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116023s2_STE 03.31.19 10-K _sw
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, 2019
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 001-38848
STERIS plc
(Exact name of registrant as specified in its charter)
Ireland
(State or other jurisdiction of
incorporation or organization)
98-1455064
(IRS Employer Identification No.)
70 Sir John Rogerson's Quay, Dublin 2, Ireland
D02 R296
(Zip Code)
353 1 232 2000
(Registrant’s telephone number
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class
Ordinary Shares, $0.001 par value
Trading symbol(s)
STE
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 every Interactive Data File required to be submitted 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 such files). Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth 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, 2018, the aggregate market value of shares held by non-affiliates of STERIS plc, a public limited company organized
under the laws of England and Wales (the predecessor issuer pursuant to Rule 12g-3(a) under the Securities Exchange Act of 1934), based
upon the closing sale price of its shares on September 30, 2018, was approximately $9,552.1 million.
The number of Ordinary Shares outstanding as of May 24, 2019: 84,541,998
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2019 Annual Meeting – Part III
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STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
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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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116023s2_STE 03.31.19 10-K _sw
PART I
Throughout this Annual Report, references to STERIS plc, "STERIS," "us," or "our," mean STERIS Ireland and its
subsidiaries for periods from and after the Redomiciliation and STERIS UK and its subsidiaries for periods prior to the
Redomiciliation (as such terms are hereinafter defined), unless otherwise noted. References in this Annual Report to a
particular "year," "fiscal," "fiscal year," or "year-end" mean our fiscal year, which ends on March 31. For example, fiscal year
2019 ended on March 31, 2019.
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 including 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 instrument reprocessing.
On March 28, 2019, STERIS plc, a public limited company organized under the laws of England and Wales (“STERIS
UK”), completed a redomiciliation from the United Kingdom to Ireland (the “Redomiciliation”). The Redomiciliation was
achieved through the insertion of a new Irish public limited holding company (“STERIS Ireland”) on top of STERIS UK
pursuant to a court-approved scheme of arrangement under English law (the “Scheme”). Following the Scheme effectiveness,
STERIS UK was re-registered as a private limited company with the name STERIS Limited, and STERIS Emerald IE Limited,
a company established in Ireland and a wholly-owned direct subsidiary of STERIS Ireland, was interposed as the direct parent
company of STERIS UK.
STERIS plc's registered office is located in Dublin, Ireland. 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. We disclose a measure of segment income that is consistent with the way
management operates and views the business. The accounting policies for reportable segments are the same as those for the
consolidated Company. In fiscal 2019, we ceased the allocation of certain corporate costs to our segments to align with internal
management measures. The prior period operating income measures have been recast for comparability.
The bulk of our revenues are derived from healthcare provider, pharmaceutical and medical device Customers. 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 are 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 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 2019, 2018, and 2017 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.
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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. We offer various preventive maintenance programs and repair services to support the
effective operation of capital equipment over its lifetime.
Customer Concentration. Our Healthcare Products segment sells consumables, services and capital equipment, to Customers
in many countries throughout the world. For the year ended March 31, 2019, 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, Fortive, Stryker and Skytron.
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
instrument 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 many
countries throughout the world. For the year ended March 31, 2019, 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 BBraun, Berendsen plc, CleanLease (Clean Lease Fortex), Karl Storz, Mobile,
Northfield, Olympus, Owens & Minor, Pentax, Rentex Awé and Rentex Floren and Sterilog Limited.
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
many countries throughout the world. For the year ended March 31, 2019, 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.
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116023s2_STE 03.31.19 10-K _sw
APPLIED STERILIZATION TECHNOLOGIES SEGMENT
Description of Business. Our Applied Sterilization Technologies ("AST") segment provides contract sterilization services
through a network of over 50 contract sterilization and laboratory facilities worldwide. 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 a wide range of sterilization modalities as well as 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, 2019, 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 2020. 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. In addition, we have developed a plan to expand our irradiation
processing capacity with accelerator-based technologies, which may reduce the potential supply risk.
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, 2019, we held approximately 400 United States patents and approximately 1,500 in other jurisdictions and
had approximately 135 United States patent applications and 375 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, 2019, we had a total of approximately 1,550
trademark registrations worldwide.
Quality Assurance. We manufacture, assemble, and package products in several countries. Each of our production facilities
are dedicated to particular processes and products. Our success depends upon Customer confidence in the quality of our
production process and the integrity of the data that supports our product safety and effectiveness. We have implemented
quality assurance procedures to support the quality and integrity of scientific information and production processes.
Government Regulation. Our business is subject to various degrees of governmental regulation in the countries in which we
operate. In the United States, the United States Food and Drug Administration (“FDA”), the United States Environmental
Protection Agency (“EPA”), the United States Nuclear Regulatory Commission (“NRC”), and other governmental authorities
regulate the development, manufacture, sale, and distribution of our products and services. Our international operations also are
subject to a significant amount of government regulation, including country-specific rules and regulations and U.S. regulations
applicable to our international operations. Government regulations include detailed inspection of, and controls over, research
and development, clinical investigations, product approvals and manufacturing, marketing and promotion, sampling,
distribution, record-keeping, storage, and disposal practices.
Compliance with applicable regulations is a significant expense for us. Past, current or future regulations, their
interpretation, or their application could have a material adverse impact on our operations. Also, additional governmental
regulation may be passed that could prevent, delay, revoke, or result in the rejection of regulatory clearance of our products. We
cannot predict the effect on our operations resulting from current or future governmental regulation or the interpretation or
application of these regulations.
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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 Ireland, the 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.”
