2017
ANNUAL REPORT
FISCAL
I
F
S
C
A
L
2
0
1
7
A
N
N
U
A
L
R
E
P
O
R
T
Document #ANNRPT17.2017-05, Rev. A
©2017 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
Fellow Shareholders,
Fiscal 2017 was another year of record performance for our business, growing revenue 17% and
adjusted earnings per diluted share 11%. We ended the year strong and feel good about where we
stand today, and even better about where we’re headed tomorrow.
Following the close of the Synergy Health Combination in the fall of 2015, we reviewed our portfolio and
made decisions to improve the business for the long-term. Specific to fiscal 2017, we have had success
on several broad objectives. First, integrating Synergy Health and achieving cost synergies greater
than our original expectations, which we now expect to be $45 million per year by the end of fiscal 2019.
We also decided to divest the legacy Synergy and STERIS businesses that do not fit our strategy going
forward, but consume valuable management focus, capital expenditures and dilute our profit margins.
I am pleased to report that we have completed the sale of most of the identified businesses. While
these divestitures reduce our as-reported revenue in the short term, the impact to adjusted profit is
relatively minimal. In addition, we have completed several smaller acquisitions that are helping to offset
the lost revenue and profitability.
We grew revenue 5% on a constant currency organic basis during fiscal 2017, a good showing in today’s
market. We had a particularly strong fourth quarter, ending the year on a high note. Our actions have
delivered results beyond revenue growth, which is apparent in our profitability expansion. Overall,
adjusted operating margins improved by 130 basis points in the year, resulting in a record 18.2% of sales.
We also achieved another double-digit increase in full-year adjusted earnings per share to $3.76.
Looking at our segments, we had much to be pleased with this year. Healthcare Products revenue
grew 4% on a constant currency organic basis for the year. Consumables were strong, excluding the
impact of divestitures, as we benefited from continued mid-single digit growth in our instrument cleaning
chemistries, and double-digit growth in U.S. Endoscopy and V-PRO consumables. Equipment service
revenue continued its history of consistent growth, particularly for preventive maintenance contracts
and for installation of our OR integration products. Capital equipment shipments in Healthcare Products
started the year a bit slow, but ended very strong. For the full year, we saw particular strength in
washers and steam sterilizers on the Infection Prevention side of our business and OR integration in our
Surgical business unit.
Healthcare Specialty Services grew constant currency organic revenue 5% for the year, with improving
profitability in the fourth quarter. Our people in IMS have done a nice job winning new contracts, and we
ended the year with above average growth in the fourth quarter. We expect profitability to continue to
ramp up in fiscal 2018, as we see the full benefit of divestitures and are able to leverage the people we
added in fiscal 2017.
In Applied Sterilization Technologies (AST), revenue grew 7% for the year on a constant currency organic
basis, reflecting strong underlying demand from our core medical device Customers. Of course, the fall
in the Euro and British pound offset much of this growth outside the United States on an as-reported
basis. As we have announced previously, we have been making a number of capacity expansion
investments in AST which will continue into fiscal 2018. These are sound expansions with return on
invested capital typically exceeding our cost of capital in a three to four-year time frame, or less.
However, we do not expect to see the level of margin expansion next year in AST that we might expect
for the level of growth we anticipate, due to the startup costs and higher level of depreciation on these
new facilities. We look forward to significant margin expansions in fiscal 2019 and beyond as a result of
these investments.
Life Sciences constant currency organic revenue increased 4%, led by consumable revenue growth,
with strength in both barrier products and formulated chemistries. Service revenue grew double digits
for the year with growth in maintenance contracts and new service offerings. Capital equipment
revenue ended the year slightly below our expectations, but with strong orders in hand. We increased
backlog double-digits to a record $53 million, which is a good start for fiscal 2018.
We also made progress improving our balance sheet, which is reflected in our increased free cash flow
and reduced debt levels. We do not expect current historically-low interest rates to last forever, so we
fixed the interest rates on a larger portion of our debt. We intend to pay off more of our floating rate debt
in fiscal 2018, as we reduce our overall leverage. We believe that the cash we are generating, along with
our strong balance sheet, will give us considerable flexibility to promote shareholder value by funding our
organic growth and acquisitions, while continuing to return cash to shareholders through dividends and
share repurchases.
But more important than last year’s numbers, we have put in place a strong platform for the future.
We exited businesses that held back our growth rate and profitability, and have continued to add new
products and businesses to our portfolio. We are now the broadest and deepest provider of sterilization
and disinfection services around the globe. We have the technical knowhow, the breadth and depth
of products and services, the global reach, and the cross-healthcare-life-science-industry coverage
– in hospitals and surgery centers, in pharmaceutical plants, and for medical device companies – that
no other company has. And we bring additional products and services to serve the procedural areas
of hospitals and surgery centers, the heartbeat of these institutions. We have strategically positioned
ourselves to be in the growth spots of the healthcare industry: procedures drive our Healthcare
Products and Healthcare Specialty Services segments, procedures drive our AST business that
serves medical device companies, and vaccines and biologics drive our Life Sciences sterilization and
disinfection services for pharmaceutical companies. We are excited to be able to continue our mission
to help our Customers create a healthier and safer world.
We continue to believe that we can grow revenue mid-to-high-single digits through a combination of
organic growth and acquisitions, and leverage that growth to deliver double-digit bottom line expansion
over the long-term. Our team has successfully delivered on those commitments the past 10 years or so,
despite substantial challenges and headwinds along the way.
As this is my tenth shareholder letter, I think it is appropriate to comment on what we have achieved for
our shareholders over that time. Our revenue has grown from just over $1 billion to $2.6 billion. Similarly,
we were earning less than $100 million in net income; this year we made over $300 million in adjusted net
income. The market has reflected that performance, as our market capitalization was under $2 billion
then, and we ended the last fiscal year at about $6 billion. As a result, our Total Shareholder Return has
been over 200% from September 2007 to March 2017. This performance is substantially better than the
S&P 500 and the Medical Device Index for the same period. It is my honor to continue to serve all of you
by leading this business, and I look forward to all that STERIS will accomplish in the next ten years.
In closing, I appreciate the continued support from our long-term shareholders and our Board of
Directors. And finally, we could not do what we do without the dedication of our fine management team
and our 12,000 people around the world, who work to make STERIS a great Company.
Until next year,
Walt Rosebrough
President and Chief Executive Officer
June 2017
(cid:40)(cid:75)(cid:81)(cid:92)(cid:90)(cid:91)(cid:76)(cid:75)(cid:3)(cid:196)(cid:85)(cid:72)(cid:85)(cid:74)(cid:80)(cid:72)(cid:83)(cid:90)(cid:3)(cid:79)(cid:72)(cid:93)(cid:76)(cid:3)(cid:73)(cid:76)(cid:76)(cid:85)(cid:3)(cid:80)(cid:85)(cid:74)(cid:83)(cid:92)(cid:75)(cid:76)(cid:75)(cid:3)(cid:80)(cid:85)(cid:3)(cid:91)(cid:79)(cid:80)(cid:90)(cid:3)(cid:75)(cid:86)(cid:74)(cid:92)(cid:84)(cid:76)(cid:85)(cid:91)(cid:21)(cid:3)(cid:55)(cid:83)(cid:76)(cid:72)(cid:90)(cid:76)(cid:3)(cid:89)(cid:76)(cid:77)(cid:76)(cid:89)(cid:3)(cid:91)(cid:86)(cid:3)(cid:91)(cid:79)(cid:76)(cid:3)(cid:89)(cid:76)(cid:74)(cid:86)(cid:85)(cid:74)(cid:80)(cid:83)(cid:80)(cid:72)(cid:91)(cid:80)(cid:86)(cid:85)(cid:3)(cid:86)(cid:77)(cid:3)(cid:72)(cid:75)(cid:81)(cid:92)(cid:90)(cid:91)(cid:76)(cid:75)(cid:3)(cid:89)(cid:76)(cid:90)(cid:92)(cid:83)(cid:91)(cid:90)(cid:3)(cid:91)(cid:86)(cid:3)(cid:46)(cid:40)(cid:40)(cid:55)(cid:3)(cid:89)(cid:76)(cid:90)(cid:92)(cid:83)(cid:91)(cid:90)(cid:3)
(cid:74)(cid:86)(cid:85)(cid:91)(cid:72)(cid:80)(cid:85)(cid:76)(cid:75)(cid:3)(cid:72)(cid:91)(cid:3)(cid:91)(cid:79)(cid:76)(cid:3)(cid:76)(cid:85)(cid:75)(cid:3)(cid:86)(cid:77)(cid:3)(cid:91)(cid:79)(cid:80)(cid:90)(cid:3)(cid:72)(cid:85)(cid:85)(cid:92)(cid:72)(cid:83)(cid:3)(cid:89)(cid:76)(cid:87)(cid:86)(cid:89)(cid:91)(cid:3)(cid:92)(cid:85)(cid:75)(cid:76)(cid:89)(cid:3)(cid:184)(cid:53)(cid:86)(cid:85)(cid:20)(cid:46)(cid:40)(cid:40)(cid:55)(cid:3)(cid:45)(cid:80)(cid:85)(cid:72)(cid:85)(cid:74)(cid:80)(cid:72)(cid:83)(cid:3)(cid:52)(cid:76)(cid:72)(cid:90)(cid:92)(cid:89)(cid:76)(cid:90)(cid:185)(cid:21)
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, 2017
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
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
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
No
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
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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, 2016, 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, 2016,
was approximately $6,140.3 million.
The number of Ordinary Shares outstanding as of May 22, 2017: 85,022,711
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2017 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
Item 2
Item 3
Item 4
Unresolved Staff Comments
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
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
Item 8
Item 9
Item 9A Controls and Procedures
Item 9B
Other Information
Item 10
Item 11
Directors, Executive Officers and Corporate Governance
Executive Compensation
Part III
Item 12
Item 13
Item 14
Item 15
Item 16
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
Form 10-K Summary
Signatures
Part IV
2
3
3
4
6
9
18
19
22
22
23
24
25
25
25
26
26
27
28
37
41
41
41
46
46
47
48
48
48
48
48
98
99
101
101
101
101
102
102
102
109
110
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,” "fiscal year," or “year-end”
mean our fiscal year, which ends on March 31. For example, fiscal year 2017 ended on March 31, 2017.
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, 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, and on-site and off-site reprocessing.
STERIS plc (“Parent”) was organized in 2014 under the laws of England and Wales under the name Solar New HoldCo
Limited as a private limited company for the purpose of effecting under the laws of England and Wales 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”). Effective November 2, 2015 the Parent was re-
registered as a public company under the name of STERIS plc and the Combination closed. As a result of the Combination
closing, STERIS plc became the ultimate parent company of Old STERIS and Synergy. Synergy has been re-registered under
the name of 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 12,000 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 and instrument and scope repairs. Linen management operations were divested during fiscal 2017.
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 2017, 2016, and 2015 is presented in Note 11 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 (“VHP”®) 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 prior to automated processes as well as within our
instrument cleaning and decontamination systems.
Significant brand names for these products include SYSTEM 1E®, Amsco®, Reliance®, Cmax®, Harmony®, Verify®,
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 Products segment provides
other support services such as construction and facility planning, engineering support, device testing, Customer education, 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, 2017, 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
a product basis, competitors include 3M, Belimed, Cantel Medical, Ecolab, Getinge, Go Jo, Hill-Rom, Johnson & Johnson,
Kimberly-Clark, Skytron, and Stryker.
4
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. Our Healthcare Specialty Services segment provides comprehensive instrument and endoscope repair and
maintenance solutions (on site or at one of our dedicated facilities) as well as custom process improvement consulting. Linen
management operations were divested during fiscal 2017.
Customer Concentration. Our Healthcare Specialty Services segment offers an array of services to Customers in the United
Kingdom, United States and many other countries throughout the world. For the year ended March 31, 2017, 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,
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 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, 2017, 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. 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.
5
APPLIED STERILIZATION TECHNOLOGIES SEGMENT
Description of Business. Our Applied Sterilization Technologies segment operates through a network of over 50 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. 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 radioisotope (cobalt-60). Electron beam and X-ray utilize high
energy electrons as their 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. 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, 2017, no Customer represented more than 10% of the segment’s revenues and the loss
of a single Customer is not expected to have a material impact on the segment’s results of operations or cash flows.
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 2018. We have long-term supply contracts for certain materials for which
there are few suppliers, or those that are single-sourced in certain regions of the world, such as EO and cobalt-60, which are
necessary to our AST operations.
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, 2017, we held approximately 380 United States patents and 1,240 in other jurisdictions and had
approximately 100 United States patent applications and 370 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, 2017, we had a total of approximately 1,990
trademark registrations worldwide.
Research and Development. Research and development is an important factor in our long-term strategy. For the years ended
March 31, 2017, 2016, and 2015, research and development expenses were $59.4 million, $56.7 million, and $54.1 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 InnoWave Sonic Irrigators/Ultrasonic Cleaners and Smart Sink technology and accessories,
Harmony AIR ™ Surgical Lighting System and Harmony AIR™ Equipment Booms and Accessories, next generation operating
room integration products, 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.
6
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 10 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
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.”
7
Employees. As of March 31, 2017, we had approximately 12,000 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 69% of our fiscal 2017 revenues. Revenues from the United Kingdom and Europe, Middle East
and Africa ("EMEA") were 9% and 13%, respectively, of our fiscal 2017 revenues. The remaining 9% was generated in
Canada, the Asia Pacific and Latin American regions.
Also see Note 11 to our Consolidated Financial Statements titled, “Business Segment Information,” "MD&A," and Item 7
for a geographic presentation of our revenues for the three years ended March 31, 2017, 2016 and 2015.
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
39% 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."
Backlog. We define backlog as the amount of unfilled capital equipment purchase orders at a point in time. At March 31, 2017,
we had a backlog of $162.9 million. Of this amount, $109.7 million and $53.2 million related to our Healthcare Products and
Life Sciences segments, respectively. At March 31, 2016, we had backlog orders of $164.7 million. Of this amount $119.4
million and $45.3 million related to our Healthcare Products and Life Sciences segments, respectively. A significant portion of
the backlog orders at March 31, 2017, is expected to ship in the 2018 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.
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.
8
Executive Officers of the Registrant. The following table presents certain information regarding our executive officers at
March 31, 2017. All executive officers serve at the pleasure of the Board of Directors.
Name
Kathleen L. Bardwell
Karen L. Burton
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
61
Position
Senior Vice President and Chief Compliance Officer
49
44
47
63
50
64
63
48
50
Vice President, Controller and Chief Accounting 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.
Karen L. Burton serves as Vice President, Controller and Chief Accounting Officer. She assumed this role in January
2017. She served as Vice President, Corporate Controller from May 2008 to January 2017.
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.
ITEM 1A. RISK FACTORS
This section 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.
9
MARKET RISKS
Risk or uncertainty
Doing business internationally
We conduct manufacturing, sales
and distribution operations on a
worldwide basis and are subject to
a variety of risks associated with
doing business internationally.
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.
Discussion
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: 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; significant variations in tax rates among the countries in
which we do business, and tax withholding obligations in respect of our earnings; 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;
general economic and political conditions in countries where we operate or where end
users of our products are situated, including the potential implications of the U.K.
“Brexit” or the withdrawal from the EU of other member countries; 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 and the U.K. Bribery Act and laws and regulations dealing with trade with persons in
sanctioned countries.
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.
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. We are also subject to
limitations on trade with persons in sanctioned countries. 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.
Our business could be negatively
impacted by changes in the United
States political environment.
The 2016 presidential and congressional elections in the United States have resulted in
significant uncertainty with respect to, and could result in changes in, legislation,
regulation and government policy at the federal level, as well as the state and local levels.
Any such changes could significantly impact our business as well as the markets in which
we compete. Specific legislative and regulatory proposals discussed during election
campaigns and more recently that might materially impact us include, but are not limited
to, changes to existing trade agreements, import and export regulations, tariffs and
customs duties, income tax regulations and the federal tax code, healthcare delivery and
spending, public company reporting requirements, environmental regulation and antitrust
enforcement.
10
Risk or uncertainty
Economic conditions and
financial market access
Changes in economic climate may
adversely affect us.
Our acquisition activity and
ability to grow organically may be
adversely affected if we are
unable to continue to access the
financial markets.
Discussion
Adverse economic cycles or conditions and Customer, regulatory or government response
to those cycles or conditions, could affect our results of operations. The onset of these
cycles or conditions may not be foreseeable and there can be no assurance 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. 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.
Many of our 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.
Our recent acquisitions have been financed largely through borrowings under our bank
credit facilities and issuance of private placement notes although proceeds from fiscal
2017 divestitures were also used for acquisitions. 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 those
available under existing bank credit facilities on terms favorable to us, or at all, or that
such facilities can be replaced when they terminate.
11
LEGAL, REGULATORY AND TAX RISKS
Risk or uncertainty
Healthcare laws and
reimbursement
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.
Discussion
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. Reimbursement systems vary significantly by
country. However, government-managed healthcare systems control reimbursement for
healthcare services in many countries. Public budgetary constraints may significantly
impact the ability of hospitals, pharmaceutical manufacturers, and other Customers
supported by such systems to purchase our products. Government or other third-party
payors may deny or change coverage, reduce their current levels of reimbursement for
healthcare services, or otherwise implement measures to regulate pricing or contain
costs. In addition, our costs may increase more rapidly than reimbursement levels or
permissible pricing increases or we may not satisfy the standards or requirements for
reimbursement.
Among other provisions, the U.S. Patient Protection and Affordable Care Act, as
amended by the Health Care and Education Affordability Reconciliation Act, imposed an
excise tax on medical devices manufactured or offered for sale in the United States. Late
in 2015 the U.S. Congress enacted legislation that suspended the excise tax for 2016 and
2017. Should the U.S. Congress take no further action with regard to this tax we will
begin to incur excise tax in the fourth quarter of fiscal 2018. 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 additional health care reform proposals have
emerged at the federal and state level, and we are unable to predict which, if any, of those
proposals will be enacted.
12
Risk or uncertainty
Product related regulations and
claims
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 products are subject to recalls
and restrictions, even after
receiving United States or foreign
regulatory clearance or approval.
Discussion
Our operations are subject to extensive regulation in the 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.
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 our products
and services.
13
Risk or uncertainty
We may be adversely affected by
product liability claims or other
legal actions or regulatory or
compliance matters.
Discussion
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, as described above with respect to recalls and
restrictions, 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 debarment. We also
might be required to take actions such as payment of substantial amounts, or revision of
financial statements, or to take, or be subject to, the following types of actions with
respect to our products, services, or business: 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.
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.
14
Risk or uncertainty
Our business and financial
condition could be adversely
affected by difficulties in
acquiring or maintaining a
proprietary intellectual ownership
position.
Tax and trade risks
Current economic and political
conditions make tax rules in any
jurisdiction subject to significant
change.
Our tax rate is uncertain and may
vary from expectations.
Changes in tax treaties and trade
agreements could negatively
impact our costs.
