FISCAL
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ANNUAL REPORT
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Document #ANNRPT18.2018-05, Rev. A
©2018 STERIS plc.
All rights reserved. Printed in USA.
STERIS plc
Rutherford House
Stephensons Way
Chaddesden, Derby, England
DE21 6LY
www.steris.com
Corporate Information
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. Kosecoff1,4
Managing Partner,
Moriah Partners, LLC
David B. Lewis2,4
Of Counsel and Former Chairman,
Lewis & Munday
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, Sterilization
and Disinfection
Dr. Adrian Coward
Senior Vice President,
Healthcare Specialty Services
Michiel de Zwaan
Vice President and Chief
Human Resources Officer
Gulam A. Khan
Senior Vice President,
Procedural Solutions
Sir Duncan Nichol1,4
Former Chairman of Synergy Health plc
Chairman, Countess of Chester NHS Trust, UK
Sudhir K. Pahwa
Senior Vice President,
Infection Prevention Technologies
Walter M Rosebrough, Jr.
President and Chief Executive Officer
Renato G. Tamaro
Vice President and Corporate Treasurer
Michael J. Tokich
Senior Vice President
and Chief Financial Officer
J. Adam Zangerle
Vice President, General Counsel
and Secretary
REGISTERED OFFICE
STERIS plc
Rutherford House
Stephensons Way
Chaddesden, Derby, England
DE21 6LY
Walter M Rosebrough, Jr.3
President and Chief Executive Officer,
STERIS plc
Dr. Nirav R. Shah
Senior Scholar, Clinical Excellence
Research Center, Stanford University
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
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, 2018. 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
Senior 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 2018 annual meeting will be
held on Tuesday, July 31, 2018.
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.
Fellow Shareholders,
Fiscal 2018 was another year of solid growth, with revenue about flat as reported and
an increase of 5% on a constant currency organic basis. As reported, earnings per
diluted share increased to $3.39 and adjusted earnings per diluted share increased
10% to $4.15. From a strategic perspective, we completed all planned divestitures
during fiscal 2018 and remain on track to achieve cumulative annual cost savings of
approximately $40 million by the end of fiscal 2019 from the integration of Synergy
Health. In addition, we completed several small acquisitions that are additive to our
business.
The majority of our business grew at or above our expectations on a constant currency
organic revenue basis in fiscal 2018. Our two fastest growing segments, Healthcare
Specialty Services (HSS) and Life Sciences, both exceeded our expectations for the
year as each grew revenue 9% on a constant currency organic basis. The trends
driving these two businesses are anticipated to carry into our new fiscal year, although
year-over-year comparisons will be more difficult on top of this past year’s success.
Applied Sterilization Technologies (AST) continues to deliver strong results, with 7%
constant currency organic revenue growth for the year. AST profitability improved
faster than we had anticipated in fiscal 2018, reflecting the better than expected use of
our capacity, including that which came online this past fiscal year. While we continue
to expect improvements in profit in fiscal 2019, the year-over-year change is expected
to be somewhat more modest than we thought a year ago due to the success in fiscal
2018.
With regard to Healthcare Products, we continued to experience solid organic growth
in recurring revenues. Total segment revenue grew 2% on a constant currency
organic basis, driven by meaningful growth in both consumables and service, which
was offset by a modest decline in capital equipment shipments. We have launched
about 30 new products in our Healthcare Products segment this past year, many of
which are consumables. Looking ahead to fiscal 2019, we expect to continue a similar
pace of product introductions, but will shift a bit more to capital equipment. With new
products, solid year-end backlog and continued expectations for a stable hospital
capital spending environment, we would anticipate capital equipment revenue growth
to return to more normal low- to mid-single digit growth in fiscal 2019.
Shifting to our balance sheet, we committed to reducing debt back to our historic
levels after the completion of the Synergy combination two years ago. I am pleased
to report that we accomplished that goal in fiscal 2018. From a capital allocation
perspective, we will revert to our normal long-term priorities. Our first priority is
dividend increases in-line with growth of earnings. Our second priority is investment in
our current businesses for organic growth in revenue and profitability. For fiscal 2019,
we will be making substantial investments in our HSS segment to grow our outsourced
reprocessing business in the U.S. We have several projects in the pipeline for these
services and plan to invest in both capital to build out the facilities and in substantial
hiring during the year to run them. We remain optimistic that this business model
will succeed in the U.S. over the longer term. In addition, we will continue to invest in
AST expansions around the globe to meet increasing demand. These two areas of
investment alone will total more than $60 million in growth capital out of our total capital
spending of approximately $190 million in fiscal 2019.
Our third priority is acquisitions, which we continue to find available in the marketplace.
We prefer tuck-ins to enhance our current businesses, but we’ll also consider deals
that will broaden our portfolio. Lastly are share repurchases, which in our current plan
for fiscal 2019 will be used to offset dilution from our equity compensation program.
Like many companies, U.S. tax reform will result in significant additional earnings for
us to strategically grow our business and return value to Customers, employees and
shareholders. On that front, we paid a one-time special bonus to all U.S. employees
other than senior executives in March of this year. In addition, we will be making
substantial investments in our business in fiscal 2019, which we think is prudent given
the additional dollars available to us from tax reform and our opportunities for organic
growth. We will be spending approximately $10 million on growing our HSS outsourced
reprocessing business and increasing R&D spending in all four of our segments.
Despite these investments, we anticipate operating profit to grow faster than revenue
on a year-over-year basis.
We are excited to start our new fiscal year with solid growth momentum, exciting new
products and services, and the team to create record years in fiscal 2019 and beyond.
In that regard, we recently announced several changes to our Board of Directors.
Jack Wareham, who has served on our Board since 2000, and as Chairman since
2005, has announced that he will retire when his current term expires at our Annual
General Meeting this summer. Jack has played a vital role in shaping our Board and
our company during his tenure. I speak on behalf of the entire Board when I say that
we were very fortunate to have his leadership as Chairman for over a decade. The
Board intends to appoint long-standing independent Board member, Dr. Mohsen Sohi,
to the role of Chairman after the Annual General Meeting. I am extremely pleased that
Mohsen has agreed to take on this responsibility. In addition, the Board also appointed
a new Director in May, Dr. Nirav Shah, who is an excellent addition.
It is an honor to lead your great Company and to work alongside esteemed colleagues
both internally and on our Board. I thank the people of STERIS for their great work, and
our Board for their continued guidance and support. We all appreciate the support of
our long-term shareholders as we continue our work to help our Customers create
a healthier and safer world.
Until next year,
Walt Rosebrough
President and Chief Executive Officer
June 2018
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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, 2018
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)
England and Wales
(State or other jurisdiction of
incorporation or organization)
98-1203539
(IRS Employer Identification No.)
Rutherford House Stephensons Way
Chaddesden, Derby, England
(Address of principal executive offices)
DE21 6LY
(Zip Code)
44 1332 387100
(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, 2017, 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 29, 2017,
was approximately $7,420.7 million.
The number of Ordinary Shares outstanding as of May 25, 2018: 84,618,075
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2018 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
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PART I
Throughout this Annual Report, STERIS plc and its subsidiaries together are called “STERIS,” “the Company,” “we,”
“us,” or “our,” unless otherwise noted. References in this Annual Report to a particular “year,” "fiscal year," or “year-end”
mean our fiscal year, which ends on March 31. For example, fiscal year 2018 ended on March 31, 2018.
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 washers, surgical tables, lights and equipment management systems and connectivity solutions such as operating room
integration; consumable products such as detergents and gastrointestinal endoscopy accessories and other products; services,
including equipment installation and maintenance, microbial reduction of medical devices, instrument and scope repair
solutions, laboratory services and outsourced 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 Derby, England, STERIS plc has approximately 12,000 employees worldwide. 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. Non-allocated operating costs that support the entire Company and items not
indicative of operating trends are excluded from segment operating income. Certain minor organizational changes were made to
better align with our Customers, resulting in several smaller operations shifting among the segments. The prior period revenues
and operating income measures have been recast for comparability.
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.
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 2018, 2017, and 2016 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.
3
HEALTHCARE PRODUCTS SEGMENT
Description of Business. Our Healthcare Products segment provides a broad portfolio of infection prevention, procedural and
GI solutions including; consumable products, equipment maintenance and installation services, and capital equipment to acute
care hospitals, 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. Our solutions include cleaning chemistries and sterility assurance products, accessories for GI procedures,
washers, sterilizers and other pieces of capital equipment essential to the operations of a sterile processing department ("SPD")
and equipment used directly in the operating room, including surgical tables, lights, equipment management services, and
connectivity solutions.
Services Offered. Our Healthcare Products segment service associates install, maintain, upgrade, repair, and troubleshoot
capital equipment throughout the world.
Customer Concentration. Our Healthcare Products segment sells consumables, services and capital equipment, to Customers
in the United Kingdom, United States and many other countries throughout the world. For the year ended March 31, 2018, no
Customer represented more than 10% of the Healthcare Product segment's total revenues.
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, Hill-Rom, Johnson & Johnson, Skytron,
and Stryker.
HEALTHCARE SPECIALTY SERVICES SEGMENT
Description of Business. Our Healthcare Specialty Services segment provides a range of solutions and managed services
including; hospital sterilization services and instrument and scope repairs to 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), custom process improvement consulting and outsourced
sterile processing (on-site at the hospital and in off-site reprocessing centers). Linen Management Services 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, 2018, no Customer
represented more than 10% of the Healthcare Specialty Services segment's total revenues.
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, 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 consumable products, equipment
maintenance, specialty services and capital equipment primarily to pharmaceutical manufacturers around the world.
Products Offered. These solutions include formulated cleaning chemistries, barrier products, sterility assurance products,
steam and vaporized hydrogen peroxide sterilizers and washer disinfectors.
Services Offered. Our Life Sciences segment service associates install, maintain, upgrade, repair, and troubleshoot equipment
throughout the world. We offer various preventive maintenance programs and repair services to support the effective operation
of capital equipment over its lifetime.
Customer Concentration. Our Life Sciences segment sells consumables, services and capital equipment, to Customers in the
United Kingdom, United States and many other countries throughout the world. For the year ended March 31, 2018, no
Customer represented more than 10% of the Life Sciences segment’s total revenues.
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 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.
4
APPLIED STERILIZATION TECHNOLOGIES SEGMENT
Description of Business. Our Applied Sterilization Technologies ("AST") segment provides contract sterilization services
through a network of over 50 facilities located in 16 countries. As a technology neutral service provider, we offer unbiased
technology assessments dependent on the individual requirements of each product. Our Customers are primarily medical device
and pharmaceutical manufacturers.
Services Offered. We offer two main modalities for sterilization: irradiation and gas. Within irradiation, we offer Gamma,
electron beam and X-ray technologies. Gamma utilizes radioisotope (cobalt-60). Electron beam and X-ray utilize high energy
electrons as their radiation source. Our offerings for gas sterilization are ethylene oxide ("EO") and hydrogen peroxide. In
addition, we offer an array of laboratory testing services that complements the manufacturing of sterile 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 the
world. For the year ended March 31, 2018, no Customer represented more than 10% of the segment’s revenues.
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 and carbon 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 2019. 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, 2018, we held approximately 380 United States patents and approximately 1,400 in other jurisdictions and
had approximately 125 United States patent applications and 350 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, 2018, 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, 2018, 2017, and 2016, research and development expenses were $60.8 million, $59.4 million, and $56.7 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 products throughout our
business, including hydrogen peroxide sterilizers, washer disinfectors, steam sterilizers, consumables, including sterility
assurance products, accessories for use in GI procedures and surgical products including the latest generation of operating room
integration products.
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.
5
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."
In the past, 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 the 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.”
6
Employees. As of March 31, 2018, 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 70% of our fiscal 2018 revenues. Revenues from the United Kingdom and Europe, Middle East
and Africa ("EMEA") were 8% and 13%, respectively, of our fiscal 2018 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,” and Item 7 of Part II,
for a geographic presentation of our revenues for the three years ended March 31, 2018, 2017 and 2016.
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
40% 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, 2018,
we had a backlog of $193.9 million. Of this amount, $133.0 million and $60.8 million related to our Healthcare Products and
Life Sciences segments, respectively. At March 31, 2017, we had backlog orders of $162.9 million. Of this amount, $109.7
million and $53.2 million related to our Healthcare Products and Life Sciences segments, respectively. A significant portion of
the backlog orders at March 31, 2018 is expected to ship in the 2019 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.
7
Executive Officers of the Registrant. The following table presents certain information regarding our executive officers at
March 31, 2018. 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
Michiel de Zwaan
Gulam A. Khan
Sudhir K. Pahwa
Walter M Rosebrough, Jr.
Renato G. Tamaro
Michael J. Tokich
J. Adam Zangerle
Age Position
62
Senior Vice President and Chief Compliance Officer
50
45
48
46
51
65
64
49
49
51
Vice President, Controller and Chief Accounting Officer
Senior Vice President, Sterilization and Disinfection
Senior Vice President, Healthcare Specialty Services
Vice President and Chief Human Resources Officer
Senior Vice President, Procedural Solutions
Senior Vice President, Infection Prevention Technologies
President and Chief Executive Officer
Vice President and Corporate Treasurer
Senior Vice President and Chief Financial Officer
Vice President, General Counsel, and Secretary
The following discussion provides a summary of each executive officer's recent business experience through March 31,
2018:
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. Mrs. Bardwell is a Director
of First Financial Bancorp.
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, Sterilization and Disinfection. He assumed this role in February 2018.
From August 2015 to February 2018, he served as Senior Vice President, STERIS Applied Sterilization Technologies and Life
Sciences. 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 of UK & Ireland of Synergy Health plc.
Michiel de Zwaan serves as Vice President and Chief Human Resources Officer. He assumed this role in September 2017.
He served as Senior Vice President and Chief Human Resources Officer at Hill-Rom Inc. from August 2014 through December
2015, and as Vice President of Human Resources, International, at Hill-Rom Europe B.V. from September 2011 through July
2014.
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. Mr. Rosebrough is a Director of Varex Imaging Corporation.
Renato G. Tamaro serves as Vice President and Corporate Treasurer. He assumed this role in August 2017. From March
2006 to July 2017, he served as Assistant Treasurer.
Michael J. Tokich serves as Senior Vice President and Chief Financial Officer. He assumed this role in August 2017. From
February 2014 to July 2017, he served as the Senior Vice President, Chief Financial Officer and Treasurer. 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.
8
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.
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 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; 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.
9
Risk or uncertainty
Discussion
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.
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 cash on hand and borrowings
under our bank credit facilities. 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 equity. 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.
10
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.
Early in 2018, U.S. Congress enacted legislation that extended the suspension of the
excise tax, which suspension had been in place in since the beginning of calendar year
2016, for 2018 and 2019. 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 2020. We incurred
$5.8 million in medical device excise taxes for fiscal 2016. 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.
11
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.
12
We may be adversely affected by
product liability claims or other
legal actions or regulatory or
compliance matters.
We face an inherent business risk of exposure to product liability claims and other legal
and regulatory actions. A significant increase in the number, severity, amount, or scope
of these claims and actions may, 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.
13
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, which
could have a material impact on
our results of operations and
earnings per share.
Changes in tax treaties and trade
agreements could negatively
impact our costs, results of
operations and earnings per share.
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.
The U.S. Tax Cuts and Jobs Act (“TCJA”) was signed into law on December 22, 2017.
Additional guidance is likely to be issued clarifying the application of this new
legislation. We cannot predict the overall impact that the additional guidance may have
on our business. It is reasonable to expect that global taxing authorities will be reviewing
current legislation for potential modifications in reaction to the implementation of the
TCJA. 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 obligations. 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.
14
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.
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.
15
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.
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.
16
We engage in acquisitions and
affiliations, divestitures, and other
business arrangements. Our
growth may be adversely affected
if we are unable to successfully
identify, price, and integrate
strategic business candidates or
otherwise optimize our business
portfolio.
Our success depends, in part, on strategic acquisitions and joint ventures, which are
intended to complement or expand our businesses, divestiture of non-strategic businesses,
and other actions 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 2018 and 2017 including linen
management services in the U.K., U.S. and Netherlands, laboratory services in the U.K., a
consumables product line 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.
17
We could experience a failure of a
key information technology
system, process or site or a breach
of information security, including
a cybersecurity breach or failure
of one or more key information
technology systems, networks,
processes, associated sites or
service providers.