Employees. As of March 31, 2019, we had approximately 12,000 employees throughout the world including certain locations
subject to collective bargaining agreements and works council representation. 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.
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Backlog. We define backlog as the amount of unfilled capital equipment purchase orders at a point in time. At March 31, 2019,
we had a backlog of $215.2 million. Of this amount, $154.5 million and $60.7 million related to our Healthcare Products and
Life Sciences segments, respectively. At March 31, 2018, we had backlog orders of $193.9 million. Of this amount, $133.0
million and $60.8 million related to our Healthcare Products and Life Sciences segments, respectively. A significant portion of
the backlog orders at March 31, 2019 is expected to ship in fiscal 2020.
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 accessing the SEC’s website at http://www.sec.gov. 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 and Organization
Development Committee, the Nominating and Governance Committee, and the Compliance Committee of the Company’s
Board of Directors.
Executive Officers of the Registrant. The following table presents certain information regarding our executive officers at
March 31, 2019. 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
Cary L. Majors
Walter M Rosebrough, Jr.
Renato G. Tamaro
Michael J. Tokich
J. Adam Zangerle
Age Position
63
Senior Vice President and Chief Compliance Officer
51
46
49
47
52
44
65
50
50
52
Vice President, Controller and Chief Accounting Officer
Senior Vice President and Chief Operating Officer
Senior Vice President, Healthcare Specialty Services
Vice President and Chief Human Resources Officer
Senior Vice President, Procedural Solutions
Vice President, North America Commercial Operations
President and Chief Executive Officer
Vice President and Corporate Treasurer
Senior Vice President and Chief Financial Officer
Senior Vice President, General Counsel, and Secretary
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The following discussion provides a summary of each executive officer's recent business experience through March 31,
2019:
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 and Chief Operating Officer. He assumed this role in August 2018.
From February 2018 to August 2018 he served as Senior Vice President, Sterilization and Disinfection. 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
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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.
Cary L. Majors serves as Vice President, North American Commercial Operations. He assumed this role in April 2014.
From June 2012 through April 2014 he served as Vice President, Sales & Marketing Strategy.
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 Senior Vice President, General Counsel, and Secretary. He assumed this role in July 2018.
From July 2013 to July 2018 he served as Vice President, General Counsel, and Secretary. From May 2007 to July 2013 he
served as Associate General Counsel and Group General Counsel, Healthcare.
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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”, for the U.K. and/or
regional or global economies, 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.
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Risk or uncertainty
Discussion
Economic conditions and
financial market access
Changes in economic climate may
adversely affect us.
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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.
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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 in the U.S., private
insurance plans, and managed care programs. Reimbursement systems vary significantly
by country. 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.
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Risk or uncertainty
Product and service 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.
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Our products are subject to recalls
and restrictions, even after
receiving United States or foreign
regulatory clearance or approval.
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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.
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We may be adversely affected by
product liability claims or other
legal actions or regulatory or
compliance matters.
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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.
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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.
Guidance continues 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. 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 plc 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 organization in Ireland or limiting our
ability as an Irish 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 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.
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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.
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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 organized under the laws of Ireland and are a tax resident in Ireland for
Irish 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 company generally is
considered to be a tax resident in the jurisdiction of its organization. Because we are
organized under the laws of Ireland, 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. organized
entity may 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 our ordinary shares
would be subject to U.S. withholding tax on the gross amount of any dividends we paid
to such shareholders. For Irish tax purposes, we are expected, regardless of any
application of Section 7874, to be treated as an Ireland 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 Ireland 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.
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.
Consolidations among our
healthcare and pharmaceutical
Customers may result in a loss of
Customers or more significant
pricing pressures.
A number of our Customers have consolidated. These consolidations are due in part to
healthcare cost reduction measures initiated by competitive pressures as well as
legislators, regulators and third-party payors. This may result 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.
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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. Changes in
regulatory requirements regarding the use of, the unavailability or short supply of these
products might disrupt or cause shutdowns of portions of our AST operations or have
other adverse consequences. We have developed a plan to expand our irradiation
processing capacity with accelerator-based technologies which may reduce the potential
supply risk. Shortages in supply, increased 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.
1
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16
116023s2_STE 03.31.19 10-K _sw
116023s2_STE 03.31.19 10-K _sw
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. We also completed
several divestitures of non-strategic businesses or product lines during the last several
years.
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.
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.
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.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 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.
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17
116023s2_STE 03.31.19 10-K _sw
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1
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.
116023s2_STE 03.31.19 10-K _sw
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”)
was 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 revenues 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, 2019. 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.
Ireland (IE), 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)
Northborough, MA
Brooklyn Park, MN
St. Louis, MO (4)
South Plainfield, NJ
Whippany, NJ
Chester, NY (2)
IE /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
116023s2_STE 03.31.19 10-K _sw
Owned/Leased
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
1
1
6
0
2
3
s
2
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S
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E
0
3
.
3
1
.
1
9
1
0
-
K
_
s
w
116023s2_STE 03.31.19 10-K _sw
Ireland (IE), United States (U.S.) Locations (including Puerto Rico) and International Locations (INTL)
w
s
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-
0
1
9
1
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1
3
.