Discussion
To maintain our competitive position for our products, 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 other countries. We may also acquire patents through acquisitions.
We may encounter difficulties in obtaining or protecting patents.
We rely on a combination of patents, trademarks, 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.
Proposals for broad reform of the existing United States corporate tax system are under
evaluation by various legislative and administrative bodies. We cannot predict the overall
impact that such proposals may have on our business. In addition, further changes in the
tax laws of other jurisdictions could arise, including as a result of the base erosion and
profit shifting (BEPS) project undertaken by the Organization for Economic Cooperation
and Development (OECD). The OECD, which represents a coalition of member
countries, has issued recommendations that, in some cases, would make substantial
changes to numerous long-standing tax positions and principles. These contemplated
changes, to the extent adopted by OECD members and/or other countries, could increase
tax uncertainty and may adversely impact our provision for income taxes.
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 the potential
tax implications of the U.K. “Brexit”. 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.
Legislative and regulatory action may be taken in the U.S. which, if ultimately adopted,
could override or otherwise adversely impact tax treaties upon which we rely or broaden
the circumstances under which STERIS would be considered a U.S. resident, each of
which could materially and adversely affect our tax obligation. We cannot predict the
outcome of any specific legislative or regulatory proposals. However, if proposals were
adopted that had the effect of disregarding our incorporation in the U.K. or limiting our
ability as a U.K. company to take advantage of tax treaties with the U.S., we could be
subject to increased taxation and/or potentially significant expense.
Existing free trade laws and regulations, such as the North American Free Trade
Agreement, provide certain beneficial duties and tariffs for qualifying imports and
exports, subject to compliance with the applicable classification and other requirements.
Changes in laws and regulations or policies governing the terms of foreign trade, and in
particular, increased trade restrictions, tariffs or taxes on imports from countries where
we manufacture products could have a material adverse impact on our business and
financial results.
15
Risk or uncertainty
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.
The U.S. Internal Revenue
Service (the “IRS”) may not agree
that we are a foreign corporation
for U.S. federal tax purposes.
Discussion
Various U.S. federal and state legislative proposals that would deny governmental
contracts to redomiciled companies may adversely 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.
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),
be treated as a U.S. corporation for U.S. federal 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.
BUSINESS AND OPERATIONAL RISKS
Risk or uncertainty
Competition
Our businesses are highly
competitive, and if we fail to
compete successfully, our
revenues and results of operations
may be hurt.
Consolidations among our
healthcare and pharmaceutical
Customers may result in a loss of
Customers or more significant
pricing pressures.
Discussion
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.
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.
16
Risk or uncertainty
Continuity and efficiency of
operations
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.
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.
Discussion
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, EO, 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. Also, certain 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 EO, 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 affect us.
Business continuity hazards and other risks include: 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.
17
Risk or uncertainty
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.
Discussion
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 intended 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 the
last several fiscal years we have made a number of acquisitions, the most significant of
which was the acquisition of Synergy Health plc. We also completed several divestitures
of non-strategic businesses or product lines during fiscal 2017 including linen
management services in the U.K., U.S. and Netherlands, laboratory services in the U.K.
and our Applied Infection Control product line.
Our success with respect to these recent and future acquisitions will depend on our ability
to integrate the businesses acquired, retain key personnel, realize identified cost synergies
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: 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 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, including in-sourcing.
We continue to look for opportunities to in-source production that is currently provided
by third parties and have made large investments during the past few fiscal years. These
activities may not produce the full efficiencies and cost reduction benefits that we expect
or efficiencies and benefits might be delayed. Implementation costs also might exceed
expectations.
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.
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
materialize.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
18
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, 2017. 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 (2 locations)
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)
Vega Alta, PR
Mogi das Cruzes, Brazil
Quebec City, Canada
Whitby, Canada
Suzhou, China (2 locations)
Alajuela, Costa Rica (2 locations)
Velka Bites, Czech Republic
Berkshire, England
Derby, England (3 locations)
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.
INTL
INTL
INTL
INTL
INTL
INTL
U.K.
U.K.
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 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
Manufacturing/Sales Office
Manufacturing
Contract Sterilization
Contract Sterilization/Office Space
Contract Sterilization
Contract Sterilization
Contract Sterilization
Administration Offices/Operations
19
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
Owned
United Kingdom (U.K.), United States (U.S.) Locations (including Puerto Rico) and International Locations (INTL)
Location
Lancashire, England (Matrix Park)
Lancing, England
Leicester, England
Northampton, England
Swindon, England (3 locations)
Yorkshire, England (2 locations)
Tuusula, Finland
Bordeaux, France
Chusclan, France
Tullamore, Ireland (2 locations)
Westport, Ireland
Calcinate, Italy
Bastia di Rovolon, Italy
Spresiano, Italy
Rawang, Malaysia
SH Etten-Leur, Netherlands
SH Venlo, Netherlands
Michalovce, Slovakia
Pribenik, Slovakia
Johannesburg, South Africa
Daniken, Switzerland
Thailand AST, Thailand
St. Louis, MO
Reno, NV
Mentor, OH (3 locations) U.S.E.
Stow, OH
Hillsborough, NJ
Keller, TX (2 locations)
Tustin, CA
Melville, NY
Santa Clara, CA
Chesterfield, MO
Cooper City, FL
Rockville, MD
Springdale, OH
Stone Mountain, GA
Franklin Park, IL
Bensenville, IL
Montgomery, AL
Ooltewah, TN
Bethlehem, PA
Westborough, MA
Belair, MD
U.K/U.S./
INTL*
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
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.
Use
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 Sterlization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Warehousing/Distribution
Warehousing
Administrative Offices/Manufacturing
Sales/Administration Offices
Sales/Administration Offices
Sales/Administration Offices
Sales/Administration Offices
Sales/Administration Offices
Sales Office
Sales/Administration Offices
R&D/ Engineering/ Repair
Repair Lab
Offices/Warehousing
Instrument Repair Lab
Manufacturing/ Administration Offices
Offices/ Warehousing/ Lab
Warehousing
Office/Warehousing
Sales/ Administration Offices
Sales/ Administration Offices
Sales/ Administration Offices
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
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
Point Richmond, CA
Feasterville, PA
San Diego, CA
Denver, CO
Lima, OH
Saxonburg, PA
Petaluma, CA
Tampa, FL (2 locations)
Louisville, KY
Temple Terrace, FL
Malle, Belgium
Antwerpen, Belgium
Sao Paulo, Brazil
Mississauga, Canada
Beijing, China
Guangzhou, China
Nanjing, China
Shanghai, China
Suzhou, China
Wuhan, China
Basingstoke, England
Derby, England
Hoddesdon, United Kingdom
Lancashire, England (Matrix Park)
Leicester, England (2 locations)
Lincoln, England
Lincolnshire, United Kingdom
Merseyside, England
Oxfordshire, England
Sheffield, England (2 locations)
Strathclyde, England
Swindon, England
Wythenshawe, England (2 locations)
Bishop Stortford, Hertfordshire, England
(4 locations)
Springhill, England
La Chapelle St. Mesmin, France
Marseille, France
Paris, France
Toussieu, France
Allershausen, Germany
Cologne, Germany
Radeberg, Germany
Gokul Nagar, India
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.
INTL
INTL
INTL
INTL
INTL
INTL
INTL
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
Use
Manufacturing/ Administration Offices/
Sales/ Warehousing
Warehousing
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Administration Offices
Lab
Office
Sales Office/ Service/ Warehousing
Sales Office/Service
Sales Office
Sales Office/Warehousing
Sales Office
Sales/Administration Offices/ Assembly
Operations
Sales Office/ Manufacturing
Operations
Operations
Sales Office
Operations
Office Space
Operations
Warehousing/Operations/Administration
Operations
Operations
Operations
Contract Sterilization
Operations
Operations
Administration Offices
Operations
Manufacturing/Warehousing/
Administration
Instrument Repair
Sales Office
Contract Sterilization
Sales Office
Warehousing
Contract Sterilization
Sales Office
Contract Sterilization
Sales Office
21
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
Poggio Rusco, Italy
Segrate, Italy
Seriate, Italy (4 locations)
Trescore Balneario, Italy
Pescara, Italy
Penne, Italy
Popoli, Italy
Poggibonsi, Italy
Montepulciano, Italy
Castelfranco Ven, Italy
Pistoia (PT), Italy
Montevarchi (AR), Italy
San Dona Di Piave, Italy
Osp. San Carlo (MI), Italy
Osp. Caserta (CE), Italy
ASL Ospedale di Biella (BI), Italy
Ede, Netherlands
Tokyo, Japan
Kuala Ketil, Malaysia
Kulim, Malaysia
MINT Bangi, Malaysia
Petaling Jaya, Malaysia
Guadalupe, Mexico
Utrecht, Netherlands
Moscow, Russia
Singapore (2 locations)
Madrid, Spain
U.K/U.S./
INTL*
INTL
INTL
INTL
Use
Contract Sterilization
Sales Office
Sales/Administration Offices/
Contract Sterilization
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
Administration
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Operations
Sales Office
Contract Sterilization
Contract Sterilization
Contract Sterilization
Sales Office
Manufacturing
Laboratory Services
Sales Office
Sales Office, Warehousing
Sales Office
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
* International includes all countries other than the U.K. and U.S.
ITEM 3.
LEGAL PROCEEDINGS
Information regarding our legal proceedings is included in Item 7, Management's Discussion and Analysis ("MD&A") and
Note 10 of our consolidated financial statements titled, "Commitments and Contingencies," and incorporated herein by
reference thereto.
ITEM 4. MINE SAFETY DISCLOSURES
None.
22
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 2017
High
Low
Fiscal 2016
High
Low
March 31
December 31
September 30
June 30
$
$
72.35
$
73.06
$
74.63
$
65.27
63.80
67.25
75.10
$
78.77
$
69.76
$
61.38
63.19
60.75
74.10
63.26
71.39
62.09
Holders. As of March 31, 2017, there were approximately 83 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 2017, we paid cash dividends totaling $1.09 per outstanding share in respect for all shares outstanding for the entire fiscal
year ($0.25 per outstanding share to shareholders of record on June 8, 2016, and $0.28 per outstanding share to shareholders of
record on the following dates: August 30, 2016, November 23, 2016 and February 28, 2017). During fiscal 2016, we paid cash
dividends totaling $0.98 per outstanding share ($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).
Recent Sales of Unregistered Securities. On November 2, 2015, we issued 100,000 preferred shares, par value of £0.10 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 12 of
our Consolidated Financial Statements for more information regarding our preferred stock.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers. On August 9, 2016, the Company announced that
its Board of Directors had authorized the purchase of up to $300 million (net of taxes, fees and commissions) of our ordinary
shares. We may enter into share repurchase contracts until August 2, 2021 to effect these purchases. Shares may be repurchased
from time to time through open market transactions, including 10b5-1 plans. The repurchase program may be suspended or
discontinued at any time. We obtained 1,286,183 of our ordinary shares during fiscal 2017 for the aggregate amount of
$90,475, which included $475 of taxes and commissions. As of March 31, 2017, $210.0 million of ordinary shares remain
available for repurchase under this authorization.
The following table presents information with respect to purchases STERIS made of its ordinary shares during the fourth
quarter of the 2017 fiscal year:
(a)
Total Number of
Shares Purchased
(b)
Average Price Paid
Per Share
(c)
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
(d)
Maximum Dollar Value
of Shares that May Yet
Be Purchased Under the
Plans at Period End
(dollars in thousands)
— $
January 1-31
—
February 1-28
210,000
March 1-31
—
Total
210,000
(1) Does not include 84 shares purchased during the quarter at an average price of $69.79 per share by the STERIS Corporation 401(k) Plan on
31,362
—
31,362 (1) $
—
66.41
—
66.41 (1)
—
31,362
—
31,362
$
$
behalf of certain executive officers of the Company who may be deemed to be affiliated purchasers.
23
ITEM 6.
SELECTED FINANCIAL DATA
(in thousands, except per share data)
2017 (1)
Statements of Income Data:
Years Ended March 31,
2015(1)
2014(1)
2016 (1)
2013(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
$ 2,612,756
$ 2,238,764
$ 1,850,263
$ 1,622,252
$ 1,501,902
1,025,632
215
227,595
74,015
895,481
(820)
212,927
60,299
774,301
(391)
227,211
73,756
649,622
13,204
206,807
58,934
621,263
(565)
242,829
67,121
109,965
110,763
135,064
129,442
159,977
$
$
$
$
1.29
$
1.57
$
2.27
$
2.20
$
2.74
85,473
70,698
59,413
58,966
58,305
1.28
$
1.56
$
2.25
$
2.17
$
2.72
86,094
1.09
636,219
4,924,455
1,478,361
2,114,422
$
$
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
$
$
2,097,291
1,887,162
1,761,109
621,075
1,023,645
493,480
845,916
492,290
814,129
$ 2,798,602
$ 3,023,034
$ 1,071,632
$ 1,038,705
$
944,942
(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.
24
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 2017, 2016 and 2015, as
well as Part I, Item 1A, “Risk Factors” and Note 10 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."
25
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
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 Equipment Revenues – We define capital equipment 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
STERIS plc (“Parent”) was organized in 2014 under the laws of England and Wales under the name Solar New HoldCo
Limited as a private limited company for the purpose of effecting under the laws of England and Wales 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”). Effective November 2, 2015, the Parent was re-
registered as a public company under the name of STERIS plc and the Combination closed. As a result of the Combination
closing, STERIS plc became the ultimate parent company of Old STERIS and Synergy. Synergy has been re-registered under
the name of 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 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 11 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 continue to pursue a strategy of expanding into adjacent markets with acquisitions in the Healthcare Products,
Healthcare Specialty Services and Life Sciences segments. In fiscal 2017, we purchased 100% of the shares of Medisafe
Holdings Ltd., a U.K. manufacturer of washer disinfector equipment and related consumables and services to expand our
service offerings in the Healthcare Products segment.
26
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 $374.0 million, or 16.7%, to $2,612.8 million for the year ended March 31, 2017, as
compared to $2,238.8 million for the year ended March 31, 2016, reflecting growth within all four business segments and the
benefit of acquisitions including the Combination with Synergy. The increases were partially offset by divestitures and the
negative impact of foreign currency.
Fiscal 2017 operating income increased 6.9% to $227.6 million over the fiscal 2016 operating income of $212.9 million.
The increase is attributable to volume growth, margin improvements, recent acquisitions, including the Combination and lower
acquisition related expenses, partially offset by the goodwill impairment loss and the net loss recognized on the divestiture of
certain non-core operations.
Net cash flows from operations were $424.1 million and free cash flow was $256.0 million in fiscal 2017 compared to net
cash flows from operations of $254.7 million and free cash flow of $129.1 million in fiscal 2016 (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 increased primarily due to higher cash
earnings due in part to a reduction in acquisition related cash expenses. Our debt-to-total capital ratio was 34.6% at March 31,
2017. During the year, we increased our quarterly dividend for the eleventh consecutive year to $0.28 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 2018 and beyond.
In fiscal 2018 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.
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,
and intangibles, which are also presented within investing activities 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, 2017, 2016 and 2015:
(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,
2016
2015
2017
$
$
424,086
(172,901)
4,846
256,031
$
$
254,675
(126,407)
844
129,112
$
$
246,040
(85,255)
829
161,614
27
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 2017 AS COMPARED TO FISCAL 2016
Revenues. The following table compares our revenues, in total and by type and geography, for the year ended March 31, 2017
to the year ended March 31, 2016:
(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,
2017
2,612,756
$
2016
Change
$
2,238,764
$
373,992
16.7%
Percent
Change
640,757
558,593
614,002
516,044
26,755
42,549
1,413,406
1,108,718
304,688
229,603
1,803,457
579,696
144,577
1,662,050
432,137
85,026
141,407
147,559
4.4%
8.2%
27.5%
58.8%
8.5%
34.1%
Revenues increased $374.0 million, or 16.7%, to $2,612.8 million for the year ended March 31, 2017, as compared to
$2,238.8 million for the year ended March 31, 2016. This increase is primarily attributable to the Combination, along with
organic growth within all reportable business segments, partially offset by divestitures and the negative impact of foreign
currency.
Capital equipment revenues increased by $26.8 million, or 4.4%, to $640.8 million, during fiscal 2017 as compared to
fiscal 2016. This increase was driven primarily by growth within the Healthcare Products business segment. Consumable
revenues increased $42.5 million, or 8.2%, during fiscal 2017 from fiscal 2016. The increase was due, in part, to recent
acquisitions, but also strong organic growth in both the Healthcare Products and Life Sciences business segments, partially
offset by the sale of the Applied Infection Control (AIC) product line. Service revenues for fiscal 2017 increased $304.7
million, or 27.5%, over fiscal 2016 driven by the Combination and organic growth in all reportable business segments.
United Kingdom revenues for fiscal 2017 were $229.6 million, an increase of $85.0 million, or 58.8%, over fiscal 2016
revenues of $144.6 million. This increase reflects growth in capital equipment, consumable and service revenues of 9.6%,
71.2% and 62.8%, respectively. The increases are attributable to acquisitions, including the Combination with Synergy,
partially offset by divestitures and the negative impact of foreign currency.
United States revenues for fiscal 2017 were $1,803.5 million, an increase of $141.4 million, or 8.5%, over fiscal 2016
revenues of $1,662.1 million. This increase reflects growth in capital equipment, consumable and service revenues of 7.2%,
3.5%, and 11.5%, respectively. The increases are attributable to acquisitions, including the Combination, as well as organic
growth, partially offset by divestitures.
Revenues from other foreign locations for fiscal 2017 were $579.7 million, an increase of 34.1% over the fiscal 2016
revenues of $432.1 million. This increase reflects revenue growth in Canada, the EMEA region outside of the United
Kingdom, as well as in the Asia Pacific and Latin American regions. Service revenues attributable to the Combination were
the most significant driver of the growth in these regions.
28
Gross Profit. The following table compares our gross profit for the year ended March 31, 2017 to the year ended March 31,
2016:
(dollars in thousands)
Gross profit:
Product
Service
Total gross profit
Gross profit percentage:
Product
Service
Total gross profit percentage
Years Ended March 31,
2016
2017
Change
Percent
Change
$
$
574,808
450,824
1,025,632
$
$
511,885
383,596
895,481
$
$
62,923
67,228
130,151
12.3%
17.5%
14.5%
47.9%
31.9%
39.3%
45.3%
34.6%
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 $130.2 million and gross profit percentage
decreased 70 basis points to 39.3% for fiscal 2017 as compared to 40.0% for fiscal 2016. The decrease in our gross profit
percentage was primarily due to the addition of Synergy's hospital sterilization services and linen management business (240
basis points), partially offset by the favorable impact of the divestiture of lower margin operations (110 basis points) and
foreign currency (50 basis points). 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.
