendors to
determine whether the arrangement contains a
software license or is solely a service contract. The
determination could impact the classification of
advance payments in the statements of financial
position and cash flows as well as the classification of
the expenses in the results of operations. The
standard is effective for annual periods beginning
after December 15, 2015 and interim periods within
that period. Early adoption is permitted.
The update will require lessees to record all leases,
whether finance or operating, on the balance sheet.
An asset will be recorded to represent the right to use
the leased asset, and a liability will be recorded to
represent the lease obligation. The standard is
effective for annual periods beginning after December
15, 2018 and interim periods within that period.
Early adoption is permitted.
The update replaces the previous requirement to
retroactively adopt the equity method. The new
standard requires that the equity method investor add
the cost of acquiring the additional interest in the
investee to the current basis of the investor's
previously held interest and adopt the equity method
of accounting as of the date the investment becomes
qualified for equity method accounting. The standard
is effective for annual periods beginning after
December 15, 2016 and interim periods within that
period. Early adoption is permitted.
The update simplifies several aspects of the
accounting for share-based payment award
transactions, including income tax consequences, the
classification of awards as either equity or liabilities,
and the classification on the statement of cash flows.
The standard is effective for annual periods beginning
after December 15, 2016 and interim periods within
that period. Early adoption is permitted.
N/A
N/A
N/A
N/A
We do not expect the
adoption of this
standard to have a
material impact on
our statements of
consolidated
financial position,
results of operations
and cash flows.
We are in the
process of evaluating
the impact that the
standard will have
on our statements of
consolidated
financial position,
results of operations
and cash flows.
We do not expect the
adoption of this
standard to have a
material impact on
our statements of
consolidated
financial position,
results of operations
and cash flows.
We are currently in
the process of
evaluating the
impact that the
standard will have
on our statements of
consolidated
financial position,
results of operations
and cash flows.
The following summarizes our restructuring plans announced in current and prior fiscal years. We recognize restructuring
expenses as incurred. In addition, we assess the property, plant and equipment associated with the related facilities for
impairment.
Fiscal 2014 Restructuring Plan. During the fourth quarter of fiscal 2014, we adopted and announced a targeted restructuring
plan primarily focused on the closure of the Hopkins manufacturing facility located in Mentor, Ohio (the “Fiscal 2014
Restructuring Plan”). As a result of this plan, operations located at Hopkins were transferred to other North American locations.
We believe that by closing the operations at Hopkins we will more effectively utilize our existing North American
manufacturing network while reducing operating costs.
65
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Since the inception of the Restructuring Plan we have incurred pre-tax expenses totaling $18,970 related to these actions, of
which $10,874 was recorded as restructuring expenses and $8,096 was recorded in cost of revenues, with restructuring
expenses of $15,568, $1,293, $829, and $1,280 related to the Healthcare Products, Healthcare Specialty Services, Life Sciences
and Applied Sterilization Technologies segments, respectively.
Fiscal 2010 Restructuring Plan. During the fourth quarter of fiscal 2010 we adopted a restructuring plan primarily related to
the transfer of the remaining operations in our Erie, Pennsylvania facility to the U.S. headquarters in Mentor, Ohio and the
consolidation of our European Healthcare manufacturing operations into two central locations within Europe (the “Fiscal 2010
Restructuring Plan”). In addition, we rationalized certain products and eliminated certain positions.
Since the inception of the Fiscal 2010 Restructuring Plan, we have incurred pre-tax expenses totaling $9,294 related to
these actions, of which $8,190 was recorded as restructuring expenses and $1,104 was recorded in cost of revenues. We do not
expect to incur any significant additional restructuring expenses related to this plan. These actions are intended to enhance
profitability and improve efficiencies.
The following tables summarize our total pre-tax restructuring expenses for fiscal 2016, fiscal 2015 and fiscal 2014:
Year Ended March 31, 2016
Severance and other compensation related costs
Product rationalization
Lease termination obligation and other
Total restructuring (benefit) charges
(1) Includes $319 in charges recorded in cost of revenues on Consolidated Statements of Income.
Year Ended March 31, 2015
Severance and other compensation related costs
Asset impairment and accelerated depreciation
Lease termination obligation and other
Product rationalization
Total restructuring charges
Fiscal 2014
Restructuring
Plan (1)
(1,050)
319
230
(501)
Fiscal 2014
Restructuring
Plan (1)
(616)
(38)
263
(368)
(759)
$
$
$
$
(1) Includes $(368) in charges recorded in cost of revenues on Consolidated Statements of Income.
Year Ended March 31, 2014
Severance and other compensation related costs
Asset impairment and accelerated depreciation
Lease termination obligation and other
Product rationalization
Total restructuring (benefit) charges
Fiscal 2014
Restructuring
Plan (1)
Fiscal 2010
Restructuring
Plan
$
$
7,363 $
3,621
1,103
8,144
20,231 $
127 $
990
—
—
1,117 $
Total
7,490
4,611
1,103
8,144
21,348
(1) Includes $8,144 in charges recorded in cost of revenues on Consolidated Statements of Income.
66
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Liabilities related to restructuring activities are recorded as current liabilities on the accompanying Consolidated Balance
Sheets within “Accrued payroll and other related liabilities” and “Accrued expenses and other.”
Remaining liabilities related to the Fiscal 2014 Restructuring Plan were $700 at March 31, 2016. The following table
summarizes our restructuring liability balances and activity for the year ended March 31, 2015:
Fiscal 2014 Restructuring Plan
Fiscal 2015
Severance and termination benefits
Lease termination obligations and other
Total
$
$
6,389
1,589
7,978
$
$
(616) $
18
(598) $
(3,242) $
(1,251)
(4,493) $
2,531
356
2,887
March 31,
2014
Provision
Payments/
Impairments (1)
March 31,
2015
(1) Certain amounts reported include the impact of foreign currency movements relative to the U.S. dollar.
3. BUSINESS ACQUISITIONS
Fiscal Year 2016
Synergy Health plc
On November 2, 2015, STERIS acquired all outstanding shares of Synergy in a cash and stock transaction valued at £24.80
($38.17) per Synergy share, or a total of approximately $2.3 billion based on the low trading price of Old STERIS’s stock of
$73.02 per share on November 2, 2015. The Combination brought together businesses that generate revenues from over 100
countries, employ approximately 14,000 employees, and are geographically complementary. The Combination is expected to
result in cost savings from optimizing global back-office infrastructure, leveraging best-demonstrated practices across plants,
in-sourcing consumables, and eliminating redundant public company costs. Total costs of approximately $63,789 before tax,
were incurred during fiscal year 2016 related to the Combination and are reported in selling, general and administrative
expense.
Total consideration for the transaction is presented in the table below. At the closing date of the Combination, vested share
option awards remained outstanding under Synergy's Save As You Earn Plans ("SAYE"). In accordance with the provisions of
SAYE, vested option awards may be exercised to the extent that the exercise price funds have been accumulated in accordance
with the option holder's savings contract. The number of Synergy shares that are expected to be issued have been fair valued
based on the same cash and stock consideration available to other Synergy shareholders at the time of the Combination.
Cash consideration
STERIS plc shares (25,848,798 ordinary shares issued)
Fair value of consideration available to vested Synergy share option holders
Total purchase consideration
$
$
402,494
1,887,479
4,819
2,294,792
The acquisition of Synergy has been accounted for using the acquisition method of accounting which requires, among other
things, the assets acquired, liabilities assumed and noncontrolling interests be recognized at their respective fair values as of the
acquisition date. Acquisition accounting is dependent upon certain valuations and other studies that are in progress and are not
yet to a stage where there is sufficient information for a definitive measurement. The process for estimating the fair values of
identifiable intangible assets and certain tangible assets and assumed liabilities requires the use of judgment in determining the
appropriate assumptions and estimates.
The purchase price allocation for Synergy is preliminary. As we finalize the fair values of assets acquired, liabilities
assumed, and noncontrolling interests, additional purchase price adjustments will be recorded during the measurement period.
Fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on
estimates and assumptions. The judgments used to determine the estimated fair value assigned to each class of assets acquired
and liabilities assumed, as well as asset lives, can materially impact our results of operations. The finalization of the purchase
67
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
accounting assessment will result in changes in the valuation of assets acquired and liabilities assumed and may have a material
impact on the our results of operations and financial position. Goodwill will be allocated to the Healthcare Products, Healthcare
Specialty Services, and Applied Sterilization Technologies segments. Goodwill is the excess of the consideration transferred
over the net assets recognized and represents the expected revenue and cost synergies of the combined company and assembled
workforce, which are further described above. Goodwill recognized as a result of the acquisition is not deductible for tax
purposes.
Gepco
On July 31, 2015 we acquired all of the outstanding shares of General Econopak, Inc. (“Gepco”) for a purchase price of
$176,474 in cash, including a customary working capital adjustment. Gepco is a Pennsylvania-based manufacturer of product
solutions in the areas of sterility maintenance, barrier protection, and sterile cleanroom products for pharmaceutical,
biotechnology and veterinary Customers. Gepco is being integrated into our Life Sciences business segment. The purchase
price was financed through a combination of credit facility borrowings and cash on hand. The purchase price has been allocated
to the net assets acquired based on fair values at the acquisition date. The acquisition qualified for joint election tax benefit
under Section 338 (h)(10) of the Internal Revenue Code, which allows goodwill and intangibles to be fully deductible for tax
purposes. We recorded $2,380 of acquisition related costs, which are reported in selling, general and administrative expense.
Black Diamond
On June 12, 2015 we acquired the capital stock of Black Diamond Video, Inc. ("Black Diamond"), a California-based
developer and provider of operating room integration systems. The purchase price was approximately $46,155, which includes
a working capital adjustment, deferred consideration of $5,870, to be paid approximately twelve months after the closing date,
and contingent consideration of $800. The transaction consideration paid at closing was funded with cash on hand. Black
Diamond is being integrated into our Healthcare Products business segment. The purchase price has been allocated to the net
assets acquired based on fair values at the acquisition date. Acquisition related costs were insignificant.
Other 2016 Acquisitions
We also completed several other minor purchases that continued to expand our service offerings in the Healthcare Products,
Healthcare Specialty Services and Life Sciences segments. The aggregate purchase price associated with these transactions was
approximately $41,079, including potential contingent consideration of $1,760. Acquisition related costs were insignificant.
Fiscal Year 2015
Dana Products, Inc.
On March 9, 2015 the Company purchased all the outstanding shares of capital stock of Dana Products, Inc. ("Dana"), an
Illinois manufacturer of chemical indicators used in steam sterilizers.
The purchase price was approximately $12,414, including a customary working capital adjustment. Dana has been
integrated into the Healthcare Products business segment. The purchase price has been allocated to the net assets acquired based
on fair values at the acquisition date.
The acquisition of Dana qualified for a joint election tax benefit under Section 338(h)(10) of the Internal Revenue Code,
which allows goodwill and intangibles to be fully deductible for tax purposes. Intangible assets acquired consist of product
names and patents, which are being amortized on a straight line basis over their useful lives of up to ten years. Acquisition
related costs were insignificant.
AGAPE Instruments Service, Inc.
On December 31, 2014, a newly formed subsidiary of the Company purchased the assets and assumed certain liabilities of
AGAPE Instruments Service, Inc. ("AGAPE"), an Ohio based provider of certification services.
The purchase price was approximately $3,415, including a customary working capital adjustment. The AGAPE business
has been integrated into the Life Sciences business segment. The purchase price has been allocated to the net assets acquired
based on fair values at the acquisition date.
Intangible assets acquired consist of Customer relationships, which are being amortized on a straight line basis over seven
years. Acquisition related costs were insignificant.
68
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Integrated Medical Systems International, Inc.
On May 9, 2014, we completed the previously announced acquisition of all the outstanding shares of capital stock of
Integrated Medical Systems International, Inc. ("IMS") pursuant to a Stock Purchase Agreement dated March 31, 2014. The
purchase price was approximately $162,905, including a customary working capital adjustment. In addition, we purchased
certain real estate used in the IMS business for approximately $10,000. IMS has facilities located in Alabama, Florida and
Maryland and provides a variety of services including: endoscope repair, surgical instrument management and sterile
processing consulting. IMS has been integrated into our Healthcare Specialty Services segment.
We recorded acquisition related costs of $3,208, before tax, which are reported in selling, general and administrative
expense. The acquisition of IMS qualified for a joint election tax benefit under Section 338(h)(10) of the Internal Revenue
Code, which allows goodwill and intangibles to be fully deductible for tax purposes. Intangible assets acquired consist of trade
names and Customer relationships, which are being amortized on a straight line basis over their useful lives of up to nine years,
with the exception of the IMS trade name which has an indefinite life.
Fiscal Year 2014
Florida Surgical Repair, Inc.
On December 31, 2013, we purchased the assets and assumed certain liabilities of Florida Surgical Repair, Inc. ("FSR"), a
provider of surgical instrument and surgical equipment repair services to hospitals and surgery centers in Florida. The purchase
price was approximately $5,779, including a customary working capital adjustment. FSR has been integrated into the
Healthcare Specialty Services business segment. The purchase price has been allocated to the net assets acquired based on fair
values at the acquisition date.
The intangible assets acquired consist of Customer relationships, which are being amortized on a straight line basis over
nine years. Acquisition related costs were insignificant.
Life Systems, Inc.
On February 4, 2014, we purchased the assets and assumed certain liabilities of Life Systems, Inc. ("LSI"), a provider of
sales and service in the endoscope repair and certified pre-owned equipment markets, located in St. Louis, Missouri.
The purchase price was approximately $24,500, including a customary working capital adjustment, which included $1,500
in restricted stock granted to one of the sellers. LSI has been integrated into the Healthcare Specialty Services business
segment. The purchase price has been allocated to the net assets acquired based on fair values at the acquisition date.
The intangible assets acquired consist of Customer relationships, which are being amortized on a straight line basis over
thirteen years. Acquisition related costs were insignificant.
Eschmann Holdings Ltd.
On February 10, 2014, we purchased the capital stock of Eschmann Holdings Ltd. ("Eschmann"), a provider of surgical
and infection prevention solutions and services used primarily in hospitals, surgery centers and dental offices in the United
Kingdom.
The purchase price was approximately £25 million British pounds sterling (approximately $41,645 at the acquisition date).
We paid £22 million British pounds sterling at the closing date and paid an additional £3 million British pounds sterling of
deferred consideration in the first quarter of fiscal 2015. We also paid a customary working capital adjustment of £0.5 million
British pounds sterling in the first quarter of fiscal 2015. Eschmann has been integrated into the Healthcare Products business
segment. The purchase price has been allocated to the net assets acquired based on fair values at the acquisition date.
The intangible assets acquired consist of tradenames, developed technology, and Customer relationships, which are being
amortized on a straight line basis over six to thirteen years, with the exception of the Eschmann tradename which has an
indefinite life. Acquisition related costs were insignificant.
Each of these acquisitions were funded with cash on hand and/or credit facility borrowings. The Consolidated Financial
Statements include the operating results of each acquisition from the respective acquisition dates. Pro-forma results of
operations have not been presented (with the exception of Synergy) because the effects of the acquisitions were not material to
our financial results.
69
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Fair Value of Assets Acquired and Liabilities Assumed
The table below summarizes the allocation of the purchase price to the net assets acquired based on fair values at the
acquisition dates for our fiscal 2016, 2015 and 2014 acquisitions.
Fiscal Year 2016
Fiscal Year 2015
Fiscal Year 2014
Synergy
(1)
Gepco
Black
Diamond
Other
Acquisitions
Dana
AGAPE
IMS
FSR
LSI
Eschmann
Cash
$
53,057
$
1,108
$
— $
— $
Accounts receivable
Inventory
Property, plant and
equipment
Other assets
107,341
30,074
534,879
19,708
4,161
1,926
3,421
946
Intangible assets
806,526
61,900
Goodwill
Total Assets
1,411,781
104,485
2,963,366
177,947
2,966
3,309
607
54
13,500
31,792
52,228
3,859
1,108
1,979
—
14,829
20,630
42,405
135
617
388
743
—
6,363
4,311
12,557
$
— $
— $
— $
— $
2,545
342
16,594
—
—
—
1,200
1,899
3,441
8,478
15,074
842
62,000
81,587
184,575
388
402
98
11
2,765
2,131
5,795
2,341
2,727
301
117
4,462
16,230
26,178
5,336
10,017
6,262
475
21,128
14,274
60,037
Current liabilities
(108,192)
(1,473)
(4,525)
(1,277)
(143)
(26)
(11,670)
(16)
(1,678)
(14,357)
Long-term indebtedness
(321,082)
Non-current liabilities
(230,544)
—
—
Total Liabilities
(659,818)
(1,473)
—
(1,548)
(6,073)
—
(49)
—
—
—
—
—
—
—
—
—
—
—
(4,035)
(1,326)
(143)
(26)
(11,670)
(16)
(1,678)
(18,392)
Net Assets
$ 2,303,548
$ 176,474
$ 46,155
$
41,079
$ 12,414
$
3,415
$ 172,905
$
5,779
$ 24,500
$
41,645
(1) Purchase price allocation is still preliminary as of March 31, 2016, as valuations have not been finalized.
Intangible assets acquired in the Synergy acquisition consist of trade names, technology and Customer relationships.
Preliminary values and useful lives are presented in the table below.
Customer relationships
Trade names
Technology
Total intangible assets acquired
Total (1)
Useful Life
717,254
10-17 years
64,645
24,627
806,526
10 years
7 years
$
$
(1) Amounts are preliminary as of March 31, 2016, as valuations have not been finalized.
Contingent liabilities assumed as part of the Combination total $7,082 at the date of the Combination, and are included
within accrued expenses and other and other liabilities in the condensed consolidated balance sheet. These contingent liabilities
include $5,521 related to income taxes (including uncertain tax positions) and $1,561 related to contingent consideration
associated with prior acquisitions completed by Synergy. Contingent liabilities are recorded at their estimated fair values, aside
from those pertaining to uncertainty in income taxes which are an exception to the fair value basis of accounting. See note 18,
titled "Fair Value Measurements" to the condensed consolidated financial statements for additional information on contingent
liabilities. The estimated fair values noted above are preliminary and are subject to change upon finalization of the purchase
accounting assessment and may have a material impact on the our results of operations and financial position.
Actual and Pro Forma Impact
Our consolidated financial statements include Synergy's results of operations from the date of acquisition on November 2,
2015 through March 31, 2016. Net sales and operating income attributable to Synergy during this period and included in our
consolidated financial statements for fiscal years ended March 31, 2016 total $254,911 and $3,695, respectively.
70
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
The following unaudited pro forma information gives effect to our acquisition of Synergy as if the acquisition had occurred
on April 1, 2014 and Synergy had been included in our consolidated results of operations for fiscal years ended March 31, 2016
and March 31, 2015.