3
0
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2
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1
1
Location
Groveport, OH
Mentor, OH (13)
Philadelphia, PA
Spartanburg, SC
El Paso, TX (2)
Grand Prairie, TX
Sandy, UT
Minneapolis, MN (2)
Birmingham, AL (5)
Vega Alta, PR
Sharon Hill, PA
Feasterville, PA
Tullamore, Ireland
Westport, Ireland
Berkshire, England
Derby, England (2)
Lancing, England
Swindon, England (2)
Yorkshire, England (3)
Northamptonshire, England
Mogi das Cruzes, Brazil
Quebec City, Canada
Whitby, Canada
Suzhou, China
Alajuela, Costa Rica (2)
Velka Bites, Czech Republic
Tuusula, Finland
Bordeaux, France
Calcinate, Italy
Bastia di Rovolon, Italy
Rawang, Malaysia (2)
Etten-Leur, Netherlands (3)
Venlo, Netherlands
Michalovce, Slovakia
Johannesburg, South Africa
Daniken, Switzerland (2)
Chonburi, Thailand
Radeberg, Germany
Komenda, Slovenia
Bitterfeld-Wolfen, Germany
IE /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.
IE
IE
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
Use
Contract Sterilization
Operations
Sales Offices
Manufacturing/Warehousing
Manufacturing/Operations
Manufacturing/Warehousing
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Operations/Warehousing
Contract Sterilization
Manufacturing/Warehousing
Warehousing
Contract Sterilization
Contract Sterilization
Contract Sterilization
Operations
Manufacturing/Operations
Contract Sterilization
Contract Sterilization
Contract Sterilization
Manufacturing/Sales Office
Manufacturing
Contract Sterilization
Contract Sterilization/ Operations
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
19
116023s2_STE 03.31.19 10-K _sw
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
1
1
6
0
2
3
s
2
_
S
T
E
0
3
.
3
1
.
1
9
1
0
-
K
_
s
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116023s2_STE 03.31.19 10-K _sw
Ireland (IE), United States (U.S.) Locations (including Puerto Rico) and International Locations (INTL)
w
s
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-
0
1
9
1
.
1
3
.
3
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_
2
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3
2
0
6
1
1
Location
Ede, Netherlands
Chusclan, France
Marseille, France
Kuala Ketil, Malaysia
Kulim, Malaysia
Leicester, England (2)
St. Louis, MO (2)
Reno, NV
Cleveland, Ohio
Stow, OH
Hillsborough, NJ
Keller, TX (2)
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
Point Richmond, CA (3)
San Diego, CA
Denver, CO
Lima, OH
Saxonburg, PA (2)
Petaluma, CA
Tampa, FL (2)
Temple Terrace, FL
Hamilton, OH
Henrico, VA
Rochester, NY
Birmingham, AL
Long Island City, NY
Chattanooga, TN (2)
Durham, NC
Cheektowaga, KY
Louisville, KY
Philadelphia, PA
IE /U.S./
INTL*
INTL
INTL
INTL
INTL
INTL
INTL
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
Use
Contract Sterilization
Contract Sterilization
Manufacturing/Warehousing
Contract Sterilization
Contract Sterilization
Warehousing/Operations
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
Manufacturing/ Operations /Sales Offices/
Warehousing
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Contract Sterilization
Operations
Operations
Operations/Warehouse
Operations
Operations
Warehouse
Operations
Operations
Operations
Sales Office
Warehousing
Sales Office
20
Owned/Leased
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
116023s2_STE 03.31.19 10-K _sw
1
1
6
0
2
3
s
2
_
S
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0
3
.
3
1
.
1
9
1
0
-
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_
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w
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s
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-
0
1
9
1
.
1
3
.
3
0
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2
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3
2
0
6
1
1
116023s2_STE 03.31.19 10-K _sw
Ireland (IE), United States (U.S.) Locations (including Puerto Rico) and International Locations (INTL)
Location
Mentor, OH
Sturbridge, MA
Galway, Ireland
Tullamore, Ireland (3)
Calcinate, Italy
Riyadh, Saudi Arabia
Toronto, Canada
Antwerpen, Belgium
Sao Paulo, Brazil (2)
Mississauga, Canada
Beijing, China
Nanjing, China
Shanghai, China (4)
Suzhou, China
La Chapelle St. Mesmin, France
Marseille, France
Paris, France
Toussieu, France
Allershausen, Germany (2)
Cologne, Germany (2)
Gokul Nagar, India
Poggio Rusco, Italy
Segrate, Italy
Seriate, Italy
Trescore Balneario, Italy
Tokyo, Japan
MINT Bangi, Malaysia
Petaling Jaya, Malaysia
Guadalupe, Mexico
Utrecht, Netherlands
Moscow, Russia
Singapore
Madrid, Spain
Dubai, United Arab Emirates
Tuusula, Finland
Bihwandi, India
Bitterfeld-Wolfen, Germany (2)
New Cross, England
Basingstoke, England
Hoddesdon, England (2)
Leicester, England
Lincoln, England
Grimsby England
IE /U.S./
INTL*
U.S.
U.S.
IE
IE
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
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
Use
Warehousing
Operations
Lab
Sales Office
Contract Sterilization
Operations
Operations
Sales Office/Operations
Sales Office
Sales Office/Warehousing
Sales Office
Operations
Sales Office/ Manufacturing
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
Sales Office
Manufacturing
Operations
Sales Office
Sales Office/Warehousing
Sales Office
Sales Office
Sales Office
Warehousing
Warehousing
Operations
Sales Office
Operations
Warehousing/Operations
Operations
Operations
21
116023s2_STE 03.31.19 10-K _sw
Owned/Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
1
1
6
0
2
3
s
2
_
S
T
E
0
3
.
3
1
.
1
9
1
0
-
K
_
s
w
116023s2_STE 03.31.19 10-K _sw
Ireland (IE), United States (U.S.) Locations (including Puerto Rico) and International Locations (INTL)
Location
Knowsley, England
Oxfordshire, England
Sheffield, England
Strathclyde, Scotland
Swindon, England
Wythenshawe, England
Bishop Stortford, England (4)
Pitsford, England
Harrow, England
Didcot, England (2)
Sao Jose Dos Campos, Brazil
IE /U.S./
INTL*
INTL
Use
Operations
Owned/Leased
Leased
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
INTL
Contract Sterilization
Operations
Operations
Operations
Operations
Manufacturing/Warehousing/Operations
Operations
Operations
Operations
Warehousing
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
* International includes all countries other than Ireland and the U.S.