Operating Expenses. The following table compares our operating expenses for the year ended March 31, 2017 to the year
ended March 31, 2016:
(dollars in thousands)
Operating expenses:
Selling, general, and administrative
Goodwill impairment loss
Research and development
Restructuring expenses
Total operating expenses
NM - Not meaningful
Years Ended March 31,
2016
2017
Change
Percent
Change
$
$
680,069
58,356
59,397
215
798,037
$
$
626,710
—
56,664
(820)
682,554
$
$
53,359
58,356
2,733
1,035
115,483
8.5%
NM
4.8%
NM
16.9%
Selling, General, and Administrative Expenses. 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, gains
or losses from divestitures, and other general and administrative expenses. SG&A increased 8.5% in fiscal 2017 over fiscal
2016. Contributing to this increase was the loss on the sale of businesses of $86.6 million and the acceleration of amortization
associated with the Synergy Health trade name, partially offset by lower acquisition related expenses.
Goodwill impairment loss. Goodwill impairment loss of $58.4 million was recorded during fiscal 2017 as a result of our
annual goodwill impairment review in the third quarter relative to the Synergy Health Netherlands linen management
reporting unit.
Research and Development. Research and development expenses increased $2.7 million during fiscal 2017, as compared to
fiscal 2016. Contributing to these increases was the additional spending in connection with the development of Healthcare
Products and Life Sciences 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 2017, 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.
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
29
compares our non-operating expense (income), net for the year ended March 31, 2017 to the year ended March 31, 2016:
(dollars in thousands)
Non-operating expenses, net:
Interest expense
Interest income and miscellaneous expense
Non-operating expenses, net
Years Ended March 31,
2016
2017
Change
$
$
44,520
(1,571)
42,949
$
$
42,708
(1,665)
41,043
$
$
1,812
94
1,906
Interest expense during fiscal 2017 increased as compared to 2016 primarily due to higher debt levels resulting from
additional borrowings to fund acquisitions, including the Combination and the operations of acquired companies. This
increase was partially offset by one-time payments made in the third quarter of fiscal 2016 associated with paying off
Synergy's debt. Additionally, the weighted average interest rate was higher as of March 31, 2017 compared to March 31, 2016.
Interest income and miscellaneous expense is immaterial.
Additional information regarding our outstanding debt is included in Note 6 to our consolidated financial statements
titled, “Debt,” and in the subsection of MD&A titled, “Liquidity and Capital Resources.”
Income Tax Expense. The following table compares our income tax expense and effective income tax rates for the years
ended March 31, 2017 and March 31, 2016:
(dollars in thousands)
Income tax expense
Effective income tax rate
Years Ended March 31,
2016
2017
Change
$
74,015
$
60,299
$
13,716
Percent
Change
22.7%
40.1%
35.1%
The effective income tax rate for fiscal 2017 was 40.1% as compared to 35.1% for fiscal 2016. The fiscal 2017 effective
tax rate increased when compared to fiscal 2016 primarily due to nondeductible costs related to divestitures offset by a
decrease in nondeductible or capitalized acquisition costs. Additional information regarding our income tax expense is
included in Note 8 to our consolidated financial statements titled, “Income Taxes.”
Business Segment Results of Operations. We operate and 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. Linen management operations were
divested during fiscal 2017.
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.
30
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 11
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, 2017 to the year ended March 31, 2016:
(dollars in thousands)
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
Years ended March 31,
2016
2017
Change
Percent
Change
$
1,260,878
$
1,202,820
$
58,058
560,175
327,276
458,231
427,198
295,970
310,120
2,606,560
2,236,108
6,196
2,656
132,977
31,306
148,111
370,452
3,540
$
2,612,756
$
2,238,764
$
373,992
224,522
13,450
96,983
156,010
490,965
(14,433)
180,263
25,197
85,466
99,224
390,150
(11,488)
44,259
(11,747)
11,517
56,786
100,815
(2,945)
$
476,532
$
378,662
$
97,870
4.8 %
31.1 %
10.6 %
47.8 %
16.6 %
nm
16.7 %
24.6 %
(46.6)%
13.5 %
57.2 %
25.8 %
25.6 %
25.8 %
Goodwill impairment loss (1)
Amortization of inventory and property "step up" to fair value (2)
Amortization and impairment of purchased intangible assets (2)
Acquisition related transaction and integration charges (3)
Loss (gain) on fair value adjustment of acquisition related
contingent consideration
Net loss on divestiture of businesses (2)
Settlement of pension obligation (4)
Restructuring charges
58,356
4,743
66,398
30,082
2,569
86,574
—
215
—
9,907
47,704
82,891
(736)
—
26,470
(501)
Total operating income
1) For more information regarding our goodwill impairment loss see Note 3 to our consolidated financial statements titled, "Goodwill and
227,595
212,927
$
$
Intangible Assets".
(2) For more information regarding our recent acquisitions and divestitures see Note 2 to our consolidated financial statements titled,
"Business Acquisitions and Divestitures".
(3) Acquisition and integration related charges include transaction costs and integration expenses associated with acquisitions.
(4) See Note 9 to our consolidated financial statements, titled, "Benefit Plans" for more information related to the settlement of the pension
obligation.
31
Healthcare Products revenues increased 4.8% in the fiscal 2017 year as compared to fiscal 2016. This increase reflects
growth in capital equipment, consumable and service revenues of 4.6%, 5.8% and 4.0%, respectively. The increases were
primarily attributable to acquisitions and organic growth, partially offset by divestitures and the negative impact of foreign
currency. At March 31, 2017, the Healthcare Products segment’s backlog amounted to $109.7 million, decreasing $9.7 million,
or 8.1%, compared to the backlog of $119.4 million at March 31, 2016.
Healthcare Specialty Services revenues increased 31.1% in the fiscal 2017 year as compared to fiscal 2016. The increases
are primarily due to the Combination, but also reflect organic growth in instrument repair services and the outsourcing of
central sterile services. These increases were partially offset by divestitures and the negative impact of foreign currency.
Life Sciences revenues increased 10.6% in the fiscal 2017 year, as compared to fiscal 2016. The growth reflects increases
of 18.3% and 11.1% in the consumable and service revenues, respectively. These increases are primarily attributable to our
recent acquisitions, organic growth and new service offerings. Capital equipment revenues declined 1%. Life Sciences backlog
at March 31, 2017 amounted to $53.2 million, increasing $7.9 million compared to the backlog of $45.3 million at March 31,
2016.
Applied Sterilization Technologies revenues increased 47.8% in the fiscal year 2017, as compared to fiscal 2016.
Revenues in fiscal 2017 were favorably impacted by the Combination and increased volume from our core medical device
Customers.
The Healthcare Products segment’s operating income increased $44.3 million to $224.5 million in fiscal year 2017, as
compared to $180.3 million in fiscal year 2016. The segment's operating margin was 17.8% for fiscal year 2017 compared to
15.0% for fiscal year 2016. The increase in fiscal year 2017 is primarily due to higher volumes, the positive impact of
operational efficiencies, the suspension of the medical device excise tax, and favorable foreign currency rate movements
The Healthcare Specialty Services segment’s operating income decreased $11.7 million to $13.5 million for fiscal year
2017 as compared to $25.2 million in fiscal year 2016. The segment’s operating margin was 2.4% for fiscal year 2017
compared to 5.9% for fiscal year 2016. The decrease in fiscal 2017 was primarily the result of the addition of Synergy's
hospital sterilization services and linen management services.
The Life Sciences business segment’s operating income increased $11.5 million to $97.0 million for fiscal year 2017 as
compared to $85.5 million in fiscal year 2016. The segment’s operating margin was 29.6% for fiscal year 2017 compared to
28.9% for fiscal year 2016. The increase in operating margin in fiscal 2017 was primarily attributable to higher volume,
partially offset by unfavorable product mix.
The Applied Sterilization Technologies segment’s operating income increased $56.8 million to $156.0 million for fiscal
year 2017 as compared to $99.2 million for fiscal year 2016. The Applied Sterilization Technologies segment's operating
margin was 34.0% for fiscal year 2017 compared to 32.0% for fiscal year 2016. The segment’s operating margin increase in
fiscal 2017 was the result of the Combination, increased demand from core medical device Customers and operational
efficiencies, including cost synergies.
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
2015
Change
Percent
Change
$
2,238,764
$
1,850,263
$
388,501
21.0%
614,002
516,044
1,108,718
597,809
449,996
802,458
16,193
66,048
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%
32
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 $16.2 million, or 2.7%, to $614.0 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 $66.0 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.
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
(391)
547,090
$
$
133,368
2,525
(429)
135,464
27.0%
4.7%
NM
24.8%
$
$
33
Significant components of total selling, general, and administrative expenses 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 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 9 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
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 have more effectively utilized 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.
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,
2015
2016
Change
$
$
42,708
(1,665)
41,043
$
$
19,187
(796)
18,391
$
$
23,521
(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 6 to our consolidated financial statements
titled, “Debt,” and in the subsection of MD&A titled, “Liquidity and Capital Resources.”
34
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
Percent
Change
60,299
35.1%
73,756
$
(13,457)
(18.2)%
35.3%
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 was 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 8 to our
consolidated financial statements titled, “Income Taxes.”
Business Segment Results of Operations. We operate and 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 11
to our consolidated financial statements titled “Business Segment Information,” and Item 1, “Business,” provide detailed
information regarding each business segment.
35
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:
(dollars in thousands)
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
Years ended March 31,
2016
2015
Change
Percent
Change
$
1,202,820
$
1,143,336
$
59,484
427,198
295,970
310,120
2,236,108
2,656
248,538
250,845
205,675
1,848,394
1,869
178,660
45,125
104,445
387,714
787
$
2,238,764
$
1,850,263
$
388,501
180,263
25,197
85,466
99,224
390,150
(11,488)
166,515
16,629
56,072
59,458
298,674
(7,542)
13,748
8,568
29,394
39,766
91,476
(3,946)
87,530
5.2%
71.9%
18.0%
50.8%
21.0%
nm
21.0%
8.3%
51.5%
52.4%
66.9%
30.6%
nm
30.1%
Total segment operating income
$
378,662
$
291,132
$
Less: Adjustments
Amortization of inventory and property "step up" to
fair value (1)
Amortization and impairment of purchased intangible
assets (1)
Acquisition related transaction and integration charges (2)
Loss (gain) on fair value adjustment of acquisition related
contingent consideration
Settlement of pension obligation (3)
Restructuring charges
9,907
47,704
82,891
(736)
26,470
(501)
1,330
28,317
32,762
2,271
—
(759)
Total operating income
(1) For more information regarding our recent acquisitions see Note 2 to our consolidated financial statements titled, "Business Acquisitions
227,211
212,927
$
$
and Divestitures".
(2) Acquisition and integration related charges include transaction costs and integration expenses associated with acquisitions.
(3) See Note 9 to our consolidated financial statements titled, "Benefit Plans" for more information related to the settlement of the pension
obligation.
Healthcare Products revenues increased 5.2% 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 71.9% 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.
36
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.
The Healthcare Products segment’s operating income increased $13.8 million to $180.3 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 $8.6 million to $25.2 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
5.9% 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 offerings from our
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.
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes significant components of our cash flows for the years ended March 31, 2017, 2016 and
2015:
(dollars in thousands)
Net cash provided by operating activities
Net cash used in investing activities
Net cash (used in) provided by financing activities
Debt-to-total capital ratio
Free cash flow
$
2017
424,086
(104,255)
(267,099)
Years Ended March 31,
2016
254,675
(729,584)
560,289
$
$
2015
246,040
(283,769)
69,750
34.6%
34.2%
36.7%
$
256,031
$
129,112
$
161,614
Net Cash Provided By Operating Activities –The net cash provided by our operating activities was $424.1 million for the
year ended March 31, 2017 compared to $254.7 million for the year ended March 31, 2016 and $246.0 million for the year
ended March 31, 2015. The following discussion summarizes the significant changes in our operating cash flows for the years
ended March 31, 2017, 2016 and 2015:
• Net cash provided by operating activities increased 66.5% in fiscal 2017 compared to fiscal 2016. The increase was
primarily due to higher cash earnings and lower acquisition and integration expenses.
• 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 Used In Investing Activities – The net cash used in our investing activities was $104.3 million for the year
ended March 31, 2017, compared to $729.6 million for the year ended March 31, 2016 and $283.8 million for the year ended
March 31, 2015. The following discussion summarizes the significant changes in our investing cash flows for the years ended
March 31, 2017, 2016 and 2015:
•
Purchases of property, plant, equipment, and intangibles, net – Capital expenditures totaled $172.9 million during fiscal
2017, $126.4 million during fiscal 2016 and $85.3 million during fiscal 2015. The increase in capital expenditures in fiscal
2017 over fiscal 2016 is the result of the inclusion of capital expenditures related to the operations of Synergy and
investments to expand capacity in certain of our Applied Sterilization Technologies facilities.
37
•
•
•
Proceeds from the sale of business - During fiscal 2017, we received $135.7 million for the proceeds from the sale of
certain non-core businesses. For more information, refer to our Note 2 to our consolidated financial statements, "Business
Acquisitions and Divestitures".
Investments in business, net of cash acquired – During fiscal 2017, 2016 and 2015, we used $65.6 million, $604.0 million
and $194.7 million, respectively, for acquisitions. For more information on these acquisitions refer to Note 2 to our
consolidated financial statements titled, "Business Acquisitions and Divestitures".
Purchases of investments– During fiscal 2017, we invested an additional $6.4 million 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. During fiscal 2015, we invested $4.7 million in the common stock of Servizi.
Net Cash (Used In) Provided By Financing Activities – Net cash used in financing activities was $267.1 million for the
year ended March 31, 2017, compared to net cash provided by financing activities of $560.3 million, and net cash provided by
financing activities of $69.8 million for the years ended March 31, 2016 and March 31, 2015, respectively. The following
discussion summarizes the significant changes in our financing cash flows for the years ended March 31, 2017, 2016 and 2015:
•
•
•
Proceeds from the issuance of long-term obligations – On February 27, 2017, we issued and sold to various institutional
investors fixed-rate Series A Senior Notes, in the aggregate principal amount of $95,000, €99,000, and £75,000 or a total of
approximately $293,730. On May 15, 2015, we issued the aggregate principal amount of $350.0 million of senior notes in
a private placement, which were long term obligations. We provide additional information about our debt structure in Note
6 to 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 fourth quarter of 2017, we repaid $157.5 million on our bank term loan
maturing in March 2020. Additionally, we paid $15.0 million on the same loan over the first three quarters of fiscal 2017
under our credit agreement (as defined below) at $5.0 million per quarter. During the third quarter of fiscal 2016, we repaid
$20.0 million of senior notes issued in December 2003, the aggregate principal amount of $2.0 million in senior notes were
issued in February 2013 and the aggregate principal amount of $2.0 million in senior notes were issued in December 2012.
We also repaid $63.6 million of our term loan incurred under our bank credit facility in conjunction with the Combination
with Synergy. During the fourth quarter of fiscal 2016 we repaid $5.0 million of our term loan debt.
Proceeds under credit facilities, net – At the end of fiscal 2017, $521.6 million of debt was outstanding under our bank
credit facility, compared to $905.2 million and $283.3 million of debt outstanding under this facility at the end of fiscal
2016 and 2015, respectively.
• Repurchases of shares – During fiscal 2017, we purchased 1,286,183 of our ordinary shares in the aggregate amount of
$90.5 million, which included $0.5 million of taxes and commissions. We also obtained 168,906 of our ordinary shares in
connection with our stock-based compensation award programs in the amount $7.0 million during fiscal 2017. During
fiscal 2016, we obtained 267,696 of our ordinary shares in connection with our stock-based compensation award programs
in the amount $14.4 million. During fiscal 2015, we obtained 541,700 shares in connection with our stock-based
compensation award programs in the amount of $30.7 million. We provide additional information about our share
repurchases in Note 13 to our consolidated financial statements titled, “Repurchases of Ordinary Shares.”
• Deferred financing fees and debt issuance costs - We paid $1.1 million, $5.2 million and $14.4 million in fiscal 2017, 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 6 to our consolidated financial
statements titled, "Debt".
• Cash dividends paid to ordinary shareholders – During fiscal 2017, we paid cash dividends totaling $93.2 million or $1.09
per outstanding share. 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.
•
Stock option and other equity transactions, net – We receive cash for issuing shares under our various employee stock
option programs. During fiscal 2017, fiscal 2016 and fiscal 2015, we received cash proceeds totaling $5.0 million, $11.2
million, and $28.3 million, respectively, under these programs.
• Excess tax benefit from share-based compensation – For the years ended March 31, 2016 and 2015, our income taxes were
reduced by $6.3 million and $11.5 million, respectively, as a result of deductions allowed for stock options exercised and
restricted share vestings.
Cash Flow Measures. Free cash flow was $256.0 million in fiscal 2017 compared to $129.1 million in fiscal 2016. The
increase in cash flow from operations and free cash flow was primarily due to higher cash earnings and a reduction in
acquisition related cash expenses. Our debt-to-total capital ratio was 34.6% at March 31, 2017 and 34.2% at March 31, 2016.
38
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 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.
Sources of Credit. Our sources of credit as of March 31, 2017 are summarized in the following table:
(dollars in thousands)
Sources of Credit
Maximum
Amounts
Available
Reductions in
Available Credit
Facility for Other
Financial
Instruments
March 31, 2017
Amounts
Outstanding
March 31, 2017
Amounts
Available
Private placement
—
Credit Agreement (1)
550,896
Total Sources of Credit
550,896
(1) Our $850.0 million revolving credit facility provided under our Credit Agreement contains a sub-limit that reduces the maximum amount
960,684
1,072,500
2,033,184
960,684
521,604
1,482,288
— $
—
— $
$
$
$
$
$
$
available to us for borrowings by letters of credit outstanding.
Our sources of funding from credit as of March 31, 2017 are summarized below:
• On February 27, 2017, we issued and sold an aggregate principal amount of $95,000, €99,000, and £75,000 or a total of
approximately $293,730 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. Maturities of these senior notes are as follows, and
the dollar amounts shown are based upon foreign exchange rates as of March 31, 2017:
$50,000 Senior notes at 3.93% due 2027
€60,000 Senior notes at 1.86% due 2027
$45,000 Senior notes at 4.03% due 2029
€20,000 Senior notes at 2.04% due 2029
£45,000 Senior notes at 3.04% due 2029
€19,000 Senior notes at 2.30% due 2032
£30,000 Senior notes at 3.17% due 2032
Total 2017 Senior Notes
$
2017
50,000
64,414
45,000
21,471
56,040
20,398
37,360
$
294,683
• All or substantially all of the net proceeds of the borrowings were used to repay floating-rate bank debt under our bank
credit facility, thereby increasing the Company's proportion of fixed-rate debt. Total debt levels for the Company remained
relatively unchanged after giving effect to these actions. The agreement governing these notes contains leverage and
interest coverage covenants.