We rely extensively on information technology (IT) systems to conduct business. In
addition, we rely on networks and services, including internet sites, data hosting and
processing facilities and tools and other hardware, software and technical applications and
platforms, some of which are managed, hosted, provided and/or used by third-parties or
their vendors, to assist in conducting our business. Numerous and evolving cybersecurity
threats pose potential risks to the security of our IT systems, networks and services, as
well as the confidentiality, availability and integrity of our data. While we have made
investments seeking to address these threats, including monitoring of networks and
systems, hiring of experts, employee training and security policies for employees and
third-party providers, the techniques used in these attacks change frequently and may be
difficult to detect for periods of time and we may face difficulties in anticipating and
implementing adequate preventative measures. If our IT systems are damaged or cease to
function properly, the networks or service providers we rely upon fail to function
properly, or we or one of our third-party providers suffer a loss or disclosure of our
business or stakeholder information due to any number of causes ranging from
catastrophic events or power outages to improper data handling or security breaches and
our business continuity plans do not effectively address these failures on a timely basis,
we may be exposed to reputational, competitive and business harm as well as litigation
and regulatory action. Enforcement of the General Data Protection Regulation (“GDPR”)
is effective as of May 2018. The GDPR is focused on the protection of personal data not
merely the privacy of personal data. The GDPR creates a range of new compliance
obligations and will significantly increase financial penalties for noncompliance
(including possible fines of up to 4% of global annual turnover for the preceding financial
year or €20 million (whichever is higher) for the most serious infringements).
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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, 2018. The Company believes that its facilities are adequate for operations and are maintained in
good condition. The Company is confident that, if needed, it will be able to acquire additional facilities at commercially
reasonable rates.
In the table below, “Contract Sterilization” refers to locations of the Applied Sterilization Technologies segment.
“Manufacturing,” “Warehousing,” “Operations,” or “Sales Offices” refer to locations serving one or more of the Healthcare
Products, Healthcare Specialty Services and Life Sciences segments.
United Kingdom (U.K.), United States (U.S.) Locations (including Puerto Rico) and International Locations
(INTL)
Location
Montgomery, AL
Ontario, CA
San Diego, CA
Temecula, CA
Libertyville, IL (2 locations)
Northborough, MA
Brooklyn Park, MN
St. Louis, MO (4 locations)
South Plainfield, NJ
Whippany, NJ
Chester, NY (2 locations)
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.
Use
Manufacturing
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Manufacturing
Contract Sterilization
Contract Sterilization
Contract Sterilization
18
Owned/Leased
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
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
Sturbridge, MA
Feasterville, PA
Berkshire, England
Derby, England
Lancashire, England
Lancing, England
Swindon, England (2 locations)
Yorkshire, England (2 locations)
Northamptonshire, England
Mogi das Cruzes, Brazil
Quebec City, Canada
Whitby, Canada
Suzhou, China
Alajuela, Costa Rica (2 locations)
Velka Bites, Czech Republic
Tuusula, Finland
Bordeaux, France
Tullamore, Ireland
Westport, Ireland
Calcinate, Italy
Bastia di Rovolon, Italy
Spresiano, Italy
Rawang, Malaysia
Etten-Leur, Netherlands
Venlo, Netherlands
Michalovce, Slovakia
Pribenik, Slovakia
Johannesburg, South Africa
Daniken, Switzerland
Chonburi, Thailand
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.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
Use
Contract Sterilization
Operations
Sales Offices
Manufacturing/Warehousing
Manufacturing/Operations
Manufacturing/Warehousing
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Manufacturing/Warehousing
Contract Sterilization
Operations
Warehousing
Contract Sterilization
Operations
Operations
Manufacturing/Operations
Contract Sterilization
Contract Sterilization
Contract Sterilization
Manufacturing/Sales Office
Manufacturing
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Manufacturing/Sales Office
Manufacturing/Sales Office
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
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
Owned
Owned
Owned
Owned
Owned
Owned
Owned
United Kingdom (U.K.), United States (U.S.) Locations (including Puerto Rico) and International Locations
(INTL)
Location
Radeberg, Germany
Komenda, Slovenia
Bitterfeld-Wolfen, Germany
Ede, Netherlands
St. Louis, MO
Reno, NV (2 locations)
Cleveland, Ohio
Stow, OH
Hillsborough, NJ
Keller, TX (2 locations)
Tustin, CA
Melville, NY
Santa Clara, CA
Chesterfield, MO
Cooper City, FL
Rockville, MD
Springdale, OH
Franklin Park, IL
Bensenville, IL
Montgomery, AL
Ooltewah, TN
Bethlehem, PA
Westborough, MA
Belair, MD
Point Richmond, CA
San Diego, CA
Denver, CO
Lima, OH
Saxonburg, PA
Petaluma, CA
Tampa, FL
Temple Terrace, FL
Hamilton, OH
Henrico, VA
Rochester, NY
Birmingham, AL
Long Island City, NY
Chusclan, France
Calcinate, Italy
Jalan Persiaran, Malaysia
Riyadh, Saudi Arabia
Toronto, Canada
U.K/U.S./
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.
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
Use
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Warehousing/Operations
Warehousing
Operations
Sales Office/Operations
Sales Office/Operations
Sales Office/Operations
Sales Office/Operations
Sales Office/Operations
Sales Office
Sales Office/Operations
Operations
Operations
Operations/Warehousing
Manufacturing/ Operations
Operations/Warehousing
Operations/Warehousing
Operations/Warehousing
Sales Office/Operations
Sales Office/Operations
Sales Office/Operations
Manufacturing/ Operations /Sales Offices/
Warehousing
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Operations
Operations
Operations/Warehouse
Operations
Operations
Warehouse
Operations
Contract Sterilization
Contract Sterilization
Sales Office/Operations
Operations
Operations
20
Owned/Leased
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
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
Malle, Belgium
Antwerpen, Belgium
Sao Paulo, Brazil
Mississauga, Canada
Beijing, China
Nanjing, China
Shanghai, China
Suzhou, China
Wuhan, China
La Chapelle St. Mesmin, France
Marseille, France
Paris, France
Toussieu, France
Allershausen, Germany
Cologne, Germany
Gokul Nagar, India
Poggio Rusco, Italy
Segrate, Italy
Seriate, Italy
Trescore Balneario, Italy
Tokyo, Japan
Kuala Ketil, Malaysia
Kulim, Malaysia
MINT Bangi, Malaysia
Petaling Jaya, Malaysia
Guadalupe, Mexico
Utrecht, Netherlands
Moscow, Russia
Singapore (2 locations)
Madrid, Spain
New Cross, England
Basingstoke, England
Derby, England
Hoddesdon, England
Chorley, England
Leicester, England (2 locations)
Lincoln, England
Grimsby England
Knowsley, England
Oxfordshire, England
Sheffield, England
Strathclyde, Scotland
Swindon, England
U.K/U.S./
INTL*
INTL
Use
Sales Office/ Operations/ Warehousing
Owned/Leased
Leased
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
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.
Sales Office/Operations
Sales Office
Sales Office/Warehousing
Sales Office
Operations
Sales Office/ Manufacturing
Operations
Operations
Sales Office
Contract Sterilization
Sales Office
Warehousing
Contract Sterilization
Sales Office
Sales Office
Contract Sterilization
Sales Office
Contract Sterilization/Operations
Operations
Sales Office
Contract Sterilization
Contract Sterilization
Contract Sterilization
Sales Office
Manufacturing
Operations
Sales Office
Sales Office/Warehousing
Sales Office
Operations
Sales Office
Operations
Operations
Operations
Warehousing/Operations
Operations
Operations
Operations
Contract Sterilization
Operations
Operations
Operations
21
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
Wythenshawe, England (2 locations)
U.K/U.S./
INTL*
U.K.
Bishop Stortford, Hertfordshire, England U.K.
Use
Operations
Manufacturing/Warehousing/Operations
Pitsford, England
Homeston, England
Guildford, England
Horrow, England
Salisbury, England
U.K.
U.K.
U.K.
U.K.
U.K.
Operations
Operations
Operations
Operations
Operations
* International includes all countries other than the U.K. and U.S.
ITEM 3.
LEGAL PROCEEDINGS
Owned/Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Information regarding our legal proceedings is included in Item 7 of Part II, 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.
Quarters Ended
Fiscal 2018
High
Low
Fiscal 2017
High
Low
March 31
December 31
September 30
June 30
$
$
96.43
$
93.39
$
88.43
$
82.88
86.02
80.74
72.35
$
73.06
$
74.63
$
65.27
63.80
67.25
83.54
69.11
74.10
63.26
Holders. As of March 31, 2018, there were approximately 82 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 2018, we paid cash dividends totaling $1.21 per outstanding share in respect for all shares outstanding for the entire fiscal
year ($0.28 per outstanding share to shareholders of record on June 7, 2017, and $0.31 per outstanding share to shareholders of
record on the following dates: August 29, 2017, November 22, 2017 and February 28, 2018). During fiscal 2017, we paid cash
dividends totaling $1.09 per outstanding share ($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).
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 purchased 664,963 of our ordinary shares during fiscal 2018 for the aggregate amount of $59,234
which included $294 of taxes and commissions. As of March 31, 2018, $151.1 million remains available for repurchase of
ordinary shares under this authorization.
The following table presents information with respect to purchases STERIS made of its ordinary shares during the fourth
quarter of the 2018 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)
164,225
January 1-31
158,000
February 1-28
151,061
March 1-31
Total
151,061
(1) Does not include 11 shares purchased during the quarter at an average price of $90.78 per share by the STERIS Corporation 401(k) Plan on
84,000 $
70,116
74,300
228,416 (1) $
90.53
88.78
93.39
90.92 (1)
84,000
70,116
74,300
228,416
$
$
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)
2018 (1)
Statements of Income Data:
Years Ended March 31,
2016 (1)
2017 (1)
2015(1)
2014(1)
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
$ 2,619,996
$ 2,612,756
$ 2,238,764
$ 1,850,263
$ 1,622,252
1,094,223
1,025,632
103
403,454
63,360
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
290,915
109,965
110,763
135,064
129,442
$
$
$
$
3.42
$
1.29
$
1.57
$
2.27
$
2.20
85,028
85,473
70,698
59,413
58,966
3.39
$
1.28
$
1.56
$
2.25
$
2.17
85,713
1.21
591,195
5,200,334
1,316,001
1,983,034
$
$
86,094
1.09
636,219
4,924,555
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
$
$
2,097,291
1,887,162
621,075
1,023,645
493,480
845,916
$ 3,205,960
$ 2,798,602
$ 3,023,034
$ 1,071,632
$ 1,038,705
(1) See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
.
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 2018, 2017 and 2016, 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; 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.
• 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. Linen management services
were divested in fiscal 2017.
• 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, barrier product solutions 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 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 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, on-site and off-site reprocessing, and capital equipment products, such as sterilizers and surgical tables, and
connectivity solutions such as operating room (“OR”) integration.
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 for the fiscal 2016 periods to more recent fiscal
periods of the Company throughout this Annual Report on From 10-K.
We operate and report in 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."
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
26
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 completed several acquisitions and asset purchases in fiscal 2018 and 2017 that expanded our product and service
offerings to our Customers.
During fiscal 2018, we divested our Synergy Health Healthcare Consumable Solutions ("HCS") business with annual
revenues of approximately $40 million. During fiscal 2017, we divested our Applied Infection Control ("AIC") product line
(annual revenues of approximately $50 million) and four businesses acquired in the Combination with Synergy consisting of:
the UK Linen Management Services business (annual revenues of approximately $50 million), U.S. Linen Management
Services business (annual revenues of approximately $50 million), Synergy Health Netherlands Linen Management Services
(annual revenues of approximately $75 million) and Synergy Health Laboratory Services (annual revenues of approximately
$15 million).
We continue to invest in manufacturing in-sourcing projects and lean process improvements for the purpose of improving
quality, cost and delivery of our products to our Customers.
U.S. Tax Reform. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred
to as the Tax Cuts and Jobs Act (the “TCJA”). The TCJA makes broad and complex changes to the U.S. tax code that will affect
the Company’s fiscal year ending March 31, 2018, including, but not limited to, (1) requiring a one-time transition tax on
certain unrepatriated earnings of non-U.S. subsidiaries which is payable over eight years, (2) bonus depreciation that will allow
for full expensing of qualified property and (3) reduction of the U.S. federal corporate tax rate. The TCJA reduces the federal
corporate income tax rate to 21.0 percent beginning January 1, 2018. Section 15 of the Internal Revenue Code stipulates that
our fiscal year ending March 31, 2018, will have a U.S. blended corporate income tax rate of approximately 31.5 percent,
which is based on the applicable tax rates before and after the TCJA and the number of days in the fiscal year.
The TCJA also establishes new tax laws that may affect the Company’s fiscal year 2019 and forward, including, but not
limited to, (1) reduction of the U.S. federal corporate income tax rate as noted above; (2) elimination of the corporate
alternative minimum tax ("AMT"); (3) the creation of the base erosion anti-abuse tax ("BEAT"), a new minimum tax; (4) a
general elimination of U.S. federal income taxes on dividends from non-U.S. subsidiaries; (5) a new provision designed to tax
global intangible low-taxed income ("GILTI"), which allows for the possibility of using foreign tax credits ("FTCs") and a
deduction of up to 50 percent to offset the income tax liability (subject to some limitations); (6) a new limitation on deductible
interest expense; (7) the repeal of the domestic production activity deduction; (8) limitations on the deductibility of certain
executive compensation; (9) limitations on the use of FTCs to reduce the U.S. income tax liability; and (10) limitations on net
operating losses ("NOLs") generated after December 31, 2017, to 80.0 percent of taxable income.
Highlights. Revenues increased $7.2 million, or 0.3%, to $2,620.0 million for the year ended March 31, 2018, as compared to
$2,612.8 million for the year ended March 31, 2017. The increase reflects organic revenue growth within all business segments,
the favorable impact of our recent acquisitions and the positive impact of fluctuations in currencies, which more than offset the
impact of our recent divestitures.
Fiscal 2018 operating income increased 77.3% to $403.5 million over the fiscal 2017 operating income of $227.6 million.
The increase is attributable to gross profit improvements, recent acquisitions, and lower acquisition and integration related
expenses. Fiscal 2017 was also negatively impacted by losses from the divestiture of certain non-core operations and a
goodwill impairment loss.
Net cash flows from operations were $457.6 million and free cash flow was $294.3 million in fiscal 2018 compared to net
cash flows from operations of $424.1 million and free cash flow of $256.0 million in fiscal 2017 (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
earnings and lower requirements to fund operating assets and liabilities.
Our debt-to-total capital ratio was 29.1% at March 31, 2018. During the year, we increased our quarterly dividend for the
twelfth consecutive year to $0.31 per share per quarter.
Outlook. Fluctuations in currency rates can impact revenues and costs outside of the United States, creating variability in our
results for fiscal 2019 and beyond.
In fiscal 2019 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 additional products and
services.
27
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, 2018, 2017 and 2016:
(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,
2017
2018
$
$
457,632
(165,457)
2,094
294,269
$
$
424,086
(172,901)
4,846
256,031
$
$
2016
254,675
(126,407)
844
129,112
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.
28
FISCAL 2018 AS COMPARED TO FISCAL 2017
Revenues. The following table compares our revenues, in total and by type and geography, for the year ended March 31, 2018
to the year ended March 31, 2017:
(dollars in thousands)
Total revenues
Revenues by type:
Service revenues
Consumable revenues
Capital equipment revenues
Revenues by geography:
United Kingdom revenues
United States revenues
Other foreign revenues
Years Ended March 31,
2018
2,619,996
$
2017
Change
$
2,612,756
$
7,240
0.3 %
Percent
Change
1,399,363
1,414,437
581,563
639,070
558,834
639,485
207,514
1,836,414
576,068
229,603
1,803,457
579,696
(15,074)
22,729
(415)
(22,089)
32,957
(3,628)
(1.1)%
4.1 %
(0.1)%
(9.6)%
1.8 %
(0.6)%
Revenues increased $7.2 million, or 0.3%, to $2,620.0 million for the year ended March 31, 2018, as compared to
$2,612.8 million for the year ended March 31, 2017. This increase is primarily attributable to organic growth within all
business segments, favorable pricing, the benefit of acquisitions and the positive impact of fluctuations in currencies. These
increases were largely offset by the impact of our recent divestitures.
Service revenues for fiscal 2018 decreased $15.1 million, or 1.1%, over fiscal 2017, as the impact of recent divestitures
more than offset increases in other service offerings. Consumable revenues increased $22.7 million, or 4.1%, during fiscal
2018 over fiscal 2017, reflecting growth within the Healthcare Products and Life Sciences business segments, which more
than offset the impact of the divestitures of the AIC product line and HCS business within the Healthcare Products segment.
Capital equipment revenues decreased by $0.4 million, or 0.1%, during fiscal 2018 as compared to fiscal 2017, reflecting a
decline in revenues from the Healthcare Products segment, which was offset by growth in revenues from the Life Sciences
segment.
United Kingdom revenues for fiscal 2018 were $207.5 million, a decrease of $22.1 million, or 9.6%, over fiscal 2017
revenues of $229.6 million, reflecting a 11.1% decline in service revenues, primarily resulting from our fiscal 2017
divestitures of our laboratory and linen management services.