ITEM 3.
LEGAL PROCEEDINGS
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 is
incorporated herein by reference thereto.
ITEM 4. MINE SAFETY DISCLOSURES
None.
w
s
_
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-
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1
9
1
.
1
3
.
3
0
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_
2
s
3
2
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6
1
1
1
1
6
0
2
3
s
2
_
S
T
E
0
3
.
3
1
.
1
9
1
0
-
K
_
s
w
22
116023s2_STE 03.31.19 10-K _sw
w
s
_
K
-
0
1
9
1
.
1
3
.
3
0
E
T
S
_
2
s
3
2
0
6
1
1
116023s2_STE 03.31.19 10-K _sw
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.”
Holders. As of March 31, 2019, there were approximately 936 holders of record of our ordinary shares.
Dividend Policy. The Company’s Board of Directors decides the timing and amount of any dividends we may pay. The Board
expects to be able to continue to pay cash dividends for the foreseeable future.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers. On August 9, 2016, STERIS UK announced that its
Board of Directors had authorized the purchase of up to $300.0 million (net of taxes, fees and commissions) of our ordinary
shares. As a result of the Redomiciliation, this authorization terminated.
On May 7, 2019, our Board of Directors authorized the continuation of the foregoing share repurchase program by
STERIS Ireland. There is approximately $80.0 million (net of taxes, fees and commissions) of remaining availability under the
authorization. Under the authorization, the Company may repurchase its shares from time to time through open market
purchases, including 10b5-1 plans. The repurchase program may be suspended or discontinued at any time.
We purchased 651,093 of our ordinary shares during fiscal 2019 for the aggregate amount of $72.1 million.
The following table presents information with respect to purchases STERIS made of its ordinary shares during the fourth
quarter of fiscal year 2019:
(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)
— $
103,979
January 1-31
92,217
February 1-28
78,979
March 1-31
Total
78,979
(1) Does not include 11 shares purchased during the quarter at an average price of $116.62 per share by the STERIS Corporation 401(k) Plan
96,500
108,893
205,393 (1) $
—
121.88
121.57
121.72 (1)
—
96,500
108,893
205,393
$
$
on behalf of an executive officer of the Company who may be deemed to be an affiliated purchaser.
23
116023s2_STE 03.31.19 10-K _sw
1
1
6
0
2
3
s
2
_
S
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E
0
3
.
3
1
.
1
9
1
0
-
K
_
s
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116023s2_STE 03.31.19 10-K _sw
ITEM 6.
SELECTED FINANCIAL DATA
(in thousands, except per share data)
2019 (1) (2)
Statements of Income Data:
Years Ended March 31,
2017 (1) (2)
2018 (1) (2)
2016 (1) (2)
2015 (1) (2)
Revenues
Gross profit
Restructuring expenses
Income from continuing operations
Income taxes
Net income attributable to
shareholders
Basic income per ordinary share:
Net income
Shares used in computing net income
per ordinary share – basic
Diluted income per ordinary share:
Net income
Shares used in computing net income
per ordinary share – diluted
Dividends per ordinary share
Balance Sheets Data:
Working capital
Total assets
Long-term indebtedness
Total liabilities
Total shareholders’ equity
$ 2,782,170
$ 2,619,996
$ 2,612,756
$ 2,238,764
$ 1,850,263
1,175,427
1,092,746
1,026,213
30,987
411,465
64,394
103
399,883
63,360
215
226,206
74,015
895,348
(820)
237,576
60,299
774,301
(391)
225,214
73,756
304,051
290,915
109,965
110,763
135,064
$
$
$
$
3.59
$
3.42
$
1.29
$
1.57
$
2.27
84,577
85,028
85,473
70,698
59,413
3.56
$
3.39
$
1.28
$
1.56
$
2.25
85,468
1.33
588,539
5,073,071
1,183,227
1,887,273
$
$
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
2,097,291
621,075
1,023,645
$ 3,177,810
$ 3,205,960
$ 2,798,602
$ 3,023,034
$ 1,071,632
(1) See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
(2) As a result of our adoption of ASU 2017-07, prior year amounts on our Consolidated Statements of Income have been reclassified to
retroactively apply the components of the net periodic benefit cost of our defined benefit pension plans and our other post-retirements benefit
plan.
.
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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 2019, 2018 and 2017, 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."
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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.
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• 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.
On March 28, 2019, STERIS plc, a public limited company organized under the laws of England and Wales (“STERIS
UK”), completed a redomiciliation from the United Kingdom to Ireland (the “Redomiciliation”). The Redomiciliation was
achieved through the insertion of a new Irish public limited holding company (“STERIS Ireland”) on top of STERIS UK
pursuant to a court-approved scheme of arrangement under English law (the “Scheme”). Following the Scheme effectiveness,
STERIS UK was re-registered as a private limited company with the name STERIS Limited, and STERIS Emerald IE Limited,
a company established in Ireland and a wholly-owned direct subsidiary of STERIS Ireland, was interposed as the direct parent
company of STERIS UK.
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
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 2019, 2018 and 2017 that expanded our product and
service offerings to our Customers.
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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 and
four businesses acquired in the acquisition of Synergy Health including: all of the linen management services businesses and
Synergy Health Laboratory Services.
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 made broad and complex changes to the U.S. tax code including, but not
limited to, (1) reduction of the U.S. federal corporate income tax rate; (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.