•
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 (i) $132.0 million, £49.0
million, and €127.8 million under the revolving credit facility provided under the Credit Agreement (as hereinafter defined)
and (ii) $400.0 million under the term loan facility provided under the Credit Agreement. 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 (as such terms are defined in the Credit Agreement). 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 and sold $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 were used for
39
the repayment of bank 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 plc 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
prior bank facilities of Old STERIS. As of March 31, 2017, the Credit Agreement provided $1,072.5 million of credit,
which includes an $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, plus a term loan facility with
a limit and outstanding principal amount of $222,500. As repayments are made under the term facility, the term facility
limit declines. 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. The Credit
Agreement also allows for voluntary principal reduction pre-payments on the term loan. As of March 31, 2017, a total
$521.6 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 and sold $100.0 million of senior notes, of which $98.0 million remained
outstanding as of March 31, 2017, 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 bank credit facility debt. The agreements
governing these notes, which also govern the below described senior notes issued in December 2012, 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 and sold $100.0 million of senior notes, of which $98.0 million remained
outstanding as of March 31, 2017, 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 bank 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 and sold $150.0 million of senior notes, of which $120.0 million remained
outstanding as of March 31, 2017, 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, which
also govern the previously described senior notes issued in February 2013, 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, 2017, we had $550.9 million of unused 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, 2017, there
were no letters of credit outstanding under the Credit Agreement.
At March 31, 2017, 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 6 to our consolidated
financial statements titled, “Debt.”
40
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), and information technology
enhancements and research and development advances. During fiscal 2017, our capital expenditures amounted to $172.9
million. We use cash provided by operating activities and our cash and cash equivalent balances to fund capital expenditures.
We expect fiscal 2018 capital expenditures to increase to approximately $180.0 million, reflecting continued facility
expansions, integration of IT systems, new product development and general maintenance for existing facilities.
CONTRACTUAL AND COMMERCIAL COMMITMENTS
At March 31, 2017, we had commitments under non-cancelable operating leases totaling $97.4 million.
Our contractual obligations and commercial commitments as of March 31, 2017 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.
(dollars in thousands)
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 benefits plans
Total Contractual Obligations
Payments due by March 31,
2018
2019
2020
2021
2022 and
thereafter
Total
$
30,000
$ 117,500
$ 459,104
$
35,000
$ 840,684
$ 1,482,288
23,718
21,261
15,132
13,063
11,088
13,455
7,329
13,858
40,140
25,219
97,407
86,856
3,498
3,472
3,915
3,706
28,238
42,829
(3,498)
(3,472)
(3,915)
(3,706)
(28,238)
(42,829)
2,187
1,910
1,707
1,565
6,846
14,215
$
77,166
$ 147,605
$ 485,354
$
57,752
$ 912,889
$ 1,680,766
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 6
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 plans. Our future contributions to the defined
contribution plans 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 benefits plan in Note 9 to our consolidated financial statements titled, “Benefit Plans."
(dollars in thousands)
Commercial Commitments:
Performance and surety bonds
Letters of credit as security for self-
insured risk retention policies
Total Commercial Commitments
$
$
Amount of Commitment Expiring March 31,
2018
2019
2020
2021
2022 and
thereafter
Totals
52,669
$
1,117
$
89
$
2,490
$
1,344
$
57,709
7,694
—
60,363
$
1,117
$
—
89
—
—
7,694
$
2,490
$
1,344
$
65,403
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.”
41
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
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.
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 29.0% and 31.0% of total inventories at March 31, 2017 and 2016, respectively. Inventory
costs include material, labor, and overhead. If we had used only the FIFO method of inventory costing, inventories would have
been $16.7 million and $17.6 million higher than those reported at March 31, 2017 and 2016, respectively.
We review inventory on an ongoing basis, considering factors such as deterioration and obsolescence. 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.
42
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 5 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.
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.
As a result of our annual goodwill impairment review for fiscal year 2017, we concluded that the carrying value of one of
our reporting units exceeded its fair value. The Synergy Health Netherlands linen management unit is reported within our
Healthcare Specialty Services segment. Financial forecasts prepared for the annual assessment reflected pricing pressures,
volume declines driven by overcapacity in the market, and a decline in the overall market size. These factors resulted in further
degradation of the already low operating margin and cash flows of this unit. We incurred a goodwill impairment charge of
$58,356 as a result, which is recorded within Goodwill impairment loss in the Consolidated Statements of Income. The fair
market value of the reporting unit was determined under an income approach using discounted cash flows and estimated fair
market values. Fair value calculated using a discounted cash flow analysis is classified within level 3 of the fair value hierarchy
and requires several assumptions including risk adjusted discount rates and financial forecasts.
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. During the third quarter of fiscal 2017, we adopted a new branding strategy change as part of the
integration of certain Synergy Health operations into the Healthcare Specialty Services Segment. Under this new branding
strategy, hospital sterilization services and instrument repair services will utilize the STERIS Instrument Management Services
brand name. The Synergy Health trade name was phased out during the fourth quarter of fiscal 2017. As a result, we have
shortened the estimated useful life of the Synergy Health trade name and have accelerated the corresponding amortization
expense over the remainder of fiscal 2017, which totaled $14,444 and was recorded within the Selling, general and
administrative expense line on the Consolidated Statements of Income.
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, ultimately
determined be several years after the tax return is filed and the financial statements are published.
43
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 8 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, 2017 and 2016 was $22.7 million and $20.2 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.
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
44
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
10 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 10 to our consolidated financial
statements titled, “Commitments and Contingencies.”
Benefit Plans. We provide defined benefit pension plans for certain employees and retirees. In addition, we sponsor an
unfunded post-retirement 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 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, 2017
projected benefit obligations and the fiscal 2017 net periodic benefit costs is as follows:
Funding Status
Funded
Funded
Funded
Funded
Funded
Unfunded
Synergy
Health PLC
Isotron
BV
Synergy
Health
Daniken
AG
Synergy
Health
Radeberg
Synergy
Health
Allershausen
U.S. Post-
Retirement
Benefits Plan
Assumptions used to determine March 31, 2017
Benefit obligations:
Discount rate
Assumptions used to determine fiscal 2017
Net periodic benefit costs:
Discount rate
Expected return on plan assets
NA – Not applicable.
2.60%
1.60%
0.65%
1.50%
1.50%
3.50%
3.50%
1.60%
4.87%
1.60%
0.65%
1.40%
1.50%
1.50%
3.50%
n/a
n/a
n/a
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. 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 2017 benefit costs by $0.03
million.
We develop our discount rate assumptions by evaluating input from third-party professional advisers, 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 benefits plan by 50 basis points would have
decreased the fiscal 2017 net periodic benefit costs by less than $0.05 million and would have increased the projected benefit
obligations by approximately $9.5 million at March 31, 2017.
45
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, 2017:
(dollars in thousands)
Effect on total service and interest cost components
Effect on postretirement benefit obligation
100 Basis Point
Increase
Decrease
$
$
1
32
(1)
(32)
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 9 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 $18.8 million in fiscal 2017, $16.1 million in fiscal 2016 and $14.9 million in
fiscal 2015. Note 14 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.
46
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 specified in this Annual 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 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,
2017. 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 Annual Report 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 the operations of the
companies, (c) the integration of the operations of the companies 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 Combination, (e) the
retention of certain key employees 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 in this Annual Report on
Form 10-K for the year ended March 31, 2017 and other securities filings, may adversely impact STERIS’s performance,
results, prospects or value, (m) the impact on STERIS and its operations of the “Brexit” or the exit of other member countries
from the EU, (n) the impact on STERIS and its operations of any new legislation, regulations or orders, including, but not
limited to any new trade or tax legislations, regulations or orders, that may be implemented by the new US Administration or
Congress or of any responses thereto, (o) the possibility that anticipated financial results or benefits of recent acquisitions,
including the Combination, or of STERIS’s restructuring efforts, or of recent divestitures, will not be realized or will be other
than anticipated, and (p) the effects of contractions in credit availability, as well as the ability of STERIS’s Customers and
suppliers to adequately access the credit markets when needed.
47
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, 2017, we had $961 million in fixed rate senior notes outstanding. As of March 31, 2017, we had $521.6
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 6 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 18 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 31% of our revenues and 39% 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,
2017, we held foreign currency forward contracts to buy 110 million Mexican pesos and 10 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, 2017, we held commodity swap contracts to buy 581,500 pounds
of nickel.
48
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
50
51
52
53
54
55
56
98
49
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 as of March 31, 2017 and
2016, 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, 2017. 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, 2017 and 2016, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended March 31, 2017, 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, 2017, 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 26, 2017 expressed an unqualified opinion thereon.
Cleveland, Ohio
May 26, 2017
/s/ ERNST & YOUNG LLP
50
STERIS PLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31,
Current assets:
Assets
2017
2016
Cash and cash equivalents
$
282,918
$
483,451
197,837
53,596
1,017,802
915,908
2,956,190
34,555
248,841
471,523
192,792
59,369
972,525
1,064,319
3,279,942
29,630
$
$
4,924,455
$
5,346,416
133,479
$
14,640
78,575
154,889
381,583
1,478,361
171,805
82,673
139,572
13,683
93,976
153,375
400,606
1,567,796
254,824
84,298
$
2,114,422
$
2,307,524
15
15
2,085,134
954,155
(240,702)
2,798,602
11,431
2,810,033
$
4,924,455
$
2,151,719
939,459
(68,159)
3,023,034
15,858
3,038,892
5,346,416
Accounts receivable (net of allowances of $10,357 and $11,185, respectively)
Inventories, 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 £0.10 par value; 100 shares authorized; 100 issued and
outstanding
Ordinary shares, with £0.10 par value; £17,006 aggregate par amount authorized;
84,948 and 85,920 ordinary shares issued and outstanding, respectively
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Noncontrolling interests
Total equity
Total liabilities and equity
See notes to consolidated financial statements.
51
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:
2017
2016
2015
$
1,199,350
$
1,130,046
$
1,047,805
1,413,406
2,612,756
1,108,718
2,238,764
802,458
1,850,263
624,542
962,582
1,587,124
1,025,632
618,161
725,122
584,210
491,752
1,343,283
1,075,962
895,481
774,301
Selling, general, and administrative
680,069
626,710
493,342
Goodwill impairment loss
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
58,356
59,397
215
798,037
227,595
44,520
(1,571)
42,949
184,646
74,015
110,631
666
—
56,664
(820)
682,554
212,927
42,708
(1,665)
41,043
171,884
60,299
111,585
822
—
54,139
(391)
547,090
227,211
19,187
(796)
18,391
208,820
73,756
135,064
—
109,965
$
110,763
$
135,064
1.29
1.28
1.09
$
$
$
1.57
1.56
0.98
$
$
$
2.27
2.25
0.90
$
$
$
$
See notes to consolidated financial statements.
52
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
Other comprehensive (loss) income
Unrealized gain (loss) on available for sale securities, (net of taxes of $402,
($266) and $85, respectively)
Amortization of pension and postretirement benefit plans costs, (net of taxes
of $963, ($700), and $4,007, respectively)
Pension settlement (net of taxes of $0, $10,563 and $0, respectively)
Change in cumulative foreign currency translation adjustment
Total other comprehensive loss attributable to shareholders
Comprehensive (loss) income attributable to shareholders
2017
110,631
666
109,965
$
$
2016
2015
111,585
822
110,763
$
$
135,064
—
135,064
851
(1,741)
507
(7,463)
—
(165,931)
(172,543)
(62,578) $
(3,032)
17,029
(13,746)
(1,490)
109,273
$
(6,461)
—
(65,196)
(71,150)
63,914
$
$
$
See notes to consolidated financial statements.
53
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:
2017
2016
2015
$
110,631
$
111,585
$
135,064
Depreciation, depletion, and amortization
Deferred income taxes
Share-based compensation expense
Pension settlement expense
Pension contributions made in settlement
Loss (gain) on the disposal of property, plant, equipment,
and intangibles, net
Loss on sale of businesses
Excess tax benefit from share-based compensation
Goodwill impairment loss
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
Proceeds from the sale of businesses
Purchases of investments
Acquisition of business, net of cash acquired
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 (used in) provided by 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
188,142
31,274
18,794
—
—
760
86,574
—
58,356
(13,242)
(48,140)
(12,829)
2,324
6,884
(5,442)
424,086
(172,901)
4,846
135,713
(6,356)
(65,557)
(104,255)
293,730
(172,500)
(196,613)
(1,073)
(9,918)
(97,509)
(93,193)
5,022
4,955
—
(267,099)
(18,655)
34,077
248,841
282,918
$
143,740
704
16,147
26,470
(4,641)
1,813
—
(6,281)
—
(14,328)
(31,560)
1,810
(9,599)
5,249
13,566
254,675
(126,407)
844
—
—
(604,021)
(729,584)
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
$
91,541
(4,916)
14,921
—
—
(151)
—
(11,526)
—
(9,238)
(2,774)
(9,902)
2,089
(3,146)
44,078
246,040
(85,255)
829
—
(4,681)
(194,662)
(283,769)
—
—
129,770
(14,370)
(1,250)
(30,687)
(53,513)
—
28,274
11,526
69,750
(17,134)
14,887
152,802
167,689
$
See notes to consolidated financial statements.
54
STERIS PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
Ordinary Shares
Preferred Shares
Treasury Shares
Number
Amount
Number Amount Number Amount
Accumulated
Other
Comprehensive
Income (Loss)
Non-
controlling
Interest
Retained
Earnings
Total
Equity
Balance at March 31, 2014
58,968 $ 246,186
— $
— 11,072 $(324,202) $ 1,112,240 $
4,481 $
2,541 $ 1,041,246
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
—
—
(542)
1,249
—
—
—
—
—
—
7,141
11,526
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
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)
Balance at March 31, 2015
59,675 $ 264,853
— $
— 10,364 $(320,343) $ 1,193,791 $
(66,669) $
2,014 $ 1,073,646
—
—
(1,020)
13,624
(20,133)
—
—
—
—
—
—
—
—
—
—
—
—
—
248
(12,974)
(538)
13,667
110,763
—
(375)
—
— (10,074)
319,650
(299,517)
664
—
Comprehensive income:
Net income
Other comprehensive loss
—
—
Repurchases of ordinary shares
(267)
Equity compensation programs
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 – $0.98 per
ordinary share
Change in noncontrolling
interest
25,839
1,887,479
100
9
—
—
—
—
635
—
6,281
—
—
—
—
—
—
—
Balance at March 31, 2016
85,920 $ 2,151,719
100 $
Comprehensive income:
Net income
Other comprehensive loss
—
—
—
—
Repurchases of ordinary shares
(1,455)
(95,433)
Equity compensation programs
and other
Purchase of subsidiary shares
from noncontrolling interest
Issuance of subsidiary shares to
noncontrolling interest
Cash dividends – $1.09 per
ordinary share
Other changes in
noncontrolling interest
416
23,826
67
5,022
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Balance at March 31, 2017
84,948 $ 2,085,134
100 $
15
—
—
—
—
—
15
—
—
—
—
—
—
—
15
—
(1,490)
—
—
—
—
—
—
—
—
—
822
111,585
—
—
—
—
(1,490)
(14,369)
27,291
—
13,574
1,901,068
(1,453)
(818)
1,443
1,443
—
—
6,281
(65,203)
(542)
(542)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(65,203)
—
— $
— $ 939,459 $
(68,159) $
15,858 $ 3,038,892
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
109,965
—
666
110,631
—
(172,543)
— (172,543)
(2,076)
—
—
—
(93,193)
—
—
—
—
—
—
—
—
—
(97,509)
23,826
(5,374)
(352)
530
530
—
(93,193)
(249)
(249)
— $
— $ 954,155 $
(240,702) $
11,431 $ 2,810,033
See notes to consolidated financial statements.
55
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations. STERIS plc (“Parent”) was organized in 2014 under the laws of England and Wales under the name
Solar New HoldCo Limited as a private limited company for the purpose of effecting 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”). Effective November 2, 2015, the Parent was re-registered as a public company
under the name of STERIS plc and the Combination closed. As a result of the Combination closing, STERIS plc became the
ultimate parent company of Old STERIS and Synergy. Synergy has been re-registered under the name of 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 and 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 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 11 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," "fiscal 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.
56
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
Information supplementing our Consolidated Statements of Cash Flows is as follows:
Years Ended March 31,
2017
2016
2015
Cash paid during the year for:
Interest
Income taxes
Cash received during the year for income tax refunds
$
$
42,797
78,009
2,002
$
37,165
60,885
1,697
19,124
52,707
2,405
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.
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 29.0% and 31.0% of total inventories at March 31, 2017 and 2016, respectively.
Inventory costs include material, labor, and overhead. If we had used only the FIFO method of inventory costing, inventories
would have been $16,706 and $17,608 higher than those reported at March 31, 2017 and 2016, respectively.
We review 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
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.
57
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
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
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 Sheet. 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
$1,141 and $723 for the years ended March 31, 2017 and 2016, respectively. Total interest expense for the years ended
March 31, 2017, 2016, and 2015 was $44,520, $42,708, and $19,187, 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 in connection with business combinations. 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 monitor for such indicators 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 5 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. We review 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, strategic plans, and operating plans. We believe such assumptions and estimates are also comparable to
those that would be used by other marketplace participants.
58
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
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 benefits plan for certain former
employees. We determine our costs and obligations related to these plans by evaluating input from third-party professional
advisers. 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 benefits 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 benefits plans in Note 9 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 17 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 Statement 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 $12,622, $10,785, and $9,732 of
advertising costs during the years ended March 31, 2017, 2016, and 2015, respectively.
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.
59
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
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 if
applicable, any carryback claims that can be filed. 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 are
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 are derecognized in the first subsequent financial reporting
period in which the threshold is no longer met. We describe income taxes further in Note 8 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. As a result, we did not incur Medical Device Excise taxes during
fiscal 2017. We incurred Medical Device Excise taxes of $5,802, and $7,917 during fiscal years 2016 and 2015, respectively,
which was included in cost of revenues in the period of sale.
Share-Based Compensation. We describe share-based compensation in Note 14 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.
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.
60
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
Recently Issued Accounting Standards Impacting the Company
Recently Issued Accounting Standards Impacting the Company are presented in the following table:
Standard
Date of
Issuance
Description
Standards that have recently been adopted
ASU 2015-05,
"Goodwill and
other-Internal-
Use Software"
(Subtopic
350-40)
April
2015
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.
Date of
Adoption
First
Quarter
Fiscal
2017
Effect on the financial
statements or other
significant matters
The prospective adoption of
this standard did not have a
material impact on our
statements of consolidated
financial position, results of
operations and cash flows.
May
2015
ASU 2015-07,
"Fair Value
Measurement:
Disclosures for
Investments in
Certain Entities
that Calculate Net
Asset Value per
Share (or its
Equivalent)"
(Topic 820)
This standard removes the requirement to
categorize within the fair value hierarchy all
investments for which fair value is measured
using the asset value per share practical
expedient. The standard also removes the
requirement to make certain disclosures for these
investments that are eligible to be measured at
fair value using the net asset value per share
practical expedient.