United States revenues for fiscal 2018 were $1,836.4 million, an increase of $33.0 million, or 1.8%, over fiscal 2017
revenues of $1,803.5 million. Strength in Life Sciences capital equipment and service offerings within the Healthcare
Products, Life Sciences and Applied Sterilization Technologies segments more than offset the negative impact of the decline in
capital equipment revenues from the Healthcare Products segment and the recent divestitures.
Revenues from other foreign locations for fiscal 2018 were $576.1 million, a decrease of 0.6% over the fiscal 2017
revenues of $579.7 million, primarily due to the fiscal 2017 divestiture of the Netherlands Linen Management Services, which
more than offset growth in Canada and in the Asia Pacific and Latin America regions.
29
Gross Profit. The following table compares our gross profit for the year ended March 31, 2018 to the year ended March 31,
2017:
(dollars in thousands)
Gross profit:
Product
Service
Total gross profit
Gross profit percentage:
Product
Service
Total gross profit percentage
Years Ended March 31,
2017
2018
Change
Percent
Change
$
$
574,456
519,767
1,094,223
$
$
574,299
451,333
1,025,632
$
$
157
68,434
68,591
NM
15.2%
6.7%
47.1%
37.1%
41.8%
47.9%
31.9%
39.3%
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 $68.6 million and gross profit percentage
increased 250 basis points to 41.8% for fiscal 2018 as compared to 39.3% for fiscal 2017. The increase in our gross profit
percentage was due to the favorable impact of the divestiture of lower margin operations (190 basis points), favorable mix (60
basis points), and favorable pricing (30 basis points) which were partially offset by the negative impact of currencies (30 basis
points).
Operating Expenses. The following table compares our operating expenses for the year ended March 31, 2018 to the year
ended March 31, 2017:
(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,
2017
2018
Change
Percent
Change
$
$
629,884
—
60,782
103
690,769
$
$
680,069
58,356
59,397
215
798,037
$
(50,185)
(58,356)
1,385
(112)
$ (107,268)
(7.4)%
NM
2.3 %
NM
(13.4)%
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 decreased 7.4% in fiscal 2018 over fiscal
2017. The decline was primarily attributable to a lower net loss on divestitures and lower acquisition and integration costs
incurred in fiscal 2018 as compared to fiscal 2017.
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 $1.4 million during fiscal 2018, as compared to
fiscal 2017. 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
2018, 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
30
compares our non-operating expense (income), net for the year ended March 31, 2018 to the year ended March 31, 2017:
(dollars in thousands)
Non-operating expenses, net:
Interest expense
Interest income and miscellaneous expense
Non-operating expenses, net
Years Ended March 31,
2017
2018
Change
$
$
50,629
(2,157)
48,472
$
$
44,520
(1,571)
42,949
$
$
6,109
(586)
5,523
Interest expense increased $6.1 million during fiscal 2018 as compared to 2017. This increase was primarily due to an
increase in the proportion of higher-cost, fixed rate debt following the issuance and sale of senior notes in a private placement
to certain investors on February 27, 2017. 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 this 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, 2018 and March 31, 2017:
(dollars in thousands)
Income tax expense
Effective income tax rate
Years Ended March 31,
2017
2018
Change
$
63,360
$
74,015
$
(10,655)
Percent
Change
(14.4)%
17.8%
40.1%
The effective income tax rate for fiscal 2018 was 17.8% as compared to 40.1% for fiscal 2017. The fiscal 2018 effective
tax rate decreased when compared to fiscal 2017 primarily due to the TCJA impact and non-recurring nondeductible costs
related to divestitures. Additional information regarding our income tax expense is included in Note 8 to our consolidated
financial statements titled, “Income Taxes.”
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts
and Jobs Act (the “TCJA”). The SEC staff issued Staff Accounting Bulletin No.118 (“SAB 118”), which provides guidance
on accounting for the tax effects of the TCJA. SAB 118, provides a measurement period that should not extend beyond one
year from the TCJA enactment date for companies to complete the accounting under Accounting Standards Codification
(“ASC”) Topic 740, Income Taxes. Our accounting for the various elements of the TCJA is incomplete. However, in
accordance with SAB 118 guidance, we were able to make what we believe to be reasonable estimates of certain effects and
therefore recorded a provisional net tax benefit of approximately $18.9 million related to the reduction of the U.S. federal
corporate income tax rate and the deemed repatriation transition tax. While we were able to make what we believe to be
reasonable estimates of the tax rate reduction and transition tax effects, both items may be affected by other analyses related to
the TCJA as well as actual activities to occur in the remainder of the Company’s measurement period. We are continuing to
gather information and will reflect final effects within the measurement period permitted by SAB 118.
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. Non-allocated operating costs
that support the entire Company and items not indicative of operating trends are excluded from segment operating income.
Our Healthcare Products segment offers infection prevention and procedural solutions for healthcare providers
worldwide, including consumable products, equipment maintenance and installation services, and capital equipment.
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 Services were divested in fiscal 2017.
Our Life Sciences segment offers consumable products, equipment maintenance, specialty services and capital equipment
primarily for pharmaceutical manufacturers.
Our Applied Sterilization Technologies segment offers contract sterilization and laboratory services primarily for medical
device and pharmaceutical Customers.
Certain minor organizational changes were made to better align with our Customers, resulting in several smaller
operations shifting among the segments. The prior period revenues and operating income measures have been recast for
comparability.
31
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 certain non-allocated 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, 2018 to the year ended March 31, 2017:
(dollars in thousands)
Revenues:
Healthcare Products
Healthcare Specialty Services
Life Sciences
Applied Sterilization Technologies
Total revenues
Operating income (loss):
Healthcare Products
Healthcare Specialty Services
Life Sciences
Applied Sterilization Technologies
Corporate
Years ended March 31,
2017
2018
Change
Percent
Change
$
1,276,054
$
1,266,517
$
9,537
0.8 %
469,065
361,590
513,287
539,536
328,866
477,837
$
2,619,996
$
2,612,756
$
221,795
28,910
106,737
173,375
(17,439)
227,707
10,573
97,180
158,379
(17,307)
(70,471)
(13.1)%
32,724
35,450
7,240
10.0 %
7.4 %
0.3 %
(5,912)
(2.6)%
18,337
173.4 %
9,557
14,996
(132)
9.8 %
9.5 %
NM
7.7 %
Total operating income before adjustments
$
513,378
$
476,532
$
36,846
Less: Adjustments
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)
Impact of the U.S. Tax Cuts and Jobs Act (4)
Restructuring charges
—
1,599
67,793
16,211
(593)
14,547
10,264
103
58,356
4,743
66,398
30,082
2,569
86,574
—
215
Total operating income
(1) For more information regarding our goodwill impairment loss see Note 3 to our consolidated financial statements titled, "Goodwill and Intangible Assets".
(2) For more information regarding our recent acquisitions and divestitures see Note 2 to our consolidated financial statements titled, "Business Acquisitions
403,454
227,595
$
$
and Divestitures".
(3) Acquisition and integration related charges include transaction costs and integration expenses associated with acquisitions.
(4) Represents a one-time special employee bonus paid to most U.S. employees and associated professional fees.
Healthcare Products revenues increased 0.8% in the fiscal 2018 year, as compared to fiscal 2017, reflecting growth in
consumable and service revenues of 2.2% and 7.2%, respectively, which were partially offset by a 4.0% decline in capital
equipment revenues. The increase was attributable to organic growth, acquisitions and the positive impact of fluctuations in
currencies, and was partially offset by divestitures. At March 31, 2018, the Healthcare Products segment’s backlog amounted
to $133.0 million, increasing $23.3 million, or 21.3%, compared to the backlog of $109.7 million at March 31, 2017.
32
Healthcare Specialty Services revenues decreased 13.1% in the fiscal 2018 year, as compared to fiscal 2017. The negative
impact of the divestitures was partially offset by organic growth and the positive impact of fluctuations in currencies.
Life Sciences revenues increased 10.0% in the fiscal 2018 year, as compared to fiscal 2017, reflecting growth of 19.6%,
5.2% and 8.6% in capital equipment, consumable and service revenues, respectively. The increase was primarily attributable
to organic growth and the positive impact of fluctuations in currencies. Life Sciences backlog at March 31, 2018 amounted to
$60.8 million, increasing $7.7 million compared to the backlog of $53.2 million at March 31, 2017.
Applied Sterilization Technologies revenues increased 7.4% in the fiscal year 2018, as compared to fiscal 2017. Revenues
in fiscal 2018 were favorably impacted by increased volume from our core medical device Customers and the positive impact
of fluctuations in currencies, which was partially offset by the impact of the divestitures.
The Healthcare Products segment’s operating income decreased $5.9 million to $221.8 million in fiscal year 2018, as
compared to $227.7 million in fiscal year 2017. The segment's operating margin was 17.4% for fiscal year 2018 compared to
18.0% for fiscal year 2017. The decrease in operating income in fiscal 2018 was primarily due to increased spending on
research and development, negative fluctuations in currencies, and higher allocated corporate costs, which more than offset
organic growth.
The Healthcare Specialty Services segment’s operating income increased $18.3 million to $28.9 million for fiscal year
2018 as compared to $10.6 million in fiscal year 2017. The segment’s operating margin was 6.2% for fiscal year 2018
compared to 2.0% for fiscal year 2017. The increase in operating income in fiscal 2018 was primarily due to the divestiture of
the low margin Linen Management Services operations and growth in retained businesses.
The Life Sciences business segment’s operating income increased $9.6 million to $106.7 million for fiscal year 2018 as
compared to $97.2 million in fiscal year 2017. The segment’s operating margin was 29.5% for fiscal year 2018 compared to
29.6% for fiscal year 2017. The increase in operating income in fiscal 2018 was primarily attributable to higher volume which
was partially offset by unfavorable product mix.
The Applied Sterilization Technologies segment’s operating income increased $15.0 million to $173.4 million for fiscal
year 2018 as compared to $158.4 million for fiscal year 2017. The Applied Sterilization Technologies segment's operating
margin was 33.8% for fiscal year 2018 compared to 33.1% for fiscal year 2017. The segment’s operating income increase in
fiscal 2018 over fiscal 2017 was primarily due to increased volume from the segment’s core medical device Customers.
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:
Service revenues
Consumable revenues
Capital equipment revenues
Revenues by geography:
United Kingdom revenues
United States revenues
Other foreign revenues
Years Ended March 31,
2017
2016
Change
Percent
Change
$
2,612,756
$
2,238,764
$
373,992
16.7%
1,414,437
1,109,779
304,658
558,834
639,485
516,044
612,941
42,790
26,544
229,603
1,803,457
579,696
144,577
1,662,050
432,137
85,026
141,407
147,559
27.5%
8.3%
4.3%
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.
33
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. Consumable revenues increased $42.8 million, or 8.3%, 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.
Capital equipment revenues increased by $26.5 million, or 4.3%, during fiscal 2017 as compared to fiscal 2016. This increase
was driven primarily by growth within the Healthcare Products business segment.
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.
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
$
$
574,299
451,333
1,025,632
$
$
511,617
383,864
895,481
$
$
62,682
67,469
130,151
12.3%
17.6%
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%
$
$
34
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
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. Non-allocated operating costs
that support the entire Company and items not indicative of operating trends are excluded from segment operating income.
Our Healthcare Products segment offers infection prevention and procedural solutions for healthcare providers
worldwide, including consumable products, equipment maintenance and installation services, and capital equipment.
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 Services were divested in fiscal 2017.
35
Our Life Sciences segment offers consumable products, equipment maintenance, specialty services and capital equipment
primarily for pharmaceutical manufacturers.
Our Applied Sterilization Technologies segment offers contract sterilization and laboratory services primarily for medical
device and pharmaceutical Customers.
Certain minor organizational changes were made during fiscal 2018 to better align with our Customers, resulting in
several smaller operations shifting among the segments. The prior period revenues and operating income measures have been
recast for comparability.
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 non-allocated 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 revenues
Operating income (loss):
Healthcare Products
Healthcare Specialty Services
Life Sciences
Applied Sterilization Technologies
Corporate
Years ended March 31,
2016
2017
Change
Percent
Change
$
1,266,517
$
1,204,774
$
539,536
328,866
477,837
420,220
297,733
316,037
$
2,612,756
$
2,238,764
$
227,707
10,573
97,180
158,379
(17,307)
181,265
24,299
84,564
99,854
(11,320)
61,743
119,316
31,133
161,800
373,992
46,442
(13,726)
12,616
58,525
(5,987)
97,870
5.1 %
28.4 %
10.5 %
51.2 %
16.7 %
25.6 %
(56.5)%
14.9 %
58.6 %
NM
25.8 %
Total operating income before adjustments
$
476,532
$
378,662
$
Less: Adjustments
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
212,927
227,595
$
$
Intangible Assets".
36
(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.
Healthcare Products revenues increased 5.1% in the fiscal 2017 year as compared to fiscal 2016. This increase reflects
growth in capital equipment, consumable and service revenues of 5.4%, 5.8% and 3.7%, 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 28.4% 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 10.5% in the fiscal 2017 year, as compared to fiscal 2016. The growth reflects increases
of 18.3% and 12.8% 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 2.9%. 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 51.2% 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 $46.4 million to $227.7 million in fiscal year 2017, as
compared to $181.3 million in fiscal year 2016. The segment's operating margin was 18.0% 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 $13.7 million to $10.6 million for fiscal year
2017 as compared to $24.3 million in fiscal year 2016. The segment’s operating margin was 2.0% for fiscal year 2017
compared to 5.8% 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 $12.6 million to $97.2 million for fiscal year 2017 as
compared to $84.6 million in fiscal year 2016. The segment’s operating margin was 29.6% for fiscal year 2017 compared to
28.4% 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 $58.5 million to $158.4 million for fiscal
year 2017 as compared to $99.9 million for fiscal year 2016. The Applied Sterilization Technologies segment's operating
margin was 33.1% for fiscal year 2017 compared to 31.6% 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.
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes significant components of our cash flows for the years ended March 31, 2018, 2017 and
2016:
(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
$
2018
457,632
(203,829)
(356,184)
29.1%
$
Years Ended March 31,
2017
424,086
(104,255)
(267,099)
34.6%
$
2016
254,675
(729,584)
560,289
34.2%
$
294,269
$
256,031
$
129,112
Net Cash Provided By Operating Activities – The net cash provided by our operating activities was $457.6 million for the
year ended March 31, 2018 compared to $424.1 million for the year ended March 31, 2017 and $254.7 million for the year
37
ended March 31, 2016. The following discussion summarizes the significant changes in our operating cash flows for the years
ended March 31, 2018, 2017 and 2016:
• Net cash provided by operating activities increased 7.9% in fiscal 2018 compared to fiscal 2017. The improvement is
primarily due to higher earnings and lower requirements to fund operating assets and liabilities.
• Net cash provided by operating activities increased 66.5% in fiscal 2017 compared to fiscal 2016. The improvement was
primarily due to higher cash earnings and lower acquisition and integration expenses.
Net Cash Used In Investing Activities – The net cash used in our investing activities was $203.8 million for the year
ended March 31, 2018, compared to $104.3 million for the year ended March 31, 2017 and $729.6 million for the year ended
March 31, 2016. The following discussion summarizes the significant changes in our investing cash flows for the years ended
March 31, 2018, 2017 and 2016:
•
•
•
•
Purchases of property, plant, equipment, and intangibles, net – Capital expenditures totaled $165.5 million during fiscal
2018, $172.9 million during fiscal 2017 and $126.4 million during fiscal 2016. 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.
Proceeds from the sale of business – During fiscal 2018 and 2017, we received $8.9 million and $135.7 million,
respectively, for the proceeds from the sale of certain non-core businesses. For more information, refer to our Note 2 to our
consolidated financial statements, titled "Business Acquisitions and Divestitures".
Investments in business, net of cash acquired – During fiscal 2018, 2017 and 2016, we used $46.3 million, $65.6 million
and $604.0 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.
• Other – In connection with the Netherlands Linen Management Services divestiture, we entered into a loan agreement to
provide financing to the buyer for a period of 15 years. During fiscal 2018, we provided $3.1 million under this
agreement. For more information on these acquisitions refer to Note 2 to our consolidated financial statements titled,
"Business Acquisitions and Divestitures".
Net Cash (Used In) Provided By Financing Activities – Net cash used in financing activities was $356.2 million for the
year ended March 31, 2018, compared to net cash used by financing activities of $267.1 million, and net cash provided by
financing activities of $560.3 million for the years ended March 31, 2017 and March 31, 2016, respectively. The following
discussion summarizes the significant changes in our financing cash flows for the years ended March 31, 2018, 2017 and 2016:
•
•
•
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 $95.0 million, €99.0 million, and £75.0
million or a total of approximately $293.7 million. 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 fiscal 2018 and fiscal 2017, we repaid $222.5 million and $172.5 million on
our bank term loan. During fiscal 2016, we repaid $24.0 million of senior notes and $68.6 million of our term loan.