Fiscal 2019 Restructuring Plan. During the third quarter of fiscal year 2019, we adopted and announced a targeted
restructuring plan (the “Fiscal 2019 Restructuring Plan”), which included the closure of two manufacturing facilities, one in
Brazil and one in England, as well as other actions including, the rationalization of certain products. Fewer than 200 positions
are being eliminated. The Company will relocate the production of certain impacted products to other existing manufacturing
operations during fiscal 2020. These restructuring actions are designed to enhance profitability and improve efficiency. For
additional information on restructuring see the subsection titled "Restructuring Expenses", located in the Results of Operations
section of this MD&A, or Note 2 of our Consolidated Financial Statements, titled "Restructuring".
Highlights. Revenues increased $162.2 million, or 6.2%, to $2,782.2 million for the year ended March 31, 2019, as compared
to $2,620.0 million for the year ended March 31, 2018. This increase reflects organic growth in all business segments, which
was partially offset by the impact of our fiscal 2018 divestiture of HCS and unfavorable fluctuations in currencies.
Fiscal 2019 operating income increased 2.9% to $411.5 million over fiscal 2018 operating income of $399.9 million. The
increase is attributable to increased volume and fluctuations in currencies and the positive impact from our fiscal 2018
divestiture of HCS, which were partially offset by costs associated with our Fiscal 2019 Restructuring Plan.
Net cash flows from operations were $539.5 million and free cash flow was $355.4 million in fiscal 2019 compared to net
cash flows from operations of $457.6 million and free cash flow of $294.3 million in fiscal 2018 (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). The improvement in free cash flow was primarily due to the improved cash from
operations, which was partially offset by higher capital expenditures.
Our debt-to-total capital ratio was 27.1% at March 31, 2019. During the year, we increased our quarterly dividend for the
thirteenth consecutive year to $0.34 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 2020 and beyond.
In fiscal 2020 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 potential acquisitions of additional
products and services.
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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 pay cash dividends, fund growth outside of core operations, fund future debt principal
repayments, and repurchase shares. The following table summarizes the calculation of our free cash flow for the years ended
March 31, 2019, 2018 and 2017:
(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,
2018
2019
$
$
539,505
(189,715)
5,567
355,357
$
$
457,632
(165,457)
2,094
294,269
$
$
2017
424,086
(172,901)
4,846
256,031
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.
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FISCAL 2019 AS COMPARED TO FISCAL 2018
Revenues. The following table compares our revenues, in total and by type and geography, for the year ended March 31, 2019
to the year ended March 31, 2018:
(dollars in thousands)
Total revenues
Revenues by type:
Service revenues
Consumable revenues
Capital equipment revenues
Revenues by geography:
Ireland revenues
United States revenues
Other foreign revenues
Years Ended March 31,
2019
2,782,170
$
2018
Change
$
2,619,996
$
162,174
6.2%
Percent
Change
1,486,145
1,399,363
605,631
690,394
581,563
639,070
86,782
24,068
51,324
56,784
1,976,814
748,572
48,246
1,836,414
735,336
8,538
140,400
13,236
6.2%
4.1%
8.0%
17.7%
7.6%
1.8%
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Revenues increased $162.2 million, or 6.2%, to $2,782.2 million for the year ended March 31, 2019, as compared to
$2,620.0 million for the year ended March 31, 2018. This increase reflects organic growth in all business segments, which was
partially offset by the impact of our fiscal 2018 divestiture of HCS and unfavorable fluctuations in currencies.
Service revenues for fiscal 2019 increased $86.8 million, or 6.2% over fiscal 2018, reflecting growth in all business
segments. Consumable revenues for fiscal 2019 increased $24.1 million, or 4.1%, over fiscal 2018, reflecting growth in all
business segments which was partially offset by the impact of our fiscal 2018 divestiture of HCS. Capital equipment revenues
for fiscal 2019 increased by $51.3 million, or 8.0%, as compared to fiscal 2018, reflecting strong shipment volumes in the
Healthcare Products and Life Science business units.
Ireland revenues for fiscal 2019 were $56.8 million, an increase of $8.5 million, or 17.7%, over fiscal 2018 revenues of
$48.2 million, reflecting growth in service, consumable and capital equipment revenues.
United States revenues for fiscal 2019 were $1,976.8 million, an increase of $140.4 million, or 7.6%, over fiscal 2018
revenues of $1,836.4 million, reflecting growth in service, consumable and capital equipment revenues.
Revenues from other foreign locations for fiscal 2019 were $748.6 million, an increase of 1.8% over the fiscal 2018
revenues of $735.3 million, reflecting growth in Canada and in the Asia Pacific and Latin America regions, which was
partially offset by a decline in the Europe, Middle East and Africa ("EMEA") region.
Gross Profit. The following table compares our gross profit for the year ended March 31, 2019 to the year ended March 31,
2018:
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(dollars in thousands)
Gross profit:
Product
Service
Total gross profit
Gross profit percentage:
Product
Service
Total gross profit percentage
Years Ended March 31,
2018
2019
Change
Percent
Change
$
$
593,730
581,697
1,175,427
$
$
574,456
518,290
1,092,746
$
$
19,274
63,407
82,681
3.4%
12.2%
7.6%
45.8%
39.1%
42.2%
47.1%
37.0%
41.7%
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 $82.7 million and gross profit percentage
increased 50 basis points to 42.2% for fiscal 2019 as compared to 41.7% for fiscal 2018. This increase was attributable to the
positive impacts of pricing (40 basis points), our recent divestitures (20 basis points), fluctuations in currencies (10 basis
points) and other factors, which were offset by costs associated with our Fiscal 2019 Restructuring Plan (40 basis points).