Fourth
Quarter
Fiscal
2017
We retrospectively applied
the requirements of this
standard to investments that
use net asset value per share
as a practical expedient for
all comparative periods
presented in Note 9. Benefit
Plans and Note 17. Fair
Value Measurements.
March
2016
ASU 2016-09,
"Stock
Compensation:
Improvements to
Employee Share-
Based Payment
Accounting"
(Topic 718)
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.
First
Quarter
Fiscal
2017
As a result of the adoption
of this standard, we
recorded $5.1 million of
excess tax benefits
associated with share based
compensation in the
Consolidated Statements of
Income for the year-ended
March 31, 2017 and have
included the associated cash
flows as cash provided by
operating activities. Prior
periods have not been
restated.
61
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
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.
July
2015
ASU 2015-11,
"Inventory -
Simplifying the
Measurement of
Inventory"
(Topic 330)
January
2016
ASU 2016-01,
"Financial
Instruments -
Overall -
Recognition and
Measurement of
Financial Assets
and Liabilities"
(Subtopic
825-10)
ASU 2016-02,
"Leases"
(Topic 842)
February
2016
The standard requires an entity to measure
inventory within the scope of this update at the
lower of cost and net realizable value. Net
realizable value is the estimated selling prices in
the ordinary course of business, less reasonably
predictable costs of completion, disposal, and
transportation. Subsequent measurement is
unchanged for inventory measured using LIFO or
the retail inventory method. The standard is
effective for fiscal years beginning after
December 15, 2016, including interim periods
within those fiscal years and should be applied
prospectively. Early adoption is permitted.
The standard changes how equity investments are
measured and presents changes in the fair value
of financial liabilities measured under the fair
value option. Presentation and disclosure
requirements for financial instruments are also
affected. Entities will be required to measure
equity investments that do not result in
consolidation and are not recorded under the
equity method at fair value with changes in fair
value recognized in net income. The standard
clarifies guidance related to the valuation
allowance assessment when recognizing deferred
tax assets resulting from unrealized losses on
available-for-sale securities. The accounting for
other financial instruments, such as loans,
investments in debt securities, and financial
liabilities is largely unchanged. The standard is
effective for fiscal years beginning after
December 15, 2017, including interim periods
within those fiscal years.
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.
62
N/A
N/A
N/A
We have not completed our
assessment of the new
revenue recognition
standard, however, we
currently anticipate adopting
this standard using the
modified-retrospective
method. We are in the
process of quantifying the
potential impacts that the
standard will have on our
consolidated statements of
financial position, results of
operations and cash flows.
We do not expect the
adoption of this standard to
have a material impact on
our consolidated financial
statements.
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.
N/A
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.
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
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.
N/A
We are in the process of
evaluating the impact that
the standard will have on
our statement of cash flows.
N/A
N/A
We are in the process of
evaluating the impact that
the standard will have on
our consolidated financial
statements.
We are in process of
evaluating the impact that
the standard will have on
our annual goodwill
impairment test.
March
2016
ASU 2016-07,
"Investments -
Equity Method
and Joint
Ventures,
Simplifying the
Transition to the
Equity Method of
Accounting"
(Topic 323)
ASU 2016-15,
"Statement of
Cash Flows"
(Topic 230)
August
2016
October
2016
January
2017
ASU 2016-16,
"Income Taxes,
Intra-Entity
Transfers of
Assets Other
Than Inventory"
(Topic 740)
ASU 2017-04,
"Intangibles -
Goodwill and
Other,
Simplifying the
Test for Goodwill
Impairment"
(Topic 350)
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.
This update provides guidance on the following
specific cash flow issues: Debt prepayment or
debt extinguishment costs, settlement of zero-
coupon debt instruments or other debt
instruments with coupon interest rates that are
insignificant in relation to the effective interest
rate of borrowing, contingent consideration
payments made after a business combination,
proceeds from the settlement of insurance claims,
proceeds from the settlement of corporate-owned
life insurance policies, distributions received
from equity method investees, beneficial interests
in securitization transactions, and separately
identifiable cash flows and application of the
predominance principle. The standard is effective
for annual periods beginning after December 15,
2017 and interim periods within that period.
Early adoption is permitted.
The update improves the accounting for the
income tax consequences of intra-entity transfers
of assets other than inventory. The new standard
requires the recognition of income tax
consequences resulting from an intra-entity
transfer of an asset other than inventory when the
transfer occurs. The standard is effective for
annual periods beginning after December 15,
2018. Early adoption is permitted.
This update eliminates Step 2 from the goodwill
impairment test. In computing the implied fair
value of goodwill under Step 2, an entity had to
perform procedures to determine the fair value at
the impairment testing date of its assets and
liabilities (including unrecognized assets and
liabilities) following the procedures that would
be required in determining the fair value of assets
acquired and liabilities assumed in a business
combination. Instead, under the amendments of
this standard, an entity would perform its annual
or interim goodwill impairment test by
comparing the fair value of a reporting unit with
its carrying amount. An entity should recognize
an impairment charge for the amount by which
the carrying amount exceeds the reporting unit's
fair value. The loss should not exceed the total
amount of goodwill allocated to that reporting
unit. Tax effects should be considered. The
standard is effective for fiscal years beginning
after December 15, 2019. Early adoption is
permitted.
63
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
March
2017
This standard requires that an employer report
the service cost component in the same line item
or items as other compensation costs arising from
services rendered by the pertinent employees
during the period. The other components of net
benefit cost are required to be presented in the
income statement separately from the service
cost component and outside the subtotal of
income from operations, if one is presented.
N/A
We are in process of
evaluating the impact that
the standard will have on
our annual goodwill
impairment test.
ASU 2017-07
"Compensation -
Retirement
Benefits -
Improving the
Presentation of
Net Periodic
Pension and Net
Periodic
Postretirement
Benefit Cost"
(Topic 715)
2. BUSINESS ACQUISITIONS AND DIVESTITURES
Fiscal 2017 Acquisitions
Compass Medical, Inc.
On September 16, 2016, we purchased the assets of Compass Medical, Inc. ("Compass'') for approximately $16.0 million.
The purchase price was financed with bank credit facility borrowings. Compass specializes in the sale and repair of flexible
endoscopes. On an annual basis, Compass has generated revenues of approximately $6.0 million and is being integrated into
our Healthcare Specialty Services segment.
Phoenix Surgical Holdings, Ltd. and Endo-Tek LLP
On August 31, 2016, we purchased 100% of the shares of Phoenix Surgical Holdings, Ltd. and the assets of Endo-Tek LLP
("Phoenix Surgical and Endo-Tek") for approximately $14.3 million combined, net of cash acquired. The purchase price was
financed with cash on hand. On an annual basis, these operations, which specialize in the repair of endoscopes, generated
approximately $8.0 million in combined revenue and is being integrated into our Healthcare Specialty Services segment.
Medisafe
On July 22, 2016, we purchased 100% of the shares of Medisafe Holdings, Ltd. ("Medisafe"), a U.K. manufacturer of
washer/disinfector equipment and related consumables and services for approximately $34.5 million, net of cash acquired. The
purchase price was financed with cash on hand. On an annual basis, the Medisafe product line has generated $18.0 million in
revenue. The acquisition of Medisafe provides washer manufacturing and research and development capabilities in the U.K.
Medisafe's products and services is being integrated into our Healthcare Products segment.
Fiscal 2016 Acquisitions
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 and that are geographically complementary. 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 were exercisable to the extent that the exercise price funds had been accumulated in accordance
with the option holder's savings contract. The number of Synergy shares issued were 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
64
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
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. 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.
During the fiscal 2017 third quarter, adjustments were made to finalize the opening balance sheet fair value estimates.
Adjustments related primarily to property, plant and equipment, intangible assets and goodwill. The cumulative impact of the
final purchase price allocation resulted in a cumulative decrease in depreciation, amortization and depletion expense of
approximately $20 million, of which approximately $17 million was recorded within Selling, general and administrative
expense and approximately $3 million was recorded within Cost of revenues in the Consolidated Statements of Income. The
cumulative foreign currency translation adjustment recorded as a result of the finalization of purchase accounting was
approximately $170 million. The purchase price allocation below represents Synergy's opening balance sheet as of November 2,
2015:
Cash
Accounts receivable
Inventory
Property, plant and equipment
Other assets
Intangible assets
Goodwill
Total assets
Current liabilities
Long-term indebtedness
Non-current liabilities
Total Liabilities
November 2, 2015
(as previously reported)
Adjustments
November 2, 2015
(revised)
$
53,057
107,341
30,074
534,879
19,708
806,526
1,411,781
2,963,366
(108,192)
(321,082)
(230,544)
(659,818)
$
— $
(4,248)
—
(38,324)
(533)
(302,330)
273,743
(71,692)
53,057
103,093
30,074
496,555
19,175
504,196
1,685,524
2,891,674
260
(107,932)
—
71,432
71,692
(321,082)
(159,112)
(588,126)
Net Assets
$
2,303,548
$
— $
2,303,548
The fair value of machinery and equipment was primarily determined using the cost approach, considering replacement
cost, reproduction costs and trend factors based on price indices, which are classified as level 2 inputs within the fair value
hierarchy.
65
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
The fair values of intangible assets were determined using an income approach considering useful lives, future revenues
and margins and a risk adjusted discount rate, which are classified as level 3 inputs within the fair value hierarchy. The
estimated fair values and useful lives of these intangible assets are as follows:
Customer relationships
Trade names
Technology
Total intangible assets acquired
Total
459,074
19,404
25,718
504,196
$
$
Useful Life
15 years
15 years
6 years
Goodwill was allocated to the Applied Sterilization Technologies and Healthcare Specialty Services 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 income tax reporting purposes.
Contingent liabilities assumed as part of the Combination totaled $3,031 at the date of the Combination, and were included
within accrued expenses and other liabilities in the consolidated balance sheet. These contingent liabilities included $1,470
related to income taxes (including uncertain tax positions) and $1,561 related to contingent consideration associated with prior
acquisitions completed by Synergy. Contingent liabilities were 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 17, titled "Fair
Value Measurements" to the consolidated financial statements for additional information on contingent liabilities.
Actual and Pro Forma Impact
Our fiscal 2016 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 the fiscal year ended March 31, 2016 total $254,911 and $3,695,
respectively.
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.
Amounts are unaudited
Net revenues
Net income from continuing operations
Fiscal Year Ended March 31,
2016
2015
$
2,619,056
$
188,269
2,499,140
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 the valuations of the 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.
66
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
Gepco
On July 31, 2015, we acquired all of the outstanding shares of General Econopak, Inc. (“Gepco”), since renamed STERIS
Barrier Products Solutions, Inc., 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 has been 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.
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 included
a working capital adjustment, deferred consideration of $5,870 and contingent consideration of $800. The transaction
consideration paid at closing was funded with cash on hand. Black Diamond has been 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.
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.
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.
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.
Integrated Medical Systems International, Inc.
On May 9, 2014, we completed the acquisition of all of 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.
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.
67
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
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 2017, 2016 and 2015 acquisitions.
Fiscal Year 2017
Fiscal Year 2016
Fiscal Year 2015
Medisafe(1)
Compass (1)
Phoenix
Surgical and
Endo-Tek (1)
Synergy
Health plc
Gepco
Black
Diamond
Other
Acquisitions
Dana
AGAPE
IMS
Cash
$
3,751
$
— $
769
$
53,057
$
1,108
$
— $
— $
135
$ — $
—
Accounts
receivable
Inventory
Property,
plant and
equipment
Other assets
Intangible
assets
Goodwill
Total Assets
Current
liabilities
Long-term
indebtedness
Non-current
liabilities
Total
Liabilities
3,614
2,454
639
—
17,151
19,618
47,227
629
659
13
31
5,992
8,987
16,311
1,123
950
1,092
46
—
12,794
16,774
103,093
30,074
496,555
19,175
504,196
1,685,524
2,891,674
4,161
1,926
3,421
946
61,900
104,485
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
617
388
743
—
6,363
4,311
12,557
342
—
—
—
1,200
1,899
3,441
16,594
8,478
15,074
842
62,000
81,587
184,575
(6,082)
(309)
(1,373)
(107,932)
(1,473)
(4,525)
(1,277)
(143)
(26)
(11,670)
—
(2,877)
(8,959)
—
—
—
(321,082)
(295)
(159,112)
—
—
—
(1,548)
—
(49)
—
—
—
—
—
—
(309)
(1,668)
(588,126)
(1,473)
(6,073)
(1,326)
(143)
(26)
(11,670)
15,106
41,079
Net Assets
(1) Purchase price allocation is still preliminary as of March 31, 2017, as valuations have not been finalized.
$ 2,303,548
$ 176,474
$ 46,155
16,002
38,268
$
$
$
$
$ 12,414
$ 3,415
$ 172,905
Acquisition related transaction and integration costs totaled $30,082, $82,891, and $32,762 for the fiscal years ended
March 31, 2017, 2016, and 2015, respectively. These costs are included in Selling, general, and administrative expenses in the
Consolidated Statements of Income.
Divestitures
Netherlands Linen Management Services
On February 9, 2017, we sold our Synergy Health Netherlands Linen Management Services business to EMEA B.V.
Annual revenues for Synergy Health Netherlands Linen Management Services were approximately $75 million and were
included in the Healthcare Specialty Services segment. We recorded a $42.9 million pre-tax loss on the sale in Selling, general,
and administrative expense in the Consolidated Statements of Income as a result of the divestiture. In connection with the
divestiture, we entered into a loan agreement to provide financing of up to €15 million for a term of up to 15 years. The loan
carries an interest rate of 4 percent for the first four years and 12 percent thereafter. No borrowings were outstanding at
March 31, 2017.
US Linen Management Services
On November 3, 2016, we sold our Synergy Health US Linen Management Services business to SRI Healthcare LLC.
Annual revenues for US Linen Management Services were approximately $50 million and were included in the Healthcare
Specialty Services segment. We recorded proceeds of $4.5 million and recognized a pre-tax loss on the sale, subject to final
adjustments, of $31.2 million in Selling, general, and administrative expense in the Consolidated Statements of Income.
Synergy Health Labs
On September 2, 2016, we sold Synergy Health Laboratory Services to SYNLAB International. Annual revenues for the
Synergy Health Labs were approximately $15 million and were included in the Applied Sterilization Technologies segment. We
recorded proceeds of $25.0 million, net of cash divested, and recognized a pre-tax gain on the sale of $17.4 million in Selling,
general, and administrative expense in the Consolidated Statements of Income.
68
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
Applied Infection Control
On August 31, 2016, we completed the sale of our Applied Infection Control ("AIC") product line to DEB USA, Inc., a
wholly-owned subsidiary of S.C. Johnson & Son, Inc. Annual revenues for the AIC product line were typically less than $50
million and were included in the Healthcare Products segment. We recorded proceeds of $41.8 million and recognized a pre-tax
gain on the sale of $36.5 million in Selling, general, and administrative expense in the Consolidated Statements of Income.
UK Linen Management Services
On July 1, 2016, we sold our Synergy Health UK Linen Management Services business to STAR Mayan Limited. Annual
revenues for UK Linen Management Services were approximately $50 million and were included in the Healthcare Specialty
Services segment. We recorded proceeds of $65.4 million, net of cash divested, and recognized a pre-tax loss on the sale of
$66.3 million in Selling, general, and administrative expense in the Consolidated Statements of Income.
3. GOODWILL AND INTANGIBLE ASSETS
Changes to the carrying amount of goodwill for the years ended March 31, 2017, 2016 and 2015 were as follows:
Healthcare
Products
Segment
Healthcare
Specialty
Services
Segment
Life Sciences
Segment
Applied
Sterilization
Technologies
Segment
Synergy
Combination
Total
Balance at March 31, 2015
$
324,873
$
150,844
$
33,889
$
83,035
$
— $
592,641
Goodwill acquired or
allocated
Foreign currency translation
adjustments
Balance at March 31, 2016
Goodwill acquired or
allocated
Synergy allocation
Divestitures
Impairment
Foreign currency translation
adjustments
Balance at March 31, 2017
—
—
40,043
3,428
113,284
1,408,192
1,564,947
(1,146)
363,770
19,618
—
—
—
—
161
—
154,272
147,334
83,035
1,408,192
21,781
376,807
(85,806)
(58,356)
—
—
—
—
—
1,308,717
—
—
—
(1,411,781)
—
—
(985)
2,156,603
41,399
273,743
(85,806)
(58,356)
(5,623)
377,765
$
(32,819)
375,879
$
(820)
146,514
(60,607)
$ 1,331,145
$
$
3,589
(96,280)
— $ 2,231,303
The fiscal 2017 goodwill increase within the Healthcare Products segment primarily relates to the acquisition of Medisafe.
The fiscal 2017 goodwill increase within the Healthcare Specialty Services and Applied Sterilization Technologies segments
was primarily the result of the finalization of purchase accounting related to the Synergy acquisition. The Healthcare Specialty
Services segment was also impacted by the fiscal 2017 acquisitions of Compass Medical, Inc., Phoenix Surgical Holdings, Ltd.,
and Endo-Tek LLP, the Synergy Health UK Linen Management Services divestiture and the Synergy Health Netherlands
goodwill impairment discussed below.
The fiscal 2016 increase in the overall goodwill balance related to the Synergy acquisition, which had not been allocated to
the business segments as of March 31, 2016. The fiscal 2016 increase of 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.
69
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
We evaluate the recoverability of recorded goodwill amounts annually during the third fiscal quarter, or when evidence of
potential impairment exists. As a result of our annual goodwill impairment review for fiscal year 2017, we concluded that the
carrying value of one of our reporting units exceeded its fair value. The Synergy Health Netherlands linen management unit is
reported within our Healthcare Specialty Services segment. Financial forecasts prepared for the annual assessment reflected
pricing pressures, volume declines driven by overcapacity in the market, and a decline in the overall market size. These factors
resulted in further degradation of the already low operating margin and cash flows of this unit. We incurred a goodwill
impairment charge of $58,356 as a result, which is recorded within Goodwill impairment loss in the Consolidated Statements of
Income. The fair market value of the reporting unit was determined under an income approach using discounted cash flows and
estimated fair market values. Fair value calculated using a discounted cash flow analysis is classified within level 3 of the fair
value hierarchy and requires several assumptions including risk adjusted discount rates and financial forecasts.
Our fiscal 2017, 2016, and 2015 acquisitions are described in Note 2 to our consolidated financial statements titled,
"Business Acquisitions and Divestitures".
Information regarding our intangible assets is as follows:
March 31,
Customer relationships
Non-compete agreements
Patents and technology
Trademarks and tradenames
Supplier relationships
Other
Total
2017
2016
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
$
597,386
$
4,722
211,812
80,223
54,800
10
96,648
3,629
86,665
32,547
4,567
10
$
879,525
$
4,730
213,317
129,690
54,800
10
64,268
3,503
70,801
18,318
1,827
16
$
948,953
$
224,066
$ 1,282,072
$
158,733
Certain trademarks and tradenames obtained as a result of business combinations are indefinite-lived assets. The
approximate carrying value of these assets at March 31, 2017 and March 31, 2016 was $34,970 and $35,340, respectively. Total
amortization expense for finite-lived intangible assets was $68,607, $49,782, and $24,500 for the years ended March 31, 2017,
2016, and 2015, 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
$
64,863
$
64,540
$
63,486
$
62,847
$
60,018
2018
2019
2020
2021
2022
The estimated annual amortization expense presented in the preceding table has been calculated based upon March 31,
2017 foreign currency exchange rates.