Proceeds under credit facilities, net – At the end of fiscal 2018, $331.2 million of debt was outstanding under our bank
credit facility, compared to $521.6 million and $905.2 million of debt outstanding under this facility at the end of fiscal
2017 and 2016, respectively. We provide additional information about our bank credit facility including the fiscal 2018
refinancing in Note 6 to our consolidated financial statements titled, “Debt”.
• Repurchases of shares – During fiscal 2018, we purchased 656,663 of our ordinary shares in the aggregate amount of $58.5
million, which included $0.3 million of taxes and commissions. We also obtained 127,903 of our ordinary shares in
connection with our stock-based compensation award programs in the amount $7.0 million during fiscal 2018. 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 2016, we obtained 267,696 shares in connection
with our stock-based compensation award programs in the amount of $14.4 million. We provide additional information
about our share repurchases in Note 13 to our consolidated financial statements titled, “Repurchases of Ordinary Shares.”
38
• Deferred financing fees and debt issuance costs - We paid $2.0 million, $1.1 million and $5.2 million in fiscal 2018, 2017
and 2016, 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 2018, we paid cash dividends totaling $102.9 million or $1.21
per outstanding share. 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.
•
Stock option and other equity transactions, net – We generally receive cash for issuing shares upon the exercise of options
under our employee stock option program. During fiscal 2018, fiscal 2017 and fiscal 2016, we received cash proceeds
totaling $11.1 million, $5.0 million, and $11.2 million, respectively, under these programs. During fiscal 2018 we also paid
dividends in the amount of $1.4 million to minority interest shareholders.
• Excess tax benefit from share-based compensation – For the year ended March 31, 2016 our income taxes were reduced by
$6.3 million as a result of deductions allowed for stock options exercised and restricted share vestings.
Cash Flow Measures. Free cash flow was $294.3 million in fiscal 2018 compared to $256.0 million in fiscal 2017. The
increase in cash flow from operations and free cash flow was primarily due to higher earnings and lower requirements to fund
operating assets and liabilities.
Our debt-to-total capital ratio was 29.1% at March 31, 2018 and 34.6% at March 31, 2017.
Cash Requirements. We intend to use our existing cash and cash equivalent balances and cash generated from operations
to fund capital expenditures and meet 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, 2018 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, 2018
Amounts
Outstanding
March 31, 2018
Amounts
Available
Private placement
Credit Agreement (1)
Total Sources of Credit
(1) At March 31, 2018, there was $13.4 million of letters of credit outstanding under the Credit Agreement.
1,000,000
1,988,190
13,406
13,406
988,190
— $
$
$
$
$
$
988,190
331,206
1,319,396
$
$
—
655,388
655,388
Our sources of funding from credit as of March 31, 2018 are summarized below:
• On March 23, 2018, we 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 a bank credit facility
dated March 31, 2015. The Credit Agreement provides up to $1.0 billion of credit, in the form of a revolver facility, which
may be utilized for revolving credit borrowings, swing line borrowings and letters of credit, with sublimits for swing line
borrowings and letters of credit. The revolver facility may be increased in specified circumstances by up to $500.0 million.
The Credit Agreement will mature on March 23, 2023, 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.
Borrowings may be taken in U.S. dollars, euros, and pounds sterling and certain other specified currencies and 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. Borrowings at closing were used to repay outstanding
balances of debt outstanding under the former bank credit facility dated March 31, 2015 that was scheduled to mature on
March 31, 2020 and for other general corporate purposes.
39
Our outstanding Senior Notes at March 31, 2018 were as follows:
(dollars in thousands)
$85,000 Senior notes at 6.33%
$35,000 Senior notes at 6.43%
$91,000 Senior notes at 3.20%
$80,000 Senior notes at 3.35%
$25,000 Senior notes at 3.55%
$125,000 Senior notes at 3.45%
$125,000 Senior notes at 3.55%
$100,000 Senior notes at 3.70%
$50,000 Senior notes at 3.93%
€60,000 Senior notes at 1.86%
$45,000 Senior notes at 4.03%
€20,000 Senior notes at 2.04%
£45,000 Senior notes at 3.04%
€19,000 Senior notes at 2.30%
£30,000 Senior notes at 3.17%
Total Senior Notes
Applicable Note Purchase
Agreement
2008 Private Placement
2008 Private Placement
2012 Private Placement
2012 Private Placement
2012 Private Placement
2015 Private Placement
2015 Private Placement
2015 Private Placement
2017 Private Placement
2017 Private Placement
2017 Private Placement
2017 Private Placement
2017 Private Placement
2017 Private Placement
2017 Private Placement
Maturity Date
August 2018
August 2020
December 2022
December 2024
December 2027
May 2025
May 2027
May 2030
February 2027
February 2027
February 2029
February 2029
February 2029
February 2032
February 2032
U.S. Dollar Value
at March 31, 2018
85,000
$
35,000
91,000
80,000
25,000
125,000
125,000
100,000
50,000
73,912
45,000
24,637
63,141
23,406
42,094
$
988,190
• On February 27, 2017, we issued and sold an aggregate principal amount of $95.0 million, €99.0 million, and £75.0
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. These notes have maturities of between 10 and 15 years from the
issue date. The agreement governing these notes contains leverage and interest coverage covenants.
• 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.
These notes have maturities of 10 to 15 years from the issue date. The agreement governing these notes contains leverage
and interest coverage covenants.
• The agreements governing certain senior notes issued and sold in February 2013, December 2012, and August 2008, were
amended and restated in their entirety on March 31, 2015. All of these notes were issued and sold in private placements to
certain institutional investors in offerings that were exempt from the registration requirements of the Securities Act of
1933. The amended and restated agreements, which have been consolidated into a single agreement for the 2013 and 2012
notes, and a separate single agreement for the 2008 notes, contain leverage and interest coverage covenants.
As of March 31, 2018 a total of $331.2 million was outstanding under the Credit Agreement, based on currency exchange
rates as of March 31, 2018. At March 31, 2018, we had $655.4 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, 2018, there was $13.4 million in letters of credit outstanding under the Credit Agreement.
At March 31, 2018, 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.”
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 2018, our capital expenditures amounted to $165.5
million. We use cash provided by operating activities and our cash and cash equivalent balances to fund capital expenditures.
We expect fiscal 2019 capital expenditures to increase to approximately $190.0 million, reflecting continued facility
expansions, integration of IT systems, new product development and general maintenance for existing facilities.
40
CONTRACTUAL AND COMMERCIAL COMMITMENTS
At March 31, 2018, we had commitments under non-cancelable operating leases totaling $109.2 million.
Our contractual obligations and commercial commitments as of March 31, 2018 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
Payments due by March 31,
2019
2020
2021
2022
2023 and
thereafter
Total
$
85,000
$
— $
35,000
$
— $ 1,199,396
$ 1,319,396
24,116
29,276
19,933
29,617
14,666
30,785
11,051
27,430
39,464
11,363
109,230
128,471
Benefit payments under defined benefit
plans
Trust assets available for benefit payments
under defined benefit plans
Benefit payments under other post-
retirement benefits plans
3,899
3,903
4,143
4,608
32,719
49,272
(3,785)
(3,795)
(4,042)
(4,514)
(32,234)
(48,370)
1,907
1,694
1,548
1,436
6,034
12,619
Total Contractual Obligations
$ 140,413
$
51,352
$
82,100
$
40,011
$ 1,256,742
$ 1,570,618
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,
2019
2020
2021
2022
2023 and
thereafter
Totals
53,219
$
449
$
4,086
$
62
$
1,482
$
59,298
7,694
—
—
60,913
$
449
$
4,086
$
—
62
—
7,694
$
1,482
$
66,992
CRITICAL ACCOUNTING POLICIES, ESTIMATES, AND ASSUMPTIONS
The following subsections describe our most critical accounting policies, estimates, and assumptions. Our accounting
policies are more fully described in Note 1 to our consolidated financial statements titled, “Nature of Operations and Summary
of Significant Accounting Policies.”
Estimates and Assumptions. Our discussion and analysis of financial condition and results of operations is based on our
consolidated financial statements that were prepared in accordance with United States generally accepted accounting principles.
We make certain estimates and assumptions that we believe to be reasonable when preparing these financial statements. These
estimates and assumptions involve judgments with respect to numerous factors that are difficult to predict and are beyond
management’s control. As a result, actual amounts could be materially different from these estimates. We periodically review
these critical accounting policies, estimates, assumptions, and the related disclosures with the Audit Committee of the
Company’s Board of Directors.
41
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 26.0% and 29.0% of total inventories at March 31, 2018 and 2017, respectively. Inventory
costs include material, labor, and overhead. If we had used only the FIFO method of inventory costing, inventories would have
been $17.3 million and $16.7 million higher than those reported at March 31, 2018 and 2017, 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.
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.”
42
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 impairment review for goodwill and other indefinite lived intangible assets for fiscal year 2018,
no indicators of impairment were identified. 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. Prior to its divestiture in fiscal 2017, the
Synergy Health Netherlands linen management unit was 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 $58.4 million 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 shortened
the estimated useful life of the Synergy Health trade name and accelerated the corresponding amortization expense over the
remainder of fiscal 2017, which totaled $14.4 million 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, 2018 and 2017 was $20.9 million and $22.7 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, 2018
projected benefit obligations and the fiscal 2018 net periodic benefit costs is as follows:
Synergy
Health plc
Isotron BV
Synergy
Health
Daniken
AG
Synergy
Health
Radeberg
Synergy
Health
Allershausen
Harwell
Dosimeters
Ltd
U.S. Post-
Retirement
Benefits Plan
Funded
Funded
Funded
Unfunded Unfunded
Funded
Unfunded
2.50%
1.60%
0.95%
1.60%
1.60%
2.55%
3.50%
2.60%
4.97%
1.60%
1.60%
0.65%
1.40%
1.50%
1.50%
2.55%
n/a
n/a
n/a
3.50%
n/a
Funding Status
Assumptions used to determine
March 31, 2018
Benefit obligations:
Discount rate
Assumptions used to determine fiscal
2018
Net periodic benefit costs:
Discount rate
Expected return on plan assets
NA – Not applicable.
We develop our expected long-term rate of return on plan assets assumptions by evaluating input from third-party
professional advisors, taking into consideration the asset allocation of the portfolios, and the long-term asset class return
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 2018 benefit costs by $0.01
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 2018 net periodic benefit costs by less than $0.1 million and would have increased the projected benefit
obligations by approximately $11.3 million at March 31, 2018.
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 7.0% 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, 2018:
(dollars in thousands)
Effect on total service and interest cost components
Effect on postretirement benefit obligation
100 Basis Point
Increase
Decrease
$
$
1
21
(1)
(20)
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 $22.2 million in fiscal 2018, $18.8 million in fiscal 2017 and $16.1 million in
fiscal 2016. 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. 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 (the
“Combination”) with STERIS Corporation and Synergy Health plc (“Synergy”), (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 of Synergy being
difficult, (f) STERIS’s ability to meet expectations regarding the accounting and tax treatment of the Tax Cuts and Jobs Act
(“TCJA”) or the possibility that anticipated benefits resulting from the TCJA will be less than estimated, (g) 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, (h) the potential for increased pressure
on pricing or costs that leads to erosion of profit margins, (i) 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, (j) 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, (k) 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, (l) the possibility of reduced demand, or reductions in the rate of growth in demand, for
STERIS’s products and services, (m) the possibility of delays in receipt of orders, order cancellations, or delays in the
manufacture or shipment of ordered products or in the provisions of services, (n) 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 and other
securities filings, may adversely impact STERIS’s performance, results, prospects or value, (o) the impact on STERIS and its
operations of the “Brexit” or the exit of other member countries from the EU, (p) 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 U.S. Administration or Congress, or of any responses thereto, (q) 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 (r) 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, 2018, we had $988.2 million in fixed rate senior notes outstanding. As of March 31, 2018, we had $331.2
million in outstanding borrowings under our Credit Agreement which 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 30% of our revenues and 40% 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 monetary assets and liabilities denominated in foreign
currencies, including inter-company transactions. We do not use derivative financial instruments for speculative purposes. At
March 31, 2018, we held foreign currency forward contracts to buy 13.0 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, 2018, we held commodity swap contracts to buy 592,460 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
To the Shareholders and the Board of Directors of
STERIS plc
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of STERIS plc and subsidiaries (the Company) as of March
31, 2018 and 2017, 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, 2018, and the related notes and the financial statement
schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion,
the consolidated financial statements present fairly, in all material respects, the financial position of the Company at March
31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended March
31, 2018, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of March 31, 2018, 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 30, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion
on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether
due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1989.
Cleveland, Ohio
May 30, 2018
50
STERIS PLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31,
Current assets:
Assets
2018
2017
Cash and cash equivalents
$
201,534
$
528,066
205,731
54,326
989,657
1,010,524
3,160,764
39,389
282,918
483,451
197,837
53,596
1,017,802
915,908
2,956,190
34,555
$
$
5,200,334
$
4,924,455
135,866
$
379
94,000
168,217
398,462
1,316,001
159,971
108,600
133,479
14,640
78,575
154,889
381,583
1,478,361
171,805
82,673
$
1,983,034
$
2,114,422
15
15
2,048,037
1,146,223
11,685
3,205,960
11,340
3,217,300
$
5,200,334
$
2,085,134
954,155
(240,702)
2,798,602
11,431
2,810,033
4,924,455
Accounts receivable (net of allowances of $12,472 and $10,357, 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;
84,747 and 84,948 ordinary shares issued and outstanding, respectively
Retained earnings
Accumulated other comprehensive income (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:
2018
2017
2016
$
1,220,633
$
1,198,319
$
1,128,985
1,399,363
2,619,996
1,414,437
2,612,756
1,109,779
2,238,764
646,177
879,596
1,525,773
1,094,223
624,020
963,104
1,587,124
1,025,632
617,368
725,915
1,343,283
895,481
Selling, general, and administrative
629,884
680,069
626,710
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
—
60,782
103
690,769
403,454
50,629
(2,157)
48,472
354,982
63,360
291,622
707
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
290,915
$
109,965
$
110,763
3.42
3.39
1.21
$
$
$
1.29
1.28
1.09
$
$
$
1.57
1.56
0.98
$
$
$
$
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
2018
291,622
707
290,915
$
$
$
$
2017
2016
110,631
666
109,965
$
$
111,585
822
110,763
1,792
851
(1,741)
(4,387)
—
254,982
252,387
(7,463)
—
(165,931)
(172,543)
(62,578) $
(3,032)
17,029
(13,746)
(1,490)
109,273
Other comprehensive (loss) income
Unrealized gain (loss) on available for sale securities, (net of taxes of $516,
$402 and $(266), respectively)
Amortization of pension and postretirement benefit plans costs, (net of taxes
of $1,860, $963, and ($700), respectively)
Pension settlement (net of taxes of $0, $0 and $10,563, respectively)
Change in cumulative foreign currency translation adjustment
Total other comprehensive income (loss) attributable to shareholders
Comprehensive (loss) income attributable to shareholders
$
543,302
$
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:
2018
2017
2016
$
291,622
$
110,631
$
111,585
Depreciation, depletion, and amortization
Deferred income taxes
Share-based compensation expense
Pension settlement expense
Pension contributions made in settlement
Loss on the disposal of property, plant, equipment,
and intangibles, net
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
Other
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 deferred or 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
178,332
(24,722)
22,187
—
—
2,582
14,547
—
—
32,229
(37,731)
(5,178)
(1,244)
563
(15,555)
457,632
(165,457)
2,094
8,888
—
(46,271)
(3,083)
(203,829)
—
(222,500)
29,065
(2,029)
(2,064)
(65,485)
(102,929)
—
9,758
—
(356,184)
20,997
(81,384)
282,918
201,534
$
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
$
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, 2015
59,675 $ 264,853
— $
— 10,364 $ (320,343) $ 1,193,791 $
(66,669) $
2,014 $ 1,073,646
Comprehensive income:
Net income
Other comprehensive loss
Repurchases of ordinary
shares
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
—
—
(267)
664
—
—
—
(1,020)
13,624
(20,133)
—
—
—
—
—
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
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
—
—
—
—
(1,455)
(95,433)
416
23,826
67
5,022
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Balance at March 31, 2017
84,948 $ 2,085,134
100 $
Comprehensive income:
Net income
Other comprehensive
income
Repurchases of ordinary
shares
—
—
—
—
(793)
(69,567)
Equity compensation programs
and other
592
32,470
Cash dividends – $1.21 per
ordinary share
Other changes in
noncontrolling interest
—
—
—
—
—
—
—
—
—
—
Balance at March 31, 2018
84,747 $ 2,048,037
100 $
15
—
—
—
—
—
15
—
—
—
—
—
—
—
15
—
—
—
—
—
—
15
—
—
—
—
—
—
—
—
248
(538)
(12,974)
13,667
110,763
—
(375)
—
— (10,074)
319,650
(299,517)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(65,203)
—
—
(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)
— $
— $ 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
—
—
—
—
—
—
—
—
—
—
4,082
—
— (102,929)
290,915
—
707
291,622
—
252,387
—
—
—
252,387
(65,485)
32,470
— (102,929)
—
—
—
—
—
(798)
(798)
— $
— $ 1,146,223 $
11,685 $
11,340 $ 3,217,300
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.