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Operating Expenses. The following table compares our operating expenses for the year ended March 31, 2019 to the year
ended March 31, 2018:
(dollars in thousands)
Operating expenses:
Selling, general, and administrative
Research and development
Restructuring expenses
Total operating expenses
NM - Not meaningful
Years Ended March 31,
2018
2019
Change
Percent
Change
$
$
669,937
63,038
30,987
763,962
$
$
631,978
60,782
103
692,863
$
$
37,959
2,256
30,884
71,099
6.0%
3.7%
NM
10.3%
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 6.0% in fiscal 2019 over fiscal
2018, largely due to additional expenses associated with our Fiscal 2019 Restructuring Plan. Additionally, during the third
quarter of fiscal 2019, we adopted a branding strategy that included phasing out the usage of a tradename associated with
certain products in the Healthcare Products business segment, which resulted in an impairment charge of $16.2 million.
Research and Development. Research and development expenses increased $2.3 million during fiscal 2019, as compared to
fiscal 2018, due primarily to increased spending within the Healthcare Products segment. 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 2019, our investments in research and development
continued to be focused on, but were not limited to, enhancing capabilities of sterile processing combination technologies,
procedural products and accessories, and devices and support accessories used in gastrointestinal endoscopy procedures.
Restructuring Expenses. During the third quarter of fiscal 2019, we adopted and announced a targeted restructuring plan (the
"Fiscal 2019 Restructuring Plan"), which included the closure of two manufacturing facilities, one in Brazil and one in
England, as well as other actions including, the rationalization of certain products. Fewer than 200 positions are being
eliminated. The Company will relocate the production of certain impacted products to other existing manufacturing operations
during fiscal 2020. These restructuring actions are designed to enhance profitability and improve efficiency.
We have incurred pre-tax expenses totaling $40.7 million related to these restructuring actions, of which $31.0 million was
recorded as restructuring expenses and $9.7 million was recorded in cost of revenues, with a total of $28.4 million, $2.5
million, $0.7 million, and $7.8 million related to the Healthcare Products, Healthcare Specialty Services, Life Sciences, and
Applied Sterilization Technologies segments, respectively. Corporate related restructuring charges were $1.3 million. We
expect to incur additional restructuring expenses related to this plan of approximately $3.0 million in fiscal 2020 and beyond.
The following table summarizes our total pre-tax restructuring expenses for fiscal 2019:
(dollars in thousands)
Severance and other compensation related costs
Accelerated depreciation and amortization
Asset impairment
Lease termination costs and other
Product rationalization (1)
Total restructuring expenses
Fiscal 2019
Restructuring
Plan
$
$
5,651
16,194
4,312
4,830
9,721
40,708
(1) Recorded in cost of revenues on the Consolidated Statements of Income.
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
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compares our non-operating expense (income), net for the year ended March 31, 2019 to the year ended March 31, 2018:
(dollars in thousands)
Non-operating expenses, net:
Interest expense
Interest income and miscellaneous expense
Non-operating expenses, net
Years Ended March 31,
2018
2019
Change
$
$
45,015
(3,020)
41,995
$
$
50,629
(5,728)
44,901
$
$
(5,614)
2,708
(2,906)
Interest expense decreased $5.6 million during fiscal 2019, as compared to 2018. This decrease was primarily due to: (i)
reduced interest rates on our 2008 and 2012 Private Placement Notes, (ii) replacement of higher cost fixed rate debt with lower
cost floating rate debt as a result of $85.0 million of 2008 Private Placement Notes maturing during the second quarter of
fiscal 2019 and (iii) overall lower debt levels (refer to our Note 6 to our consolidated financial statements, titled "Debt", for
more information).
Interest income and miscellaneous expense decreased by $2.7 million during fiscal 2019 as compared to fiscal 2018,
primarily due to unrealized losses on our equity investments (refer to our Note 17 to our consolidated financial statements,
titled "Fair Value Measurements" for more information).
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, 2019 and March 31, 2018:
(dollars in thousands)
Income tax expense
Effective income tax rate
Years Ended March 31,
2018
2019
Change
$
64,394
$
63,360
$
1,034
Percent
Change
1.6%
17.4%
17.8%
The effective income tax rate for fiscal 2019 was 17.4% as compared to 17.8% for fiscal 2018. The fiscal 2019 effective
tax rate decreased when compared to fiscal 2018 primarily due the reduction in the US statutory tax rate from a blended rate of
31.5% to 21%. This was offset unfavorably by non-recurring TCJA impacts benefiting fiscal 2018. 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.
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.
We disclose a measure of segment income that is consistent with the way management operates and views the business.
The accounting policies for reportable segments are the same as those for the consolidated Company. In fiscal 2019, we ceased
the allocation of certain corporate costs to our segments to align with internal management measures. The prior period
operating income measures have been recast for comparability.
For more information regarding our segments please refer to Note 11 to our consolidated financial statements titled
“Business Segment Information,” and Item 1, “Business”.