During the third quarter of fiscal 2017, we adopted a new branding strategy change as part of the integration of certain
Synergy Health operations into the Healthcare Specialty Services Segment. Under this new branding strategy, hospital
sterilization services and instrument repair services will utilize the STERIS Instrument Management Services brand name. The
Synergy Health trade name was phased out during the fourth quarter of fiscal 2017. As a result, we have shortened the
estimated useful life of the Synergy Health trade name and accelerated the corresponding amortization expense over the
remainder of fiscal 2017, resulting in an additional expense of $14,444 within the Selling, general and administrative expense
line on the Consolidated Statements of Income.
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 be 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.
70
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
4. 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
5. 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
2017
2016
$
65,300
$
26,538
140,559
(16,706)
(17,854)
197,837
2017
46,848
393,692
508,247
—
119,920
436,787
77,421
1,582,915
(667,007)
915,908
$
$
$
$
$
$
62,673
19,614
146,820
(17,608)
(18,707)
192,792
2016
39,051
452,120
599,631
42,874
127,464
447,892
79,291
1,788,323
(724,004)
1,064,319
(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 were depreciated over useful lives ranging from one to five
years. All linen businesses utilizing linens were divested during fiscal 2017.
Depreciation and depletion expense were $119,536, $93,958 and $61,481, for the years ended March 31, 2017, 2016, and
2015, respectively.
Rental expense for operating leases was $32,740, $23,238, and $18,602 for the years ended March 31, 2017, 2016, and
2015, 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.
Future minimum annual rentals payable under noncancelable operating lease agreements at March 31, 2017 were as
follows:
2018
2019
2020
2021
2022 and thereafter
Total minimum lease payments
Operating
Leases
23,718
15,132
11,088
7,329
40,140
97,407
$
$
In the preceding table, the future minimum annual rentals payable under noncancelable leases denominated in foreign
currencies have been calculated using March 31, 2017 foreign currency exchange rates.
71
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
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 future disposal of these assets once depleted. 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, 2016
Liabilities incurred during the period
Accretion expense and change in estimate
Foreign currency movement
Balance at March 31, 2017
6. DEBT
Indebtedness as of March 31, 2017 and 2016 was as follows:
Private Placement
Deferred financing fees
Credit Agreement and Swing Line Facility
Total long term debt
Asset
Retirement
Obligations
$
$
10,342
222
(231)
(380)
9,953
2017
960,684
(3,927)
521,604
1,478,361
$
$
2016
666,000
(3,420)
905,216
1,567,796
$
$
On February 27, 2017, we issued and sold an aggregate principal amount of $95,000, €99,000, and £75,000, or a total of
approximately $293,730 based upon February 27, 2017 exchange rates, 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.
Maturities of these senior notes are as follows, and the dollar amounts shown are based upon foreign exchange rates as of
March 31, 2017:
$50,000 Senior notes at 3.93% due 2027
€60,000 Senior notes at 1.86% due 2027
$45,000 Senior notes at 4.03% due 2029
€20,000 Senior notes at 2.04% due 2029
£45,000 Senior notes at 3.04% due 2029
€19,000 Senior notes at 2.30% due 2032
£30,000 Senior notes at 3.17% due 2032
Total 2017 Senior Notes
$
2017
50,000
64,414
45,000
21,471
56,040
20,398
37,360
$
294,683
All or substantially all of the net proceeds of these borrowings were used to repay floating-rate bank debt under the bank
credit facility, thereby, increasing the Company's proportion of fixed-rate debt. Total debt levels for the Company remained
relatively unchanged after giving effects to these actions.
72
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
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 (i) $132,000, £49,000, and
€127,750 under the revolving credit facility provided under the Credit Agreement and (ii) $400,000 under the term loan facility
provided under the Credit Agreement (as hereinafter defined). 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 a Consolidated EBITDA (as
such terms are defined in the Credit Agreement). 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 and sold $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
prior bank facilities of Old STERIS. As of March 31, 2017, the Credit Agreement provided $1,072,500 of credit, which
includes an $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, plus a term loan facility with a limit and outstanding
principal amount of $222,500. As repayments are made under the term facility, the term facility limit declines. 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 also allows for voluntary principal
reduction pre-payments on the term loan. 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 and sold $100,000 of senior notes, of which $98,000 remained outstanding as of
March 31, 2017, 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 bank credit facility debt. The agreements governing these notes, which also govern the below
described senior notes issued in December 2012, 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 and sold $100,000 of senior notes, of which $98,000 remained outstanding as of
March 31, 2017, 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, which also govern the previously described senior notes issued in
February 2013, 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.
73
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
On August 15, 2008, Old STERIS issued and sold $150,000 of senior notes, of which $120,000 remained outstanding as of
March 31, 2017, 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, 2017, a total $521,604 was outstanding under the Credit Agreement.
At March 31, 2017, we were in compliance with all financial covenants associated with our indebtedness.
The combined annual aggregate amount of maturities of our outstanding debt by fiscal year is as follows:
2018
2019
2020
2021
2022 and thereafter
Total
$
30,000
117,500
459,104
35,000
840,684
$
1,482,288
74
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
7. ADDITIONAL CONSOLIDATED BALANCE SHEET INFORMATION
Additional information related to our Consolidated Balance Sheet is as follows:
March 31,
Accrued payroll and other related liabilities:
Compensation and related items
Accrued vacation/paid time off
Accrued bonuses
Accrued employee commissions
Other post-retirement benefits 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
Other
Total accrued expenses and other
Other liabilities:
Self-insured risk reserves-long-term portion
Other post-retirement benefits obligations-long-term portion
Defined benefit pension plans obligations-long-term portion
Other employee benefit plans obligations-long-term portion
Accrued long-term income taxes
Asset retirement obligation-long-term portion
Other
Total other liabilities
8. INCOME TAXES
2017
2016
$
29,777
$
$
$
$
$
8,651
20,715
16,201
2,187
1,044
78,575
71,020
6,633
16,122
6,861
54,253
154,889
15,584
13,821
27,234
3,661
2,089
9,953
10,331
$
$
$
$
$
82,673
$
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
Income from continuing operations before income taxes was as follows:
Years Ended March 31,
United States operations
United Kingdom operations
Other Foreign Locations operations
2017
2016
2015
$
189,429
(36,420)
31,637
105,758
(20,553)
86,679
$
161,165
15,824
31,831
184,646
$
171,884
$
208,820
$
$
75
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
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
2017
2016
2015
$
43,900
$
41,653
$
52,234
8,171
362
21,094
73,527
10,293
2,131
(2,292)
(9,644)
488
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
1,436
214
(676)
(478)
496
$
73,756
Total Provision for Income Taxes
$
74,015
$
The total provision for income taxes can be reconciled to the tax computed at the United Kingdom federal statutory tax rate
for 2017 and the United States federal statutory tax rate for 2016 and 2015 as follows:
Years Ended March 31,
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
Research and development credit
Foreign income tax credit
Difference in non-United States tax rates
Difference in non-United Kingdom tax rates
Excise tax gross-up
U.S. manufacturing deduction
Excess tax benefit for equity compensation
Rate changes on deferred tax assets and liabilities
Acquisitions and divestitures
Goodwill impairment on divestitures
Capitalized acquisition costs
All other, net
Total Provision for Income Taxes
2017
2016
2015
20.0 %
0.3 %
3.8 %
0.1 %
(1.1)%
— %
— %
6.0 %
— %
(2.5)%
(2.8)%
(2.3)%
9.0 %
7.9 %
0.2 %
1.5 %
40.1 %
35.0 %
0.2 %
3.3 %
1.0 %
— %
(0.6)%
(8.5)%
— %
3.4 %
(2.5)%
— %
— %
— %
— %
5.3 %
(1.5)%
35.1 %
35.0 %
— %
2.8 %
2.1 %
— %
(1.0)%
(3.6)%
— %
— %
(1.6)%
— %
— %
— %
— %
2.2 %
(0.6)%
35.3 %
76
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
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.
A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits is as follows:
Unrecognized Tax Benefits Balance at April 1
Increases for tax provisions of current year
Balances related to acquired/disposed businesses
Other decreases, including currency translation
Unrecognized Tax Benefits Balance at March 31
2017
2016
$
$
3,527
$
510
(1,502)
(651)
1,884
$
—
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,
2017, we had $184 accrued for interest and penalties. The decrease during fiscal 2017 is primarily associated with the release of
prior year uncertain tax positions. If all unrecognized tax benefits were recognized, the net impact on the provision for income
tax expense would be $2,068. It is reasonably possible that during the next twelve months, there will be no material reductions
in unrecognized tax benefits 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
2014 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 2012. 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.
We estimate that the tax benefit from our Costa Rican Tax Holiday is $933 (or $0.01 per fully diluted share), annually. The
Tax Holiday runs fully exempt, from income tax, through 2025 and partially exempt through 2029.
77
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
Deferred Taxes. The significant components of the deferred tax assets and liabilities recorded in our accompanying balance
sheets at March 31, 2017 and 2016 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)
2017
2016
$
6,116
$
17,196
35,129
7,807
4,957
8,962
1,740
4,647
781
87,335
16,366
70,969
74,092
156,291
3,631
234,014
(163,045) $
$
7,016
25,436
26,151
7,521
4,226
7,910
2,059
5,155
2,208
87,682
16,435
71,247
85,807
226,809
3,744
316,360
(245,113)
At March 31, 2017, we had U.S. federal operating loss carryforwards of $44,112, which if unused, these U.S. federal
operating loss carryforwards will expire between fiscal years 2031 and 2037. Additionally, we had non-U.S. operating loss
carry forwards of $57,574. Although the majority of the non-U.S. carryforwards have indefinite expiration periods, those
carryforwards that have definite expiration periods will expire if unused between fiscal years 2018 and 2026. In addition, we
have recorded tax benefits of $2,177 related to state operating loss carryforwards. If unused, these state operating loss
carryforwards will expire between fiscal years 2018 and 2037. At March 31, 2017, we had $1,810 of tax credit carryforwards.
These credit carryforwards can be used through fiscal 2026.
We review the need for a valuation allowance against our deferred tax assets. A valuation allowance of $16,366 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 decreased during fiscal 2017 by $69.
No provision has been made for income taxes on undistributed earnings of foreign subsidiaries of approximately $954.1
million at March 31, 2017, 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.
78
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
9. BENEFIT PLANS
In the United States, we sponsor an unfunded post-retirement 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 five defined benefit pension schemes outside the United
States: one in the UK, one in the Netherlands, two in Germany, and one in Switzerland. Unfunded obligations of $23,507 were
recorded as of the November 2, 2015 closing date.
In the United Kingdom, we sponsor a scheme that is a defined benefit (final salary) funded pension scheme. Previously,
this scheme was three separate schemes: Synergy Health plc Retirement Benefits Scheme, Shiloh Group Pension Scheme, and
Vernon-Carus Limited Pension and Assurance Scheme. During fiscal 2017, the Shiloh Group Pension Scheme and Vernon-
Carus Limited Pension and Assurance Scheme were merged into the Synergy Health plc Retirement Benefit Scheme.
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.
79
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
Obligations and Funded Status. The following table reconciles the funded status of the defined benefit pension plans and the
other post-retirement benefits plan to the amounts recorded on our Consolidated Balance Sheets at March 31, 2017 and 2016,
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 benefits plan.
The measurement date of our defined benefit pension plans and other post-retirement benefits plan is March 31, for both
periods presented.
Change in Benefit Obligations:
Benefit Obligations at Beginning of Year
$
— $
56,612
$ 128,942
$
— $
18,380
$
21,278
AMSCO Plan
Other Defined Benefit
Pension Plans
Other
Post-Retirement
Benefits Plan
2017
2016
2017
2016
2017
2016
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
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
27
560
(2,365)
(3,029)
—
(51,805)
—
—
—
121,468
1,650
3,434
16,633
961
1,659
5,399
—
—
554
(531)
—
—
593
(673)
(7,190)
(2,346)
(2,395)
(2,818)
629
—
517
(326)
(15,201)
1,610
—
—
—
—
—
—
128,897
128,942
16,008
18,380
50,426
104,353
—
—
—
99,511
(279)
11,910
4,687
—
4,838
629
2,989
2,280
517
—
—
—
2,395
—
—
—
—
2,818
—
(3,029)
(7,190)
(2,204)
(2,395)
(2,818)
(51,805)
—
—
1,260
—
—
(12,877)
101,663
104,353
—
—
—
—
—
—
Funded Status of the Plans
$
— $
— $ (27,234) $ (24,589) $ (16,008) $ (18,380)
Amounts recognized in the consolidated balance sheets consist of the following:
Current liabilities
Noncurrent liabilities
Other Defined Benefit
Pension Plans
Other Post-Retirement
Benefits Plan
2017
2016
2017
2016
$
— $
— $
(2,187) $
(2,463)
(27,234)
(24,589)
(13,821)
(15,917)
$ (27,234) $ (24,589) $ (16,008) $ (18,380)
80
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
The pre-tax amount of unrecognized actuarial net loss and unamortized prior service cost included in accumulated other
comprehensive (loss) income at March 31, 2017 was $7 million and $16 million, respectively. During fiscal 2018, we will
amortize the following pre-tax amounts from accumulated other comprehensive income:
Actuarial loss
Prior Service Cost
Other Post-
Retirement
Benefits
Plan
$
739
(3,263)
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, 2017 and 2016:
Aggregate fair value of plan assets
Aggregate accumulated benefit obligations
Aggregate projected benefit obligations
Other Defined Benefit
Pension Plans
2017
2016
$ 101,663
$ 104,353
128,897
128,897
128,942
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
benefits plan were as follows:
Expected return on plan assets
— (1,008)
(3,139)
(2,853)
(1,324)
AMSCO Plan
Other Defined Benefit
Pension Plans
Other Post-Retirement
Benefits Plan
2017
2016
2015
2017
2016
2015
2017
2016
2015
$ — $
27
$
140
$ 1,650
$
961
$ — $ — $ — $ —
—
560
1,887
3,434
1,659
—
—
—
602
— 26,470
—
1,106
—
—
—
—
(142)
—
(326)
—
—
554
—
593
—
691
—
— (3,263)
(3,263)
(3,263)
—
—
739
—
828
—
721
—
$ — $26,651
$
(6) $ 2,231
$
828
$ — $ (1,970) $ (1,842) $ (1,851)
Service cost
Interest cost
Prior service cost recognition
Net amortization and deferral
Curtailments/settlements
Net periodic benefit cost
Recognized in other comprehensive
loss (income) before tax:
Net loss (gain) occurring during year
$ — $ — $ 6,706
$ (7,553) $ (3,733) $ — $
531
$
673
$ 2,327
Amortization of prior service credit
Amortization of net loss
Total recognized in other
comprehensive loss (income)
Total recognized in total benefits cost
and other comprehensive loss
(income)
—
—
—
—
—
(602)
(1,106)
—
—
—
—
(602)
5,600
(7,553)
(3,733)
—
—
—
3,263
3,263
3,263
(739)
(721)
(721)
3,055
3,215
4,869
$ — $26,049
$ 5,594
$ (5,322) $ (2,905) $ — $ 1,085
$ 1,373
$ 3,018
81
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
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:
Synergy Health PLC Retirement Benefits Scheme
Isotron BV Pension Plan
Synergy Health Daniken AG
Synergy Health Radeberg
Synergy Health Allershausen
Other post-retirement plan
2017
2016
2.60%
1.60%
0.65%
1.50%
1.50%
3.50%
3.50%
1.60%
0.40%
1.60%
1.60%
3.25%
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
Synergy Health PLC Retirement Benefits 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
Synergy Health PLC Retirement Benefits Scheme
Isotron BV Pension Plan
Synergy Health Daniken AG
2017
2016
2015
n/a
n/a
4.00%
3.50%
1.60%
0.65%
1.50%
1.50%
3.50%
3.20%
2.10%
0.40%
1.60%
1.60%
3.25%
n/a
n/a
n/a
n/a
n/a
3.00%
n/a
n/a
6.75%
4.87%
1.60%
1.40%
5.19%
2.10%
1.40%
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 advisers, taking into consideration the asset allocation of the portfolios and the long-term asset class return
expectations.
We develop our discount rate assumptions by evaluating input from third-party professional advisers, 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
82
2017
2016
2015
7.0%
7.0%
4.5%
7.0%
7.0%
4.5%
7.0%
7.0%
4.5%
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
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, 2017:
Effect on total service and interest cost components
Effect on other post-retirement benefit obligation
One-Percentage Point
Increase
Decrease
$
$
1
32
(1)
(32)
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, 2017,
the targeted allocation for the plans were approximately 75% equity investments and 25% fixed income 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.
The fair value of our pension benefits plan assets at March 31, 2017 and 2016 by asset category is as follows:
(In thousands)
Cash
Insured annuities
Insurance contracts
Common and collective trusts valued at net asset value:
Equity security trusts
Debt security trusts
Total Plan Assets
Fair Value Measurements at March 31, 2017
Quoted
Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Other
Unobservable
Inputs
(Level 3)
Total
$
182
$
182
$
— $
—
—
10,813
—
10,813
3,959
64,922
21,787
—
—
3,959
$
101,663
$
182
$
10,813
$
3,959
83
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
(In thousands)
Cash and short term securities
Insured annuities
Insurance contracts
Common and collective trusts valued at net asset value:
Equity security trusts
Debt security trusts
Real estate security trusts
Total Plan Assets
Fair Value Measurements at March 31, 2016
Quoted
Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Other
Unobservable
Inputs
(Level 3)
Total
$
7,221
$
7,221
$
— $
—
—
11,279
—
11,279
4,192
50,125
26,152
5,384
—
—
4,192
$
104,353
$
7,221
$
11,279
$
4,192
Collective investment trusts are measured at fair value using the net asset value per share practical expedient. These trusts
have not been categorized in the fair value hierarchy and are being presented in the tables above to permit a reconciliation of
the fair value hierarchy to the total plan assets.
The fair value measurement of plan assets using significant unobservable inputs (Level 3) changed during fiscal year 2017
due to the following:
Balance at March 31, 2016
Gains (losses) related to assets still held at year-end
Purchases, sales, settlements - net
Foreign currency
Balance at March 31, 2017
Insurance
contracts
4,192
116
(208)
(141)
3,959
$
$
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 5 years. As a result, we expect to make contributions of
approximately $4,640 per year.