STERIS plc is a leading provider of infection prevention and other procedural products and services. We offer our
Customers a unique mix of innovative 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, on-site and off-site
reprocessing, and capital equipment products, such as sterilizers and surgical tables, and connectivity solutions such as
operating room (“OR”) integration.
We operate and report in 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,
2018
2017
2016
Cash paid during the year for:
Interest
Income taxes
Cash received during the year for income tax refunds
$
$
48,663
85,629
7,747
$
42,797
78,009
2,002
37,165
60,885
1,697
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 selling price, 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 26.0% and 29.0% of total inventories at March 31, 2018 and 2017, respectively.
Inventory costs include material, labor, and overhead. If we had used only the FIFO method of inventory costing, inventories
would have been $17,280 and $16,706 higher than those reported at March 31, 2018 and 2017, 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), 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)
Useful Life
(years)
3-40
2-50
2-20
2-20
20
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 $528
and $1,141 for the years ended March 31, 2018 and 2017, respectively. Total interest expense for the years ended March 31,
2018, 2017, and 2016 was $50,629, $44,520, and $42,708, 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 record 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 market place 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 in nature.
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 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 marked to market, with gains and losses recognized within “Selling, general, and
administrative expenses” or "Cost of revenues" in the accompanying Consolidated Statements of Income.
Warranty. Warranties are provided on the sale of certain of our products and services and an accrual for estimated future
claims is recorded at the time revenue is recognized. We estimate warranty expense based primarily on historical warranty
claim experience.
Shipping and Handling. We record shipping and handling costs in costs of revenues. Shipping and handling costs charged to
Customers are recorded as revenues in the period the product revenues are recognized.
Advertising Expenses. Costs incurred for communicating, advertising and promoting our products are generally expensed
when incurred as a component of Selling, General and Administrative Expense. We incurred $10,886, $12,622, and $10,785 of
advertising costs during the years ended March 31, 2018, 2017, and 2016, 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. Early in 2018, U.S. Congress enacted legislation that extended the
suspension of the excise tax for 2018 and 2019. Therefore, we did not incur Medical Device Excise taxes during fiscal 2018 or
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 2020. We incurred Medical Device Excise taxes of $5,802 during fiscal year 2016, 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:
Date of
Adoption
First
Quarter
Fiscal
2018
Effect on the financial
statements or other
significant matters
The prospective adoption of
this standard did not have a
material impact on our
consolidated financial
statements.
First
Quarter
Fiscal
2018
The prospective adoption of
this standard did not have a
material impact on our
consolidated financial
statements.
Third
Quarter
Fiscal
2018
The prospective adoption of
this standard did not have a
material impact on our
consolidated financial
statements.
Standard
Date of
Issuance
Description
March
2016
Standards that have recently been adopted
ASU 2016-07,
"Investments -
Equity Method
and Joint
Ventures,
Simplifying the
Transition to the
Equity Method of
Accounting"
(Topic 323)
The standard 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.
July
2015
ASU 2015-11,
"Inventory -
Simplifying the
Measurement of
Inventory"
(Topic 330)
January
2017
ASU 2017-04,
"Intangibles -
Goodwill and
Other,
Simplifying the
Test for Goodwill
Impairment"
(Topic 350)
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.
This standard 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.
61
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
March
2016
ASU 2016-09,
"Stock
Compensation:
Improvements to
Employee Share-
Based Payment
Accounting"
(Topic 718)
The standard 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
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.
N/A
As a result of the adoption
of this standard, we
recorded $6.6 million and
$5.1 million of excess tax
benefits associated with
share based compensation in
the Consolidated Statements
of Income for the years
ended March 31, 2018 and
2017, respectively, and have
included the associated cash
flows as cash provided by
operating activities. Prior
periods have not been
restated.
We have completed our
evaluation of our revenue
streams and contracts and
have adopted this standard
on April 1, 2018 using the
modified retrospective
method. We have identified
certain historical revenue
transactions for which the
timing of recognition would
have been different under
this standard. The amount of
the cumulative adjustment
required to defer revenue
based on these transactions
at the end of fiscal 2018
represents less than 0.5% of
fiscal 2018 revenues, which
will reduce retained
earnings as of April 1, 2018.
We are in the process of
finalizing our revenue
accounting policy and
implementing changes to
our business processes,
disclosures and controls.
Additionally, we expect to
provide the required
additional disclosures in
periods subsequent to the
adoption.
62
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
N/A
N/A
N/A
The impact that the standard
will have on our
consolidated financial
statements will depend on
the future variability in the
fair values of our equity
investments. However,
based on current investment
holdings, the impact is not
expected to be material.
We are currently evaluating
the impact that the standard
will have on our
consolidated financial
statements. We are also
evaluating our lease
portfolio, software
packages, process and
policy change requirements.
We anticipate that most of
our operating leases will
result in the recognition of
additional assets and
corresponding liabilities in
our Consolidated Balance
Sheet, however we do not
expect the standard to have
a material impact on our
financial position. The
actual impact will depend
on our lease portfolio at the
time of adoption. More
information regarding our
total operating lease
commitments at March 31,
2018, is disclosed in Note 5,
"Property, Plant and
Equipment".
We are in the process of
evaluating the impact that
the standard will have on
our consolidated financial
statements.
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 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 standard 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.
June
2016
ASU 2016-13,
"Measurement of
Credit Losses on
Financial
Instruments"
The standard requires a financial asset (or group
of financial assets) measured at amortized cost to
be presented at the net amount expected to be
collected. The allowance for credit losses is a
valuation account that is deducted from the
amortized cost basis of the financial asset(s) to
present the net carrying value at the amount
expected to be collected on the financial asset.
Credit losses relating to available-for-sale debt
securities should be recorded through an
allowance for credit losses. The standard is
effective for annual periods 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)
ASU 2016-15,
"Statement of
Cash Flows"
(Topic 230)
August
2016
October
2016
March
2017
May
2017
ASU 2016-16,
"Income Taxes,
Intra-Entity
Transfers of
Assets Other
Than Inventory"
(Topic 740)
ASU 2017-07
"Compensation -
Retirement
Benefits -
Improving the
Presentation of
Net Periodic
Pension and Net
Periodic
Postretirement
Benefit Cost"
(Topic 715)
ASU 2017-09
"Compensation -
Stock
Compensation" (
Topic 718)
This standard 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 standard 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,
2017. Early adoption is permitted.
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. The
standard is effective for annual periods, including
interim periods within those annual periods,
beginning after December 15, 2017. Early
adoption is permitted.
The standard provides guidance about which
changes to the terms or conditions of a share-
based payment award require an entity to apply
modification accounting in Topic 718. This
standard is effective for annual periods, including
interim periods within those annual periods,
beginning after December 15, 2017. Early
adoption is permitted.
N/A
The impact that the standard
will have will depend on the
future occurrence of the
relevant transactions or
conditions addressed by the
standard.
N/A
N/A
We are in the process of
evaluating the impact that
the standard will have on
our consolidated financial
statements. The impact will
depend on the value of
future intra-entity transfers.
The adoption of this
standard is not expected to
have a material impact on
our consolidated financial
statements as it principally
relates to classification of
costs within our
Consolidated Statements of
Income. The components of
our net periodic benefit
costs are disclosed in Note
9, "Benefit Plans".
N/A
The impact will depend on
the future occurrence of the
relevant terms or conditions
addressed by the standard.
64
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
August
2017
ASU 2017-12
"Targeted
Improvements to
Accounting for
Hedging
Activities" (Topic
815)
February
2018
ASU 2018-02
"Income
Statement -
Reporting
Comprehensive
Income" (Topic
220)
The standard provides targeted improvements to
accounting for hedging activities by expanding
an entity’s ability to hedge non-financial and
financial risk components and reduce complexity
in fair value hedges of interest rate risk. The
guidance eliminates the requirement to separately
measure and report hedge ineffectiveness and
generally requires the entire change in the fair
value of a hedging instrument to be presented in
the same income statement line as the hedged
item. The guidance also eases certain
documentation and assessment requirements and
modifies the accounting for components
excluded from the assessment of hedge
effectiveness. The standard is effective for fiscal
years, and interim periods within those years,
beginning after December 15, 2018. Early
adoption is permitted in any interim period after
issuance of the standard. The standard should be
applied using a modified retrospective approach
for cash flow and net investment hedge
relationships that exist on the date of adoption,
and prospectively for presentation and disclosure
requirements.
The standard allows a reclassification from
accumulated other comprehensive income to
retained earnings for stranded tax effects
resulting from the Tax Cuts and Jobs Act and
requires certain disclosures about stranded tax
effects. The underlying guidance requiring that
the effect of a change in tax laws or rates be in
included in income form continuing operations is
not affected. This standard is effective for fiscal
years beginning after December 15, 2018 and
interim periods within those years. Early
adoption is permitted.
N/A
We do not expect this
standard to have a material
impact on our consolidated
financial statements.
N/A
We are in the process of
evaluating the impact that
the standard will have on
our consolidated financial
statements.
2. BUSINESS ACQUISITIONS AND DIVESTITURES
Fiscal 2018 Acquisitions
We completed six minor purchases that continued to expand our product and service offerings in the Healthcare Products,
Healthcare Specialty Services and Applied Sterilization Technologies segments. The aggregate purchase price associated with
these transactions was approximately $52.9 million, net of cash acquired and including potential contingent consideration of
$5.4 million. The purchase price for the acquisitions was financed with both cash on hand and with credit facility borrowings.
Purchase price allocations will be finalized within a measurement period not to exceed one year from the applicable closing.
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
65
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
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 are 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 are 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 lowest 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 $63.8 million before tax were incurred
during fiscal year 2016 related to the Combination and are reported in Selling, general and administrative expense.
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 $20.0 million, of which approximately $17.0 million was recorded within Selling, general and administrative
expense and approximately $3.0 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 $170.0 million.
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 $254.9 million and $3.7
million, respectively.
The following unaudited pro forma information gives effect to our acquisition of Synergy as if the acquisition had occurred
at the beginning of fiscal 2016 and Synergy had been included in our consolidated results of operations for fiscal year ended
March 31, 2016.
Amounts are unaudited
Net revenues
Net income from continuing operations
Fiscal Year Ending
March 31, 2016
$
2,619,056
188,269
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. 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 prior to 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 $176.5 million 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 $46.2 million, which
included a working capital adjustment, deferred consideration of $5.9 million and contingent consideration of $0.8 million. 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 $41.1 million, including potential contingent consideration of $1.8 million.
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 2018, 2017 and 2016 acquisitions.
Fiscal Year
2018
Fiscal Year 2017
Fiscal Year 2016
(dollars in thousands)
All
Acquisitions (1) Medisafe
Compass
Phoenix
Surgical
and Endo-
Tek
Synergy Health
plc
Gepco
Black
Diamond
Other
Acquisitions
Cash
$
235
$
3,751
$
— $
769
$
53,057
$
1,108
$
— $
Accounts receivable
Inventory
Property, plant and equipment
Other assets
Intangible assets
Goodwill
Total Assets
1,464
2,289
3,420
126
3,634
2,454
639
—
15,318
17,151
35,766
19,599
629
659
13
31
5,992
8,987
1,123
950
1,092
46
7,824
5,938
58,618
47,228
16,311
17,742
Current liabilities
(2,833)
(5,562)
(309)
(1,373)
Long-term indebtedness
—
—
Non-current liabilities
(2,622)
(3,398)
—
—
Total Liabilities
(5,455)
(8,960)
(309)
—
(1,263)
(2,636)
103,093
30,074
496,555
19,175
504,196
1,685,524
2,891,674
(107,932)
(321,082)
(159,112)
(588,126)
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
(1,473)
(4,525)
(1,277)
—
—
(1,473)
—
(1,548)
(6,073)
—
(49)
(1,326)
Net Assets
(1) Purchase price allocation is still preliminary as of March 31, 2018, as valuations have not been finalized.
2,303,548
$ 38,268
16,002
15,106
53,163
$
$
$
$
$
176,474
$
46,155
$
41,079
Acquisition related transaction and integration costs totaled $16.2 million, $30.1 million, and $82.9 million for the fiscal
years ended March 31, 2018, 2017, and 2016, respectively. These costs are included in Selling, general, and administrative
expenses in the Consolidated Statements of Income.
67
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
Divestitures
Synergy Health Healthcare Consumable Solutions
On November 20, 2017, we sold our Synergy Health Healthcare Consumable Solutions ("HCS") business to Vernacare.
Annual revenues for the HCS business were approximately $40.0 million and were included in the Healthcare Products
segment. We recorded proceeds of $8.2 million, net of cash divested, and subject to a working capital adjustment. We also
recognized a pre-tax loss on the sale, subject to final working capital adjustments, of $13.5 million in Selling, general, and
administrative expense in the Consolidated Statement of Income.
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 $43.0 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. Outstanding borrowings under the
agreement totaled $3.1 million at March 31, 2018.
U.S. Linen Management Services
On November 3, 2016, we sold our Synergy Health U.S. Linen Management Services business to SRI Healthcare LLC.
Annual revenues for U.S. 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 $15.0 million and were included in the Applied Sterilization Technologies segment.
We recorded proceeds of $26.3 million, net of cash divested, and recognized a pre-tax gain on the sale of $18.7 million in
Selling, general, and administrative expense in the Consolidated Statements of Income.
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 $50.0
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 $36.2 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 $50.0 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
$66.4 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)
3. GOODWILL AND INTANGIBLE ASSETS
Changes to the carrying amount of goodwill for the years ended March 31, 2018, 2017 and 2016 were as follows:
Healthcare
Products
Segment
Healthcare
Specialty
Services
Segment
Life Sciences
Segment
Applied
Sterilization
Technologies
Segment
Synergy
Combination
Total
Balance at March 31, 2016
363,770
154,272
147,334
83,035
1,408,192
2,156,603
Goodwill acquired or
allocated
Synergy allocation
Divestitures
Impairment
Foreign currency translation
adjustments
Balance at March 31, 2017
Goodwill acquired or
allocated
Reassignment
Foreign currency translation
adjustments
Balance at March 31, 2018
$
$
19,618
—
—
—
21,781
376,807
(85,806)
(58,356)
—
—
—
—
—
1,308,717
—
—
—
(1,411,781)
—
—
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
16,418
—
3,501
(1,855)
—
—
15,847
1,855
—
—
35,766
—
10,491
404,674
$
10,500
388,025
$
2,302
148,816
143,422
$ 1,492,269
$
—
166,715
— $ 2,433,784
The fiscal 2018 goodwill increase was due to our recent business acquisitions, which are discussed in Note 2, titled
"Business Acquisitions" and the impact of foreign currency. The fiscal 2018 reassignment between the Healthcare Specialty
Services and the Applied Sterilization Technologies segments resulted from certain minor organizational changes that were
made to better align with our Customers.
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.
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
was 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.
As a result of our annual impairment review for goodwill for fiscal year 2018 and fiscal year 2016, no indicators of
impairment were identified.
Our fiscal 2018, 2017, and 2016 acquisitions are described in Note 2 to our consolidated financial statements titled,
"Business Acquisitions and Divestitures".
69
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
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
2018
2017
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
$
663,532
$
150,358
$
597,386
$
4,738
226,318
83,509
54,800
10
3,790
107,598
36,864
7,307
10
4,722
211,812
80,223
54,800
10
96,648
3,629
86,665
32,547
4,567
10
$ 1,032,907
$
305,927
$
948,953
$
224,066
Certain trademarks and tradenames obtained as a result of business combinations are indefinite-lived assets. We evaluate
our indefinite-lived intangible assets annually during the third quarter, or when evidence of potential impairment exists. No
impairment was taken for the fiscal years 2018, 2017 or 2016. The approximate carrying value of these assets at March 31,
2018 and March 31, 2017 was $35,266 and $34,970, respectively. Total amortization expense for finite-lived intangible assets
was $70,195, $68,607, and $49,782 for the years ended March 31, 2018, 2017, and 2016, 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
$
68,447
$
67,390
$
66,742
$
63,832
$
59,061
2019
2020
2021
2022
2022
The estimated annual amortization expense presented in the preceding table has been calculated based upon March 31,
2018 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 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.