Net revenues
Net income from continuing operations
Fiscal Year Ended March 31,
(unaudited)
2016
2015
$ 2,619,056
$
2,499,140
188,269
152,057
The historical consolidated financial information of STERIS and Synergy has been adjusted in the pro forma information to
give effect to pro forma events that are (1) directly attributable to the transaction, (2) factually supportable and (3) expected to
have a continuing impact on the combined results. In order to reflect the occurrence of the acquisition on April 1, 2014 as
required, the unaudited pro forma results include adjustments to reflect the amortization of the inventory step-up, the
incremental depreciation from the fair value adjustments to property, plant and equipment, and the incremental intangible asset
amortization to be incurred based on preliminary valuations of assets acquired. Adjustments to financing costs and income tax
expense also were made to reflect the capital structure and anticipated effective tax rate of the combined entity. These pro forma
amounts are not necessarily indicative of the results that would have been obtained if the acquisition had occurred as of the
beginning of the period presented or that may occur in the future, and does not reflect future synergies, integration costs, or
other such costs or savings.
4. GOODWILL AND INTANGIBLE ASSETS
Goodwill is tested annually for impairment. Further, goodwill is reviewed for impairment whenever events or changes in
circumstances indicate there may be a possible permanent loss of value. We performed our annual impairment tests for
goodwill and indefinite life intangible assets during the third quarter of fiscal 2016. These tests confirmed that the fair value of
our reporting units and indefinite life intangible assets exceed their respective carrying values and that no impairment losses
were required to be recognized in fiscal 2016 or for any prior periods as a result of annual testing.
However, during the second quarter of fiscal 2015, a new branding strategy for surgical instrument and endoscope repair
services was adopted as part of the integration of IMS into the Healthcare Specialty Services segment. This new strategy
represented an indicator of impairment of the carrying value of the Spectrum trade-name as it now will used solely for
Healthcare Specialty Services product offerings. We estimated the fair value of the Spectrum trade-name using the relief from
royalty method and concluded that the carrying value of the trade-name exceeded its fair value. As a result, an impairment
charge of approximately $5,561 was recorded to reduce the carrying value of the intangible asset. The impairment charge is
reported in the selling, general and administrative expense line of the Consolidated Statements of Income.
Future impairment tests of goodwill and indefinite life intangible assets will be performed annually in the fiscal third
quarter, or sooner if a triggering event occurs.
Changes to the carrying amount of goodwill for the years ended March 31, 2016, 2015 and 2014 were as follows:
71
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Balance at March 31, 2014
Goodwill acquired or
allocated
Foreign currency translation
adjustments
Balance at March 31, 2015
Goodwill acquired or
allocated
Foreign currency translation
adjustments
Balance at March 31, 2016
Healthcare
Products
Segment
Healthcare
Specialty
Services
Segment
Life Sciences
Segment
Applied
Sterilization
Technologies
Segment
Synergy
Combination
Total
$ 330,180
$
69,486
$
34,310
$
83,035
$
— $ 517,011
5,817
81,358
1,899
(11,124)
—
324,873
150,844
(2,320)
33,889
40,043
3,428
113,284
(1,146)
—
161
—
—
83,035
—
—
—
—
—
89,074
(13,444)
592,641
1,408,192
1,564,947
—
(985)
$2,156,603
$ 363,770
$ 154,272
$
147,334
$
83,035
$ 1,408,192
Goodwill associated with the Combination with Synergy has not yet been allocated to business segments as the purchase
price allocation is preliminary as of March 31, 2016. Valuations have not progressed to sufficiently determine the fair value of
the business units acquired. Goodwill will be allocated among the Healthcare Products, Healthcare Specialty Services and
Applied Sterilization Technologies business segments.
The fiscal 2016 increase in goodwill associated with the Healthcare Products segment resulted primarily from the
acquisition of the capital stock of Black Diamond. The increase associated with the Life Sciences segment resulted primarily
from the acquisition of the capital stock of Gepco. Other minor purchases also impacted goodwill associated with the
Healthcare Products, Healthcare Specialty Services and Life Sciences segments.
The fiscal 2015 decrease in goodwill associated with the Healthcare Products segment resulted from the acquisition of the
capital stock of Dana which was more than offset by foreign currency fluctuations. The increase associated with the Healthcare
Specialty Services segment resulted from the acquisition of the capital stock of IMS. The decrease associated with the Life
Science segment resulted from the acquisition of the assets of AGAPE, which was more than offset by foreign currency
fluctuations.
Our fiscal 2016 and 2015 acquisitions are described in note 3 to our consolidated financial statements titled, "Business
Acquisitions".
Information regarding our intangible assets is as follows:
March 31, 2016
March 31, 2015
Customer relationships
Non-compete agreements
Patents and technology
Trademarks and tradenames
Supplier relationships
Other
Total
Gross
Carrying
Amount
$
879,525
Accumulated
Amortization
64,268
$
4,730
213,317
129,690
54,800
10
3,503
70,801
18,318
1,827
16
$ 1,282,072
$
158,733
$
Gross
Carrying
Amount
Accumulated
Amortization
$
134,014
$
3,654
178,290
61,896
—
35,516
3,377
56,861
14,096
—
10
377,864
$
10
109,860
Certain trademarks and tradenames acquired in fiscal 2016, 2015 and 2014 are indefinite-lived assets. The approximate
carrying value of these assets at March 31, 2016 and March 31, 2015 was $35,340 and $35,490, respectively. Total amortization
expense for finite-lived intangible assets was $49,782, $24,500, and $18,612 for the years ended March 31, 2016, 2015, and
72
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
2014, respectively. Based upon the current amount of intangible assets subject to amortization, the amortization expense for
each of the five succeeding fiscal years is estimated to be as follows:
Estimated amortization expense
$
79,806
$
79,734
$
79,648
$
78,705
$
78,185
2017
2018
2019
2020
2021 and
thereafter
The estimated annual amortization expense presented in the preceding table has been calculated based upon March 31,
2016 foreign currency exchange rates.
5. INVENTORIES, NET
Inventories, net consisted of the following:
March 31,
Raw materials
Work in process
Finished goods
LIFO reserve
Reserve for excess and obsolete inventory
Inventories, net
6. PROPERTY, PLANT AND EQUIPMENT
Information related to the major categories of our depreciable assets is as follows:
March 31,
Land and land improvements (1)
Buildings and leasehold improvements
Machinery and equipment
Linens (2)
Information systems
Radioisotope
Construction in progress (1)
Total property, plant, and equipment
Less: accumulated depreciation and depletion
Property, plant, and equipment, net
2016
62,673
19,614
146,820
(17,608)
(18,707)
192,792
$
$
2016
39,051
446,277
580,962
42,354
126,180
434,152
79,291
1,748,267
(683,948)
1,064,319
$
$
2015
67,095
22,696
107,695
(19,071)
(17,597)
160,818
2015
40,668
263,007
375,555
—
104,049
289,778
47,690
1,120,747
(627,694)
493,053
$
$
$
$
(1) Land is not depreciated. Construction in progress is not depreciated until placed in service.
(2) Linen assets were first acquired as part of our Combination with Synergy and are depreciated over useful lives ranging
from one to five years.
Depreciation and depletion expense were $93,958, $61,481 and $57,037, for the years ended March 31, 2016, 2015, and
2014, respectively.
Rental expense for operating leases was $23,238, $18,602, and $17,643 for the years ended March 31, 2016, 2015, and
2014, respectively. Operating leases relate to manufacturing, warehouse and office space, service facilities, vehicles,
equipment, and communication systems. Certain lease agreements grant us varying renewal and purchase options.
73
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Future minimum annual rentals payable under noncancelable operating lease agreements at March 31, 2016 were as
follows:
2017
2018
2019
2020
2021 and thereafter
Total minimum lease payments
Operating
Leases
29,098
23,853
18,402
10,456
53,103
134,912
$
$
In the preceding table, the future minimum annual rentals payable under noncancelable leases denominated in foreign
currencies have been calculated based upon March 31, 2016 foreign currency exchange rates.
Asset Retirement Obligations
We provide contract sterilization services including gamma irradiation which utilizes cobalt-60 in the form of cobalt pencils.
We have incurred asset retirement obligations (ARO) associated with the disposal of these depleted assets. Recognition of ARO
includes: the present value of a liability and offsetting asset, the subsequent accretion of that liability and depletion of the asset,
and the periodic review of the ARO liability estimates and discount rates used in the analysis.
The following table summarizes the activity in the liability for asset retirement obligations.
Balance at March 31, 2015
Liabilities assumed as result of the Combination with Synergy
Liabilities incurred during the period
Accretion expense and change in estimate
Foreign currency movement
Balance at March 31, 2016
7. DEBT
Indebtedness was as follows:
March 31,
Private Placement (1)
Credit Agreement and Swing Line Facility
Total long term debt
(1) Amounts are presented net of deferred financing costs.
Asset Retirement
Obligations
$
$
8,083
8,686
38
(6,629)
164
10,342
2016
2015
$
$
662,580
905,216
1,567,796
$
$
337,825
283,250
621,075
In order to fund the acquisition of Synergy, including the cash payments made in respect of Synergy shares, the repayment
of Synergy debt and certain transaction expenses, on November 2, 2015, STERIS plc borrowed under the Credit Agreement (as
herein-after defined) (i) $132,000, £49,000, and €127,750 under the revolving credit facility and (ii) $400,000 under the term
loan facility. Borrowings bear interest at the Company’s option based upon either the Base Rate or the Eurocurrency Rate, plus
the Applicable Margin in effect from time to time under the Credit Agreement. The Applicable Margin is determined based on
the ratio of Consolidated Total Debt to Consolidated EBITDA. Interest on Base Rate Advances is payable quarterly in arrears
and interest on Eurocurrency Rate Advances is payable at the end of the relevant interest period therefor, but in no event less
frequently than every three months.
74
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
On May 15, 2015, Old STERIS issued $350,000 of senior notes, in a private placement to certain institutional investors in
an offering that was exempt from the registration requirements of the Securities Act of 1933. Of the $350,000 in senior notes,
$125,000 have a maturity of 10 years from the issue date at an annual interest rate of 3.45%, $125,000 have a maturity of 12
years from the issue date at an annual interest rate of 3.55% and $100,000 have a maturity of 15 years from the issue date at an
annual interest rate of 3.70%. These borrowings were used for repayment of Credit Agreement debt and for other corporate
purposes. The agreement governing these notes contains leverage and interest coverage covenants.
On March 31, 2015, Old STERIS and STERIS entered into a Credit Agreement (the "Credit Agreement") with various
financial institutions as lenders, and JPMorgan Chase Bank, N.A., as Administrative Agent. The Credit Agreement replaced the
Company’s Third Amended and Restated Credit Agreement dated April 13, 2012 with KeyBank National Association, as
Administrative Agent, and the other lenders party thereto, as amended, and the Company’s Swing Line Facility (Committed
Line of Credit) with PNC Bank, National Association, which agreements were terminated and all outstanding borrowings
thereunder were repaid on March 31, 2015. The Credit Agreement currently provides $1,245,000 of credit, in the form of a
$850,000 revolver facility, which may be utilized for revolving credit borrowings, swing line borrowings and letters of credit,
with sublimits for swing line borrowings and letters of credit. The Credit Agreement also contains a $400,000 term loan facility.
The revolver and term loan facilities may be increased in specified circumstances by up to $500,000. Term loans are repayable
quarterly pursuant to a specified amortization schedule, with principal payments increasing from 1.25% to 2.50% over the term,
and with a balloon payment for the remaining unpaid balance at maturity. The Credit Agreement will mature on March 31,
2020, and all unpaid borrowings, together with accrued and unpaid interest thereon, are repayable on that date. The Credit
Agreement contains leverage and interest coverage covenants.
In February 2013, Old STERIS issued $100,000 of senior notes, of which $98,000 currently remain outstanding, in a
private placement to certain institutional investors in an offering that was exempt from the registration requirements of the
Securities Act of 1933. Of the $98,000 of outstanding notes, $45,500 have a maturity of nine years and 10 months from
issuance and have a current annual interest rate of 3.70%, an additional $40,000 have a maturity of 11 years and 10 months
from issuance and have a current annual interest rate of 3.85%, and the remaining $12,500 have a maturity of 14 years and 10
months from issuance and have a current annual interest rate of 4.05%. These borrowings were used primarily for the
repayment of then existing credit facility debt. The agreements governing these notes and the notes were amended and restated
in their entirety on March 31, 2015. The amended and restated agreements, which have been consolidated into a single
agreement, contain leverage and interest coverage covenants.
In December 2012, Old STERIS issued $100,000 of senior notes, of which $98,000 currently remain outstanding, in a
private placement to certain institutional investors in an offering that was exempt from the registration requirements of the
Securities Act of 1933. Of the $98,000 of outstanding notes, $45,500 have a maturity of 10 years from issuance and have a
current annual interest rate of 3.70%, an additional $40,000 have a maturity of 12 years from issuance and have a current
annual interest rate of 3.85%, and the remaining $12,500 have a maturity of 15 years from issuance and have a current annual
interest rate of 4.05%. These borrowings were used primarily for the repayment of then existing credit facility debt. The
agreements governing these notes and the notes were amended and restated in their entirety on March 31, 2015. The amended
and restated agreements, which have been consolidated into a single agreement, contain leverage and interest coverage
covenants.
On August 15, 2008, Old STERIS issued $150,000 of senior notes, of which $120,000 currently remain outstanding, in a
private placement to certain institutional investors in an offering that was exempt from the registration requirements of the
Securities Act of 1933. Of the outstanding notes $85,000 have a maturity of 10 years from issuance and have a current annual
interest rate of 6.83%, and the remaining $35,000 have a maturity of 12 years from issuance and have a current annual interest
rate of 6.93%. The agreements governing these notes and the notes were amended and restated in their entirety on March 31,
2015. The amended and restated agreements, which have been consolidated into a single agreement, contain leverage and
interest coverage covenants.
As of March 31, 2016, a total $905,216 of indebtedness was outstanding under the Credit Agreement.
At March 31, 2016, we were in compliance with all financial covenants associated with our indebtedness.
75
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
The combined annual aggregate amount of maturities of our outstanding debt by fiscal year is as follows:
2017
2018
2019
2020
2021 and thereafter
Total
$
—
—
85,000
905,216
581,000
$ 1,571,216
76
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
8. ADDITIONAL CONSOLIDATED BALANCE SHEETS INFORMATION
Additional information related to our Consolidated Balance Sheets is as follows:
March 31,
Accrued payroll and other related liabilities:
2016
2015
Compensation and related items
Accrued vacation/paid time off
Accrued bonuses
Accrued employee commissions
Accrued pension
Other postretirement benefit obligations-current portion
Other employee benefit plans' obligations-current portion
Total accrued payroll and other related liabilities
Accrued expenses and other:
Deferred revenues
Self-insured risk reserves-current portion
Accrued dealer commissions
Accrued warranty
Asset retirement obligation-current portion
Other
Total accrued expenses and other
Other liabilities:
Self-insured risk reserves-long-term portion
Other postretirement benefit obligations-long-term portion
Defined benefit pension plans obligations-long-term portion
Other employee benefit plans obligations-long-term portion
Asset retirement obligation-long-term portion
Other
Total other liabilities
9. INCOME TAXES
Income from continuing operations before income taxes was as follows:
Years Ended March 31,
United States operations
United Kingdom operations
Other Foreign Locations operations
$
$
$
$
$
$
30,175
14,368
31,502
13,809
—
2,463
1,659
93,976
56,238
8,266
12,717
5,909
—
70,245
153,375
13,257
15,932
25,301
4,366
10,342
15,100
84,298
$
$
$
$
$
$
16,680
5,539
30,159
12,842
6,186
2,789
610
74,805
34,910
6,897
13,591
5,579
1,092
39,963
102,032
12,052
18,489
119
6,634
6,991
3,049
47,334
2016
105,758
(20,553)
86,679
171,884
$
$
2015
161,165
15,824
31,831
208,820
$
$
2014
122,245
11,483
54,648
188,376
$
$
77
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
The components of the provision for income taxes related to income from continuing operations consisted of the
following:
Years Ended March 31,
Current:
United States federal
United States state and local
United Kingdom
Other foreign locations
Deferred:
United States federal
United States state and local
United Kingdom
Other foreign locations
2016
2015
2014
$
41,653
$
52,234
$
24,016
7,943
2,194
13,924
65,714
1,427
299
(6,973)
(168)
(5,415)
60,299
8,551
3,633
8,842
73,260
5,991
2,985
13,464
46,456
1,436
10,501
214
(676)
(478)
496
$
73,756
$
1,473
(410)
914
12,478
58,934
Total Provision for Income Taxes
$
The total provision for income taxes can be reconciled to the tax computed at the United States federal statutory tax rate as
follows:
Years Ended March 31,
United States federal statutory tax rate
Increase (decrease) in accruals for uncertain tax positions
State and local taxes, net of federal income tax benefit
Increase in valuation allowances
Foreign income tax credit
Difference in non-United States tax rates
Excise tax gross-up
U.S. manufacturing deduction
U.S. Tax Benefit resulting from European Restructuring
Capitalized acquisition costs
All other, net
Total Provision for Income Taxes
2016
35.0 %
0.2 %
3.3 %
1.0 %
(0.6)%
(8.5)%
3.4 %
(2.5)%
— %
5.3 %
(1.5)%
35.1 %
2015
2014
35.0 %
— %
2.8 %
2.1 %
(1.0)%
(3.6)%
— %
(1.6)%
— %
2.2 %
(0.6)%
35.3 %
35.0 %
(5.1)%
2.6 %
1.5 %
(2.0)%
(0.1)%
— %
(1.2)%
(0.6)%
— %
1.2 %
31.3 %
Unrecognized Tax Benefits. We classify uncertain tax positions and related interest and penalties as long-term liabilities
within “Other liabilities” in our accompanying Consolidated Balance Sheets, unless they are expected to be paid within 12
months, in which case, the uncertain tax positions would be classified as current liabilities within “Accrued income taxes.” We
recognize interest and penalties related to unrecognized tax benefits within “Income tax expense” in our accompanying
Consolidated Statements of Income.
78
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits is as follows:
Years Ended March 31,
2016
2015
Unrecognized Tax Benefits Balance at April 1
Increases for tax provisions of prior years
Decreases for tax provisions of prior years
Increases for tax provisions of current year
Decreases for tax provisions of current year
Balances related to acquired businesses
Other decreases, including currency translation
Settlements
Lapse of statute of limitations
Unrecognized Tax Benefits Balance at March 31
$
$
— $
—
—
316
—
3,422
(211)
—
—
3,527 $
—
—
—
—
—
—
—
—
—
—
We recognized interest and penalties related to uncertain tax positions in the provision for income taxes. As of March 31,
2016 we had $456 accrued for interest and penalties. The increase during fiscal 2016 is primarily associated with balances
related to acquired businesses. If all unrecognized tax benefits were recognized, the net impact on the provision for income tax
expense would be $3,706. It is reasonably possible that during the next twelve months, a reduction in unrecognized tax benefits
may occur up to $345 as a result of the expiration of various statutes of limitations or matters related to transfer pricing.