Based upon the actuarial assumptions utilized to develop our benefit obligations at March 31, 2017, the following benefit
payments are expected to be made to plan participants:
2018
2019
2020
2021
2022
2023-2028
Other Defined
Benefit Pension
Plans
Other Post-
Retirement
Benefits Plan
$
3,498
$
3,472
3,915
3,706
4,121
24,117
2,187
1,910
1,707
1,565
1,456
5,390
84
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
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 $326 and $284, during fiscal
2017 and fiscal 2016, 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 $556,007 at March 31, 2017. At March 31, 2017, the U.S. plan held 705,876 STERIS ordinary shares
with a fair value of $49,030. We paid dividends of $734, $669, and $606 to the plan and participants on STERIS shares held by
the plan for the years ended March 31, 2017, 2016, and 2015, respectively. We contributed $15,069, $13,354, and $10,895, to
the defined contribution plans for the years ended March 31, 2017, 2016, and 2015, 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 $1,604 and $1,696 at March 31, 2017 and March 31, 2016, 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.
10. 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.
85
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
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.
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.
For additional information regarding these matters, see the risks and uncertainties described under the title "product related
regulations and claims" in Item 1A. of this Annual Report on Form 10-K.
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 8 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, 2017 and 2016, our commercial commitments totaled $57,709 and $56,649, 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 $7,694 and $7,050 of the
March 31, 2017 and 2016 totals relate to letters of credit required as security under our self-insured risk retention policies.
As of March 31, 2017, we had minimum purchase commitments with suppliers for raw material purchases totaling
$85,154. As of March 31, 2017, we also had commitments of $1,703 for long term construction contracts.
11. 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. Linen management services were divested
in fiscal 2017.
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.
86
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
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.
The accounting policies for reportable segments are the same as those for the consolidated Company. For the year ended
March 31, 2017, 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
2017
2016
2015
$
1,260,878
$
1,202,820
$
1,143,336
560,175
327,276
458,231
427,198
295,970
310,120
248,538
250,845
205,675
2,606,560
2,236,108
1,848,394
6,196
2,656
1,869
$
2,612,756
$
2,238,764
$
1,850,263
224,522
13,450
96,983
156,010
490,965
(14,433)
476,532
$
180,263
25,197
85,466
99,224
390,150
(11,488)
378,662
$
$
58,356
4,743
66,398
30,082
—
9,907
47,704
82,891
166,515
16,629
56,072
59,458
298,674
(7,542)
291,132
—
1,330
28,317
32,762
Goodwill impairment loss (1)
Amortization of inventory and property "step up" to
fair value (2)
Amortization of purchased intangible assets (2)
Acquisition and integration related transaction charges (3)
Loss (gain) on fair value adjustment of acquisition related
contingent consideration
Net loss on divestiture of businesses (2)
Settlement of pension obligation (4)
Restructuring charges
(736)
—
26,470
(501)
Total operating income
212,927
(1) For more information regarding our goodwill impairment loss see Note 3 titled, "Goodwill and Intangible Assets".
(2) For more information regarding our recent acquisitions and divestitures see Note 2 titled, "Business Acquisitions and Divestitures".
(3) Acquisition and integration related charges include transaction costs and integration expenses associated with acquisitions.
(4) See Note 9 titled, "Benefit Plans" for more information related to the settlement of the pension obligation.
2,569
86,574
—
2,271
—
—
(759)
227,211
227,595
215
$
$
$
87
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
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.
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
2017
2016
$
$
1,706,222
446,714
2,770,366
4,923,302
1,153
—
4,924,455
$
$
1,682,457
759,012
1,494,638
3,936,107
2,117
1,408,192
5,346,416
(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,
2017
2016
2015
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
$
$
$
$
38,613
42,247
90,941
171,801
1,100
172,901
46,627
56,890
84,492
188,009
133
188,142
$
$
$
$
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
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
2017
2016
2015
$
$
229,603
1,803,457
579,696
2,612,756
$
$
144,577
1,662,050
432,137
2,238,764
$
$
51,889
1,449,223
349,151
1,850,263
88
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
March 31,
Property, Plant, and Equipment, Net
United Kingdom
United States
Other foreign locations
Property, Plant, and Equipment, Net
2017
2016
$
$
38,535
499,760
377,613
915,908
$
$
121,853
505,169
437,297
1,064,319
The decrease in Property, plant and equipment, net within the United Kingdom is primarily related to the divestiture of the
Synergy Health UK Linen Management Services business during fiscal 2017.
12. SHARES AND PREFERRED SHARES
Common and Ordinary Shares
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:
Years ended March 31,
Denominator (shares in thousands):
Weighted average shares outstanding—basic
Dilutive effect of share equivalents
Weighted average shares outstanding and share equivalents—
diluted
2017
2016
2015
85,473
621
86,094
70,698
486
71,184
59,413
632
60,045
Options to purchase the following number of 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 shares during the periods, so including these options would be anti-dilutive:
Years ended March 31,
Number of common share options (shares in thousands)
2017
2016
2015
576
263
342
Preferred Shares
Pursuant to an engagement letter dated October 23, 2015, we issued 100,000 preferred shares, par value of £0.10 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 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.
13. REPURCHASE OF ORDINARY SHARES
On August 9, 2016, the Company announced that its Board of Directors had authorized the purchase of up to $300 million
of our ordinary shares. We may enter into share repurchase contracts until August 2, 2021 to effect these purchases. Shares may
be repurchased from time to time through open market transactions, including 10b5-1 plans. The repurchase program may be
suspended or discontinued at any time. We obtained 1,286,183 of our ordinary shares during fiscal 2017 for the aggregate
amount of $90,475.
89
Prior to the Combination, the Company’s Board of Directors provided authorization to repurchase up to $300 million 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.
We obtained 168,906 of our shares during fiscal 2017 in the aggregate amount of $7,034 in connection with stock based
compensation award programs. We obtained 267,696 of our shares during fiscal 2016 in the aggregate amount of $14,369 in
connection with these programs. We obtained 541,700 of our shares during fiscal 2015 in the aggregate amount of $30,687 in
connection with these programs.
14. 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. We satisfy share award incentives through the issuance of new
ordinary shares.
Stock options provide the right to purchase our ordinary 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 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 year of employment after the grant date. As of March 31, 2017,
5,628,258 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 2017, fiscal 2016 and fiscal
2015:
Risk-free interest rate
Expected life of options
Expected dividend yield of stock
Expected volatility of stock
Fiscal 2017
Fiscal 2016
Fiscal 2015
1.29%
5.7 years
1.54%
22.92%
1.51%
1.89%
5.7 years
5.8 years
1.40%
25.06%
1.87%
29.86%
90
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
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 1.85%, 1.55% and
1.46% was applied in fiscal 2017, 2016 and 2015, 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
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, 2016
Granted
Exercised
Forfeited
Canceled
Outstanding at March 31, 2017
Exercisable at March 31, 2017
Number of
Options
1,729,517
402,141
(163,563)
(22,351)
(470)
1,945,274
1,126,875
$
$
$
Weighted
Average
Exercise
Price
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
—
69.85
30.36
62.81
25.98
50.28
40.34
6.3 years
4.9 years
$
$
37,462
32,880
We estimate that 807,550 of the non-vested stock options outstanding at March 31, 2017 will ultimately vest.
The aggregate intrinsic value in the table above represents the total pre-tax difference between the $69.46 closing price of
our ordinary shares on March 31, 2017 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, 2017, 2016 and 2015 was $6,454,
$13,000 and $31,555, respectively. Net cash proceeds from the exercise of stock options were $4,955, $11,240 and $28,274 for
the years ended March 31, 2017, 2016 and 2015, respectively. The tax benefit from stock option exercises was $5,058, $6,281
and $11,526 for the years ended March 31, 2017, 2016 and 2015, respectively.
The weighted average grant date fair value of stock option grants was $13.42, $14.66 and $13.41 for the years ended
March 31, 2017, 2016 and 2015, 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, 2017 and 2016 was $1,622 and $2,165, 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, 2016
Granted
Vested
Forfeited
Non-vested at March 31, 2017
Number of
Restricted
Shares
Number of
Restricted Share
Units
Weighted-Average
Grant Date
Fair Value
872,972
241,065
(270,062)
(63,449)
780,526
41,641
20,309
(21,022)
(6,915)
34,013
$
$
51.98
69.96
40.41
63.80
60.87
Restricted shares granted are valued based on the closing stock price at the grant date. The value of restricted shares and
units that vested during fiscal 2017 was $11,763.
91
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
As of March 31, 2017, there was a total of $33,082 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 2.04 years.
15. 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
2017
2016
2015
$
$
5,909
$
5,579
$
11,823
(10,871)
11,194
(10,864)
6,861
$
5,909
$
7,765
7,604
(9,790)
5,579
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 $32,136, $33,416
and $30,720 as of March 31, 2017, 2016 and 2015, 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.
92
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
16. 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, 2017, we held foreign currency forward contracts to buy 110 million
Mexican pesos and 10 million Canadian dollars. At March 31, 2017, we held commodity swap contracts to buy 581.5 thousand
pounds of nickel.
Balance Sheet Location
Prepaid & Other
Accrued expenses and other
Asset Derivatives
Liability Derivatives
Fair Value at
March 31, 2017
Fair Value at
March 31, 2016
Fair Value at
March 31, 2017
Fair Value at
March 31, 2016
$
$
160
$
— $
$
145
— $
— $
35
$
—
122
The following table presents the impact of derivative instruments and their location within the Consolidated Statements of
Income:
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,
2017
(1,886) $
376
$
2016
(683) $
(461) $
2015
(1,457)
(373)
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 $59,510 at March 31,
2017. 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.
93
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
17. 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, 2017 and
March 31, 2016:
Fair Value Measurements
Carrying Value
Financial assets and
liabilities measured
at net asset value
Quoted Prices
in Active Markets
for Identical Assets
Level 1
Significant Other
Observable Inputs
Level 2
Significant
Unobservable
Inputs
Level 3
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
$ 282,918 $ 248,841
$
— $ 23,751
$ 282,918 $ 225,090
$
— $
— $
— $
160
12,552
145
6,192
—
—
—
—
—
—
12,552
6,192
160
—
145
—
—
—
$
35 $
122
$
— $
— $
— $
— $
35 $
122
$
— $
1,587
1,765
1,478,361 1,567,796
—
—
—
—
1,587
1,765
—
—
—
— 1,496,966 1,588,764
—
—
—
—
—
—
—
—
At March 31,
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)
—
(1) Money market fund holdings are valued at fair value using the net asset value per share practical expedient and are not included within the
fair value hierarchy. These money market funds are being presented in the table above to permit a reconciliation of the fair value hierarchy
to total cash and cash equivalents.
4,451
4,451
5,886
5,886
—
—
—
—
—
(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. 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.
94
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis at March 31, 2017 are summarized
as follows:
Balance at March 31, 2015
Liabilities assumed as a result of the Combination
Additions
Payments
Foreign currency translation adjustments
Balance at March 31, 2016
Additions
Payments
Foreign currency translation adjustments
Balance at March 31, 2017
Contingent
Consideration
$
$
$
2,500
1,561
2,730
(858)
(47)
5,886
3,592
(5,416)
389
4,451
Additions and payments for contingent consideration obligations during fiscal year 2017 primarily related to Black
Diamond Video, Inc. and Sercon. 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 measurement period adjustment was
recorded to goodwill and had no impact to the Consolidated Statements of Income. Refer to Note 2, Business Acquisitions and
Divestitures for more information.
Information regarding our investments is as follows:
Cost
2017
2016
Unrealized Gains (1)
2016
2017
Investments
Unrealized Losses (1)
2016
2017
Fair Value
2017
2016
At March 31,
Available-for-sale
securities:
Marketable equity
securities (1)(2)
$
11,037
$
4,681
$
Mutual funds
1,091
1,289
— $
496
— $
407
(72) $
—
(185) $
—
10,965
$
1,587
4,496
1,696
Total available-for-
(72) $
5,970
sale securities
(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.
12,128
407
496
$
$
$
$
$
(185) $
12,552
$
6,192
18. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) shown in our Consolidated Statements of Shareholders' Equity consists of
the following:
Years Ended March 31,
Cumulative foreign currency translation adjustment
Amortization of pension and postretirement benefit plans costs,
net of taxes
Unrealized gain (loss) on available for sale securities
Total
2017
(238,525) $
2016
2015
(72,594) $
(58,848)
(2,355)
178
(240,702) $
5,108
(673)
(68,159) $
(8,889)
1,068
(66,669)
$
$
95
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
19. 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, 2017 and March 31, 2016 were as follows:
Gain (Loss) on
Available for Sale
Securities (1)
Defined Benefit
Plans (2)
Foreign Currency
Translation (3)
Total Accumulated
Other Comprehensive
Income (Loss)
2017
2016
2017
2016
2017
2016
2017
2016
Beginning Balance
$
(673) $
1,068
$
5,108
$
(8,889) $ (72,594) $ (58,848) $ (68,159) $ (66,669)
Other Comprehensive Income
(Loss) before reclassifications
Amounts reclassified from
Accumulated Other
Comprehensive Income (Loss)
Net current-period Other
Comprehensive Income (Loss)
745
(2,278)
(5,491)
(1,371)
(165,931)
(13,746)
(170,677)
(17,395)
106
851
537
(1,972)
15,368
—
—
(1,866)
15,905
(1,741)
(7,463)
13,997
(165,931)
(13,746)
(172,543)
(1,490)
Ending Balance
(1) Realized gain (loss) on available for sale securities is reported in the Interest income and miscellaneous expense line of the Consolidated
$ (238,525) $ (72,594) $ (240,702) $ (68,159)
(2,355) $
(673) $
5,108
178
$
$
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.
20. 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.
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 was 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.
96
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
21. QUARTERLY RESULTS (UNAUDITED)
Quarters Ended
Fiscal 2017
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 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
March 31,
December 31,
September 30,
June 30,
$ 333,124
348,065
681,189
$ 302,260
344,514
646,774
$ 292,216
354,199
646,415
$ 271,750
366,628
638,378
173,855
227,209
401,064
280,125
41.1%
(5)
26,143
0.31
0.31
$
$
$
$
$
$
152,879
236,286
389,165
257,609
155,110
243,397
398,507
247,908
39.8%
18
(4,996)
$
38.4%
48
40,416
(0.06)
$
0.47
(0.06)
$
0.47
142,698
255,690
398,388
239,990
37.6%
154
48,401
0.56
0.56
$
$
$
$ 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
$
$
$
$
$
$
97
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
Balance at
Beginning
of Period
Charges
to Costs
and
Expenses
Charges
to Other
Accounts
Deductions
Balance at
End of
Period
Description
(in thousands)
Year ended March 31, 2017
Deducted from asset accounts:
Allowance for trade accounts
receivable (1)
Inventory valuation reserve
Deferred tax asset valuation
allowance
Recorded within liabilities:
Casualty loss reserves
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
11 (3)
(682) (3)
(214) (3)
$
(2,087) (4)
—
$
10,357
17,854
(3,869)
16,366
768
$
(3,272)
$
22,718
$
11,185
$
18,707
1,248
(171) (2)
16,435
4,014
$
20,222
$
5,000
$
9,415
$
17,597
3,362
1,146 (2)
$
$
$
14,380
2,151
4,439 (3)
(4,535)
(100) (3)
(36) (3)
—
$ (1,492) (4)
$
11,185
18,707
16,435
$
18,078
$
4,141
$
1,187
$
(3,184)
$
20,222
16
—
—
(16)
—
$
10,922
$
15,986
1,415
77 (2)
$
217 (3)
1,534 (3)
$
(3,139) (4)
—
$
9,415
17,597
12,541
4,028
(1,867) (3)
(322)
14,380
$
14,444
$
3,600
$
2,112
$
(2,078)
$
18,078
8
18
—
(10)
16
(1) Net allowance for doubtful accounts and allowance for sales and returns.
(2) Provision for excess and obsolete inventory, net of inventory written off.
(3) Change in foreign currency exchange rates and acquired reserves.
(4) Uncollectible accounts written off, net of recoveries.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
98
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
During the quarter ended March 31, 2017, there were no changes in our internal control over financial reporting that have
materially affected, or are reasonably likely to materially affect, our 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, 2017 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 2017. Total assets of the acquired businesses (inclusive
of acquired intangible assets and goodwill) represented approximately 1.5 percent of our consolidated assets as of March 31,
2017 and approximately 1 percent of our consolidated net revenues for the year ended March 31, 2017. Based on this
evaluation under this framework, management concluded that the internal control over financial reporting was effective as of
March 31, 2017.
The independent registered public accounting firm that audited the financial statements has issued an attestation report on
internal control over financial reporting.
99
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, 2017, 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
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, 2017, which are included in the fiscal 2017 consolidated
financial statements of STERIS plc and subsidiaries and constituted approximately 1.5% of total assets as of March 31, 2017
and approximately 1% 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, 2017.
In our opinion, STERIS plc and subsidiaries maintained, in all material respects, effective internal control over financial
reporting as of March 31, 2017, 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, 2017 and 2016 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, 2017 of STERIS plc and subsidiaries, and our report dated May 26, 2017 expressed an unqualified opinion
thereon.
/s/ ERNST & YOUNG LLP
Cleveland, Ohio
May 26, 2017
100
ITEM 9B. OTHER INFORMATION
None.
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 2017 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 of 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.
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, 2017.
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)
1,945,274
—
1,945,274
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)
50.28
—
50.28
5,628,258
—
5,628,258
101
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 Meetings and Committees" and "Miscellaneous Matters" of the Proxy Statement. For additional
information regarding related party transactions refer to Note 20 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.
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, 2017 and 2016.
Consolidated Statements of Income – Years ended March 31, 2017, 2016, and 2015.
Consolidated Statements of Comprehensive Income –Years ended March 31, 2017, 2016, and 2015.
Consolidated Statements of Cash Flows – Years ended March 31, 2017, 2016, and 2015.
Consolidated Statements of Shareholders’ Equity – Years ended March 31, 2017, 2016, and 2015.
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
3.2
4.1
10.1
10.2
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).
Amended Articles of Association of STERIS plc (Amended by Special Resolution passed on
August 2, 2016) (filed as Exhibit 3.2 to STERIS plc Form 10-Q for the fiscal quarter ended
September 30, 2016 (Commission File No. 1-37614), and incorporated herein by reference).
Specimen Form of Stock Certificate (filed as Exhibit 4.1 to STERIS plc Form 10-K for the fiscal
year ended March 31,2016 (Commission File No. 1-37614), and incorporated herein by
reference).