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
2018
2017
$
$
83,741
34,904
124,005
(17,280)
(19,639)
205,731
$
$
65,300
26,538
140,559
(16,706)
(17,854)
197,837
70
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
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
Information systems
Radioisotope
Construction in progress (1)
Total property, plant, and equipment
Less: accumulated depreciation and depletion
Property, plant, and equipment, net
2018
55,417
449,316
575,607
145,726
476,578
87,745
1,790,389
(779,865)
1,010,524
$
$
2017
46,848
393,692
508,247
119,920
436,787
77,421
1,582,915
(667,007)
915,908
$
$
(1) Land is not depreciated. Construction in progress is not depreciated until placed in service.
Depreciation and depletion expense were $108,137, $119,536 and $93,958, for the years ended March 31, 2018, 2017, and
2016, respectively.
Rental expense for operating leases was $30,474, $32,740, and $23,238 for the years ended March 31, 2018, 2017, and
2016, respectively. Operating leases primarily 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, 2018 were as
follows:
2019
2020
2021
2022
2023 and thereafter
Total minimum lease payments
$
Operating
Leases
24,116
19,933
14,666
11,051
39,464
$
109,230
In the preceding table, the future minimum annual rentals payable under noncancelable leases denominated in foreign
currencies have been calculated using March 31, 2018 foreign currency exchange rates.
Asset Retirement Obligations
We provide contract sterilization services including Gamma irradiation which utilizes cobalt-60 in the form of cobalt pencils.
We have incurred asset retirement obligations (ARO) associated with the 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.
71
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
The following table summarizes the activity in the liability for asset retirement obligations.
Balance at March 31, 2017
Liabilities incurred during the period
Liabilities settled during the period
Accretion expense
Foreign currency movement
Balance at March 31, 2018
6. DEBT
Asset
Retirement
Obligations
$
$
9,953
89
(352)
1,198
751
11,639
Indebtedness as of March 31, 2018 and 2017 was as follows:
Credit Agreement and Swing Line Facility
Private Placement
Deferred financing fees
Total long term debt
2018
2017
$
$
331,206
$
521,604
988,190
(3,395)
1,316,001
$
960,684
(3,927)
1,478,361
On March 23, 2018, we 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 a bank credit facility dated
March 31, 2015. The Credit Agreement provides up to $1,000,000 of credit, in the form of a revolver facility, which may be
utilized for revolving credit borrowings, swing line borrowings and letters of credit, with sublimits for swing line borrowings
and letters of credit. The revolver facility may be increased in specified circumstances by up to $500,000. The Credit
Agreement will mature on March 23, 2023, 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. Borrowings may be taken in
U.S. dollars, euros, and pounds sterling and certain other specified currencies and 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. Borrowings at closing were used to repay outstanding balances of debt outstanding under the former bank
credit facility dated March 31, 2015 that was scheduled to mature on March 31, 2020 and for other general corporate purposes.
As of March 31, 2018 a total of $331,206 of Credit Agreement and Swing Line Facility borrowings were outstanding
under the Credit Agreement, based on currency exchange rates as of March 31, 2018.
72
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
Our outstanding Senior Notes at March 31, 2018 were as follows:
Applicable Note Purchase
Agreement
Maturity Date
$85,000 Senior notes at 6.33%
2008 Private Placement
August 2018
$35,000 Senior notes at 6.43%
2008 Private Placement
August 2020
$91,000 Senior notes at 3.20%
2012 Private Placement
December 2022
$80,000 Senior notes at 3.35%
2012 Private Placement
December 2024
$25,000 Senior notes at 3.55%
2012 Private Placement
December 2027
$125,000 Senior notes at 3.45% 2015 Private Placement
$125,000 Senior notes at 3.55% 2015 Private Placement
$100,000 Senior notes at 3.70% 2015 Private Placement
May 2025
May 2027
May 2030
$50,000 Senior notes at 3.93%
2017 Private Placement
February 2027
€60,000 Senior notes at 1.86%
2017 Private Placement
February 2027
$45,000 Senior notes at 4.03%
2017 Private Placement
February 2029
€20,000 Senior notes at 2.04%
2017 Private Placement
February 2029
£45,000 Senior notes at 3.04%
2017 Private Placement
February 2029
€19,000 Senior notes at 2.30%
2017 Private Placement
February 2032
£30,000 Senior notes at 3.17%
Total Senior Notes
2017 Private Placement
February 2032
U.S. Dollar Value
at March 31, 2018
85,000
$
35,000
91,000
80,000
25,000
125,000
125,000
100,000
50,000
73,912
45,000
24,637
63,141
23,406
42,094
U.S. Dollar Value
at March 31, 2017
$
85,000
35,000
91,000
80,000
25,000
125,000
125,000
100,000
50,000
64,414
45,000
21,472
56,040
20,398
37,360
$
988,190
$
960,684
On February 27, 2017, we issued and sold an aggregate principal amount of $95,000, €99,000, and £75,000, 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. These notes have maturities of between 10 and 15 years from the issue date. The agreement
governing these notes contains leverage and interest coverage covenants.
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. These notes have
maturities of 10 to 15 years from the issue date. The agreement governing these notes contains leverage and interest coverage
covenants.
The agreements governing certain senior notes issued and sold in February 2013, December 2012, and August 2008, were
amended and restated in their entirety on March 31, 2015. All of these notes were issued and sold in private placements to
certain institutional investors in offerings that were exempt from the registration requirements of the Securities Act of 1933.
The amended and restated agreements, which have been consolidated into a single agreement for the 2013 and 2012 notes, and
a separate single agreement for the 2008 notes, contain leverage and interest coverage covenants.
At March 31, 2018, 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:
2019
2020
2021
2022
2023 and thereafter
Total
73
$
85,000
—
35,000
—
1,199,396
$
1,319,396
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
Asset retirement obligation-current portion
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
2018
2017
$
30,270
$
$
$
$
$
11,011
31,716
17,168
1,906
1,929
94,000
74,698
7,349
16,121
6,872
1,798
61,379
168,217
15,008
12,194
29,407
3,221
18,922
9,841
20,007
$
$
$
$
$
108,600
$
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
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts
and Jobs Act (the “TCJA”). The SEC staff issued Staff Accounting Bulletin No.118 (“SAB 118”), which provides guidance on
accounting for the tax effects of the TCJA. SAB 118, provides a measurement period that should not extend beyond one year
from the TCJA enactment date for companies to complete the accounting under Accounting Standards Codification (“ASC”)
Topic 740, Income Taxes. Our accounting for the various elements of the TCJA is incomplete. However, in accordance with
SAB 118 guidance, we were able to make what we believe to be reasonable estimates of certain effects and therefore, have
recorded a provisional net tax benefit of approximately $18,913 related to the reduction of the U.S. federal corporate income
tax rates effect on our deferred tax balances and partially offset by the deemed repatriation transition tax for fiscal year 2018.
The Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse
in the future, which is generally 21.0%. Additionally, given the significant changes included in the TCJA, the Company re-
evaluated the realizability of certain deferred tax assets, including foreign tax credits and interest deferral, and determined that
valuation allowances needed to be adjusted. The Company is still analyzing certain aspects of the TCJA, including
interpretations by state and local tax authorities, and additional Treasury guidance that may be issued which could potentially
affect the measurement of these balances or give rise to new deferred tax amounts. The Company recorded a provisional
$36,422 tax benefit for the remeasurement of deferred tax balances and related valuation allowances.
74
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
TCJA includes a one-time transition tax based on post-1986 unremitted earnings and profits ("E&P") of non-U.S.
subsidiaries owned directly or indirectly by U.S. subsidiaries of the Company which have been previously deferred from U.S.
income taxes. The amount of the transition tax also depends on the amount of E&P held in cash or other specified assets. The
Company recorded a provisional tax expense of $17,509 for the transition tax. This amount may change when Treasury issues
additional guidance and the Company finalizes the calculation of E&P, including the amounts held in cash or other specified
assets, and finalizes the calculation of available foreign tax credits.
Income from continuing operations before income taxes was as follows:
Years Ended March 31,
United States operations
United Kingdom operations
Other locations operations
2018
2017
2016
$
$
203,872
$
3,253
147,857
$
189,429
(36,420)
31,637
354,982
$
184,646
$
105,758
(20,553)
86,679
171,884
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 locations
Deferred:
United States federal
United States state and local
United Kingdom
Other locations
2018
2017
2016
$
47,728
$
43,900
$
7,727
6,671
22,667
84,793
(15,728)
2,656
(2,968)
(5,393)
(21,433)
63,360
8,171
362
21,094
73,527
10,293
2,131
(2,292)
(9,644)
488
$
74,015
$
41,653
7,943
2,194
13,924
65,714
1,427
299
(6,973)
(168)
(5,415)
60,299
Total Provision for Income Taxes
$
The total provision for income taxes can be reconciled to the tax computed at the United Kingdom federal statutory tax rate
for 2018 and 2017 and the United States federal statutory tax rate for 2016 as follows:
Years Ended March 31,
National statutory tax rate
Increase in accruals for uncertain tax positions
U.S. state and local taxes, net of federal income tax benefit
Increase in valuation allowances
U.S. research and development credit
U.S. 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
Tax rate changes on deferred tax assets and liabilities
U.S. transition tax on foreign earnings
Acquisitions and divestitures
Goodwill impairment on divestitures
Capitalized acquisition costs
All other, net
Total Provision for Income Taxes
2018
2017
2016
19.0 %
0.1 %
2.3 %
0.1 %
(0.5)%
(0.2)%
— %
4.1 %
— %
(0.8)%
(1.8)%
(10.3)%
4.9 %
0.5 %
— %
— %
0.4 %
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 %
17.8 %
40.1 %
35.0 %
0.2 %
3.3 %
1.0 %
— %
(0.6)%
(8.5)%
— %
3.4 %
(2.5)%
— %
— %
— %
— %
— %
5.3 %
(1.5)%
35.1 %
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, including currency translation
Unrecognized Tax Benefits Balance at March 31
2018
2017
1,884
$
356
—
260
2,500
$
3,527
510
(1,502)
(651)
1,884
$
$
We recognized interest and penalties related to uncertain tax positions in the provision for income taxes. As of March 31,
2018, and 2017 we had $295 and $184 accrued for interest and penalties, respectively. The increase during fiscal 2018 is
primarily associated with the addition of current year uncertain tax positions. If all unrecognized tax benefits were recognized,
the net impact on the provision for income tax expense would be $2,795. It is reasonably possible that during the next 12
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
2015 and, with limited exceptions, we are no longer subject to United States state and local, or non-United States, income tax
examinations by tax authorities for years before fiscal 2011. We remain subject to tax authority audits in various jurisdictions
wherever we do business. We do not expect the results of these examinations to have a material adverse effect on our
consolidated financial statements.
We estimate that the tax benefit from our Costa Rican Tax Holiday is $945 (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, 2018 and 2017 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)
2018
2017
$
3,505
$
12,334
26,217
5,795
3,417
4,632
1,426
5,247
1,668
64,241
13,596
50,645
61,171
140,398
2,774
204,343
(153,698) $
$
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)
At March 31, 2018, we had U.S. federal operating loss carryforwards of $34,866, which remain subject to a 20 year
carryforward period. Additionally, we had non-U.S. operating loss carry forwards of $51,309. 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 2019 and 2027. In addition, we have recorded tax benefits of $3,863 related to state operating loss
carryforwards. If unused, these state operating loss carryforwards will expire between fiscal years 2019 and 2038. At March 31,
2018, we had $129 of tax credit carryforwards. These credit carryforwards can be used through fiscal 2027.
We review the need for a valuation allowance against our deferred tax assets. A valuation allowance of $13,596 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 2018 by $2,770.
Other than the provisional tax expense recorded for the one-time transition tax on unremitted earnings of non-US
subsidiaries, no additional provision has been made for income taxes on undistributed earnings of foreign subsidiaries as the
amounts continue to be indefinitely reinvested. The Company is still evaluating whether to change its indefinite reinvestment
assertion in light of U.S. Tax Reform and considers this conclusion to be incomplete. If the Company subsequently changes its
assertion, it will account for the change in the quarter of fiscal year 2019 when the analysis is complete. The amount of
undistributed earnings of subsidiaries was approximately $1,100,000 at March 31, 2018. 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. The Synergy Health plc Retirement Benefit Scheme is a defined benefit
(final salary) funded pension 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. The Synergy Radeberg and Synergy
Allershausen Schemes are unfunded defined pension schemes and are closed to new entrants. The Synergy Daniken Scheme is
a defined benefit funded pension scheme.
As a result of our fiscal 2018 acquisition of Harwell Dosimeters Ltd, we now participate in the Harwell Dosimeters Ltd
Retirement Benefits Scheme which 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, 2018 and 2017,
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
Obligation assumed in business acquisition
Service cost
Interest cost
Actuarial loss (gain)
Benefits and expenses
Employee contributions
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 business acquisition
Actual return on plan assets
Employer contributions
Employee contributions
Benefits and expenses paid
Impact of foreign currency exchange rate changes
Fair Value of Plan Assets at End of Year
Funded Status of the Plans
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
2018
2017
2018
2017
$ 128,897
$ 128,942
$
16,008
$
18,380
3,843
2,402
3,262
—
1,650
3,434
(697)
16,633
—
—
519
(501)
—
—
554
(531)
(6,075)
(7,190)
(1,926)
(2,395)
765
629
16,451
(15,201)
—
—
—
—
148,848
128,897
14,100
16,008
101,663
104,353
4,462
1,052
5,150
765
—
11,910
4,838
629
—
—
—
1,926
—
—
—
—
2,395
—
(6,078)
(7,190)
(1,926)
(2,395)
12,427
(12,877)
119,441
101,663
—
—
—
—
$ (29,407) $ (27,234) $ (14,100) $ (16,008)
Other Defined Benefit
Pension Plans
Other Post-Retirement
Benefits Plan
2018
2017
2018
2017
$
— $
— $
(1,906) $
(2,187)
(29,407)
(27,234)
(12,194)
(13,821)
$ (29,407) $ (27,234) $ (14,100) $ (16,008)
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, 2018, was approximately $23,568 and $13,825, respectively. During fiscal 2019, we
will amortize the following pre-tax amounts from accumulated other comprehensive income:
Actuarial loss
Prior Service Cost
Defined
Benefit
Pension
Plans
Other Post-
Retirement
Benefits
Plan
$
507
$
648
—
(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, 2018 and 2017:
Aggregate fair value of plan assets
Aggregate accumulated benefit obligations
Aggregate projected benefit obligations
Other Defined Benefit
Pension Plans
2018
2017
$ 119,441
$ 101,663
148,848
148,848
128,897
128,897
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:
Other Defined Benefit Pension
Plans
Other Post-Retirement Benefits
Plan
AMSCO Plan
2018
2017
2016
2018
2017
2016
2018
2017
2016
$
2,402
$
1,650
$
961
$
— $
— $
— $ — $ — $
Service cost
Interest cost
Expected return on plan assets
Prior service cost recognition
Net amortization and deferral
Curtailments/settlements
Net periodic benefit cost
$
Recognized in other
comprehensive loss (income)
before tax:
—
126
—
955
3,262
(4,835)
3,434
1,659
(2,853)
(1,324)
519
—
554
—
593
—
—
—
—
(142)
(3,263)
(3,263)
(3,263)
—
(326)
648
—
739
—
828
—
27
560
—
— (1,008)
—
—
—
602
— 26,470
—
—
—
—
—
$
2,231
$
828
$ (2,096) $ (1,970) $ (1,842) $ — $ — $ 26,651
Net loss (gain) occurring during
year
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)
$
(697)
$ (7,553) $ (3,733) $
501
$
531
$
673
$ — $ — $
—
(126)
—
—
—
—
3,263
3,263
3,263
(648)
(739)
(721)
(823)
(7,553)
(3,733)
3,116
3,055
3,215
—
—
—
—
—
—
—
—
(602)
(602)
$
132
$ (5,322) $ (2,905) $
1,020
$
1,085
$
1,373
$ — $ — $ 26,049
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
Harwell Dosimeters Ltd Retirement Benefits Scheme
Other post-retirement plan
2018
2017
2.50%
1.60%
0.95%
1.60%
1.60%
2.55%
3.50%
2.60%
1.60%
0.65%
1.50%
1.50%
n/a
3.50%
The following table presents significant assumptions used to determine the net periodic benefit costs for the years ended
March 31:
Discount Rate:
Defined benefit pension plans
Synergy Health plc Retirement Benefits Scheme
Isotron BV Pension Plan
Synergy Health Daniken AG
Synergy Health Radeberg
Synergy Health Allershausen
Harwell Dosimeters Ltd Retirement Benefits Scheme
Other post-retirement plan
Expected Return on Plan Assets:
Synergy Health plc Retirement Benefits Scheme
Isotron BV Pension Plan
Synergy Health Daniken AG
2018
2017
2016
2.60%
1.60%
0.65%
1.50%
1.50%
2.55%
3.50%
4.97%
1.60%
1.40%
3.50%
1.60%
0.65%
1.50%
1.50%
n/a
3.50%
4.87%
1.60%
1.40%
3.20%
2.10%
0.40%
1.60%
1.60%
n/a
3.25%
5.19%
2.10%
1.40%
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
2018
2017
2016
7.0%
7.0%
4.5%
7.0%
7.0%
4.5%
7.0%
7.0%
4.5%
82
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 on our other post-retirement benefit obligation at March 31, 2018:
Effect on total service and interest cost components
Effect on other post-retirement benefit obligation
One-Percentage Point
Increase
Decrease
$
$
1
21
(1)
(20)
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, 2018,
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, 2018 and 2017 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, 2018
Quoted
Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Other
Unobservable
Inputs
(Level 3)
Total
67
—
—
$
— $
15,228
—
—
—
5,484
$
67
$
15,228
5,484
74,081
24,581
$
119,441
$
67
$
15,228
$
5,484
83
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
(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
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 2018
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
Gains (losses) related to assets still held at year-end
Additions from business acquisition
Transfers out of Level 3
Foreign currency
Balance at March 31, 2018
Insurance
contracts
4,192
116
(208)
(141)
3,959
(43)
2,231
(852)
189
5,484
$
$
$
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. We expect to make contributions of approximately $5,630, during fiscal
year 2019.