We operate in numerous taxing jurisdictions and are subject to regular examinations by various United States federal, state
and local, as well as foreign jurisdictions. We are no longer subject to United States federal examinations for years before fiscal
2013 and, with limited exceptions, we are no longer subject to United States state and local, or non-United States, income tax
examinations by tax authorities for years before fiscal 2011. We remain subject to tax authority audits in various jurisdictions
wherever we do business. We do not expect the results of these examinations to have a material adverse effect on our
consolidated financial statements.
Deferred Taxes. The significant components of the deferred tax assets and liabilities recorded in our accompanying balance
sheets at March 31, 2016 and 2015 were as follows:
March 31,
Deferred Tax Assets:
Post-retirement benefit accrual
Compensation
Net operating loss carryforwards
Accrued expenses
Insurance
Deferred income
Bad debt
Pension
Other
Deferred Tax Assets
Less: Valuation allowance
Total Deferred Tax Assets
Deferred Tax Liabilities:
Depreciation and depletion
Intangibles
Other
Total Deferred Tax Liabilities
Net Deferred Tax Assets (Liabilities)
79
$
2016
2015
$
7,016
25,436
26,151
7,521
4,226
7,910
2,059
5,155
2,208
87,682
16,435
71,247
8,130
24,374
13,090
6,808
4,071
6,148
1,941
2,781
464
67,807
14,380
53,427
85,807
226,809
3,744
316,360
$ (245,113) $
50,559
38,121
3,710
92,390
(38,963)
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
During the fourth quarter of 2016, we early adopted Accounting Standards Update 2015-17, "Balance Sheet Classification
of Deferred Taxes" ("ASU 2015-17"). ASU 2015-17 requires that all deferred tax assets and liabilities, along with any related
valuation allowance, be classified as noncurrent on the consolidated balance sheet starting in 2017. We elected to apply this
standard prospectively for the 2016 financial statements. As a result, prior periods were not retrospectively adjusted.
At March 31, 2016, we had federal operating loss carryforwards of $20,955, which if unused, these federal operating loss
carryforwards will expire between fiscal years 2031 and 2036. Additionally, we had foreign operating loss carry forwards of
$59,487. Although the majority of the foreign carryforwards have indefinite expiration periods, those carryforwards that have
definite expiration periods will expire if unused between fiscal years 2017 and 2025. In addition, we have recorded tax benefits
of $1,704 related to state operating loss carryforwards. If unused, these state operating loss carryforwards will expire between
fiscal years 2017 and 2036. At March 31, 2016, we had $1,520 of tax credit carryforwards. These credit carryforwards expire
between fiscal 2017 and fiscal 2026.
We review the need for a valuation allowance against our deferred tax assets. A valuation allowance of $16,435 has been
applied to a portion of the net deferred tax assets because we do not believe it is more-likely-than-not that we will receive
future benefit. The valuation allowance increased during fiscal 2016 by $2,055.
No provision has been made for income taxes on undistributed earnings of foreign subsidiaries of approximately $1.1
billion at March 31, 2016, since it is our intention to indefinitely reinvest undistributed earnings of our foreign subsidiaries. It
is not practicable to estimate the additional income taxes and applicable withholding taxes that would be payable on the
remittance of such undistributed earnings.
In October 2015, the Organization for Economic Cooperation and Development (OECD), in conjunction with the G20,
finalized broad-based international tax policy guidelines that involve transfer pricing and other international tax subjects.
While some member jurisdictions automatically adopt the new OECD guidelines, most member countries can adopt the
guidelines only by new law or regulations. We are currently adopting processes to comply with the reporting requirements
specified by the guidelines and are evaluating the other parts of the guidelines.
10. BENEFIT PLANS
In the United States we sponsor an unfunded post-retirement welfare benefits plan for two groups of United States retirees.
Benefits under this plan include retiree life insurance and retiree medical insurance, including prescription drug coverage.
During the second quarter of fiscal 2009, we amended our United States post-retirement welfare benefits plan, reducing the
benefits to be provided to retirees under the plan and increasing their share of the costs. The amendments resulted in a decrease
of $46,001 in the accumulated post-retirement benefit obligation. The impact of this change was recognized in our Consolidated
Balance Sheets in fiscal 2009 and is being amortized as a component of the annual net periodic benefit cost over a period of
approximately thirteen years.
In July 2014, the Board of Directors of American Sterilizer Company (“AMSCO”) approved the termination of the
American Sterilizer Company Retirement Income Plan (“Plan”) effective October 1, 2014. An Application for Determination
was filed with the Internal Revenue Service (IRS) on August 22, 2014, with respect to the Plan termination. A Form 500
Standard Termination Notice was filed with the Pension Benefit Guaranty Corporation ("PBGC") on November 17, 2014. The
60-day PBGC waiting period lapsed without objection by the PBGC. AMSCO received a favorable determination from the IRS
regarding the termination. On August 19, 2015, an annuity contract was purchased from Massachusetts Mutual Life Insurance
Company to provide Plan benefits. Plan assets were converted to cash to fund the purchase. The purchase price of the annuity
contract was $51,805. An additional employer contribution of $4,641 was made to the Plan to fund the annuity purchase
obligation on August 26, 2015. As a result of the purchase of the annuity, we recognized a pension settlement of $26,470. In
addition, plan benefits and benefit administration became the responsibility of the annuity provider. The assumptions used to
measure the benefit obligation as of March 31, 2015 reflected this effort.
As a result of the combination with Synergy, we now participate in seven defined benefit pension schemes outside the
United States: three in the UK, one in the Netherlands, two in Germany, and one in Switzerland. Preliminary estimated
unfunded obligations of $23,507 were recorded as of the November 2, 2015 closing date.
In the United Kingdom, we sponsor schemes which are funded defined benefit arrangements. Each is a separate trustee
administered fund holding the pension scheme assets to meet long-term pension liabilities for past and present employees. The
80
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
level of retirement benefit is principally based on the final pensionable salary prior to leaving active service, and is linked to
changes in inflation up to retirement.
Synergy Health plc Retirement Benefits Scheme: The scheme is a defined benefit (final salary) funded pension scheme.
Participation in this scheme is only offered to employees transferring their employment from National Health Service Trusts.
Shiloh Group Pension Scheme: The scheme is a defined benefit (final salary) funded pension scheme, which is closed to
new members and which ceased accrual of benefits of March 31, 2011.
Vernon-Carus Limited Pension and Assurance Scheme: The scheme is a defined benefit (final salary) funded pension
scheme, which is closed to new members and which ceased accrual of benefits as of March 31, 2011.
In previous years, Synergy sponsored a funded defined benefit arrangement in the Netherlands. This was a separate fund
holding the pension scheme assets to meet long term pension liabilities for past and present employees. Accrual of benefits
ceased under the scheme effective January 1, 2013.
Synergy Radeberg and Synergy Allershausen Schemes: These schemes are defined benefit funded pension schemes, closed
to new entrants.
Synergy Daniken Scheme: The scheme is a defined benefit funded pension scheme.
We recognize the funded status of our defined benefit pension and post-retirement benefit plans in our Consolidated
Balance Sheets, with a corresponding adjustment to accumulated other comprehensive income, net of tax. The funded status is
measured as of March 31 each year and is calculated as the difference between the fair value of plan assets and the benefit
obligation (which is the projected benefit obligation for pension plans and the accumulated post-retirement benefit obligation
for post-retirement benefit plans). Accumulated comprehensive income (loss) represents the net unrecognized actuarial losses
and unrecognized prior service cost. These amounts will be recognized in net periodic benefit cost as they are amortized. We
will recognize future changes to the funded status of these plans in the year the change occurs, through other comprehensive
income.
Obligations and Funded Status. The following table reconciles the funded status of the defined benefit pension plans and the
other post-retirement medical benefit plan to the amounts recorded on our Consolidated Balance Sheets at March 31, 2016 and
2015, respectively. Benefit obligation balances presented in the following table reflect the projected benefit obligations for our
defined benefit pension plans and the accumulated other post-retirement benefit obligation for our post-retirement medical
benefit plan. The measurement date of our defined benefit pension plans and other post-retirement medical benefit plan is
March 31, for both periods presented.
81
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Change in Benefit Obligations:
Benefit Obligations at Beginning of Year
Obligation assumed in Combination
Service cost
Interest cost
Actuarial loss (gain)
Benefits and expenses
Employee contributions
Curtailments/settlements
Impact of foreign currency exchange rate changes
Benefit Obligations at End of Year
Change in Plan Assets:
Fair Value of Plan Assets at Beginning of Year
Assets assumed in Combination
Actual return on plan assets
Employer contributions
Employee contributions
Benefits and expenses paid
Curtailments/settlements
Impact of foreign currency exchange rate changes
Fair Value of Plan Assets at End of Year
AMSCO Plan
Other Defined Benefit
Pension Plans
Other
Postretirement
Benefits Plan
2016
2015
2016
2015
2016
2015
$
$
56,612
—
27
560
(2,365)
(3,029)
—
(51,805)
—
—
50,426
—
(279)
4,687
—
(3,029)
(51,805)
—
—
49,206
—
140
1,887
9,752
(4,373)
—
—
—
56,612
48,613
—
6,186
—
—
(4,373)
—
—
50,426
$
— $
121,468
961
1,659
5,399
(2,346)
517
(326)
1,610
128,942
—
99,511
2,989
2,280
517
(2,204)
—
1,260
104,353
$
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
21,278
—
—
593
(673)
(2,818)
—
—
—
18,380
—
—
—
(2,818)
—
2,818
—
—
—
21,342
—
—
691
2,327
(3,082)
—
—
—
21,278
—
—
—
3,082
—
(3,082)
—
—
—
Funded Status of the Plans
$
— $
(6,186) $ (24,589)
$
— $ (18,380) $ (21,278)
Amounts recognized in the consolidated balance sheets consist of the following:
Current liabilities
Noncurrent liabilities
AMSCO Plan
Other Defined Benefit
Pension Plans
Other Post-
retirement Plan
2016
2015
2016
2015
2016
2015
$
$
— $
(6,186) $
— $
— $
(2,463) $
(2,789)
—
— (24,589)
— (15,917)
(18,489)
— $
(6,186) $ (24,589) $
— $ (18,380) $ (21,278)
The pre-tax amount of unrecognized actuarial net loss and unamortized prior service cost included in accumulated other
comprehensive (loss) income at March 31, 2016 was $8 and $20, respectively. During fiscal 2017, we will amortize the
following pre-tax amounts from accumulated other comprehensive income:
Actuarial loss
Prior Service Cost
AMSCO Plan
Other Defined
Benefit
Pension Plans
Other Post-
retirement
Benefit Plan
$
— $
—
— $
—
739
(3,263)
82
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Defined benefit plans with an accumulated benefit obligation and projected benefit obligation exceeding the fair value of
plan assets had the following plan assets and obligations at March 31, 2016 and 2015:
Aggregate fair value of plan assets
Aggregate accumulated benefit obligations
Aggregate projected benefit obligations
AMSCO Plan
Other Defined Benefit
Pension Plans
2016
2015
2016
2015
$
— $ 50,426 $ 104,353
$
—
—
56,612
128,942
56,612
128,942
—
—
—
Components of Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive
Income. Components of the annual net periodic benefit cost of our defined benefit pension plans and our other post-retirement
medical benefit plan were as follows:
AMSCO Plan
2016
2015
2014
Other Defined Benefit
Pension Plans
2015
2016
2014
Other Post-retirement Plan
2016
2015
2014
Service cost
Interest cost
Expected return on plan assets
Prior service cost recognition
Net amortization and deferral
Curtailments/settlements
Net periodic benefit cost
Recognized in other comprehensive loss
(income) before tax:
$
27
$
140
$
160 $
961
$ — $ — $ — $ — $ —
560
1,887
1,799
1,659
(1,008)
(3,139)
(3,442)
(1,324)
—
602
—
— (142)
1,106
1,458
—
26,470
—
— (326)
—
—
—
—
—
—
—
593
—
691
—
683
—
— (3,263)
(3,263)
(3,263)
—
—
828
—
721
—
891
—
$ 26,651
$
(6) $
(25) $
828
$ — $ — $(1,842) $(1,851) $(1,689)
Net loss (gain) occurring during year
$
— $ 6,706
$(4,814) $(3,733) $ — $ — $
673
$ 2,327
$ (654)
Amortization of prior service credit
—
—
—
(602)
(1,106)
(1,458)
(602)
5,600
(6,272)
(3,733)
—
—
—
—
—
— 3,263
3,263
3,263
—
(721)
(721)
(891)
— 3,215
4,869
1,718
Amortization of net loss
Total recognized in other comprehensive
loss (income)
Total recognized in total benefits cost and
other comprehensive loss (income)
$ 26,049
$ 5,594
$(6,297) $(2,905) $ — $ — $ 1,373
$ 3,018
$
29
83
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Assumptions Used in Calculating Benefit Obligations and Net Periodic Benefit Cost. The following table presents
significant assumptions used to determine the projected benefit obligations at March 31:
Discount Rate:
AMSCO Plan
Other defined benefit pension plans
Shiloh Group Pension Scheme
Synergy Health PLC Retirement Benefits Scheme
Vernon Carus Limited Pension and Assurance Scheme
Isotron BV Pension Plan
Synergy Health Daniken AG
Synergy Health Radeberg
Synergy Health Allershausen
Other post-retirement plan
2016
2015
n/a
2.46%
3.50%
3.50%
3.50%
1.60%
0.40%
1.60%
1.60%
3.25%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
3.00%
The following table presents significant assumptions used to determine the net periodic benefit costs for the years
ended March 31:
Discount Rate:
AMSCO Plan
Other defined benefit pension plans
Shiloh Group Pension Scheme
Synergy Health PLC Retirement Benefits Scheme
Vernon Carus Limited Pension and Assurance Scheme
Isotron BV Pension Plan
Synergy Health Daniken AG
Synergy Health Radeberg
Synergy Health Allershausen
Other post-retirement plan
Expected Return on Plan Assets:
AMSCO Plan
Other defined benefit pension plans
Shiloh Group Pension Scheme
Synergy Health PLC Retirement Benefits Scheme
Vernon Carus Limited Pension and Assurance Scheme
Isotron BV Pension Plan
Synergy Health Daniken AG
2016
2015
2014
n/a
4.00%
3.50%
3.80%
3.80%
3.80%
2.10%
0.40%
1.60%
1.60%
3.25%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
3.00%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
3.50%
n/a
6.75%
7.75%
5.14%
6.17%
4.77%
2.10%
1.40%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
The net periodic benefit cost and the actuarial present value of projected benefit obligations are based upon assumptions
that we review on an annual basis. These assumptions may be revised annually based upon an evaluation of long-term trends, as
well as market conditions that may have an impact on the cost of providing benefits.
We develop our expected long-term rate of return on plan assets assumptions by evaluating input from third-party
professional advisors, taking into consideration the asset allocation of the portfolios and the long-term asset class return
expectations.
84
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
We develop our discount rate assumptions by evaluating input from third-party professional advisors, taking into
consideration the current yield on country specific investment grade long-term bonds which provide for similar cash flow
streams as our projected obligations.
We have made assumptions regarding healthcare costs in computing our other post-retirement benefit obligation. The
assumed rates of increase generally decline ratably over a five-year period from the assumed current year healthcare cost trend
rate to the assumed long-term healthcare cost trend rate noted below.
Healthcare cost trend rate – medical
Healthcare cost trend rate – prescription drug
Long-term healthcare cost trend rate
2016
2015
2014
7.0%
7.0%
4.5%
7.0%
7.0%
4.5%
7.0%
7.0%
4.5%
To determine the healthcare cost trend rates, we evaluate a combination of information, including ongoing claims cost
monitoring, annual statistical analyses of claims data, reconciliation of forecasted claims against actual claims, review of trend
assumptions of other plan sponsors and national health trends, and adjustments for plan design changes, workforce changes,
and changes in plan participant behavior.
A one-percentage-point change in assumed healthcare cost trend rates (including medical, prescription drug, and long-term
rates) would have had the following effect at March 31, 2016:
Effect on total service and interest cost components
Effect on other post-retirement benefit obligation
One-Percentage
Point
Increase
Decrease
$
$
1
44
(1)
(42)
Plan Assets. The investment policies for our plans are generally established by the local pension plan trustees and seek to
maintain the plans' ability to meet liabilities and to comply with local minimum funding requirements. Plan assets are invested
in diversified portfolios that provide adequate levels of return at an acceptable level of risk. The investment policies are
reviewed at least annually and revised, as deemed appropriate to ensure that the objectives are being met. At March 31, 2016,
the targeted allocation for the plans were approximately 60% equity investments, 30% fixed income investments, and 10%
other investments.
Financial instruments included in pension plan assets are categorized into three tiers. These tiers include a fair value hierarchy
of three levels, based on the degree of subjectivity inherent in the valuation methodology as follows:
Level 1 - Quoted prices for identical assets in active markets.
Level 2 - Quoted prices for similar assets in active markets with inputs that are observable, either directly or indirectly.
Level 3 - Unobservable prices or inputs in which little or no market data exists.
85
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
The fair value of our pension benefits plan assets at March 31, 2016 and 2015 by asset category is as follows:
(In thousands)
Total
Fair Value Measurements at March 31, 2016
Other Defined Benefit Pension Plans
Quoted
Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Other
Unobservable
Inputs
(Level 3)
Cash and Short Term Securities (1)
$
7,221
$
7,221
$
— $
Equity Securities
Collective Investment Funds
Debt Securities
Collective Investment Funds
Other Investments
Real Estate Collective Investment Fund
Other
Total Plan Assets
50,125
26,152
—
5,384
15,471
—
—
—
—
—
50,125
26,152
—
5,384
11,279
$
104,353
$
7,221
$
92,940
$
—
—
—
—
—
4,192
4,192
(In thousands)
Total
Fair Value Measurements at March 31, 2015
AMSCO Plan
Quoted
Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Other
Unobservable
Inputs
(Level 3)
Cash and Short Term Securities (1)
$
5,538
$
337
$
5,201
$
Equity Securities
Mutual Funds
Debt Securities
Mutual Funds
Total Plan Assets
7,271
7,271
37,617
37,617
—
—
$
50,426
$
45,225
$
5,201
$
—
—
—
—
(1) Money market fund holdings are classified as level two as active market quoted prices are not available.