STERIS plc 2006 Long-Term Equity Incentive Plan, as Amended and Restated Effective August
2, 2016 (filed as Appendix C to STERIS plc definitive proxy statement on Schedule 14A filed
June 13, 2016 (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).*
102
10.3
10.4
10.5
10.6
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
10.20
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).*
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 Employees (filed as
Exhibit 10.13 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).*
STERIS plc Form of Nonqualified Stock Option Agreement for Nonemployee Directors (filed as
Exhibit 10.20 to STERIS plc Form 10-K for the year ended March 31, 2016 (Commission File
No. 1-37614) and incorporated herein by reference).*
103
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
STERIS plc Form of Career Restricted Stock Agreement for Nonemployee Directors (filed as
Exhibit 10.21 to STERIS plc Form 10-K for the year ended March 31, 2016 (Commission File
No. 1-37614) and incorporated herein by reference).*
STERIS plc Form of Performance Restricted Stock Agreement for Employees (filed as Exhibit
10.22 to STERIS plc Form 10-K for the year ended March 31, 2016 and incorporated herein by
reference).*
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).*
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).*
STERIS plc Management Incentive Compensation Plan, Effective April 1, 2016 (filed as Exhibit
10.31 to STERIS plc Form 10-K for the year ended March 31, 2016 (Commission File No.
1-37614) and incorporated herein by reference).*
STERIS plc Senior Executive Management Incentive Compensation Plan, Effective April 1,
2016 (filed as Appendix B to STERIS plc definitive proxy statement on Schedule 14A filed June
13, 2016 (Commission File No. 1-37614) and incorporated herein by reference).*
Form of Make-Whole Payment and Repayment Conditions Agreement Between Former STERIS
Corporation Non-Employee Directors and STERIS Corporation (filed as Exhibit 10.32 to
STERIS plc Form 10-K or the year ended March 31, 2016 (Commission File No. 1-37614) and
incorporated herein by reference).*
Form of Make-Whole Payment and Repayment Conditions Agreement Between STERIS
Corporation Executive Officers and STERIS Corporation (filed as Exhibit 10.33 to STERIS plc
Form 10-K for the year ended March 31, 2016 (Commission File No. 1-37614) and incorporated
herein by reference).*
STERIS plc Senior Executive Severance Plan, as Amended and Restated Effective January 25,
2017 (filed as Exhibit 10.3 to STERIS plc Form 8-K filed January 26, 2017 (Commission File
No. 1-37614) and incorporated herein by reference).*
104
10.37
10.38
10.39
10.40
10.41
10.42
10.43
10.44
10.45
10.46
10.47
10.48
10.49
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).
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. (filed as Exhibit 10.47 to STERIS plc Form 10-K for the year ended March
31, 2016 (Commission File No. 1-37614), and incorporated herein by reference).
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. (filed as Exhibit 10.48 to STERIS plc Form 10-K for the year ended March 31, 2016
(Commission File No. 1-37614), and incorporated herein by reference).
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).
105
10.50
10.51
10.52
10.53
10.54
10.55
10.56
10.57
10.58
10.59
10.60
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 (filed as
Exhibit 10.52 to STERIS plc Form 10-K for the year ended March 31, 2016 (Commission File
No. 1-37614), and incorporated herein by reference).
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 (filed as Exhibit 10.53 to STERIS plc Form 10-
K for the year ended March 31, 2016 (Commission File No. 1-37614), and incorporated herein
by reference).
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 (filed as
Exhibit 10.57 to STERIS plc Form 10-K for the year ended March 31, 2016 (Commission File
No. 1-37614), and incorporated herein by reference).
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 (filed as Exhibit 10.58 to STERIS plc Form 10-
K for the year ended March 31, 2016 (Commission File No. 1-37614), and incorporated herein
by reference).
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).
106
10.61
10.62
10.63
10.64
10.65
10.66
10.67
10.68
21.1
23.1
24.1
31.1
31.2
32.1
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 (filed as Exhibit 10.62 to STERIS
plc Form 10-K for the year ended March 31, 2016 (Commission File No. 1-37614), and
incorporated herein by reference).
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 (filed as Exhibit 10.63 to STERIS
plc Form 10-K for the year ended March 31, 2016 (Commission File No. 1-37614), and
incorporated herein by reference).
Note Purchase Agreement dated as of January 23, 2017, among STERIS plc and each of the
institutions party thereto (filed as Exhibit 10.1 to Form 8-K filed January 26, 2017 (Commission
File No. 1-37614), and incorporated herein by reference).
Affiliated Guaranty, dated as of January 23, 2017, by STERIS plc and each of the American
Sterilizer Company, Integrated Medical Systems International, Inc., Isomedix Inc., Isomedix
Operations Inc., Solar New US Holding Co, LLC, Solar New US Parent Co, LLC, Solar US
Acquisition Co, LLC, STERIS Barrier Products Solutions, Inc., STERIS Corporation, STERIS
Europe, Inc., STERIS Inc., Synergy Health Holdings Limited, Synergy Health Limited, Synergy
Health Sterilisation UK Limited, Synergy Health (UK) Limited, Synergy Health Investments
Limited, Synergy Health US Holdings Limited, and United States Endoscopy Group, Inc., of
STERIS plc January 23, 2017 Note Purchase Agreement and Notes issued pursuant thereto (filed
as Exhibit 10.2 to Form 8-K filed January 26, 2017 (Commission File No. 1-37614), and
incorporated herein by reference).
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).
Subsidiaries of STERIS plc.
Consent of Independent Registered Public Accounting Firm.
Power of Attorney.
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-101
Instance Document.
EX-101
Schema Document.
EX-101
Calculation Linkbase Document.
EX-101
Definition Linkbase Document.
107
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.
108
ITEM 16. FORM 10-K SUMMARY
None.
109
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 26, 2017
STERIS plc
(Registrant)
By:
/S/ KAREN L. BURTON
Karen L. Burton
Vice President, Corporate Controller, and Chief Accounting Officer
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 26, 2017
Walter M Rosebrough, Jr.
/S/ MICHAEL J. TOKICH
Michael J. Tokich
/S/ KAREN L. BURTON
Karen L. Burton
*
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
*
Richard M. Steeves
*
Loyal W. Wilson
*
Michael B. Wood
Senior Vice President, Chief Financial Officer and
Treasurer (Principal Financial Officer)
Vice President, Corporate Controller and Chief
Accounting Officer
Chairman and Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
May 26, 2017
May 26, 2017
May 26, 2017
May 26, 2017
May 26, 2017
May 26, 2017
May 26, 2017
May 26, 2017
May 26, 2017
May 26, 2017
May 26, 2017
May 26, 2017
May 26, 2017
May 26, 2017
*
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 26, 2017
By:
/S/ J. ADAM ZANGERLE
J. Adam Zangerle,
Attorney-in-Fact for Directors
110
SUBSIDIARIES OF STERIS PLC
STERIS plc has no parent company. As of March 31, 2017, its direct and indirect subsidiaries(1) were as follows:
EXHIBIT 21.1
Albert Browne Limited
American Sterilizer Company
Bioster Mottahedoon Egypt SAE
Bizworth Gammarad Sdn Bhd
Black Diamond Video, Inc.
CLBV Limited
Controlled Environment Certification Services, Inc.
Eschmann Holdings Limited
Eschmann Holdings Pte Limited
Gammaster Sweden AB
Hausted, Inc.
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
Medisafe America, L.L.C.
Medisafe Holdings Limited
Medisafe UK Limited
PeriOptimum, Inc.
Phoenix Surgical Holdings Limited
Phoenix Surgical Instruments Limited
Phoenix Optics Limited
ReNOVA Surgical Limited
Sercon Indústria E Comércio De Aparelhos Médicos E Hospitalares Ltda.
Shiloh Limited
Solar New US Holding Co, LLC
Solar New US Parent Co, LLC
Solar US Acquisition Co, LLC
Sterile Supplies Limited
Sterilgamma Services Sdn Bhd
SterilTek Holdings, Inc.
SterilTek, Inc.
STERIS AB
STERIS Asia Pacific, Inc.
England & Wales
Pennsylvania
Egypt
Malaysia
California
England & Wales
Ohio
England & Wales
Singapore
Sweden
Delaware
Delaware
Delaware
Germany
Switzerland
Delaware
Ontario, Canada
Delaware
Delaware
England and Wales
Florida
England and Wales
England and Wales
Delaware
England and Wales
England and Wales
England and Wales
England and Wales
Brazil
England and Wales
Delaware
Delaware
Delaware
England and Wales
Malaysia
Delaware
Nevada
Sweden
Delaware
STERIS AST CZ s.r.o.
STERIS AST d.o.o.
STERIS AST SK s.r.o.
STERIS Barrier Products Solutions, Inc.
STERIS Brasil Servicos Administrativos Ltda.
STERIS Brazil Holdings, LLC
STERIS (BVI) I Limited
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 FinCo II S.à r.l.
STERIS GmbH
STERIS Holdings B.V.
STERIS Iberia, S.A.
STERIS IMS Canada Inc.
STERIS Inc.
STERIS (India) Private Limited
STERIS Irish FinCo Unlimited Company
STERIS Irish FinCo II Unlimited Company
STERIS Isomedix Puerto Rico, Inc.
STERIS Japan Inc.
STERIS Laboratories, 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 (Shanghai) Trading Co., Ltd.
STERIS Singapore Pte Ltd
STERIS Solutions Limited
Czech Republic
Slovenia
Slovakia
Pennsylvania
Brazil
Delaware
British Virgin Islands
Quebec, Canada
Ontario, Canada
England & Wales
Hong Kong
Ohio
Costa Rica
Germany
Russia
Delaware
Luxembourg
Luxembourg
Switzerland
Netherlands
Spain
Canada
Delaware
India
Republic of Ireland
Republic of Ireland
Puerto Rico
Japan
Minnesota
Delaware
Luxembourg
Luxembourg
Republic of Mauritius
Mexico
Belgium
Mexico
Delaware
Italy
France
Malaysia
China
Singapore
England & Wales
STERIS S.p.A.
STERIS UK Holding Limited
STERIS–Austar Pharmaceutical Systems Hong Kong Limited
STERIS–Austar Pharmaceutical Systems (Shanghai) Limited
Strategic Technology Enterprises, Inc.
Synergy Decontamination (M) Sdn Bhd
Synergy Health Allershausen GmbH
Synergy Health Amsterdam B.V.
Synergy Health AST, LLC
Synergy Health AST Republica Dominicana SA
Synergy Health AST S.r.l.
Synergy Health Däniken AG
Synergy Health Ede B.V.
Synergy Health France sas
Synergy Health Holding B.V.
Synergy Health Holdings Limited
Synergy Health (Hong Kong) Limited
Synergy Health International Limited
Synergy Health Investments Limited
Synergy Health Ireland Limited
Synergy Health Limited
Synergy Health Logistics B.V.
Synergy Health Marseille sas
Synergy Health Nederland B.V.
Synergy Health New York, LLC
Synergy Health North America, Inc.
Synergy Health Outsourcing Solutions, Inc.
Synergy Health Outsourcing Solutions S.A. de C.V.
Synergy Health Radeberg GmbH
Synergy Health Sterilisation UK Limited
Synergy Health (Suzhou) Limited
Synergy Health (Suzhou) Sterilization Technologies Limited
Synergy Health Systems Limited
Synergy Health (Thailand) Limited
Synergy Health True North, LLC
Synergy Health (UK) Limited
Synergy Health US Holdings, Inc.
Synergy Health US Holdings Limited
Synergy Health Utrecht B.V.
Synergy Health Westport Limited
Synergy Healthcare Limited
Synergy Healthcare (UK) Limited
Synergy Sterilisation KL (M) Sdn Bhd
Italy
England & Wales
Hong Kong
China
Delaware
Malaysia
Germany
The Netherlands
Delaware
Panama
Costa Rica
Switzerland
The Netherlands
France
The Netherlands
England and Wales
Hong Kong
England and Wales
England and Wales
Republic of Ireland
England and Wales
The Netherlands
France
The Netherlands
Delaware
Florida
Florida
Mexico
Germany
England and Wales
China
China
England and Wales
Thailand
New York
England and Wales
Delaware
England and Wales
The Netherlands
Republic of Ireland
England and Wales
England and Wales
Malaysia
Synergy Sterilisation Kulim (M) Sdn Bhd
Synergy Sterilisation (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
Malaysia
Malaysia
Malaysia
South Africa
Scotland
Ohio
England and Wales
Malta
England and Wales
(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 2017 a “significant subsidiary” within the meaning of Rule 1-02(w) of Regulation
S-X have been excluded.
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) pertaining to the STERIS plc 2006 Long-Term Equity Incentive Plan, the STERIS plc 2006 Long-Term Equity
Incentive Plan, Assumed as Amended and Restated and the STERIS Corporation 401(k) Plan of our reports dated May 26,
2017, 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, 2017:
Registration
Number
Description
333-214491
Form S-8 Registration Statement - STERIS plc 2006 Long-Term Equity Incentive Plan
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 26, 2017
/s/ Ernst & Young LLP
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, Julia Kipnis, 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, 2017, 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 26th
day of April, 2017.
/s/ RICHARD C. BREEDEN
Richard C. Breeden, Director
/s/ JACQUELINE B. KOSECOFF
Jacqueline B. Kosecoff, Director
/s/ SIR DUNCAN K. NICHOL
Sir Duncan K. Nichol, Director
/s/ RICHARD M. STEEVES
Richard M. Steeves, Director
/s/ LOYAL W. WILSON
Loyal W. Wilson, Director
/s/ CYNTHIA L. FELDMANN
Cynthia L. Feldmann, Director
/s/ DAVID B. LEWIS
David B. Lewis, Director
/s/ MOHSEN M. SOHI
Mohsen M. Sohi, Director
/s/ JOHN P. WAREHAM
John P. Wareham, Chairman of the Board
/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
/s/ MICHAEL J. TOKICH
Michael J. Tokich
Senior Vice President, Chief Financial Officer, and
Treasurer
(Principal Financial Officer)
/s/ KAREN L. BURTON
Karen L. Burton
Vice President and Controller
(Controller and Principal Accounting Officer)
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 26, 2017
/S/ WALTER M ROSEBROUGH, JR.
Walter M Rosebrough, Jr.
President and Chief Executive Officer
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 26, 2017
/S/ MICHAEL J. TOKICH
Michael J. Tokich
Senior Vice President, Chief Financial Officer and Treasurer
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, 2017, 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 26, 2017
This page intentionally left blank.
This page is Not Part of STERIS plc's Form 10-K Filing
(In thousands, except per share data)
Non-GAAP Financial Measures. 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.
Management and the Board of Directors 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)
As reported, GAAP
Impact of
Acquisitions
Impact of
Divestitures
Impact of
Foreign
Currency
Movements
2017
2016
2017
2016
2017
GAAP
Growth
2017
Organic
Growth
2017
Constant
Currency
Organic
Growth
2017
Segment revenues:
Healthcare Products
$ 1,260,878
$ 1,202,820
$
39,727
$
(22,094) $
(10,489)
4.8%
Healthcare Specialty
Services
Life Sciences
Applied Sterilization
Technologies
Corporate and Other
560,175
327,276
458,231
6,196
427,198
295,970
310,120
2,656
179,740
22,015
135,677
1,220
(58,414)
—
(7,475)
(3,324)
(4,958)
(4,008)
—
—
Total
$ 2,612,756
$ 2,238,764
$
378,379
$
(85,466) $
(25,296)
31.1%
10.6%
47.8%
133.4%
16.7%
3.4%
3.2%
3.1%
5.7%
87.4%
3.8%
4.3%
5.2%
4.3%
7.0%
87.4%
4.9%
To measure the percentage organic revenue growth, the Company removes the impact of acquisitions and divestitures that affect the comparability and trends in
revenue. To measure the percentage constant currency organic revenue growth, the impact of changes in foreign currency exchange rates and acquisitions and
divestitures that affect the comparability and trends in revenue are removed. The impact of changes in foreign currency exchange rates is calculated by
translating current year results at prior year average foreign currency exchange rates.
Twelve months ended March 31, (unaudited)
Gross Profit
Income from
Operations
Net Income attributable
to shareholders*
Diluted EPS
2017
2016
2017
2016
2017
2016
2017
2016
$ 1,025,632 $
895,481
$
227,595 $
212,927
$
109,965 $
110,763
$
1.28 $
1.56
6,580
9,826
4,743
9,907
33
—
66,398
47,704
1,589
2,979
30,082
82,891
—
—
—
—
—
—
—
—
—
319
2,569
86,574
(736)
—
—
26,470
58,356
215
—
(501)
$ 1,033,834 $
908,605
$
476,532 $
378,662
$
323,463 $
241,457
$
3.76 $
213,498
130,694
2.48
1.83
3.39
GAAP
Adjustments:
Amortization of inventory and
property "step up" to fair value
Amortization and impairment of
purchased intangible assets
Acquisition related transaction and
integration charges
Loss (gain) on fair value adjustment
of acquisition related contingent
consideration
Net loss on divestiture of businesses
Settlement of pension obligation
Goodwill impairment loss
Restructuring charges
Net impact of adjustments after tax
Net EPS impact
Adjusted
*The tax expense (benefit) includes both the current and deferred income tax impact of the adjustments.
This Page is Not Part of STERIS plc's Form 10-K Filing
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 (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 debt principal
repayments, growth outside of core operations, repurchase shares, and pay cash dividends. STERIS's calculation of free cash
flow may vary from other companies.
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
Twelve Months Ended March 31,
2017
2016
(Unaudited)
Unaudited)
$
$
424,086 $
(172,901)
4,846
256,031 $
254,675
(126,407)
844
129,112
Performance Graph. The following graph shows the cumulative performance for our ordinary 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, 2012 in our ordinary shares and
in each of the named indices. The past performance shown in this graph does not necessarily guarantee future performance.
Copyright© 2017 Standard and Poor's, Inc. Used with permission. All rights reserved.
Copyright© 2017 Dow Jones, Inc. Used with permission. All rights reserved.
STERIS plc
S&P 500 Index
Dow Jones US Medical Supplies Index
3/12
100.00
100.00
100.00
3/13
134.52
113.96
118.46
3/14
157.24
138.87
127.05
3/15
234.97
156.55
155.26
3/16
241.08
159.34
166.03
3/17
239.42
186.71
181.94
Corporate Information
EXECUTIVE OFFICERS
Kathleen L. Bardwell
Senior Vice President and
Chief Compliance Officer
Karen L. Burton
Vice President, Controller
and Chief Accounting 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, 2017. 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 2017 annual meeting will be
held on Tuesday, August 1, 2017.
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
Cynthia L. Feldmann2,3
Former President and Founder,
Jetty Lane Associates
Dr. Jacqueline B. Kosecoff3,4
Managing Partner,
Moriah Partners, LLC
David B. Lewis2,4
Of Counsel and Former Chairman,
Lewis & Munday
Sir Duncan 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
Dr. Mohsen M. Sohi2,4
Chief Executive Officer,
Freudenberg and Co.
Dr. Richard Steeves3
Former Chief Executive Officer
and Director of Synergy Health plc
Loyal W. Wilson1,2
Retired Founder and Senior Advisor,
Primus Capital Partners, Inc.
Dr. Michael B. Wood1,3
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
FISCAL
2017
ANNUAL REPORT
I
F
S
C
A
L
2
0
1
7
A
N
N
U
A
L
R
E
P
O
R
T
Document #ANNRPT17.2017-05, Rev. A
©2017 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