Based upon the actuarial assumptions utilized to develop our benefit obligations at March 31, 2018, the following benefit
payments are expected to be made to plan participants:
2019
2020
2021
2022
2023
2024-2029
Other Defined
Benefit Pension
Plans
Other Post-
Retirement
Benefits Plan
$
3,899
$
3,903
4,143
4,608
5,611
27,108
1,907
1,694
1,548
1,436
1,293
4,741
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 $383 and $326, during fiscal
2018 and fiscal 2017, 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 U.S. employees, a 401(k)
defined contribution plan for eligible Puerto Rico employees and similar savings plans for certain employees in Canada, United
Kingdom, Ireland, and Finland. We provide a match on a specified portion of an employee’s contribution. The U.S. 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 the U.S. plan assets was $655,031 at March 31, 2018. At March 31, 2018, the U.S. plan held
645,854 STERIS ordinary shares with a fair value of $60,297. We paid dividends of $781, $734, and $669 to the plan and
participants on STERIS shares held by the plan for the years ended March 31, 2018, 2017, and 2016, respectively. We
contributed approximately $24,037, $22,676, and $21,897, to the defined contribution plans for the years ended March 31,
2018, 2017, and 2016, 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 $1,583 and $1,604 at March 31, 2018 and March 31, 2017, 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, 2018 and 2017, our commercial commitments totaled $66,992 and $57,709, 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 of the March 31,
2018 and 2017 totals relate to letters of credit required as security under our self-insured risk retention policies.
As of March 31, 2018, we had minimum purchase commitments with suppliers for raw material purchases totaling
$126,758. As of March 31, 2018, we also had commitments of $1,713 for long term construction contracts.
11. BUSINESS SEGMENT INFORMATION
We operate and report in four reportable business segments: Healthcare Products, Healthcare Specialty Services, Life
Sciences, and Applied Sterilization Technologies. Corporate is presented separately and contains the 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 consumable products, equipment maintenance and installation services, and capital equipment.
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 Services were divested in fiscal 2017.
Our Life Sciences segment offers consumable products, equipment maintenance and specialty services for pharmaceutical
manufacturers and research facilities, and capital equipment.
Our Applied Sterilization Technologies segment offers contract sterilization and laboratory services for medical device and
pharmaceutical Customers and others.
Certain minor organizational changes were made to better align with our Customers, resulting in several smaller operations
shifting among the segments. The prior period measures have been recast for comparability. For the year ended March 31,
2018, revenues from a single Customer did not represent ten percent or more of any reportable segment’s revenues.
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 includes certain non-allocated 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.
Years Ended March 31,
Revenues:
Healthcare Products
Healthcare Specialty Services
Life Sciences
Applied Sterilization Technologies
Total revenues
Operating income (loss):
Healthcare Products
Healthcare Specialty Services
Life Sciences
Applied Sterilization Technologies
Total reportable segments
Corporate
Total operating income before adjustments
Less: Adjustments
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)
Impact of the U.S. Tax Cuts and Jobs Act (5)
Restructuring charges
2018
2017
2016
$
1,276,054
$
1,266,517
$
1,203,884
469,065
361,590
513,287
539,536
328,866
477,837
421,110
297,733
316,037
$
2,619,996
$
2,612,756
$
2,238,764
221,795
28,910
106,737
173,375
530,817
(17,439)
513,378
$
$
—
1,599
67,793
16,211
(593)
14,547
—
10,264
103
227,707
10,573
97,180
158,379
493,839
(17,307)
476,532
58,356
4,743
66,398
30,082
2,569
86,574
—
—
215
181,009
24,555
84,564
99,854
389,982
(11,320)
378,662
—
9,907
47,704
82,891
(736)
—
26,470
—
(501)
212,927
$
$
Total operating income
403,454
(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.
(5) Represents a one-time special employee bonus paid to most U.S. employees and associated professional fees.
$
$
227,595
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.
87
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
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 assets
Years Ended March 31,
Capital Expenditures:
Healthcare Products and Life Sciences
Healthcare Specialty Services
Applied Sterilization Technologies
Total Capital Expenditures
Depreciation, Depletion, and Amortization:
Healthcare Products and Life Sciences
Healthcare Specialty Services
Applied Sterilization Technologies
Total Depreciation, Depletion, and Amortization
2018
2017
$
$
$
$
$
$
1,621,156
813,909
2,765,269
5,200,334
2017
39,253
42,408
91,240
172,901
46,709
56,860
84,573
188,142
$
$
$
$
$
$
1,576,923
809,596
2,537,936
4,924,455
2016
34,581
31,308
60,518
126,407
49,142
36,114
58,484
143,740
2018
52,767
16,497
96,193
165,457
52,025
29,269
97,038
178,332
$
$
$
$
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 locations
Total Revenues
March 31,
Property, Plant, and Equipment, Net
United Kingdom
United States
Other locations
Property, Plant, and Equipment, Net
12. SHARES AND PREFERRED SHARES
Common and Ordinary Shares
2018
2017
2016
$
$
207,514
1,836,414
576,068
2,619,996
$
$
$
$
229,603
1,803,457
579,696
2,612,756
2018
97,586
530,591
382,347
1,010,524
$
$
$
$
144,577
1,662,050
432,137
2,238,764
2017
76,695
499,760
339,453
915,908
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
88
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
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
2018
2017
2016
85,028
685
85,713
85,473
621
86,094
70,698
486
71,184
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 ordinary share options (shares in thousands)
2018
2017
2016
393
576
263
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.
89
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
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 repurchased 664,963 of our ordinary shares during fiscal 2018 for the aggregate
amount of $59,234. We repurchased 1,286,183 of our ordinary shares during fiscal 2017 for the aggregate amount of $90,475.
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 year 2016 under the prior
stock repurchase authorization.
We obtained 127,903 of our shares during fiscal 2018 in the aggregate amount of $7,014 in connection with stock based
compensation award programs. We obtained 168,906 of our shares during fiscal 2017 in the aggregate amount of $7,034 in
connection with these programs. We obtained 267,696 of our shares during fiscal 2016 in the aggregate amount of $14,369 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, 2018,
4,985,756 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 2018, fiscal 2017 and fiscal
2016:
Risk-free interest rate
Expected life of options
Expected dividend yield of stock
Expected volatility of stock
Fiscal 2018
Fiscal 2017
Fiscal 2016
2.01%
5.7 years
1.58%
22.08%
1.29%
1.51%
5.7 years
5.7 years
1.54%
22.92%
1.40%
25.06%
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 2.25%, 1.85% and
1.55% was applied in fiscal 2018, 2017 and 2016, 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, 2017
Granted
Exercised
Forfeited
Outstanding at March 31, 2018
Exercisable at March 31, 2018
Number of
Options
1,945,274
429,360
(329,733)
(23,239)
2,021,662
1,139,722
$
$
$
Weighted
Average
Exercise
Price
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
50.28
77.75
34.01
68.29
58.56
48.81
6.6 years
5.3 years
$
$
70,350
50,772
We estimate that 867,996 of the non-vested stock options outstanding at March 31, 2018 will ultimately vest.
The aggregate intrinsic value in the table above represents the total pre-tax difference between the $93.36 closing price of
our ordinary shares on March 29, 2018 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, 2018, 2017 and 2016 was $16,096,
$6,454 and $13,000, respectively. Net cash proceeds from the exercise of stock options were $11,093, $4,955 and $11,240 for
the years ended March 31, 2018, 2017 and 2016, respectively. The tax benefit from stock option exercises was $6,581, $5,058
and $6,281 for the years ended March 31, 2018, 2017 and 2016, respectively.
The weighted average grant date fair value of stock option grants was $15.51, $13.42 and $14.66 for the years ended
March 31, 2018, 2017 and 2016, 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, 2018, 2017 and 2016 was $1,437, $1,622, $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, 2017
Granted
Vested
Forfeited
Non-vested at March 31, 2018
Number of
Restricted
Shares
Number of
Restricted Share
Units
Weighted-Average
Grant Date
Fair Value
780,526
251,300
(231,107)
(37,518)
763,201
34,013
23,259
(21,181)
(660)
35,431
$
$
60.87
78.60
54.41
68.57
68.65
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 2018 was $13,727.
As of March 31, 2018, there was a total of $36,514 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 2.14 years.
91
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
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
2018
2017
2016
$
$
6,861
$
5,909
$
12,305
(12,294)
11,823
(10,871)
6,872
$
6,861
$
5,579
11,194
(10,864)
5,909
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 $35,204, $34,264
and $33,416 as of March 31, 2018, 2017 and 2016, 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, 2018, we held foreign currency forward contracts to buy 13.0 million
Canadian dollars. At March 31, 2018, we held commodity swap contracts to buy 592.5 thousand pounds of nickel.
Balance Sheet Location
Prepaid & Other
Accrued expenses and other
Asset Derivatives
Liability Derivatives
Fair Value at
March 31, 2018
Fair Value at
March 31, 2017
Fair Value at
March 31, 2018
Fair Value at
March 31, 2017
$
$
187
$
— $
$
160
— $
— $
— $
—
35
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,
2018
(1,357) $
373
$
2017
(1,886) $
$
376
2016
(683)
(461)
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 $57,161 at March 31,
2018. 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, 2018 and
March 31, 2017:
Fair Value Measurements
Carrying Value
Quoted Prices
in Active Markets
for Identical Assets
Level 1
Significant Other
Observable Inputs
Level 2
Significant
Unobservable
Inputs
Level 3
2018
2017
2018
2017
2018
2017
2018
2017
$
201,534 $
282,918
$ 201,534 $ 282,918
$
— $
— $
— $
187
160
—
—
16,382
12,552
16,382
12,552
$
— $
35
$
— $
— $
1,694
1,677
1,694
1,677
187
—
— $
—
160
—
35
—
— 1,305,181
1,496,966
—
—
$
— $
—
—
1,316,001
1,478,361
8,068
4,451
—
—
—
—
—
8,068
4,451
—
—
—
—
—
—
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.
(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, 2018 are summarized
as follows:
Balance at March 31, 2016
Additions
Payments
Foreign currency translation adjustments
Balance at March 31, 2017
Additions
Payments
Reductions
Foreign currency translation adjustments
Balance at March 31, 2018
Contingent
Consideration
$
$
$
5,886
3,592
(5,416)
389
4,451
5,774
(1,735)
(593)
171
8,068
Additions and payments of contingent consideration obligations during fiscal year 2018 were primarily related to our fiscal
year 2018 and 2017 acquisitions. Additions and payments for contingent consideration obligations during fiscal year 2017 were
primarily related to Black Diamond Video, Inc. and Sercon. Refer to Note 2, Business Acquisitions and Divestitures for more
information.
Information regarding our investments is as follows:
At March 31,
Available-for-sale
securities:
Marketable equity
securities and
other(1)
Mutual funds
Cost
2018
2017
Unrealized Gains (1)
2017
2018
Investments
Unrealized Losses (1)
2017
2018
Fair Value
2018
2017
$
11,037
$
11,037
$
3,762
$
1,000
1,091
583
— $
496
— $
—
(72) $
—
14,799
$
10,965
1,583
1,587
Total available-for-
12,128
sale securities
(1) Amounts reported include the impact of foreign currency movements relative to the U.S. dollar.
12,037
4,345
496
$
$
$
$
$
— $
(72) $
16,382
$
12,552
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
2018
16,457 $
(6,742)
1,970
11,685 $
$
$
2017
(238,525) $
2016
(72,594)
(2,355)
178
(240,702) $
5,108
(673)
(68,159)
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, 2018 and March 31, 2017 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)
2018
2017
2018
2017
2018
2017
2018
2017
Beginning Balance
$
178
$
(673) $
(2,355) $
5,108
$ (238,525) $ (72,594) $ (240,702) $ (68,159)
Other Comprehensive Income
(Loss) before reclassifications
Amounts reclassified from
Accumulated Other
Comprehensive Income (Loss)
Net current-period Other
Comprehensive Income (Loss)
1,703
745
(2,291)
(5,491)
254,982
(165,931)
254,394
(170,677)
89
1,792
106
851
(2,096)
(1,972)
—
—
(2,007)
(1,866)
(4,387)
(7,463)
254,982
(165,931)
252,387
(172,543)
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) $ 11,685
(2,355) $
(6,742) $
16,457
1,970
178
$ (240,702)
$
$
$
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.
96
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
20. QUARTERLY RESULTS (UNAUDITED)
Quarters Ended
Fiscal 2018
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 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
March 31,
December 31,
September 30,
June 30,
$ 351,010
364,963
715,973
$ 309,461
352,439
661,900
$ 286,557
347,602
634,159
$ 273,605
334,359
607,964
187,710
235,510
423,220
292,753
40.9%
(53)
73,598
0.87
0.86
162,611
220,701
383,312
278,588
42.1%
78
94,781
1.12
1.11
$
$
$
$
$
$
$
$
$
152,611
214,787
367,398
266,761
42.1%
27
64,459
0.76
0.75
143,245
208,598
351,843
256,121
42.1%
51
58,077
0.68
0.68
$
$
$
$ 332,093
349,096
681,189
$ 302,260
344,514
646,774
$ 292,216
354,199
646,415
$ 271,750
366,628
638,378
173,333
227,731
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
$
$
$
97
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
Description
(in thousands)
Year ended March 31, 2018
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, 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:
Balance at
Beginning
of Period
Charges
to Costs
and
Expenses
Charges
to Other
Accounts
Deductions
Balance at
End of
Period
$
10,357
$
17,854
2,183
2,446 (2)
$
1,925 (3)
(661) (3)
$
(1,993) (4)
—
$
12,472
19,639
16,366
3,535
209 (3)
(6,514)
13,596
$
22,718
$
5,713
$
(2,563)
$
(4,919)
$
20,949
$
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)
$
$
$
11 (3)
(682) (3)
(214) (3)
$ (2,087) (4)
$
10,357
—
(3,869)
17,854
16,366
768
$
(3,272)
$
22,718
(100) (3)
(36) (3)
$
(1,492) (4)
—
$
11,185
18,707
14,380
2,151
4,439 (3)
(4,535)
16,435
Casualty loss reserves
Accrued SYSTEM 1 Rebate
Program and class action settlement
$
18,078
$
4,141
$
1,187
$
(3,184)
$
20,222
16
—
—
(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, 2018, 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, 2018 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 2018. Total assets of the acquired businesses (inclusive
of acquired intangible assets and goodwill) represented approximately 1.2 percent of our total assets as of March 31, 2018 and
approximately 0.2 percent of our total revenues for the year ended March 31, 2018. Based on this evaluation under this
framework, management concluded that the internal control over financial reporting was effective as of March 31, 2018.
The independent registered public accounting firm that audited the financial statements has issued an attestation report on
internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
STERIS plc
Opinion on Internal Control over Financial Reporting
We have audited STERIS plc and subsidiaries’ internal control over financial reporting as of March 31, 2018, 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). In our opinion, STERIS plc and subsidiaries (the Company) maintained, in
all material respects, effective internal control over financial reporting as of March 31, 2018, based on the COSO criteria.