Cash Flows. We contribute amounts to our defined benefit pension plans at least equal to the minimum amounts required by
applicable employee benefit laws and local tax laws. In addition, we have agreed with the trustees of the UK defined benefit
plans to aim to eliminate the deficit over the next approximately 6 years. As a result, we expect to make annual contributions of
approximately $3,719 beginning in fiscal 2017.
86
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Based upon the actuarial assumptions utilized to develop our benefit obligations at March 31, 2016, the following benefit
payments are expected to be made to plan participants:
2017
2018
2019
2020
2021
2022-2027
Other Defined
Benefit Pension
Plans
Other Post-
Retirement
Benefit Plan
$
3,567
$
3,942
4,571
3,976
4,230
26,758
2,463
2,207
1,911
1,709
1,567
6,011
The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) provides a prescription drug
benefit for Medicare beneficiaries, a benefit we provide to Medicare eligible retirees covered by our post-retirement benefits
plan. We have concluded that the prescription drug benefit provided in our post-retirement benefit plan is considered to be
actuarially equivalent to the benefit provided under the Act and thus qualifies for the subsidy under the Act. Benefits are subject
to a per capita per month cost cap and any costs above the cap become the responsibility of the retiree. The subsidy is applied to
reduce the retiree responsibility. As a result, the expected future subsidy no longer reduces our accumulated post-retirement
benefit obligation and net periodic benefit cost. We collected subsidies totaling approximately $284 and $457, during fiscal
2016 and fiscal 2015, respectively, which reduced the retiree responsibility for costs in excess of the caps established in the
post-retirement benefit plan.
Defined Contribution Plans. We maintain a 401(k) defined contribution plan for eligible United States employees, a 401(k)
defined contribution plan for eligible Puerto Rico employees and a similar savings plan for Canadian employees. We provide a
match on a specified portion of an employee’s contribution. The United States plan assets are held in trust and invested as
directed by the plan participants. The Canadian plan assets are held by insurance companies. The aggregate fair value of plan
assets was $473,218 at March 31, 2016. At March 31, 2016, the U.S. plan held 681,468 STERIS ordinary shares with a fair
value of $48,418. We paid dividends of $669, $606, and $622 to the plan and participants on STERIS shares held by the plan
for the years ended March 31, 2016, 2015, and 2014, respectively. We contributed $13,354, $10,895, and $9,956, to the defined
contribution plans for the years ended March 31, 2016, 2015, and 2014, respectively.
We also maintain a domestic non-qualified deferred compensation plan covering certain employees, which formerly
allowed for the deferral of compensation for an employee-specified term or until retirement or termination. There have been no
Employee contributions made to this plan since fiscal 2012. The Plan was amended in fiscal 2012 to disallow deferrals of salary
payable in 2012 and subsequent calendar years and of commissions and other incentive compensation payable in respect of the
2013 and subsequent fiscal years. We hold investments in mutual funds to satisfy future obligations of the plan. We account for
these assets as available-for-sale securities and they are included in “Other assets” on our accompanying Consolidated Balance
Sheets, with a corresponding liability for the plan’s obligation recorded in “Accrued expenses and other.” The aggregate value
of the assets was $1,696 and $3,650 at March 31, 2016 and March 31, 2015, respectively. Realized gains and losses on these
investments are recorded in “Interest and miscellaneous income” within “Non-operating expenses” on our accompanying
Consolidated Statements of Income. Changes in the fair value of the assets are recorded in other comprehensive income on our
accompanying balance sheets.
87
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
11. COMMITMENTS AND CONTINGENCIES
We are, and will likely continue to be, involved in a number of legal proceedings, government investigations, and claims,
which we believe generally arise in the course of our business, given our size, history, complexity, and the nature of our
business, products, Customers, regulatory environment, and industries in which we participate. These legal proceedings,
investigations and claims generally involve a variety of legal theories and allegations, including, without limitation, personal
injury (e.g., slip and falls, burns, vehicle accidents), product liability or regulation (e.g., based on product operation or claimed
malfunction, failure to warn, failure to meet specification, or failure to comply with regulatory requirements), product exposure
(e.g., claimed exposure to chemicals, asbestos, contaminants, radiation), property damage (e.g., claimed damage due to leaking
equipment, fire, vehicles, chemicals), commercial claims (e.g., breach of contract, economic loss, warranty, misrepresentation),
financial (e.g., taxes, reporting), employment (e.g., wrongful termination, discrimination, benefits matters), and other claims for
damage and relief.
We believe we have adequately reserved for our current litigation and claims that are probable and estimable, and further
believe that the ultimate outcome of these pending lawsuits and claims will not have a material adverse effect on our
consolidated financial position or results of operations taken as a whole. Due to their inherent uncertainty, however, there can
be no assurance of the ultimate outcome or effect of current or future litigation, investigations, claims or other proceedings
(including without limitation the matters discussed below). For certain types of claims, we presently maintain insurance
coverage for personal injury and property damage and other liability coverages in amounts and with deductibles that we believe
are prudent, but there can be no assurance that these coverages will be applicable or adequate to cover adverse outcomes of
claims or legal proceedings against us.
On May 31, 2012, our Albert Browne Limited subsidiary received a warning letter from the FDA regarding chemical
indicators manufactured in the United Kingdom. These devices are intended for the monitoring of certain sterilization and
other processes. The FDA warning letter states that the agency has concerns regarding operational business processes. We do
not believe that the FDA's concerns are related to product performance, or that they result from Customer complaints. We have
reviewed our processes with the agency and finalized our remediation measures, and are awaiting FDA reinspection. We do not
currently believe that the impact of this event will have a material adverse effect on our financial results.
On December 19, 2014, a purported shareholder of Old STERIS filed a Verified Stockholder Derivative Complaint in the
Court of Common Pleas, Cuyahoga County, Ohio (the "Court"), against the members of Old STERIS’s board of directors and
certain officers of Old STERIS, challenging the excise tax make-whole payments approved by Old STERIS’s board in
connection with the Combination. Old STERIS was named as a nominal defendant in the action. The case is captioned St. Lucie
County Fire District Firefighters’ Pension Trust Fund v. Rosebrough, Jr., et al., Case No. CV 14 837749 (the "Action"). On
September 28, 2015, the defendants reached an agreement in principle with plaintiff, regarding a settlement of the Action, and
that agreement is reflected in a memorandum of understanding. In connection with the contemplated settlement, Old STERIS
agreed to make certain additional disclosures related to the make-whole payments, which disclosures were reported on Old
STERIS's Form 8-K dated September 28, 2015, and also agreed not to grant any new stock compensation subject to
Section 4985 of the Internal Revenue Code to any of the individual defendants in the Action until six months following the
closing date of the Combination. The parties have subsequently entered into and executed a stipulation of settlement, on a
combined class and derivative basis, including agreement on a maximum fee/expense award to plaintiff's counsel. The
stipulation of settlement, which is subject to customary conditions including approval of the Court following notice and
hearing, has been filed with the Court along with a request for preliminary approval and the setting of a hearing date. The Court
has not yet acted on the request. There can be no assurance that the Court will approve the proposed settlement and the
settlement agreement may be terminated if Court approval is not obtained.
On July 8, 2015, the United States District Court for the Northern District of Ohio issued an Order terminating the April
20, 2010 consent decree entered into by two Company employees and the United States. The consent decree related to U.S.
Food and Drug Administration (FDA) allegations regarding the Company's now discontinued SYSTEM 1® liquid chemical
sterilization system. As a result of the termination of the consent decree, the Company is no longer subject to any court order
related to its FDA regulatory compliance.
Other civil, criminal, regulatory or other proceedings involving our products or services could possibly result in judgments,
settlements or administrative or judicial decrees requiring us, among other actions, to pay damages or fines or effect recalls, or
be subject to other governmental, Customer or other third party claims or remedies, which could materially effect our business,
performance, prospects, value, financial condition, and results of operations.
88
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
For additional information regarding these matters, see the following portions of this Annual Report on Form 10-K:
“Business - Information with respect to our Business in General - Government Regulation”, and the “Risk Factor” titled “We
may be adversely affected by product liability claims or other legal actions or regulatory or compliance matters, including the
Consent Decree” and the "Risk Factor” titled “Compliance with the Consent Decree may be more costly and burdensome than
anticipated.”
From time to time, STERIS is also involved in legal proceedings as a plaintiff involving contract, patent protection, and
other claims asserted by us. Gains, if any, from these proceedings are recognized when they are realized.
We are subject to taxation from United States federal, state and local, and foreign jurisdictions. Tax positions are settled
primarily through the completion of audits within each individual jurisdiction or the closing of statutes of limitation. Changes
in applicable tax law or other events may also require us to revise past estimates. We describe income taxes further in note 9 to
our consolidated financial statements titled, “Income Taxes” in this Annual Report on Form 10-K.
Additional information regarding our contingencies is included in Item 7 of Part II titled, “Management’s Discussion and
Analysis of Financial Conditions and Results of Operations under "Contingencies".
As of March 31, 2016 and 2015, our commercial commitments totaled $56,649 and $40,008, respectively. Commercial
commitments include standby letters of credit, letters of credit required as security under our self-insured risk retention policies,
and other potential cash outflows resulting from an event that requires payment by us. Approximately $7,050 and $5,961 of the
March 31, 2016 and 2015 totals relate to letters of credit required as security under our self-insured risk retention policies.
As of March 31, 2016 and 2015, we had minimum purchase commitments with suppliers for raw material purchases
totaling $40,715 and $35,405, respectively. As of March 31, 2016, we also had commitments of $15,041 for long term
construction contracts.
12. BUSINESS SEGMENT INFORMATION
As a result of the Combination with Synergy, we have reassessed the organization of our business. We have concluded that
we operate and will report in four reportable business segments: Healthcare Products, Healthcare Specialty Services, Life
Sciences, and Applied Sterilization Technologies. Corporate and other, which is presented separately, contains the Defense and
Industrial business unit plus costs that are associated with being a publicly traded company and certain other corporate costs.
Our Healthcare Products segment offers infection prevention and procedural solutions for healthcare providers worldwide,
including capital equipment and related maintenance and installation services, as well as consumables.
Our Healthcare Specialty Services segment provides a range of specialty services for healthcare providers including
hospital sterilization services, instrument and scope repairs, and linen management.
Our Life Sciences segment offers capital equipment and consumable products, and equipment maintenance and specialty
services for pharmaceutical manufacturers and research facilities.
Our Applied Sterilization Technologies segment offers a contract sterilization and laboratory services for medical device
and pharmaceutical Customers and others.
The accounting policies for reportable segments are the same as those for the consolidated Company. Management
evaluates performance and allocates resources based on a segment operating income measure. Operating income (loss) for each
segment is calculated as the segment’s gross profit less direct expenses and indirect cost allocations, which result in the full
allocation of all distribution and research and development expenses, and the partial allocation of corporate costs. These
allocations are based upon variables such as segment headcount and revenues. In addition, the Healthcare Products segment is
responsible for the management of all but two manufacturing facilities and uses standard cost to sell products to the other
segments. Corporate and other includes the gross profit and direct expenses of the Defense and Industrial business unit, as well
as certain unallocated corporate costs related to being a publicly traded company and legacy pension and post-retirement
benefits. Segment operating income excludes certain adjustments which include acquisition related costs, amortization of
acquired intangibles, restructuring costs and other charges that management believes may or may not recur with similar
materiality or impact on operating income in future periods. Management believes that by excluding these items they gain
better insight and greater transparency of the operating performance of the segments, thus aiding them in more meaningful
financial trend analysis and operational decision making.
89
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
The accounting policies for reportable segments are the same as those for the consolidated Company. For the year ended
March 31, 2016, revenues from a single Customer did not represent ten percent or more of any reportable segment’s revenues.
Years Ended March 31,
Revenues:
Healthcare Products
Healthcare Specialty Services
Life Sciences
Applied Sterilization Technologies
Total reportable segments
Corporate and other
Total revenues
Segment operating income (loss):
Healthcare Products
Healthcare Specialty Services
Life Sciences
Applied Sterilization Technologies
Total reportable segments
Corporate and other
Total segment operating income
Less: Adjustments
Amortization of inventory and property "step up" to fair value (1)
Amortization and impairment of acquired intangible assets (1)
Acquisition related transaction and integration costs (2)
Loss (gain) on fair value adjustment of acquisition related
contingent consideration
Settlement of pension obligation (3)
Restructuring charges (4)
Total operating income
2016
2015
2014
$
$
$
$
$
1,207,158
422,860
295,970
310,120
2,236,108
2,656
2,238,764
181,295
24,165
85,466
99,224
390,150
(11,488)
378,662
9,907
47,704
82,891
(736)
26,470
(501)
212,927
$
$
$
$
$
1,143,336
248,538
250,845
205,675
1,848,394
1,869
1,850,263
166,515
16,629
56,072
59,458
298,674
(7,542)
291,132
1,330
28,317
32,762
2,271
—
(759)
227,211
$
$
$
$
$
1,092,584
87,467
246,122
194,183
1,620,356
1,896
1,622,252
147,455
2,387
50,772
57,598
258,212
(8,142)
250,070
620
17,013
3,585
697
—
21,348
206,807
(1) For more information regarding our recent acquisitions see Note 3 titled, "Business Acquisitions".
(2) Acquisition and integration related charges include transaction costs and integration expenses associated with acquisitions.
(3) See Note 10 titled, "Benefit Plans" for more information related to the settlement of the pension obligation.
(4) See Note 2 titled, "Restructuring" for more information related to restructuring.
For the year ended March 31, 2016, pre-tax restructuring expenses of $365, $(876), $33, and $(23) are included in the
operating results of the Healthcare Products, Healthcare Specialty Services, Life Sciences and Applied Sterilization
Technologies segments, respectively. For the years ended March 31, 2015, pre-tax restructuring expenses of $(715), $(156),
$161, and $(49) are included in the operating results of the Healthcare Products, Healthcare Specialty Services, Life Sciences
and Applied Sterilization Technologies segments, respectively. For the year ended March 31, 2014, pre-tax restructuring
expenses of $17,929, $1,435, $635, and $1,349 are included in the operating results of the Healthcare Products, Healthcare
Specialty Services, Life Sciences and Applied Sterilization segments.
Assets include the current and long-lived assets directly attributable to the segment based on the management of the
location or on utilization. Certain corporate assets were allocated to the reportable segments based on revenues. Assets
attributed to sales and distribution locations are only allocated to the Healthcare Products and Life Sciences segments.
Corporate and other includes assets directly attributable to the Defense and Industrial business unit, as well as certain
unallocated amounts related to being a publicly traded company. Total assets associated with the Healthcare Products segment
have increased substantially during fiscal 2016, as a result of several business acquisitions as described in note 3 to our
consolidated financial statements titled, "Business Acquisitions".
90
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Individual facilities, equipment, and intellectual properties are utilized for production by both the Healthcare Products and
Life Sciences segments at varying levels over time. As a result, an allocation of total assets, capital expenditures, and
depreciation and amortization is not meaningful to the individual performance of the Healthcare Products and Life Sciences
segments. Therefore, their respective amounts are reported together.
March 31,
Assets:
Healthcare Products and Life Sciences
Healthcare Specialty Services
Applied Sterilization Technologies
Total reportable segments
Corporate and other
Synergy related goodwill not yet allocated (1)
Total assets
2016
2015
$
$
1,682,457
759,012
1,494,638
3,936,107
2,117
1,408,192
5,346,416
$
$
1,261,940
396,579
436,638
2,095,157
2,134
—
2,097,291
(1) Amount is still preliminary as of March 31, 2016, as valuations have not been finalized. Goodwill will be allocated to the
Healthcare Products, Healthcare Specialty Services and Applied Sterilization Technologies business segments.
Years Ended March 31,
2016
2015
2014
Capital Expenditures:
Healthcare Products and Life Sciences
Healthcare Specialty Services
Applied Sterilization Technologies
Total Reportable Segments
Corporate and other
Total Capital Expenditures
Depreciation, Depletion, and Amortization:
Healthcare Products and Life Sciences
Healthcare Specialty Services
Applied Sterilization Technologies
Total Reportable Segments
Corporate and other
Total Depreciation, Depletion, and Amortization
$
$
$
$
34,567
31,309
60,517
126,393
14
126,407
49,063
36,130
58,468
143,661
79
143,740
$
$
$
$
34,174
2,777
48,286
85,237
18
85,255
41,201
19,934
30,369
91,504
37
91,541
$
$
$
$
46,792
251
39,310
86,353
14
86,367
41,035
5,260
29,319
75,614
35
75,649
Financial information for each of our United States and international geographic areas is presented in the following table.
Revenues are based on the location of these operations and their Customers. Property, plant and equipment, net are those assets
that are identified within the operations in each geographic area.
Years Ended March 31,
Revenues:
United Kingdom
United States
Other foreign locations
Total Revenues
2016
2015
2014
$
144,577
1,662,050
432,137
$ 2,238,764
$
51,889
1,449,223
349,151
$ 1,850,263
$
27,677
1,244,730
349,845
$ 1,622,252
91
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
March 31,
Property, Plant, and Equipment, Net
United Kingdom
United States
Other foreign locations
Property, Plant, and Equipment, Net
13. SHARES AND PREFERRED SHARES
Common and Ordinary Shares
2016
2015
$
121,853
505,169
437,297
$ 1,064,319
$
$
12,816
441,278
38,959
493,053
In connection with the Combination, each Old STERIS common shareholder received one ordinary share, par value 10
pence, of the Company for each Old STERIS common share held, and each Synergy ordinary shareholder received 0.4308
ordinary shares, par value 10 pence, of the Company and 439 pence in cash, for each Synergy ordinary share held.
We calculate basic earnings per share based upon the weighted average number of shares outstanding. We calculate diluted
earnings per share based upon the weighted average number of shares outstanding plus the dilutive effect of share equivalents
calculated using the treasury stock method. The following is a summary of shares and share equivalents outstanding used in the
calculations of basic and diluted earnings per share:
Denominator (shares in thousands):
Weighted average shares outstanding—basic
Dilutive effect of share equivalents
Weighted average shares outstanding and share equivalents—diluted
Years Ended March 31,
2015
2014
2016
70,698
486
71,184
59,413
632
60,045
58,966
779
59,745
Options to purchase the following number of common shares were outstanding but excluded from the computation of
diluted earnings per share because the combined exercise prices, unamortized fair values, and assumed tax benefits upon
exercise were greater than the average market price for the common shares during the periods, so including these options would
be anti-dilutive:
Years Ended March 31,
2015
2014
2016
(shares in thousands)
Number of common share options
Preferred Shares
263
342
327
Pursuant to an engagement letter dated October 23, 2015, we issued 100,000 preferred shares, par value of £0.10 ($0.15)
each, for an aggregate consideration of approximately $15, in satisfaction of debt owed to a service provider. The holders of the
preferred shares are entitled to a fixed cumulative preferential annual dividend of 5 percent on the amount paid periodically on
the preferred shares respectively held by them. On a return of capital of the Company whether on liquidation or otherwise, the
holders of the preferred shares shall be entitled to receive out of the assets of the Company available for distribution to its
shareholders the sum of £0.10 ($0.15) per preferred share plus any accrued but unpaid dividend, but will not be entitled to any
further participation in the assets of the Company. The holders of the preferred shares will have no right to attend, speak or
vote, whether in person or by proxy, at any general meeting of the Company or any meeting of a class of members of the
Company in respect of the preferred shares and will not be entitled to receive any notice of meetings.