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The following table compares business segment and Corporate and other revenues and operating income for the year
ended March 31, 2019 to the year ended March 31, 2018:
(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
Total operating income before adjustments
Less: Adjustments
Amortization of inventory and property "step up" to
fair value (1)
Amortization of acquired intangible assets (1)
Acquisition and integration related transaction charges (2)
(Gain) on fair value adjustment of acquisition related
contingent consideration
Net (gain) loss on divestiture of businesses (1)
Impact of the U.S. Tax Cuts and Jobs Act (3)
Redomiciliation costs (4)
Restructuring charges (5)
Years ended March 31,
2018
2019
Change
Percent
Change
$
$
$
1,338,428
510,057
378,558
555,127
2,782,170
323,684
64,222
132,129
221,828
(184,900)
556,963
$
$
$
1,276,054
469,065
361,590
513,287
2,619,996
294,162
58,458
123,889
196,297
(162,999)
509,807
$
$
$
62,374
40,992
16,968
41,840
162,174
29,522
5,764
8,240
25,531
(21,901)
47,156
4.9%
8.7%
4.7%
8.2%
6.2%
10.0%
9.9%
6.7%
13.0%
13.4%
9.2%
2,440
86,878
8,901
1,599
67,793
16,211
(842)
(1,370)
—
8,783
40,708
411,465
(593)
14,547
10,264
—
103
399,883
Total operating income
(1) For more information regarding our recent acquisitions and divestitures see Note 18 titled, "Business Acquisitions and Divestitures". Amortization of
$
$
purchased intangible assets fiscal 2019 total includes an impairment charge of $16.2 million, see Note 3 titled, "Goodwill and Intangible Assets", for more
information.
(2) Acquisition and integration related charges include transaction costs and integration expenses associated with acquisitions.
(3) Represents a one-time special employee bonus paid to most U.S. employees and associated professional fees.
(4) Costs incurred in connection with the decision to redomicile.
(5) See Note 2 titled, "Restructuring", for more information.
Healthcare Products revenues increased 4.9% in fiscal 2019, as compared to fiscal 2018, reflecting growth in consumable,
service revenues and capital equipment revenues of 0.6%, 5.5% and 7.9%, respectively. The increase was attributable to
organic growth which was partially offset by the negative impact of fluctuations in currencies and the fiscal 2018 divestiture
of HCS, which directly impacted the consumables revenue growth. At March 31, 2019, the Healthcare Products segment’s
backlog amounted to $154.5 million, increasing $21.5 million, or 16.1%, compared to the backlog of $133.0 million at
March 31, 2018.
Healthcare Specialty Services revenues increased 8.7% in fiscal 2019, as compared to fiscal 2018. The increase was
attributable to organic growth which was partially offset by the negative impact of fluctuations in currencies.
Life Sciences revenues increased 4.7% in fiscal 2019, as compared to fiscal 2018, reflecting growth in consumable,
service revenues and capital equipment revenues of 7.4%, 3.3% and 2.1%, respectively. The increase was attributable to
organic growth which was partially offset by the negative impact of fluctuations in currencies. Life Sciences backlog at
March 31, 2019 amounted to $60.7 million, essentially flat as compared to backlog of $60.8 million at March 31, 2018.
Applied Sterilization Technologies revenues increased 8.2% in fiscal 2019, as compared to fiscal 2018. Revenues in fiscal
2019 were favorably impacted by increased volume from our core medical device Customers which was partially offset by the
negative impact of fluctuations in currencies.
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The Healthcare Products segment’s operating income increased $29.5 million to $323.7 million for fiscal year 2019 as
compared to $294.2 million in fiscal year 2018. The segment's operating margin was 24.2% for fiscal year 2019 compared to
23.1% for fiscal year 2018. The increase in operating income in fiscal 2019 was primarily due to increased volumes and
operating efficiencies, which were partially offset by continued investment in research and development spending.
The Healthcare Specialty Services segment’s operating income increased $5.8 million to $64.2 million for fiscal year
2019 as compared to $58.5 million in fiscal year 2018. The segment’s operating margin was 12.6% for fiscal year 2019
compared to 12.5% for fiscal year 2018. The increase in operating income in fiscal 2019 resulted from leveraging the
investments made over the past several quarters in the United States and higher volumes.
The Life Sciences business segment’s operating income increased $8.2 million to $132.1 million for fiscal year 2019 as
compared to $123.9 million in fiscal year 2018. The segment’s operating margin was 34.9% for fiscal year 2019 compared to
34.3% for fiscal year 2018. The segment’s operating income increase in fiscal 2019 was primarily driven by increased
volumes.
The Applied Sterilization Technologies segment’s operating income increased $25.5 million to $221.8 million for fiscal
year 2019 as compared to $196.3 million for fiscal year 2018. The Applied Sterilization Technologies segment's operating
margin was 40.0% for fiscal year 2019 compared to 38.2% for fiscal year 2018. The segment’s operating income increase in
fiscal 2019 was primarily driven by revenue growth.
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:
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(dollars in thousands)
Total revenues
Revenues by type:
Service revenues
Consumable revenues
Capital equipment revenues
Revenues by geography:
Ireland 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
48,246
1,836,414
735,336
42,733
1,803,457
766,566
(15,074)
22,729
(415)
5,513
32,957
(31,230)
(1.1)%
4.1 %
(0.1)%
12.9 %
1.8 %
(4.1)%
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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.
Ireland revenues for fiscal 2018 were $48.2 million, an increase of $5.5 million, or 12.9%, over fiscal 2017 revenues of
$42.7 million, reflecting increases in consumable and service revenues, which were partially offset by decline in capital
equipment revenues.
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 strength in 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 within the Healthcare Products segment and the recent divestitures.
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Revenues from other foreign locations for fiscal 2018 were $735.3 million, a decrease of 4.1% over the fiscal 2017
revenues of $766.6 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.
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
518,290
1,092,746
$
$
574,299
451,914
1,026,213
$
$
157
66,376
66,533
—%
14.7%
6.5%
47.1%
37.0%
41.7%
47.9%
32.0%
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 $66.5 million and gross profit percentage
increased 240 basis points to 41.7% 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 (50
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
$
$
631,978
—
60,782
103
692,863
$
$
682,039
58,356
59,397
215
800,007
$
(50,061)
(58,356)
1,385
(112)
$ (107,144)
(7.3)%
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 7.3% 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
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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
(5,728)
44,901
$
$
44,520
(2,960)
41,560
$
$
6,109
(2,768)
3,341
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.