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, 2018, which are included in the fiscal 2018 consolidated
financial statements of the Company and constituted approximately 1.2% of total assets as of March 31, 2018 and
approximately 0.2% of total revenues for the year then ended. Our audit of internal control over financial reporting of the
Company also did not include an evaluation of the internal control over financial reporting of entities that were acquired during
the year ended March 31, 2018.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of March 31, 2018 and 2017, 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, 2018, and the related notes and the financial statement schedule listed in the Index at Item 15(a) and our report dated May
30, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s 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 the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
99
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
/s/ Ernst & Young LLP
Cleveland, Ohio
May 30, 2018
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 2018 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, 2018.
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a)
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)
2,021,662
—
2,021,662
$58.56
—
$58.56
4,985,756
—
4,985,756
Plan Category
Equity compensation plans
approved by security holders
Equity compensation plans
not approved by security
holders
Total
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.
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, 2018 and 2017.
Consolidated Statements of Income – Years ended March 31, 2018, 2017, and 2016.
Consolidated Statements of Comprehensive Income –Years ended March 31, 2018, 2017, and 2016.
Consolidated Statements of Cash Flows – Years ended March 31, 2018, 2017, and 2016.
Consolidated Statements of Shareholders’ Equity – Years ended March 31, 2018, 2017, and 2016.
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
10.3
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 10.3 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).*
102
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
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 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).*
10.16
STERIS plc Form of Nonqualified Stock Option Agreement for Employees*
10.17
10.18
10.19
10.20
10.21
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).*
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
10.1 to STERIS plc Form 8-K filed June 1, 2017 (Commission File No. 1-37614), and
incorporated herein by reference).*
Description of STERIS plc Non-Employee Director Compensation Program (filed as Exhibit
10.6 to STERIS plc Form 10-Q for the fiscal quarter ended September 30, 2017 (Commission
File No. 1-37614), and incorporated herein by reference)*
103
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
10.37
10.38
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).*
STERIS plc Management Incentive Compensation Plan (As Amended and Restated Effective
April 1, 2018) (filed as Exhibit 10.2 to STERIS plc Form 8-K filed March 26, 2018
(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).*
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 10.6 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).
104
10.39
10.40
10.41
10.42
10.43
10.44
10.45
10.46
10.47
10.48
10.49
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 23, 2018, by and among STERIS Corporation and STERIS
plc, as borrowers, various U.S. and U.K. subsidiaries of STERIS plc, as guarantors, various
financial institutions, as lenders and JPMorgan Chase Bank, N.A., as Administrative Agent (filed
as Exhibit 10.1 to STERIS plc Form 8-K filed March 26, 2018 (Commission File No. 1-37614),
and incorporated herein by reference). (filed as Exhibit 10.1 to STERIS plc Form 8-K filed
March __, 2018 (Commission File No. 1-137614), 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).
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).
Guaranty Supplement dated August 8, 2017 by Synergy Health AST, LLC, Synergy Health US
Holdings, Inc., and Synergy Health North America, Inc. 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 10.2 to STERIS plc Form 10-
Q for the fiscal quarter ending September 30, 2017 (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).
105
10.50
10.51
10.52
10.53
10.54
10.55
10.56
10.57
10.58
10.59
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).
Guaranty Supplement dated August 8, 2017 by Synergy Health AST, LLC, Synergy Health US
Holdings, Inc., and Synergy Health North America, Inc. 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 10.3 to STERIS plc Form 10-
Q for the fiscal quarter ending September 30, 2017 (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).
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).
Guaranty Supplement dated August 8, 2017 by Synergy Health AST, LLC, Synergy Health US
Holdings, Inc., and Synergy Health North America, Inc. of STERIS Corporation May 15, 2015
Note Purchase Agreement and of the Notes issued pursuant thereto (filed as Exhibit 10.4 to
STERIS plc Form 10-Q for the fiscal quarter ending September 30, 2017 (Commission File No.
1-37614), and incorporated herein by reference).
10.60
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).
106
10.61
10.62
10.63
10.64
10.65
10.66
21.1
23.1
24.1
24.2
31.1
31.2
32.1
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).
Guaranty Supplement dated August 8, 2017 by Synergy Health AST, LLC, Synergy Health US
Holdings, Inc. and Synergy Health North America, Inc., of Affiliate Guaranty dated as January
23, 2017 of STERIS plc January 23, 2017 Note Purchase Agreement, and of the Notes issued
pursuant thereto (filed as Exhibit 10.5 to STERIS plc Form 10-Q for the fiscal quarter ending
September 30, 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
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.
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.
107
ITEM 16. FORM 10-K SUMMARY
None.
108
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 30, 2018
STERIS plc
(Registrant)
By:
/S/ KAREN L. BURTON
Karen L. Burton
Vice President, 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 30, 2018
Walter M Rosebrough, Jr.
/S/ MICHAEL J. TOKICH
Michael J. Tokich
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
May 30, 2018
/S/ KAREN L. BURTON
Vice President, Controller and Chief Accounting Officer
May 30, 2018
Karen L. Burton
*
John P. Wareham
*
Richard C. Breeden
*
Cynthia L. Feldmann
*
David B. Lewis
*
Jacqueline B. Kosecoff
*
Sir Duncan K. Nichol
*
Nirav R. Shah
*
Mohsen M. Sohi
*
Richard M. Steeves
*
Loyal W. Wilson
*
Michael B. Wood
Chairman and Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
May 30, 2018
May 30, 2018
May 30, 2018
May 30, 2018
May 30, 2018
May 30, 2018
May 30, 2018
May 30, 2018
May 30, 2018
May 30, 2018
May 30, 2018
*
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 30, 2018
By:
/S/ J. ADAM ZANGERLE
J. Adam Zangerle,
Attorney-in-Fact for Directors
109
SUBSIDIARIES OF STERIS PLC
STERIS plc has no parent company. As of March 31, 2018, 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.
Dover UK I Limited
Dover UK II Limited
Dover UK III Limited
Eschmann Holdings Limited
Eschmann Holdings Pte Limited
Gammaster Sweden AB
Genii, Inc.
Harwell Dosimeters Limited
Hausted, Inc.
Herotron E-Beam Service GmbH
HSTD LLC
HTD Holding Corp.
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 Optics Limited
ReNOVA Surgical Limited
SATYAtek S.A.
Sercon Indústria E Comércio De Aparelhos Médicos E Hospitalares Ltda.
Shiloh Limited
Shiloh Properties Limited
Solar New US Holding Co, LLC
Solar New US Parent Co, LLC
Solar US Acquisition Co, LLC
STE UK HoldCo Limited
STE UK Sub HoldCo Limited
Sterile Supplies Limited
England & Wales
Pennsylvania
Egypt
Malaysia
California
England & Wales
Ohio
England & Wales
England & Wales
England & Wales
England & Wales
Singapore
Sweden
Minnesota
England & Wales
Delaware
Germany
Delaware
Delaware
Delaware
Delaware
England & Wales
Florida
England & Wales
England & Wales
Delaware
England & Wales
England & Wales
England & Wales
Switzerland
Brazil
England & Wales
England & Wales
Delaware
Delaware
Delaware
England & Wales
England & Wales
England & Wales
SterilTek Holdings, Inc.
SterilTek, Inc.
STERIS AB
STERIS Applied Sterilization Technologies ULC
STERIS Asia Pacific, Inc.
STERIS AST CZ s.r.o.
STERIS AST d.o.o.
STERIS AST SK s.r.o.
STERIS Barrier Products Solutions, Inc.
STERIS Brazil Holdings, LLC
STERIS (BVI) I Limited
STERIS Canada ULC
STERIS Canada Sales ULC
STERIS CH Limited
STERIS China Holdings Limited
STERIS Corporation
STERIS Corporation de Costa Rica, S.A.
STERIS Deutschland GmbH
STERIS Dover Limited
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 IMS Limited
STERIS Ireland Limited
STERIS Inc.
STERIS (India) Private Limited
STERIS Instrument Management Services, Inc.
STERIS Irish FinCo Unlimited Company
STERIS Irish FinCo II Unlimited Company
STERIS Isomedix Puerto Rico, LLC.
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
Delaware
Nevada
Sweden
Canada
Delaware
Czech Republic
Slovenia
Slovakia
Pennsylvania
Delaware
British Virgin Islands
Canada
Canada
England & Wales
Hong Kong
Ohio
Costa Rica
Germany
England & Wales
Russia
Delaware
Luxembourg
Luxembourg
Switzerland
Netherlands
Spain
Canada
England & Wales
Ireland
Delaware
India
Delaware
Republic of Ireland
Republic of Ireland
Puerto Rico
Japan
Minnesota
Delaware
Luxembourg
Luxembourg
Republic of Mauritius
Mexico
Belgium
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
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 Health Allershausen GmbH
Synergy Health Amsterdam B.V.
Synergy Health AST, LLC
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 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 Outsourcing Solutions, Inc.
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 Sterilisation KL (M) Sdn Bhd
Mexico
Delaware
Italy
France
Malaysia
China
Singapore
England & Wales
Italy
England & Wales
Hong Kong
China
Delaware
Germany
The Netherlands
Delaware
Costa Rica
Switzerland
The Netherlands
France
The Netherlands
England & Wales
England & Wales
Republic of Ireland
England & Wales
The Netherlands
France
The Netherlands
Delaware
Florida
Germany
England & Wales
China
China
England & Wales
Thailand
New York
England & Wales
Delaware
England & Wales
The Netherlands
Republic of Ireland
Malaysia
Synergy Sterilisation Kulim (M) Sdn Bhd
Synergy Sterilisation (M) Sdn Bhd
Synergy Sterilisation Rawang (M) Sdn Bhd
Synergy Sterilisation South Africa (Proprietary) Limited
United States Endoscopy Group, Inc.
Vernon and Co. Limited
Vernon Carus (Malta) Limited
Vernon-Carus Limited
Malaysia
Malaysia
Malaysia
South Africa
Ohio
England & Wales
Malta
England & 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 2018 a “significant subsidiary” within the meaning of Rule 1-02(w) of Regulation
S-X have been excluded.
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
(1)
(2)
(3)
Registration Statement (Form S-8, No. 333-207721) of Steris plc and subsidiaries pertaining to the STERIS plc 2006
Long-Term Equity Incentive Plan, Assumed as Amended and Restated,
Registration Statement (Form S-8, No. 333-207722) of Steris plc and subsidiaries pertaining to the STERIS
Corporation 401(k) Plan,
Registration Statement (Form S-8, No. 333-214491) of Steris plc and subsidiaries pertaining to the STERIS plc 2006
Long-Term Equity Incentive Plan;
of our reports dated May 30, 2018, with respect to the consolidated financial statements and schedule of STERIS plc and
subsidiaries (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, 2018.
/s/ Ernst & Young LLP
Cleveland, Ohio
May 30, 2018
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, 2018, 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 4h
day of May, 2018.
/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/ WALTER M ROSEBROUGH, JR
Walter M Rosebrough, Jr.
/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/ MICHAEL J. TOKICH
Michael J. Tokich
President and Chief Executive Officer
(Principal Executive Officer), Director
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ KAREN L. BURTON
Karen L. Burton
Vice President, Controller and Chief Accounting
Officer
(Principal Accounting Officer)
STERIS PLC
POWER OF ATTORNEY
FORM 10-K
Exhibit 24.2
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, 2018, 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 7th day of
May, 2018.
Richard C. Breeden, Director
Cynthia L. Feldmann, Director
Jacqueline B. Kosecoff, Director
David B. Lewis, Director
Sir Duncan K. Nichol, Director
/s/ Nirav R. Shah
Nirav R. Shah, Director
Dr. Mohsen M. Sohi, Director
Dr. Richard M. Steeves, Director
John P. Wareham, Chairman of the Board
Loyal W. Wilson, Director
Dr. Michael B. Wood, Director
Walter M Rosebrough, Jr.
President and Chief Executive Officer
(Principal Executive Officer), Director
Michael J. Tokich
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
Karen L. Burton
Vice President, Controller and
Chief Accounting Officer
(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 30, 2018
/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 30, 2018
/S/ MICHAEL J. TOKICH
Michael J. Tokich
Senior Vice President and Chief Financial Officer
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, 2018, 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.
Name:
Title:
Name:
Title:
/S/ WALTER M ROSEBROUGH, JR.
Walter M Rosebrough, Jr.
President and Chief Executive Officer
/S/ MICHAEL J. TOKICH
Michael J. Tokich
Senior Vice President and Chief Financial Officer
Dated: May 30, 2018
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
2018
2017
2018
2017
2018
GAAP
Growth
2018
Organic
Growth
2018
Constant
Currency
Organic
Growth
2018
Segment revenues:
Healthcare Products
$ 1,276,054
$ 1,266,517
$
7,432
$
(27,999) $
4,199
0.8 %
2.4%
Healthcare Specialty
Services
Life Sciences
Applied Sterilization
Technologies
469,065
361,590
539,536
328,866
513,287
477,837
—
—
—
(109,921)
—
(5,091)
2,367
3,586
9,925
Total
$ 2,619,996
$ 2,612,756
$
7,432
$
(143,011) $
20,077
(13.1)%
10.0 %
7.4 %
0.3 %
9.2%
10.0%
8.6%
5.8%
2.1%
8.6%
8.9%
6.5%
5.0%
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 currency
exchange rates and acquisitions and divestitures that affect the comparability and trends in revenue are removed. The impact of changes in
currency exchange rates is calculated by translating current year results at prior year average currency exchange rates.
Twelve months ended March 31, (unaudited)
Gross Profit
Income from
Operations
Net Income attributable
to shareholders
Diluted EPS
2018
2017
2018
2017
2018
2017
2018
2017
$ 1,094,223 $ 1,025,632
$
403,454 $
227,595
$
290,915 $
109,965
$
3.39 $
1.28
2,619
6,580
1,599
4,743
207
33
67,793
66,398
4,201
1,589
16,211
30,082
—
—
—
—
5,542
—
—
—
—
—
(593)
14,547
—
103
2,569
86,574
58,356
215
10,264
—
(13,597)
78,309
213,498
0.76
$ 1,106,792 $ 1,033,834
$
513,378 $
476,532
$
355,627 $
323,463
$
4.15 $
2.48
3.76
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
Goodwill impairment loss
Restructuring charges
Impact of the U.S. Tax Cuts and Jobs
Act*
Net impact of adjustments after tax**
Net EPS impact
Adjusted
*Represents the re-measurement of U.S. deferred tax balances and the related taxation of unremitted earnings of non-U.S. subsidiaries along with a one-time
special employee bonus paid to most U.S. employees and associated professional fees.
** 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,
2018
2017
(Unaudited)
Unaudited)
$
$
457,632 $
(165,457)
2,094
294,269 $
424,086
(172,901)
4,846
256,031
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, 2013 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© 2018 Standard and Poor's, Inc. Used with permission. All rights reserved.
Copyright© 2018 Dow Jones, Inc. Used with permission. All rights reserved.
STERIS plc
S&P 500 Index
Dow Jones US Medical Supplies Index
3/13
100.00
100.00
100.00
3/14
116.89
121.86
107.25
3/15
174.67
137.37
131.07
3/16
179.22
139.82
140.16
3/17
177.98
163.83
153.60
3/18
242.60
186.75
167.78
Corporate Information
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. Kosecoff1,4
Managing Partner,
Moriah Partners, LLC
David B. Lewis2,4
Of Counsel and Former Chairman,
Lewis & Munday
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, Sterilization
and Disinfection
Dr. Adrian Coward
Senior Vice President,
Healthcare Specialty Services
Michiel de Zwaan
Vice President and Chief
Human Resources Officer
Gulam A. Khan
Senior Vice President,
Procedural Solutions
Sir Duncan Nichol1,4
Former Chairman of Synergy Health plc
Chairman, Countess of Chester NHS Trust, UK
Sudhir K. Pahwa
Senior Vice President,
Infection Prevention Technologies
Walter M Rosebrough, Jr.
President and Chief Executive Officer
Renato G. Tamaro
Vice President and Corporate Treasurer
Michael J. Tokich
Senior Vice President
and Chief Financial Officer
J. Adam Zangerle
Vice President, General Counsel
and Secretary
REGISTERED OFFICE
STERIS plc
Rutherford House
Stephensons Way
Chaddesden, Derby, England
DE21 6LY
Walter M Rosebrough, Jr.3
President and Chief Executive Officer,
STERIS plc
Dr. Nirav R. Shah
Senior Scholar, Clinical Excellence
Research Center, Stanford University
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
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, 2018. 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
Senior 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 2018 annual meeting will be
held on Tuesday, July 31, 2018.
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.
FISCAL
2018
ANNUAL REPORT
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Document #ANNRPT18.2018-05, Rev. A
©2018 STERIS plc.
All rights reserved. Printed in USA.
STERIS plc
Rutherford House
Stephensons Way
Chaddesden, Derby, England
DE21 6LY
www.steris.com