92
14. REPURCHASES OF ORDINARY SHARES
Prior to the Combination, the Company’s Board of Directors provided authorization to repurchase up to $300,000 of
STERIS common shares. Under this authorization, we were able to purchase shares from time to time through open market
purchases, including transactions pursuant to Rule 10b5-1 plans, or privately negotiated transactions. The authorization was no
longer applicable after the Combination with Synergy.
We did not make any purchases during fiscal years 2016 or 2015 under the prior stock repurchase authorization. During
fiscal 2014, we paid an aggregate amount of $24,691 for the repurchase of 565,887 of our common shares, representing an
average price of $43.63 per common share.
We obtained 267,696 of our common shares during fiscal 2016 in the aggregate amount of $14,369 in connection with
stock based compensation award programs. We obtained 541,700 of our common shares during fiscal 2015 in the aggregate
amount of $30,687 in connection with these programs. We obtained 58,529 of our common shares during fiscal 2014 in the
aggregate amount of $778 in connection with these programs.
15. SHARE-BASED COMPENSATION
We maintain a long-term incentive plan which we assumed from Old STERIS, that makes available shares for grants, at the
discretion of the Compensation Committee of the Board of Directors, to officers, directors, and key employees in the form of
stock options, restricted shares, restricted share units, stock appreciation rights and share grants. Prior to the Combination,
awards were made in respect of common shares of Old STERIS. In conjunction with the Combination all outstanding common
share denominated awards were converted into an equivalent number of Company ordinary share denominated awards, with the
same terms and conditions as applied to the replaced awards.
Stock options provide the right to purchase our common shares at the market price on the date of grant, subject to the terms
of the option plans and agreements. Generally, one-fourth of the stock options granted become exercisable for each full year of
employment following the grant date. Stock options granted generally expire 10 years after the grant date, or earlier if the
option holder is no longer employed by us (subject to an extended exercise period in some cases for optionees who are age 55
and have at least five years of service). Restricted shares and restricted share units generally cliff vest after a four year period or
vest in tranches of one-fourth of the number granted for each full year of employment after the grant date. As of March 31,
2016, 2,197,046 shares remained available for grant under the long-term incentive plan.
The fair value of share-based stock option compensation awards was estimated at their grant date using the Black-Scholes-
Merton option pricing model. This model was developed for use in estimating the fair value of traded options that have no
vesting restrictions and are fully transferable, characteristics that are not present in our option grants. If the model permitted
consideration of the unique characteristics of employee stock options, the resulting estimate of the fair value of the stock
options could be different. The value of the portion of the award that is ultimately expected to vest is recognized as expense
over the requisite service periods in our Consolidated Statements of Income. The expense is classified as cost of goods sold or
selling, general and administrative expenses in a manner consistent with the employee’s compensation and benefits.
The following weighted-average assumptions were used for options granted during fiscal 2016, fiscal 2015 and fiscal
2014:
Risk-free interest rate
Expected life of options
Expected dividend yield of stock
Expected volatility of stock
Fiscal 2016
Fiscal 2015
Fiscal 2014
1.51%
5.7 years
1.40%
25.06%
1.89%
0.95%
5.8 years
5.7 years
1.87%
29.86%
2.22%
31.22%
The risk-free interest rate is based upon the U.S. Treasury yield curve. The expected life of options is reflective of
historical experience, vesting schedules and contractual terms. The expected dividend yield of stock represents our best
estimate of the expected future dividend yield. The expected volatility of stock is derived by referring to our historical stock
prices over a time frame similar to that of the expected life of the grant. An estimated forfeiture rate of 1.55%, 1.46% and
1.44% was applied in fiscal 2016, 2015 and 2014, respectively. This rate is calculated based upon historical activity and
represents an estimate of the granted options not expected to vest. If actual forfeitures differ from this calculated rate, we may
93
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
be required to make additional adjustments to compensation expense in future periods. The assumptions used above are
reviewed at the time of each significant option grant, or at least annually.
A summary of share option activity is as follows:
Outstanding at March 31, 2015
Granted
Exercised
Forfeited
Canceled
Outstanding at March 31, 2016
Exercisable at March 31, 2016
Number of
Options
1,759,890
366,700
(356,596)
(39,977)
(500)
1,729,517
978,916
$
$
$
Weighted
Average
Exercise
Price
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
37.03
66.88
31.93
54.58
24.45
44.01
34.49
6.3 years
4.7 years
$
$
46,772
35,787
We estimate that 742,059 of the non-vested stock options outstanding at March 31, 2016 will ultimately vest.
The aggregate intrinsic value in the table above represents the total pre-tax difference between the $71.05 closing price of
our common shares on March 31, 2016 over the exercise prices of the stock options, multiplied by the number of options
outstanding or outstanding and exercisable, as applicable. The aggregate intrinsic value is not recorded for financial accounting
purposes and the value changes daily based on the daily changes in the fair market value of our ordinary shares.
The total intrinsic value of stock options exercised during the years ended March 31, 2016, 2015 and 2014 was $13,000,
$31,555 and $10,253, respectively. Net cash proceeds from the exercise of stock options were $11,240, $28,274 and $14,160
for the years ended March 31, 2016, 2015 and 2014, respectively. The tax benefit from stock option exercises was $6,281,
$11,526 and $2,841 for the years ended March 31, 2016, 2015 and 2014, respectively.
The weighted average grant date fair value of stock option grants was $14.66, $13.41 and $10.59 for the years ended
March 31, 2016, 2015 and 2014, respectively.
Stock appreciation rights (“SARS”) carry generally the same terms and vesting requirements as stock options except that
they are settled in cash upon exercise and therefore, are classified as liabilities. The fair value of the outstanding SARS as of
March 31, 2016 and 2015 was $2,165 and $2,294, respectively. The fair value of outstanding SARS is revalued at each
reporting date and the related liability and expense are adjusted appropriately.
A summary of the non-vested restricted share activity is presented below:
Non-vested at March 31, 2015
Granted
Vested
Canceled
Non-vested at March 31, 2016
Number of
Restricted
Shares
Number of Restricted
Share Units
Weighted-Average
Grant Date
Fair Value
851,173
293,086
(218,455)
(52,832)
872,972
32,800
22,405
(12,071)
(1,493)
41,641
$
$
42.98
68.47
39.88
52.71
51.98
Restricted shares granted are valued based on the closing stock price at the grant date. The value of restricted shares that
vested during fiscal 2016 was $8,464.
Restricted share units carry generally the same terms and vesting requirements as restricted stock except that they may be
settled in stock or cash upon vesting. Those that are settled in cash are classified as liabilities. The fair value of outstanding
cash-settled restricted share units as of March 31, 2015 was $334, respectively. The fair value of each cash-settled restricted
share unit is revalued at each reporting date and the related liability and expense are adjusted appropriately.
94
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
As of March 31, 2016, there was a total of $33,196 in unrecognized compensation cost related to non-vested share-based
compensation granted under our share-based compensation plans. We expect to recognize the cost over a weighted average
period of 2.20 years.
16. FINANCIAL AND OTHER GUARANTEES
We generally offer a limited parts and labor warranty on capital equipment. The specific terms and conditions of those
warranties vary depending on the product sold and the countries where we conduct business. We record a liability for the
estimated cost of product warranties at the time product revenues are recognized. The amounts we expect to incur on behalf of
our Customers for the future estimated cost of these warranties are recorded as a current liability on the accompanying
Consolidated Balance Sheets. Factors that affect the amount of our warranty liability include the number and type of installed
units, historical and anticipated rates of product failures, and material and service costs per claim. We periodically assess the
adequacy of our recorded warranty liabilities and adjust the amounts as necessary.
Changes in our warranty liability during the periods presented are as follows:
Years Ended March 31,
Balance, Beginning of Year
Warranties issued during the period
Settlements made during the period
Balance, End of Year
2016
2015
2014
$
$
5,579 $
7,765 $
12,734
11,194
7,604
3,538
(10,864)
(9,790)
(8,507)
5,909 $
5,579 $
7,765
We also sell product maintenance contracts to our Customers. These contracts range in terms from one to five years and
require us to maintain and repair the product over the maintenance contract term. We initially record amounts due from
Customers under these contracts as a liability for deferred service contract revenue on the accompanying Consolidated Balance
Sheets within “Accrued expenses and other.” The liability recorded for such deferred service revenue was $33,416, $30,720
and $31,079 as of March 31, 2016, 2015 and 2014, respectively. Such deferred revenue is then amortized on a straight-line
basis over the contract term and recognized as service revenue on our accompanying Consolidated Statements of Income. The
activity related to the liability for deferred service contract revenues is excluded from the table presented above.
17. DERIVATIVES AND HEDGING
From time to time, we enter into forward contracts to hedge potential foreign currency gains and losses that arise from
transactions denominated in foreign currencies, including inter-company transactions. We may also enter into commodity swap
contracts to hedge price changes in nickel that impact raw materials included in our cost of revenues. We do not use derivative
financial instruments for speculative purposes. These contracts are not designated as hedging instruments and do not receive
hedge accounting treatment; therefore, changes in their fair value are not deferred but are recognized immediately in the
Consolidated Statements of Income. At March 31, 2016, we held foreign currency forward contracts to buy 65 million Mexican
pesos and 4 million Canadian dollars. At March 31, 2016, we held commodity swap contracts to buy 644.1 thousand pounds of
nickel.
Balance Sheet Location
Prepaid & Other
Accrued expenses and other
Asset Derivatives
Liability Derivatives
Fair Value at
March 31, 2016
Fair Value at
March 31, 2015
Fair Value at
March 31, 2016
Fair Value at
March 31, 2015
$
$
145
$
— $
$
12
— $
— $
122
$
—
616
The following table presents the impact of derivative instruments and their location within the Consolidated Statements of
Income:
95
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Foreign currency forward contracts
Commodity swap contracts
Selling, general and administrative
Cost of revenues
$
$
Location of (loss) gain recognized in
income
Amount of (loss)
gain
recognized in income
Years Ended March 31,
2016
(683) $
(461) $
2015
(1,457) $
(373) $
2014
(1,175)
(57)
Additionally, we hold our debt in multiple currencies to fund our operations and investments in certain subsidiaries. We
designate portions of non-functional currency denominated intercompany loans as hedges of portions of net investments in
foreign operations. Net debt designated as non-derivative net investment hedging instruments totaled $124,716 at March 31,
2016. These hedges are designed to be fully effective and any associated gain or loss is recognized in Accumulated Other
Comprehensive Income and will be reclassified to income in the same period when a gain or loss related to the net investment
in the foreign operation is included in income.
18. FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or that would be paid to transfer a liability in an
orderly transaction between market participants at the measurement date. We estimate the fair value of financial assets and
liabilities using available market information and generally accepted valuation methodologies. The inputs used to measure fair
value are classified into three tiers. These tiers include Level 1, defined as observable inputs such as quoted prices in active
markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable;
and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring the entity to develop its
own assumptions. The following table shows the fair value of our financial assets and liabilities at March 31, 2016 and
March 31, 2015:
Fair Value Measurements at March 31, 2016 and March 31, 2015 Using
Carrying Value
Quoted Prices
in Active Markets
for Identical Assets
Level 1
Significant Other
Observable Inputs
Level 2
Significant
Unobservable
Inputs
Level 3
2016
2015
2016
2015
2016
2015
2016
2015
$ 248,841 $ 167,689
12
8,332
145
6,192
$ 225,090 $ 148,944
—
8,332
—
6,192
$
23,751 $ 18,745
12
—
145
—
$ — $ —
—
—
—
—
Assets:
Cash and cash equivalents (1)
Forward and swap contracts (2)
Investments (3)
Liabilities:
Forward and swap contracts (2)
Deferred compensation plans (3)
Long term debt (4)
Contingent consideration
obligations (5)
$
122 $
1,765
1,567,796
616
3,757
621,075
5,886
2,500
$
— $
1,765
—
—
3,757
— $
122 $
—
— 1,592,184
616
—
641,131
$ — $ —
—
—
—
—
—
—
—
5,886
2,500
(1) Money market fund holdings are classified as level two as active market quoted prices are not available.
(2) The fair values of forward and swap contracts are based on period-end forward rates and reflect the value of the amount that
we would pay or receive for the contracts involving the same notional amounts and maturity dates.
(3) We maintain a frozen domestic non-qualified deferred compensation plan covering certain employees, which allows for the
deferral of payment of previously earned compensation for an employee-specified term or until retirement or termination.
96
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Amounts deferred can be allocated to various hypothetical investment options (compensation deferrals have been frozen under
the plan). We hold investments to satisfy the future obligations of the plan. Changes in the value of the investment accounts are
recognized each period based on the fair value of the underlying investments. Employees who made deferrals are entitled to
receive distributions of their hypothetical account balances (amounts deferred, together with earnings (losses)). We also hold an
investment in the common stock of Servizi Italia, S.p.A, a leading provider of integrated linen washing and outsourced sterile
processing services to hospital Customers. Changes in the value of the investment are recognized each period based on the fair
value of the investment.
(4) We estimate the fair value of our long-term debt using discounted cash flow analyses, based on our current incremental
borrowing rates for similar types of borrowing arrangements.
(5) Contingent consideration obligations arise from prior business acquisitions. The fair values are based on discounted cash
flow analyses reflecting the possible achievement of specified performance measures or events and captures the contractual
nature of the contingencies, commercial risk, and the time value of money. Contingent consideration obligations are classified
in the consolidated balance sheets as accrued expense (short-term) and other liabilities (long-term), as appropriate based on the
contractual payment dates.
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis at March 31, 2016 are summarized
as follows:
Balance at March 31, 2014
Additions
Settlements
Foreign currency translation adjustments (1)
Balance at March 31, 2015
Liabilities assumed as a result of combination with Synergy
Additions (2)
Payments
Foreign currency translation adjustments (1)
Balance at March 31, 2016
Contingent
Consideration
9,887
1,586
(8,320)
(653)
2,500
1,561
2,730
(858)
(47)
5,886
$
$
$
(1) Reported in other comprehensive income (loss).
(2) During the third fiscal quarter of 2016 we reduced our contingent consideration related to our acquisition of Black
Diamond Video, Inc., as a result of our final valuation. The adjustment was a measurement period adjustment to goodwill and
had no impact to the Consolidated Statements of Income. Refer to note 3, titled "Business Acquisitions" for more information.
Information regarding our investments is as follows:
Cost
Unrealized Gains (1) Unrealized Losses (1)
Fair Value
Investments at March 31, 2016 and March 31, 2015
2016
2015
2016
2015
2016
2015
2016
2015
Available-for-sale securities:
Marketable equity securities (1) (2)
Mutual funds
Total available-for-sale securities
$ 5,970
$ 7,358
$
$ 4,681
$ 4,681
$ — $ — $
1,289
2,677
407
407
$
974
974
$
(185) $ — $ 4,496
1,696
—
(185) $ — $ 6,192
—
$ 4,681
3,651
$ 8,332
(1) Our marketable equity securities have been in an unrealized loss position for less than 12 months.
(2) Amounts reported include the impact of foreign currency movements relative to the U.S. dollar.
19. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) shown in our Consolidated Statements of Shareholders' Equity consists of
the following:
97
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Cumulative foreign currency translation adjustment
Amortization of pension and postretirement benefit plans costs, net of taxes
Unrealized (loss) gain on available for sale securities
Total
$
$
2016
Year Ended March 31,
2015
(58,848) $
(8,889)
1,068
(66,669) $
(72,594) $
5,108
(673)
(68,159) $
2014
6,348
(2,428)
561
4,481
20. RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Amounts in Accumulated Other Comprehensive Income (Loss) are presented net of the related tax. Foreign Currency
Translation is not adjusted for income taxes. Changes in our Accumulated Other Comprehensive Income (Loss) balances, net of
tax, for the years ended March 31, 2016 and March 31, 2015 were as follows:
Details of amounts reclassified from Accumulated Other Comprehensive Income (Loss) are as follows:
Gain (Loss) on
Available for Sale
Securities (1)
Defined Benefit Plans
(2)
Foreign Currency
Translation (3)
Total Accumulated
Other
Comprehensive
Income
(Loss)
Beginning Balance
$
1,068
$
561
$
(8,889)
$
(2,428) $
(58,848)
$
6,348
$
(66,669) $
4,481
2016
2015
2016
2015
2016
2015
2016
2015
Other Comprehensive Income
(Loss) before reclassifications
Amounts reclassified from
Accumulated Other
Comprehensive Income (Loss)
Net current-period Other
Comprehensive Income (Loss)
(2,278)
391
(1,371)
(4,585)
(13,746)
(65,196)
(17,395)
(69,390)
537
116
15,368
(1,876)
—
—
15,905
(1,760)
(1,741)
507
13,997
(6,461)
(13,746)
(65,196)
(1,490)
(71,150)
Balance March 31, 2016
$
(673)
$
1,068
$
5,108
$
(8,889) $
(72,594)
$
(58,848)
$
(68,159) $
(66,669)
(1) Realized gain (loss) on available for sale securities is reported in the interest income and miscellaneous expense line of the
Consolidated Statements of Income.
(2) Amortization (gain) of defined benefit pension items is reported in the selling, general and administrative expense line of the
Consolidated Statements of Income.
(3) The effective portion of gain or loss on net debt designated as non-derivative net investment hedging instruments is
recognized in Accumulated Other Comprehensive Income and is reclassified to income in the same period when a gain or loss
related to the net investment in the foreign operation is included in income.
21. RELATED PARTY TRANSACTIONS
On October 26, 2015, in connection with the consummation of the Combination, Dr. Richard Steeves, Group Executive
Officer and Director of Synergy, elected to exercise employee stock options and hold the resulting Synergy shares. This
exercise created an obligation on the part of Dr. Steeves totaling £3.1 million for income taxes and United Kingdom National
Insurance contributions to be remitted by Synergy on his behalf, as well as the option exercise price. Synergy’s past practice,
when requested by the employee who elected to exercise stock options and hold the resulting shares, was to pay income taxes
and U.K. National Insurance contributions when due and obtain reimbursement from the employee for such taxes and the
option exercise price within 90 days from the date of remittance. Upon completion of the Combination on November 2, 2015,
Dr. Steeves ceased to be the Group Executive Officer and a Director of Synergy and became a non-executive Director of
STERIS plc.
98
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Pursuant to the terms of the Combination, Dr. Steeves received STERIS plc shares and cash proceeds on November 6, 2015
in exchange for his Synergy equity holdings. The amount of the cash proceeds was £1.25 million, which was retained by
Synergy and applied to his obligation, thereby reducing it to £1.86 million. Synergy remitted the £3.1 million of income taxes
and U.K. National Insurance contributions to the appropriate United Kingdom agencies on November 20, 2015. Dr. Steeves
remitted the balance of £1.86 million to Synergy on January 27, 2016 in satisfaction of his obligation to reimburse Synergy for
the sums remitted by Synergy on his behalf. The arrangement between Dr. Steeves and Synergy effectively created a receivable
that, under U.S. GAAP, was considered a loan. Loans by a public company to its executive officers and directors are prohibited
under the Sarbanes-Oxley Act of 2002 and are also prohibited by the Company’s corporate governance policies and procedures.
STERIS Corporation was not aware at the time of the closing of the Combination that Synergy had agreed to defer to a later
date Dr. Steeves's obligation to reimburse the income taxes and U.K. National Insurance contributions and the option exercise
price. Senior management learned of the arrangement when it was identified in the Company’s third quarter internal controls
processes.
As a result of these transactions, Prepaid expenses and other current assets in the Company’s consolidated balance sheet as
of the November 2, 2015 acquisition date, included the amount outstanding from Dr. Steeves, as well as a further amount due
from another Synergy employee who also elected to exercise and hold Synergy shares immediately prior to the completion of
the Combination. The other employee is neither an executive officer nor director of the Company. This additional amount was
$368, which resulted in total receivables for both option exercises of $5,152 at the November 2, 2015 acquisition date. The
balances were remitted to Synergy in January 2016 and as a result of the repayments, no such amounts remain outstanding.
99
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
22. QUARTERLY RESULTS (UNAUDITED)
Quarters Ended
Fiscal 2016
Revenues:
Product
Service
Total Revenues
Cost of Revenues:
Product
Service
Total Cost of Revenues
Gross Profit
Percentage of Revenues
Restructuring Expenses
Net Income Attributable to Shareholders
Basic Income Per Ordinary Share Attributable to
Shareholders:
Net income
Diluted Income Per Ordinary Share Attributable to
Shareholders:
Net income
Fiscal 2015
Revenues:
Product
Service
Total Revenues
Cost of Revenues:
Product
Service
Total Cost of Revenues
Gross Profit
Percentage of Revenues
Restructuring Expenses
Net Income Attributable to Shareholders
Basic Income Per Ordinary Share Attributable to
Shareholders:
Net income
Diluted Income Per Ordinary Share Attributable to
Shareholders:
Net income
March 31,
December 31,
September 30,
June 30,
$ 318,438
371,839
690,277
$ 305,156
313,532
618,688
$ 274,145
215,752
489,897
$ 232,307
207,595
439,902
174,642
251,746
426,388
263,889
38.2%
156
57,740
0.67
0.67
165,575
214,932
380,507
238,181
38.5%
(194)
20,045
0.26
0.26
$
$
$
$
$
$
$
$
$
148,088
132,488
280,576
209,321
42.7%
(56)
8,687
0.15
0.14
129,856
125,956
255,812
184,090
41.8%
(726)
24,291
0.41
0.40
$
$
$
$ 293,235
208,412
501,647
$ 267,285
205,959
473,244
$ 256,845
205,884
462,729
$ 230,440
182,203
412,643
161,080
127,507
288,587
213,060
42.5 %
(381)
41,399
0.69
0.69
$
$
$
$
$
$
150,164
125,924
276,088
197,156
41.7 %
(1,109)
38,124
0.64
0.63
$
$
$
142,991
125,746
268,737
193,992
41.9 %
1,271
31,004
0.52
0.52
$
$
$
129,975
112,575
242,550
170,093
41.2 %
(172)
24,537
0.41
0.41
100
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
Description
(in thousands)
Year ended March 31, 2016
Deducted from asset accounts:
Allowance for trade accounts
receivable (1)
Inventory valuation reserve
Deferred tax asset valuation
allowance
Recorded within liabilities:
Casualty loss reserves
Accrued SYSTEM 1 Rebate
Program and class action
settlement
Year ended March 31, 2015
Deducted from asset accounts:
Allowance for trade accounts
receivable (1)
Inventory valuation reserve
Deferred tax asset valuation
allowance
Recorded within liabilities:
Casualty loss reserves
Accrued SYSTEM 1 Rebate
Program and class action
settlement
Year ended March 31, 2014
Deducted from asset accounts:
Allowance for trade accounts
receivable (1)
Inventory valuation reserve
Deferred tax asset valuation
allowance
Recorded within liabilities:
Casualty loss reserves
Accrued SYSTEM 1 Rebate
Program and class action
settlement
Balance at
Beginning
of Period
Charges
to Costs
and
Expenses
Charges
to Other
Accounts
Deductions
Balance at
End of
Period
$
$
9,415
17,597
14,380
3,362
1,146
2,151
$
(2)
(100)
(36)
(3) $
(3)
(1,492) (4) $
—
4,439
(3)
(4,535)
11,185
18,707
16,435
$
18,078
$
4,141
$
1,187
$
(3,184)
$
20,222
16
—
—
(16)
—
$
$
10,922
15,986
12,541
1,415
77
4,028
$
(2)
217
1,534
(3)
(3)
$
(3,139) (4)
—
$
9,415
17,597
(1,867)
(3)
(322)
14,380
$
14,444
$
3,600
$
2,112
$
(2,078)
$
18,078
8
18
—
(10)
16
$
$
10,043
11,985
3,266
3,944
(2)
$
(37)
57
(3) $
(3)
(2,350) (4) $
—
10,922
15,986
12,428
508
227
(3)
(622)
12,541
$
14,100
$
4,000
$
(68)
$
(3,588)
$
14,444
253
—
—
(245)
8
(1)
(2)
(3)
(4)
Net allowance for doubtful accounts and allowance for sales and returns.
Provision for excess and obsolete inventory, net of inventory written off.
Change in foreign currency exchange rates and acquired reserves.
Uncollectible accounts written off, net of recoveries.
101
ITEM 9.
None.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our management, including the Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”), has
evaluated the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15
(e), as of the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation, the PEO and PFO have
determined that, as of the end of the period covered by this Annual Report on Form 10-K, our disclosure controls and
procedures were effective.
CHANGES IN INTERNAL CONTROLS
We continue to implement standards and procedures at Synergy, including upgrading and establishing controls over
accounting systems and adding consultants who are trained and experienced in the preparation of financial statements in
accordance with U.S. GAAP to ensure that we have in place appropriate internal controls over financial reporting at Synergy.
These changes to the Company's internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f)
promulgated under the Securities Exchange Act of 1934, that occurred in the fiscal 2016 interim periods subsequent to the
Combination may materially affect, or are reasonably likely to materially affect, the Company's internal control over financial
reporting.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in the Exchange Act Rules 13a-15(f). Under the supervision and with the participation of management,
including the PEO and PFO, we conducted an evaluation of the effectiveness of internal control over financial reporting as of
March 31, 2016 based on the framework in 2013 Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Our evaluation of internal control over financial reporting did not
include the internal controls of entities that were acquired during fiscal 2016. Total assets of the acquired businesses (inclusive
of acquired intangible assets and goodwill) represented approximately 60 percent of our consolidated assets as of March 31,
2016 and approximately 14 percent of our consolidated net revenues for the year ended March 31, 2016. Based on this
evaluation under this framework, management concluded that the internal control over financial reporting was effective as of
March 31, 2016.
The independent registered public accounting firm that audited the financial statements has issued an attestation report on
internal control over financial reporting. The report is below.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
STERIS plc
We have audited STERIS plc and subsidiaries’ internal control over financial reporting as of March 31, 2016, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (the COSO criteria). STERIS plc and subsidiaries’ management is responsible for maintaining
effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility
is to express an opinion on STERIS plc and subsidiaries’ internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
102
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s
assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal
controls of entities that were acquired during the year ended March 31, 2016, which are included in the fiscal 2016 consolidated
financial statements of STERIS plc and subsidiaries and constituted approximately 60% of total assets as of March 31, 2016
and approximately 14% of total revenues for the year then ended. Our audit of internal control over financial reporting of
STERIS plc and subsidiaries also did not include an evaluation of the internal control over financial reporting of entities that
were acquired during the year ended March 31, 2016.
In our opinion, STERIS plc and subsidiaries maintained, in all material respects, effective internal control over financial
reporting as of March 31, 2016, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheets of STERIS plc and subsidiaries as of March 31, 2016 and 2015 and the related consolidated
statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period
ended March 31, 2016 of STERIS plc and subsidiaries, and our report dated May 31, 2016 expressed an unqualified opinion
thereon.
Cleveland, Ohio
May 31, 2016
/s/ ERNST & YOUNG LLP
103
ITEM 9B. OTHER INFORMATION
None.
104
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
This Annual Report on Form 10-K incorporates by reference the information appearing under the caption "Nominees for
Election as Directors," "Section 16(a) Beneficial Ownership Reporting Compliance," "Board Meetings and Committees" and
"Shareholder Nominations of Directors and Nominee Criteria" of our definitive proxy statement to be filed with the SEC in
connection with our 2016 Annual Meeting of Shareholders (the "Proxy Statement").
Our executive officers serve for a term of one year from the date of election to the next organizational meeting of the Board
of Directors and until their respective successors are elected and qualified, except in the case of death, resignation, or removal.
Information concerning our executive officers is contained in Item 1 of Part 1 of this Annual Report. We have adopted a code
of ethics, our Code of Business Conduct for Employees, that applies to our CEO and CFO and Principal Accounting Officer as
well as all our other employees. We have also adopted a code of ethics, our Director Code of Ethics, which applies to the
members of the Company's Board of Directors, including our CEO. Our Code of Business Conduct for Employees and the
Director Code of Ethics can be found on our Investor Relations website at www.steris-ir.com. Any amendments or waivers of
either of these codes will be made available on this website.
ITEM 11. EXECUTIVE COMPENSATION
This Annual Report on Form 10-K incorporates by reference the information appearing beginning under the captions
"Executive Compensation," "Non-Employee Director Compensation" and "Miscellaneous Matters" of the Proxy Statement.
105
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
This Annual Report on Form 10-K incorporates by reference the information appearing under the captions "Ownership of
Voting Securities" of the Proxy Statement.
The table below presents information concerning all equity compensation plans and individual equity compensation
arrangements in effect as of our fiscal year ended March 31, 2016.
Plan Category
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
Total
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a)
1,729,517
—
1,729,517
Weighted-average
exercise price of
outstanding options,
warrants and rights
($)
(b)
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(c)
44.01
—
44.01
2,197,046
—
2,197,046
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
RELATED PERSON TRANSACTIONS
This Annual Report on Form 10-K incorporates by reference the information beginning under the captions "Governance
Generally", " Board Meeting and Committees" and "Miscellaneous Matters" of the Proxy Statement. For additional
information regarding related party transactions refer to Note 21 of our Consolidated Financial Statements titled, "Related Party
Transactions".
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
This Annual Report on Form 10-K incorporates by reference the information relating to principal accountant fees and
services appearing under the caption "Independent Registered Public Accounting Firm" of the Proxy Statement.
106
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
LIST OF CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
(a) (1) The following consolidated financial statements of STERIS plc and subsidiaries are included in Item 8:
Consolidated Balance Sheets – March 31, 2016 and 2015.
Consolidated Statements of Income – Years ended March 31, 2016, 2015, and 2014.
Consolidated Statements of Comprehensive Income –Years ended March 31, 2016, 2015, and 2014.
Consolidated Statements of Cash Flows – Years ended March 31, 2016, 2015, and 2014.
Consolidated Statements of Shareholders’ Equity – Years ended March 31, 2016, 2015, and 2014.
Notes to Consolidated Financial Statements.
(a) (2) The following consolidated financial statement schedule of STERIS plc and subsidiaries is included in Item 8:
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulation of the SEC are not required
under the related instructions or are inapplicable and, therefore, have been omitted.
(a) (3) Exhibits
Exhibit
Number
3.1
Exhibit Description
Certificate of Incorporation of STERIS plc (filed as Exhibit 3.1 to STERIS plc Form 8-K filed
November 6, 2015 (Commission File No. 1-37614) and incorporated herein by reference).
3.2
Articles of Association of STERIS plc (filed as Exhibit 3.2 to STERIS plc Form 8-K filed
November 6, 2015 (Commission File No. 1-37614) and incorporated herein by reference).
4.1
Specimen Form of Stock Certificate.
10.1
10.2
10.3
10.4
10.5
10.6
STERIS plc 2006 Long-Term Equity Incentive Plan, Assumed as Amended and Restated
Effective November 2, 2015 (filed as Exhibit 4.2 to STERIS plc Registration Statement (Reg.
No. 333-207721) on Form S-8 filed November 2, 2015 (Commission File No. 1-37614) and
incorporated herein by reference).*
STERIS Corporation Form of Nonqualified Stock Option Agreement for Employees (filed as
Exhibit 10.7 to Form 10-Q for the fiscal quarter ended September 30, 2006 (Commission File
No. 1-14643), and incorporated herein by reference).*
STERIS Corporation Form of Nonqualified Stock Option Agreement for Nonemployee Directors
(filed as Exhibit 10.8 to Form 10-Q for the fiscal quarter ended September 30, 2006
(Commission File No. 1-14643), and incorporated herein by reference).*
STERIS Corporation Form of Nonqualified Stock Option Agreement for Employees (filed as
Exhibit 10.3 to Form 10-Q for the fiscal quarter ended June 30, 2008 (Commission File No.
1-14643), and incorporated herein by reference).*
STERIS Corporation Form of Nonqualified Stock Option Agreement for Nonemployee Directors
(filed as Exhibit 10.4 to Form 10-Q for the fiscal quarter ended June 30, 2008 (Commission File
No. 1-14643), and incorporated herein by reference).*
STERIS Corporation Form of Non-Qualified Stock Option Agreement for Employees (filed as
Exhibit 10.2 to Form 10-Q for the fiscal quarter ended June 30, 2009 (Commission File No.
1-14643), and incorporated herein by reference).*
107
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
STERIS Corporation Form of Non-Qualified Stock Option Agreement for Employees. (filed as
Exhibit 10.22 to Form 10-K for the fiscal year ended March 31, 2011(Commission File No.
1-14643), and incorporated herein by reference).*
STERIS Corporation Form of Restricted Stock Agreement for Employees (filed as Exhibit 10.1
to Form 10-Q for the fiscal quarter ended June 30, 2011 (Commission File No. 1-14643), and
incorporated herein by reference.*
STERIS Corporation Form of Nonqualified Stock Option Agreement for Employees (filed as
Exhibit 10.2 to Form 10-Q for the fiscal quarter ended June 30, 2011 (Commission File No.
1-14643), and incorporated herein by reference).*
STERIS Corporation Form of Restricted Stock Agreement for Employees (filed as Exhibit 10.27
to Form 10-K for the fiscal year ended March 31, 2012 (Commission File No. 1-14643, and
incorporated herein by reference).*
STERIS Corporation Form of Restricted Stock Agreement for Employees.(filed as Exhibit 10.28
to Form 10-K for the fiscal year ended March 31, 2012 (Commission File No. 1-14643, and
incorporated herein by reference).*
Amendment to STERIS Corporation Nonqualified Stock Option Agreement (filed as Exhibit
10.11 to Form 10-Q for the fiscal quarter ended December 31, 2012 (Commission File No.
1-14643), and incorporated herein by reference).*
STERIS Corporation Form of Nonqualified Stock Option Agreement for Nonemployee Directors
(filed as Exhibit 10.12 to Form 10-Q for the fiscal quarter ended December 31, 2012
(Commission File No. 1-14643), and incorporated herein by reference).*
STERIS Corporation Form of Nonqualified Stock Option Agreement for Nonemployee Directors
(filed as Exhibit 10.12 to Form 10-Q for the fiscal quarter ended December 31, 2012
(Commission File No. 1-14643), and incorporated herein by reference).*
STERIS Corporation Form of Nonqualified Stock Option Agreement for Employees (filed as
Exhibit 10.14 to Form 10-Q for the fiscal quarter ended December 31, 2012 (Commission File
No. 1-14643), and incorporated herein by reference).*
STERIS Corporation Form of Career Restricted Stock Unit Agreement for Nonemployee
Directors (filed as Exhibit 10.33 to Form 10-K for the fiscal year ended March 31, 2013
(Commission File No. 1-14643), and incorporated by reference).*
STERIS Corporation Form of Nonqualified Stock Option Agreement for Nonemployee Directors
(filed as Exhibit 10.34 to Form 10-K for the fiscal year ended March 31, 2013 (Commission File
No. 1-14643), and incorporated by reference).*
STERIS plc Form of Nonqualified Stock Option Agreement for Employees (filed as Exhibit 10.2
to STERIS plc Form 10-Q for the fiscal quarter ended December 31, 2015 (Commission File No.
1-37614) and incorporated herein by reference).*
STERIS plc Form of Restricted Stock Agreement for Employees (filed as Exhibit 10.3 to
STERIS plc Form 10-Q for the fiscal quarter ended December 31, 2015 (Commission File No.
1-37614) and incorporated herein by reference).*
10.20
STERIS plc Form of Nonqualified Stock Option Agreement for Nonemployee Directors.*
10.21
STERIS plc Form of Career Restricted Stock Agreement for Nonemployee Directors.*
10.22
10.23
Description of STERIS Corporation Non-Employee Director Compensation Program (filed as
Exhibit 10.2 to Form 10-Q for the fiscal quarter ended September 30, 2015 (Commission File
No. 1-14643), and incorporated herein by reference).*
Description of Compensation Payable to Former Directors of Synergy Health plc who became
Directors of STERIS plc (filed as Exhibit 10.8 to STERIS plc Form 10-Q for the fiscal quarter
ended December 31, 2015 (Commission File No. 1-37614) and incorporated herein by
reference).*
108
10.24
10.25
10.26
10.27
10.28
10.29
10.30
STERIS Corporation Deferred Compensation Plan Document (filed as Exhibit 10.1 to Form 8-K
filed September 1, 2006 (Commission File No. 1-14643), and incorporated herein by reference).*
STERIS Corporation Deferred Compensation Plan Document (as Amended and Restated
Effective January 1, 2009) (filed as Exhibit 10.1 to Form 10-Q for the fiscal quarter ended
December 31, 2008 (Commission File No. 1-14643), and incorporated herein by reference).*
Amended and Restated Adoption Agreement related to STERIS Corporation Deferred
Compensation Plan (filed as Exhibit 10.2 to Form 10-Q filed for the fiscal quarter ended
December 31, 2008 (Commission File No. 1-14643), and incorporated herein by reference).*
Amendment No. 1 to STERIS Corporation Deferred Compensation Plan Document (as Amended
and Restated Effective January 1, 2009) dated November 4, 2011 (filed as Exhibit 10.1 to Form
10-Q for the fiscal quarter ended December 31, 2011 (Commission File No. 1-14643), and
incorporated herein by reference).*
STERIS Corporation Management Incentive Compensation Plan, as Amended (filed as Exhibit
10.6 to Form 10-Q for the fiscal quarter ended June 30, 2014 (Commission File No. 1-14643),
and incorporated herein by reference).*
STERIS Corporation Senior Executive Management Incentive Compensation Plan, as Amended
and Restated Effective April 1, 2015 (filed as Appendix A to Schedule 14A (Definitive Proxy
Statement) filed July 8, 2015 (Commission File No. 1-14643), and incorporated herein by
reference).*
Description of STERIS plc Management Incentive Compensation Plan and STERIS plc Senior
Executive Management Incentive Compensation Plan in effect for the fourth quarter of fiscal
2016 (included in STERIS plc Form 8-K filed February 2, 2016) (Commission File No.
1-37614), and incorporated herein by reference).*
10.31
STERIS plc Management Incentive Compensation Plan, Effective April 1, 2016.
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
Form of Make-Whole Payment and Repayment Conditions Agreement Between Former STERIS
Corporation Non-Employee Directors and STERIS Corporation.*
Form of Make-Whole Payment and Repayment Conditions Agreement Between STERIS
Corporation Executive Officers and STERIS Corporation.*
STERIS plc Senior Executive Severance Plan (filed as Exhibit 10.4 to Form 10-Q for the fiscal
quarter ended December 31, 2015 (Commission No. 1-37614), and incorporated herein by
reference).*
Termination Agreement between Synergy Health and Dr. Richard Steeves (filed as Exhibit 10.7
to STERIS plc Form 10-Q for the fiscal quarter ended December 31, 2015 (Commission File No.
1-37614), and incorporated herein by reference).*
Service Agreement between Dr. Adrian Coward and Synergy Health Limited as amended, and
STERIS plc letter (filed as Exhibit 10.5 to STERIS plc Form 10-Q for the fiscal quarter ended
December 31, 2015 (Commission File No. 1-37614), and incorporated herein by reference).*
Form of Indemnification Agreement between STERIS Corporation and each of its directors and
certain executive officers (filed as Exhibit 10.31 to Form 10-K for the fiscal year ended March
31, 2010 (Commission File No. 1-14643), and incorporated herein by reference).
Form of Deed of Indemnity for STERIS plc Directors and executive officers (filed as Exhibit
10.5 to STERIS plc Form 10-Q for the fiscal quarter ended December 31, 2015 (Commission
File No. 1-37614 ), and incorporated herein by reference).
Agreement dated as of April 23, 2008 by and among STERIS Corporation, Richard C. Breeden,
Robert H. Fields, and the Breeden Investors identified therein (filed as Exhibit 10.1 to Form 8-K
filed April 24, 2008 (Commission File No. 1-14643), and incorporated herein by reference).
Agreement dated November 4, 2011 between STERIS Corporation and Bank of America, N.A.
providing Transfer and Advised Line for Letters of Credit (filed as Exhibit 10.2 to Form 10-Q for
the fiscal quarter ended December 31, 2011 (Commission File No. 1-14643), and incorporated
herein by reference).
109
10.41
10.42
10.43
10.44
10.45
10.46
10.47
10.48
10.49
10.50
364-Day Bridge Credit Agreement, dated as of October 13, 2014, among Solar US Parent Co., as
borrower, STERIS Corporation, as guarantor, Bank of America, N.A. as Administrative Agent
and lender, and the other lenders party thereto (filed as Exhibit 10.1 to Form 8-K filed October
14, 2014 (Commission File No. 1-14643), and incorporated herein by reference).
Amended and Restated Bridge Credit Agreement, dated as of March 31, 2015, by and among
STERIS Corporation and New STERIS Limited, as borrowers and guarantors, various U.S.
subsidiaries of STERIS Corporation, as guarantors, Solar U.S. Parent Co., as retiring borrower,
Bank of America, N.A., as Administrative Agent and lender, JPMorgan Chase Bank, N.A., as
Syndication Agent and lender, KeyBank National Association, as Documentation Agent and
lender, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities LLC and
KeyBanc Capital Markets Inc., as Joint Lead Arrangers and Joint Bookrunners (filed as Exhibit
10.2 to Form 8-K filed April 2, 2015 (Commission File No. 1-14643), and incorporated herein by
reference).
First Amendment, dated as of May 29, 2015, by and among STERIS Corporation and New
STERIS Limited, as borrowers and guarantors, various U.S. subsidiaries of STERIS Corporation,
as guarantors, Bank of America, N.A., as Administrative Agent, and the various financial
institutions parties thereto, as lenders, to Amended and Restated 364-Day Bridge Credit
Agreement dated March 31, 2015 (filed as Exhibit 10.1 to Form 8-K filed June 1, 2015
(Commission File No. 1-14643), and incorporated herein by reference).
Credit Agreement, dated as of March 31, 2015, by and among STERIS Corporation and New
STERIS Limited, as borrowers, various U.S. subsidiaries of STERIS Corporation, as guarantors,
various financial institutions, as lenders, JPMorgan Chase Bank, N.A., as Administrative Agent,
Bank of America, N.A., KeyBank National Association and PNC Bank, National Association, as
Syndication Agents, Santander Bank, N.A., The Bank of Tokyo Mitsubishi UFJ, Ltd., Sumitomo
Mitsui Banking Corporation and DNB Capital LLC, as Documentation Agents, and J.P. Morgan
Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and KeyBank National
Association, as Joint Lead Arrangers and Joint Bookrunners (filed as Exhibit 10.1 to Form 8-K
filed April 2, 2015 (Commission File No. 1-14643), and incorporated herein by reference).
First Amendment, dated as of May 29, 2015, by and among STERIS Corporation, as borrower
and guarantor, New STERIS Limited, as borrower, various U.S. subsidiaries of STERIS
Corporation, as guarantors, JPMorgan Chase Bank, N.A., as Administrative Agent, and the
various financial institutions parties thereto, as lenders, to Credit Agreement dated March 31,
2015 (filed as Exhibit 10.2 to Form 8-K filed June 1, 2015 (Commission File No. 1-14643), and
incorporated herein by reference).
Guaranty Joinder Agreement dated September 9, 2015 by General Econopak, Inc. in favor of
JPMorgan Chase Bank, N.A. (filed as Exhibit 10.10 to STERIS plc Form 10-Q for the fiscal
quarter ended December 31, 2015 (Commission File No. 1-37614), and incorporated herein by
reference).
Guarantor Joinder Agreement dated November 2, 2015 by Solar New US Holding Co, LLC,
Solar New US Parent Co, LLC and Solar New US Acquisition Co, LLC in favor of JPMorgan
Chase Bank, N.A.
Guarantor Joinder Agreement dated January 12, 2016 by Synergy Health Holdings Limited,
Synergy Health Sterilisation UK Limited, Synergy Health (UK) Limited, Synergy Health
Investments Limited and Synergy Health US Holdings Limited in favor of JPMorgan Chase
Bank, N.A.
First Amendment, dated as of March 31, 2015, to Note Purchase Agreement dated as of August
15, 2008, among STERIS Corporation and each of the institutions party thereto (filed as Exhibit
10.5 to Form 8-K filed April 2, 2015 (Commission File No. 1-14643), and incorporated herein by
reference).
Affiliate Guaranty, dated as of March 31, 2015, by STERIS Corporation and each of American
Sterilizer Company, Integrated Medical Systems International, Inc., STERIS Europe, Inc.,
STERIS Inc., United States Endoscopy Group, Inc., Isomedix Inc. and Isomedix Operations Inc.,
of the August 15, 2008 Note Purchase Agreements, as amended and restated, and Notes issued
pursuant thereto (filed as Exhibit 10.6 to Form 8-K filed April 2, 2015 (Commission File No.
1-14643), and incorporated herein by reference).
110
10.51
10.52
10.53
10.54
10.55
10.56
10.57
10.58
10.59
10.60
10.61
Guaranty Supplement dated September 9, 2015 by General Econopak, Inc. and STERIS
Corporation of Affiliate Guaranty dated as of March 31, 2015 of STERIS Corporation August 15,
2008 Note Purchase Agreements as amended and restated, and of the Notes issued pursuant
thereto (filed as Exhibit 10.10 to STERIS plc Form 10-Q for the fiscal quarter ending December
31, 2015 (Commission File No. 1-37614), and incorporated herein by reference).
Guaranty Supplement dated November 2, 2015 by Solar New US Holding Co, LLC, Solar New
US Parent Co, LLC and Solar New US Acquisition Co, LLC and STERIS Corporation of
Affiliate Guaranty dated as of March 31, 2015 of STERIS Corporation August 15, 2008 Note
Purchase Agreements, as amended and restated, and of the Notes issued pursuant thereto.
Guaranty Supplement dated January 12, 2016 by Synergy Health Holdings Limited, Synergy
Health Sterilisation UK Limited, Synergy Health (UK) Limited, Synergy Health Investments
Limited and Synergy Health US Holdings Limited of Affiliate Guaranty dated as of March 31,
2015 of STERIS Corporation August 15, 2008 Note Purchase Agreements, as amended and
restated, and of the Notes issued pursuant thereto.
First Amendment, dated as of March 31, 2015, to Note Purchase Agreements dated as of
December 4, 2012, among STERIS Corporation and each of the institutions party thereto (filed
as Exhibit 10.7 to Form 8-K filed April 2, 2015 (Commission File No. 1-14643), and
incorporated herein by reference).
Affiliate Guaranty, dated as of March 31, 2015, by STERIS Corporation and each of American
Sterilizer Company, Integrated Medical Systems International, Inc., STERIS Europe, Inc.,
STERIS Inc., United States Endoscopy Group, Inc., Isomedix Inc. and Isomedix Operations Inc.,
of the December 4, 2012 Note Purchase Agreements, as amended and restated, and Notes issued
pursuant thereto (filed as Exhibit 10.8 to Form 8-K filed April 2, 2015 (Commission File No.
1-14643), and incorporated herein by reference).
Guaranty Supplement dated September 9, 2015 by General Econopak, Inc. and STERIS
Corporation of Affiliate Guaranty dated as of March 31, 2015 of STERIS Corporation December
4, 2012 Note Purchase Agreements, as amended and restated, and of the Notes issued pursuant
thereto (filed as Exhibit 10.11 to STERIS plc Form 10-Q for the fiscal quarter ended December
31, 2015 (Commission File No. 1-37614), and incorporated herein by reference).
Guaranty Supplement dated November 2, 2015 by Solar New US Holding Co, LLC, Solar New
US Parent Co, LLC and Solar New US Acquisition Co, LLC and STERIS Corporation of
Affiliate Guaranty dated as of March 31, 2015 of STERIS Corporation December 4, 2012 Note
Purchase Agreements, as amended and restated, and of the Notes issued pursuant thereto.
Guaranty Supplement dated January 12, 2016 by Synergy Health Holdings Limited, Synergy
Health Sterilisation UK Limited, Synergy Health (UK) Limited, Synergy Health Investments
Limited and Synergy Health US Holdings Limited of Affiliate Guaranty dated as of March 31,
2015 of STERIS Corporation December 4, 2012 Note Purchase Agreements, as amended and
restated and of the Notes issued pursuant thereto.
Note Purchase Agreement dated as of May 15, 2015, among STERIS Corporation and each of
the institutions party thereto (filed as Exhibit 10.1 to Form 8-K of STERIS Corporation filed
May 18, 2015 (Commission File No. 1-14643), and incorporated herein by reference).
Affiliate Guaranty, dated as of May 15, 2015, by STERIS Corporation and each of American
Sterilizer Company, Integrated Medical Systems International, Inc., STERIS Europe, Inc.,
STERIS Inc., United States Endoscopy Group, Inc., Isomedix Inc. and Isomedix Operations Inc.,
of STERIS Corporation May 15, 2015 Note Purchase Agreement and Notes issued pursuant
thereto (filed as Exhibit 10.2 to Form 8-K of STERIS Corporation filed May 18, 2015
(Commission File No. 1-14643), and incorporated herein by reference).
Guaranty Supplement dated September 9, 2015 by General Econopak, Inc. and STERIS
Corporation of Affiliate Guaranty dated as of May 15, 2015 of STERIS Corporation May 15,
2015 Note Purchase Agreement and of the Notes issued pursuant thereto (filed as Exhibit 10.12
to STERIS plc Form 10-Q for the fiscal quarter ended December 31, 2015 (Commission File No.
1-37614), and incorporated herein by reference).
111
10.62
10.63
10.64
10.65
10.66
10.67
Guaranty Supplement dated November 2, 2015 by Solar New US Holding Co, LLC, Solar New
US Parent Co, LLC and Solar New US Acquisition Co, LLC and STERIS Corporation of
Affiliate Guaranty dated as of May 15, 2015 of STERIS Corporation May 15, 2015 Note
Purchase Agreement and of the Notes issued pursuant thereto.
Guaranty Supplement dated January 12, 2016 by Synergy Health Holdings Limited, Synergy
Health Sterilisation UK Limited, Synergy Health (UK) Limited, Synergy Health Investments
Limited and Synergy Health US Holdings Limited of STERIS Corporation May 15, 2015 Note
Purchase Agreement and of the Notes issued pursuant thereto.
Stock Purchase Agreement dated July 16, 2012 by and among STERIS Corporation, United
States Endoscopy Group, Inc. and the shareholders party thereto (filed as Exhibit 2.1 to Form 8-
K filed August 15, 2012 (Commission File No. 1-14643), and incorporated herein by reference).
Stock Purchase Agreement dated October 16, 2012 between STERIS Corporation, Richard J. and
Michelle A. Schultz, individually and as trustees of certain trusts, such trusts and Spectrum
Surgical Instruments Corp. (filed as Exhibit 10.5 to Form 10-Q for the fiscal quarter ended
December 31, 2012 (Commission File No. 1-14643), and incorporated herein by reference).
Stock Purchase Agreement dated March 31, 2014 by and among STERIS Corporation, Integrated
Medical Systems International, Inc. and the shareholders party thereto (filed as Exhibit 2.1 to
Form 8-K filed May 9, 2014 (Commission File No. 1-14643), and incorporated herein by
reference).
Stock Purchase Agreement dated June 23, 2015 by and among STERIS Corporation, General
Econopak, Inc. and each of the Stockholders of General Econopak, Inc. (filed as Exhibit 10.1 to
STERIS Corporation Form 10-Q for the fiscal quarter ended June 30, 2015 (Commission File
No. 1-14643), and incorporated herein by reference).
21.1
Subsidiaries of STERIS plc.
23.1
Consent of Independent Registered Public Accounting Firm.
24.1
Power of Attorney.
31.1
31.2
32.1
Certification of the Principal Executive Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14
(a).
Certification of the Principal Financial Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14
(a).
Certification of the Principal Executive Officer and the Principal Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
EX-99.1
FRS 102 Notification and Election.
EX-101
Instance Document.
EX-101
Schema Document.
EX-101
Calculation Linkbase Document.
EX-101
Definition Linkbase Document.
EX-101
Labels Linkbase Document.
EX-101
Presentation Linkbase Document.
*
A management contract or compensatory plan or arrangement required to be filed as an exhibit
hereto.
112
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the date indicated.
SIGNATURES
Date: May 31, 2016
STERIS plc
(Registrant)
/S/ MICHAEL J. TOKICH
By:
Michael J. Tokich
Senior Vice President, Chief Financial Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the date indicated.
SIGNATURE
TITLE
DATE
/S/ WALTER M ROSEBROUGH, JR.
President, Chief Executive Officer and Director
May 31, 2016
Walter M Rosebrough, Jr.
/S/ MICHAEL J. TOKICH
Michael J. Tokich
Senior Vice President, Chief Financial Officer and
Treasurer (Principal Financial and Accounting
Officer)
*
John P. Wareham
*
Richard C. Breeden
*
Bruce A. Edwards
*
Cynthia L. Feldmann
*
David B. Lewis
*
Jacqueline B. Kosecoff
*
Kevin M. McMullen
*
Sir Duncan K. Nichol
*
Mohsen M. Sohi
*
Dr. Richard M. Steeves
*
Loyal W. Wilson
*
Michael B. Wood
Chairman and Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
May 31, 2016
May 31, 2016
May 31, 2016
May 31, 2016
May 31, 2016
May 31, 2016
May 31, 2016
May 31, 2016
May 31, 2016
May 31, 2016
May 31, 2016
May 31, 2016
May 31, 2016
*
The undersigned, by signing his name hereto, does sign and execute this Annual Report on Form 10-K pursuant to the
Powers of Attorney executed by the above-named directors of the Registrant and filed with the Securities and Exchange
Commission on behalf of such directors.
Date: May 31, 2016
By:
/S/ J. ADAM ZANGERLE
J. Adam Zangerle,
Attorney-in-Fact for Directors
113
EXHIBIT 21.1
SUBSIDIARIES OF STERIS PLC
STERIS plc has no parent company. As of March 31, 2016, its direct and indirect subsidiaries(1) were as
follows:
England & Wales
Pennsylvania
Egypt
Italy
Minnesota
Malaysia
California
China
England & Wales
Ohio
England and Wales
Czech Republic
England & Wales
Singapore
Sweden
Pennsylvania
England and Wales
Delaware
England and Wales
Delaware
Delaware
Germany
Switzerland
Delaware
Ontario, Canada
Delaware
Delaware
England and Wales
England and Wales
Delaware
England and Wales
Albert Browne Limited
American Sterilizer Company
Bioster Mottahedoon Egypt SAE
Bioster S.p.A.
Biotest Laboratories, Inc.
Bizworth Gammarad Sdn Bhd
Black Diamond Video, Inc.
Chengdu Synergy Health Laoken Sterilization Co. Limited
CLBV Limited
Controlled Environment Certification Services, Inc.
Drug Test Limited
Ebster CZ s.r.o.
Eschmann Holdings Limited
Eschmann Holdings Pte Limited
Gammaster Sweden AB
General Econopak, Inc.
Genon Laboratories Limited
Hausted, Inc.
Healthtex Synergy Limited
HSTD LLC
HTD Holding Corp.
IDtek Identifikationslösungen GmbH
IDtek Track-and-Trace SA
Integrated Medical Systems International, Inc.
Isomedix Corporation
Isomedix Inc.
Isomedix Operations Inc.
Isotron Limited
MT Health Limited
PeriOptimum, Inc.
ReNOVA Surgical Limited
Sercon Indústria E Comércio De Aparelhos Médicos Brazil
E Hospitalares Ltda.
Shiloh Limited
Shiloh Properties Limited
Solar New US Holding Co, LLC
Solar New US Parent Co, LLC
Solar US Acquisition Co, LLC
Sterilgamma Services Sdn Bhd
SterilTek Holdings, Inc.
SterilTek, Inc.
England and Wales
England and Wales
Delaware
Delaware
Delaware
Malaysia
Delaware
Nevada
114
STERIS – Austar Pharmaceutical Systems (Shanghai) Limited China
STERIS – Austar Pharmaceutical Systems Hong Kong Limited Hong Kong
STERIS (BVI) I Limited
STERIS (India) Private Limited
STERIS (Shanghai) Trading Co., Ltd.
STERIS AB
STERIS Asia Pacific, Inc.
STERIS AST SK s.r.o.
STERIS Brasil Servicos Administrativos Ltda.
STERIS Brazil Holdings, LLC
STERIS Canada Corporation
STERIS Canada Inc.
STERIS CH Limited
STERIS China Holdings Limited
STERIS Corporation
STERIS Corporation de Costa Rica, S.A.
STERIS Deutschland GmbH
STERIS Enterprises LLC
STERIS Europe, Inc.
STERIS FinCo S.à r.l.
STERIS GmbH
STERIS Holdings B.V.
STERIS Iberia, S.A.
STERIS Inc.
STERIS Irish FinCo Unlimited Company
STERIS Isomedix Puerto Rico, Inc.
STERIS Japan Inc.
STERIS Latin America, Inc.
STERIS Luxembourg Finance S.à r.l.
STERIS Luxembourg Holding S.à r.l.
STERIS Mauritius Limited
STERIS Mexico, S. de R.L. de C.V.
STERIS NV
STERIS Personnel Services Mexico, S. de R.L. de C.V.
STERIS Personnel Services, Inc.
STERIS S.r.l.
STERIS sas
STERIS SEA Sdn. Bhd.
STERIS Singapore Pte Ltd
STERIS Solutions Limited
STERIS UK Holding Limited
Strategic Technology Enterprises, Inc.
STS Synergy Limited
Synergy Decontamination (M) Sdn Bhd
Synergy Health (Europe) B.V.
British Virgin Islands
India
China
Sweden
Delaware
Slovakia
Brazil
Delaware
Quebec, Canada
Ontario, Canada
England & Wales
Hong Kong
Ohio
Costa Rica
Germany
Russia
Delaware
Luxembourg
Switzerland
Netherlands
Spain
Delaware
Republic of Ireland
Puerto Rico
Japan
Delaware
Luxembourg
Luxembourg
Republic of Mauritius
Mexico
Belgium
Mexico
Delaware
Italy
France
Malaysia
Singapore
England & Wales
England & Wales
Delaware
England and Wales
Malaysia
The Netherlands
115
Synergy Health (Hong Kong) Limited
Synergy Health (Suzhou) Limited
Synergy Health (Suzhou) Sterilization Technologies Limited
Synergy Health (Thailand) Limited
Synergy Health (UK) Limited
Synergy Health Allershausen GmbH
Synergy Health Amsterdam B.V.
Synergy Health AST, LLC
Synergy Health AST S.r.l.
Synergy Health Däniken AG
Synergy Health Duiven B.V.
Synergy Health Ede B.V.
Synergy Health Emmen B.V.
Synergy Health France sas
Synergy Health Gemert B.V.
Synergy Health Goes B.V.
Synergy Health Holding B.V.
Synergy Health Holdings Limited
Synergy Health Hoorn B.V.
Synergy Health International Limited
Synergy Health Investments Limited
Synergy Health Ireland Limited
Synergy Health Laboratory Services Limited
Synergy Health Limited
Synergy Health Logistics B.V.
Synergy Health Managed Services Limited
Synergy Health Marseille sas
Synergy Health Nederland B.V.
Synergy Health New York, LLC
Synergy Health North America, Inc.
Synergy Health Outsourcing Solutions S.A. de C.V.
Synergy Health Outsourcing Solutions, Inc.
Synergy Health Raalte B.V.
Synergy Health Radeberg GmbH
Synergy Health Sterilisation UK Limited
Synergy Health Systems Limited
Synergy Health Textielservice B.V.
Synergy Health Tiel B.V.
Synergy Health True North, LLC
Synergy Health US Holdings Limited
Synergy Health US Holdings, Inc.
Synergy Health Utrecht B.V.
Synergy Health Voorburg B.V.
Synergy Health Wasverzorging B.V.
Synergy Health Westport Limited
Hong Kong
China
China
Thailand
England and Wales
Germany
The Netherlands
Delaware
Costa Rica
Switzerland
The Netherlands
The Netherlands
The Netherlands
France
The Netherlands
The Netherlands
The Netherlands
England and Wales
The Netherlands
England and Wales
England and Wales
Republic of Ireland
England and Wales
England and Wales
The Netherlands
England and Wales
France
The Netherlands
Delaware
Florida
Mexico
Florida
The Netherlands
Germany
England and Wales
England and Wales
The Netherlands
The Netherlands
New York
England and Wales
Delaware
The Netherlands
The Netherlands
The Netherlands
Republic of Ireland
116
Synergy Healthcare (UK) Limited
Synergy Healthcare Limited
Synergy Sterilisation (M) Sdn Bhd
Synergy Sterilisation KL (M) Sdn Bhd
Synergy Sterilisation Kulim (M) Sdn Bhd
Synergy Sterilisation Rawang (M) Sdn Bhd
Synergy Sterilisation South Africa (Pty) Limited
Trust Sterile Services Limited
United States Endoscopy Group, Inc.
Vernon and Co. Limited
Vernon Carus (Malta) Limited
Vernon-Carus Limited
Wedge Manufacturing, Inc.
England and Wales
England and Wales
Malaysia
Malaysia
Malaysia
Malaysia
South Africa
Scotland
Ohio
England and Wales
Malta
England and Wales
Delaware
(1) The names of one or more subsidiaries which, considered in the aggregate as a single subsidiary, would not
constitute at the end of fiscal 2016 a “significant subsidiary” within the meaning of Rule 1-02(w) of Regulation
S-X have been excluded.
117
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
We consent to the incorporation by reference in the following Registration Statements of STERIS plc and subsidiaries
(STERIS) of our reports dated May 31, 2016, with respect to the consolidated financial statements and schedule of STERIS and
the effectiveness of internal control over financial reporting of STERIS included in this Annual Report (Form 10-K) of STERIS
for the year ended March 31, 2016:
Registration
Number
Description
333-207721
Form S-8 Registration Statement - STERIS plc 2006 Long-Term Equity Incentive Plan, Assumed as
Amended and Restated
333-207722
Form S-8 Registration Statement - STERIS Corporation 401(k) Plan
Cleveland, Ohio
May 31, 2016
/s/ Ernst & Young LLP
118
Exhibit 24.1
STERIS PLC
POWER OF ATTORNEY
FORM 10-K
Each of the undersigned hereby makes, constitutes, and appoints Walter M Rosebrough, Jr., Michael J. Tokich, Karen
L. Burton, J. Adam Zangerle, Ronald E. Snyder, Dennis P. Patton, and each of them, his or her true and lawful attorney,
with full power of substitution, for and in his or her name, place, and stead, to affix, as attorney-in-fact, his or her
signature in any and all capacities, to the Annual Report on Form 10-K of STERIS plc for its fiscal year ended March
31, 2016, and any and all amendments thereto to be filed with the Securities and Exchange Commission, Washington,
D.C., under the provisions of the Securities Exchange Act of 1934, as amended, with power to file said Form 10-K
and such amendments, and any and all other documents that may be required in connection therewith, with the Securities
and Exchange Commission, hereby granting unto said attorneys-in-fact, and each of them, full power and authority to
do and perform any and all acts and things requisite or appropriate in connection therewith, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or
any of them may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney as of the 28th
day of April 2016.
/s/ RICHARD C. BREEDEN
Richard C. Breeden, Director
/s/ CYNTHIA L. FELDMANN
Cynthia L. Feldmann, Director
/s/ DAVID B. LEWIS
David B. Lewis, Director
/s/ SIR DUNCAN K. NICHOL
Sir Duncan K. Nichol, Director
/s/ BRUCE A. EDWARDS
Bruce A. Edwards, Director
/s/ JACQUELINE B. KOSECOFF
Jacqueline B. Kosecoff, Director
/s/ KEVIN M. MCMULLEN
Kevin M. McMullen, Director
/s/ MOHSEN M. SOHI
Mohsen M. Sohi, Director
/s/ DR. RICHARD M. STEEVES
Dr. Richard M. Steeves, Director
/s/ JOHN P. WAREHAM
John P. Wareham, Chairman of the Board
/s/ LOYAL W. WILSON
Loyal W. Wilson, Director
/s/ MICHAEL J. TOKICH
Michael J. Tokich
Senior Vice President, Chief Financial Officer and
Treasurer
(Principal Financial and Accounting Officer)
/s/ MICHAEL B. WOOD
Michael B. Wood, Director
/s/ WALTER M ROSEBROUGH, JR
Walter M Rosebrough, Jr.
President and Chief Executive Officer
(Principal Executive Officer), Director
119
CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER
I, Walter M Rosebrough, Jr., certify that:
1.
I have reviewed this annual report on Form 10-K of STERIS plc;
Exhibit 31.1
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
Date: May 31, 2016
/S/ WALTER M ROSEBROUGH, JR.
Walter M Rosebrough, Jr.
President and Chief Executive Officer
120
CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER
I, Michael J. Tokich, certify that:
1.
I have reviewed this annual report on Form 10-K of STERIS plc;
Exhibit 31.2
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
Date: May 31, 2016
/S/ MICHAEL J. TOKICH
Michael J. Tokich
Senior Vice President, Chief Financial Officer and Treasurer
121
Exhibit 32.1
Certification Pursuant to § 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, in connection with the
filing of the Form 10-K of STERIS plc (the “Company”) for the fiscal year ended March 31, 2016, as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company certifies, that, to
such officer's knowledge:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company as of the dates and for the periods expressed in the Report.
/S/ WALTER M ROSEBROUGH, JR.
Name:
Title:
Walter M Rosebrough, Jr.
President and Chief Executive Officer
/S/ MICHAEL J. TOKICH
Name:
Title:
Michael J. Tokich
Senior Vice President, Chief Financial Officer and Treasurer
Dated: May 31, 2016
122
This Page is Not Part of STERIS plc's Form 10-K Filing
Non-GAAP Financial Measures
(In thousands, except per share data)
Non-GAAP financial measures are presented with the intent of providing greater transparency to supplemental financial information used by management and the Board of Directors in their
financial analysis and operational decision making. These amounts are disclosed so that the reader has the same financial data that management uses with the belief that it will assist investors
and other readers in making comparisons to our historical operating results and analyzing the underlying performance of our operations for the periods presented.
We believe that the presentation of these non-GAAP financial measures, when considered along with our GAAP financial measures and the reconciliation to the corresponding GAAP financial
measures, provide the reader with a more complete understanding of the factors and trends affecting our business than could be obtained absent this disclosure. It is important for the reader to
note that the non-GAAP financial measure used may be calculated differently from, and therefore may not be comparable to, a similarly titled measure used by other companies.
Twelve months ended March 31, (unaudited)
Gross Profit
2016
2015
Income from Operations
2016
2015
Net income attributable
to shareholders
2016
2015
Diluted EPS
2016
2015
GAAP
Adjustments:
Amortization of inventory and property "step up" to fair value
Amortization and impairment of purchased intangible assets
Acquisition related transaction and integration costs
Loss (gain) on fair value adjustment of acquisition
related contingent consideration
Settlement of pension obligation
Restructuring charges
Make whole payments (interest expense)
Adjusted
$ 895,481
$ 774,301
$ 212,927
$ 227,211
$ 110,763
$ 135,064
$
1.56
$
2.25
9,826
-
2,979
-
-
-
319
-
$ 908,605
1,234
-
-
9,907
47,704
82,891
1,330
28,317
32,762
7,700
32,821
67,999
1,064
17,551
25,040
0.11
0.46
0.95
-
-
(368)
-
$ 775,167
(736)
26,470
(501)
-
$ 378,662
2,271
-
(759)
-
$ 291,132
(449)
16,337
(305)
6,591
$ 241,457
1,385
-
(463)
-
$ 179,641
(0.01)
0.23
-
0.09
$ 3.39
0.02
0.29
0.41
0.02
-
-
-
$ 2.99
The following table presents a financial measure which is considered to be "non-GAAP financial measures" under Securities Exchange Commission rules. Free cash flow is defined by the
Company as cash flows from operating activities less purchases of property, plant, equipment and intangibles, net (capital expenditures) plus proceeds from the sale of property, plant, equipment
and intangibles. The Company uses free cash flow as a measure to gauge its ability to fund future principal debt repayments and growth outside of core operations, repurchase common shares,
and pay cash dividends. STERIS's calculation of free cash flow may vary from other companies.
Twelve Months Ended
March 31,
Calculation of Free Cash Flow:
Cash flows from operating activities
Purchases of property, plant, equipment, and intangibles, net
Proceeds from the sale of property, plant, equipment, and intangibles
Free Cash Flow
2016
(Unaudited)
$
254,675
(126,407)
844
129,112
$
2015
(Unaudited)
246,040
$
(85,255)
829
161,614
$
This Page is Not Part of STERIS plc's Form 10-K Filing
Performance Graph. The following graph shows the cumulative performance for our common shares over the last five years as of March 31 of each year
compared with the performance of the Standard & Poor’s 500 Index and the Dow Jones U.S. Medical Supplies Index as of the same date. The graph assumes
$100 invested as of March 31, 2011 in our common shares and in each of the named indices. The past performance shown in this graph does not necessarily
guarantee future performance.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
$250
$200
$150
$100
$50
$0
03/11
03/12
03/13
03/14
03/15
03/16
STERIS plc
S&P 500 Index
Dow Jones US Medical Supplies Index
*$100 invested on 3/31/11 in stock or index, including reinvestment of dividends.
Fiscal year ending March 31.
Copyright© 2016 Standard and Poor’s, Inc. Used with permission. All rights reserved.
Copyright© 2016 Dow Jones, Inc. Used with permission. All rights reserved.
STERIS plc
S&P 500 Index
Dow Jones US Medical Supplies Index
3/11
100.00
100.00
100.00
3/12
93.55
108.54
103.75
3/13
125.84
123.69
122.90
3/14
147.09
150.73
131.81
3/15
219.80
169.92
161.08
3/16
225.52
172.95
172.26
Corporate Information
EXECUTIVE OFFICERS
Kathleen L. Bardwell
Senior Vice President and
Chief Compliance Officer
Daniel A. Carestio
Senior Vice President, STERIS
Applied Sterilization Technologies
and Life Sciences
Dr. Adrian Coward
Senior Vice President,
Healthcare Specialty Services
Suzanne V. Forsythe
Vice President,
Human Resources
Gulam A. Khan
Senior Vice President,
Procedural Solutions
Sudhir K. Pahwa
Senior Vice President,
Infection Prevention Technologies
Walter M Rosebrough, Jr.
President and Chief Executive Officer
Michael J. Tokich
Senior Vice President,
Chief Financial Officer
and Treasurer
J. Adam Zangerle
Vice President, General Counsel,
and Secretary
REGISTERED OFFICE
STERIS plc
Chancery House, 190 Waterside Road
Hamilton Industrial Park, Leicester LE5 1QZ
United Kingdom
www.steris.com
ANNUAL REPORT
Included in this Annual Report is a copy of
STERIS’s Form 10-K filed with the Securities and
Exchange Commission for the year ended March
31, 2016. Additional copies of the Company’s
Form 10-K and other information are available at
www.steris-ir.com or upon written request to:
Julie Winter
Director, Investor Relations
STERIS
5960 Heisley Road
Mentor, OH 44060-1834 USA
TRANSFER AGENT AND
REGISTRAR
ComputerShare
P.O. Box 43001
Providence, RI 02940
Toll free: 866-395-6420
Toll: +1-781-575-2662
www.computershare.com/investor
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
Suite 1800
950 Main Avenue
Cleveland, OH 44113-7214
STOCK EXCHANGE LISTING
STERIS is listed on the New York Stock Exchange
under the symbol STE.
ANNUAL MEETING OF
SHAREHOLDERS
The Company’s 2016 annual meeting will
be held on Tuesday, August 2, 2016.
Portions of this Annual Report, other than the Form 10-K,
have not been filed with the SEC.
Product and service descriptions and financial information
herein are for illustration purposes only and do not modify
or alter product warranties, labeling, instructions, or other
technical literature, or the financial information contained
in the Form 10-K.
BOARD OF DIRECTORS
John P. Wareham1
Chairman of the Board,
STERIS plc
Retired Chairman of the Board
and Chief Executive Officer,
Beckman Coulter, Inc.
Richard C. Breeden2,4
Chairman and Chief Executive Officer,
Breeden Capital Management LLC;
Chairman, Richard C. Breeden & Co., LLC
Bruce A. Edwards2
Former Director of Synergy Health plc
Former Chief Executive Officer, DHL
Supply Chain Division
Cynthia L. Feldmann2,3
Former President and Founder,
Jetty Lane Associates
Jacqueline B. Kosecoff, Ph.D.3,4
Managing Partner,
Moriah Partners, LLC
David B. Lewis2,4
Of Counsel and Former Chairman,
Lewis & Munday
Kevin M. McMullen1,3
Chairman of the Board,
Chief Executive Officer and
President, OMNOVA Solutions Inc.
Sir Duncan K. Nichol1
Former Chairman of Synergy Health plc
Chairman, Countess of Chester NHS Trust, UK
Walter M Rosebrough, Jr.3
President and Chief Executive Officer,
STERIS plc
Mohsen M. Sohi, D.Sc.2,4
Chief Executive Officer,
Freudenberg and Co.
Dr. Richard Steeves3
Former Chief Executive Officer
and Director of Synergy Health plc
Loyal W. Wilson1,2
Founder and Senior Advisor,
Primus Capital Partners, Inc.
Michael B. Wood, M.D.1,3
Consultant Orthopedic Surgeon,
Mayo Clinic, Jacksonville, FL and Professor of
Orthopedics, Mayo Clinic College of Medicine
1 Compensation Committee Member
2 Audit Committee Member
3 Compliance Committee Member
4 Nominating and Governance Committee Member
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2016 ANNUAL REPORT
FISCAL
Document #ANNRPT16.2016-05, Rev. A
©2016 STERIS plc.
All rights reserved. Printed in USA.
STERIS plc
Chancery House,
190 Waterside Road
Hamilton Industrial Park,
Leicester LE5 1QZ
United Kingdom
www.steris.com