The increase in Interest income and miscellaneous expense was primarily due to our retrospective adoption of ASU
2017-07, "Compensation - Retirement Benefits - Improving the Presentation of Net Periodic Pension and Net Periodic
Postretirement Benefit Cost". Additional information regarding the standard can be found in Note 1 to our consolidated
financial statements titled, "Nature of Operations and Summary of Significant Accounting Policies."
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 was incomplete at March 31, 2018.
However, in accordance with SAB 118 guidance, we were able to make what we believed 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. During fiscal 2019, the Company completed its
accounting for the tax effects of the TCJA. During fiscal 2019, the Company recorded an immaterial favorable adjustment to
the provisional amounts recorded as of March 31, 2018 for remeasurement of the Company’s deferred tax balances and the
one-time transition tax.
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.
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.
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We disclose a measure of segment income that is consistent with the way management operates and views the business.
The accounting policies for reportable segments are the same as those for the consolidated Company. In fiscal 2019, we ceased
the allocation of certain corporate costs to our segments to align with internal management measures. The prior period
operating income measures have been recast for comparability.
For more information regarding our segments please refer to Note 11 to our consolidated financial statements titled
“Business Segment Information,” and Item 1, “Business.”
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
Total operating income before adjustments
Less: Adjustments
Goodwill impairment loss (1)
Amortization of inventory and property "step up" to fair
value (2)
Amortization of acquired intangible assets (2)
Acquisition related transaction and integration charges (3)
(Gain) loss 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
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Years ended March 31,
2017
2018
Change
$
$
$
1,276,054
469,065
361,590
513,287
2,619,996
294,162
58,458
123,889
196,297
(162,999)
509,807
$
$
$
1,266,517
539,536
328,866
477,837
2,612,756
285,177
41,019
109,953
176,397
(137,403)
475,143
$
$
$
9,537
(70,471)
32,724
35,450
7,240
8,985
17,439
13,936
19,900
(25,596)
36,846
Percent
Change
0.8 %
(13.1)%
10.0 %
7.4 %
0.3 %
3.2 %
42.5 %
12.7 %
11.3 %
18.6 %
7.7 %
—
58,356
1,599
67,793
16,211
4,743
66,398
30,082
(593)
14,547
10,264
103
399,883
2,569
86,574
—
215
226,206
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 18 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) Represents a one-time special employee bonus paid to most U.S. employees and associated professional fees.
Healthcare Products revenues increased 0.8% in fiscal 2018, 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.
Healthcare Specialty Services revenues decreased 13.1% in fiscal 2018, 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 fiscal 2018, 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.
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Applied Sterilization Technologies revenues increased 7.4% in fiscal 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 increased $9.0 million to $294.2 million in fiscal year 2018, as
compared to $285.2 million in fiscal year 2017. The segment's operating margin was 23.1% for fiscal year 2018 compared to
22.5% for fiscal year 2017. The increase in operating income in fiscal 2018 was primarily due to organic growth which was
partially offset by increased spending on research and development and negative fluctuations in currencies.
The Healthcare Specialty Services segment’s operating income increased $17.4 million to $58.5 million for fiscal year
2018 as compared to $41.0 million in fiscal year 2017. The segment’s operating margin was 12.5% for fiscal year 2018
compared to 7.6% 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 $13.9 million to $123.9 million for fiscal year 2018 as
compared to $110.0 million in fiscal year 2017. The segment’s operating margin was 34.3% for fiscal year 2018 compared to
33.4% 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 $19.9 million to $196.3 million for fiscal
year 2018 as compared to $176.4 million for fiscal year 2017. The Applied Sterilization Technologies segment's operating
margin was 38.2% for fiscal year 2018 compared to 36.9% 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.
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes significant components of our cash flows for the years ended March 31, 2019, 2018 and
2017:
(dollars in thousands)
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Debt-to-total capital ratio
Free cash flow
$
2019
539,505
(213,224)
(294,792)
27.1%
$
Years Ended March 31,
2018
457,632
(203,829)
(356,184)
29.1%
$
2017
424,086
(104,255)
(267,099)
34.6%
$
355,357
$
294,269
$
256,031
Net Cash Provided By Operating Activities – The net cash provided by our operating activities was $539.5 million for the
year ended March 31, 2019 compared to $457.6 million for the year ended March 31, 2018 and $424.1 million for the year
ended March 31, 2017. The following discussion summarizes the significant changes in our operating cash flows for the years
ended March 31, 2019, 2018 and 2017:
• Net cash provided by operating activities increased in fiscal 2019 by 17.9%, as compared to fiscal 2018. Net cash provided
by operating activities increased 7.9% in fiscal 2018 compared to fiscal 2017. The improvement in both years was
primarily due to higher earnings and lower requirements to fund operating assets and liabilities.
Net Cash Used In Investing Activities – The net cash used in our investing activities was $213.2 million for the year
ended March 31, 2019, compared to $203.8 million for the year ended March 31, 2018 and $104.3 million for the year ended
March 31, 2017. The following discussion summarizes the significant changes in our investing cash flows for the years ended
March 31, 2019, 2018 and 2017:
•
•
•
Purchases of property, plant, equipment, and intangibles, net – Capital expenditures totaled $189.7 million during fiscal
2019, $165.5 million during fiscal 2018 and $172.9 million during fiscal 2017.
Proceeds from the sale of property, plant, equipment and intangibles – During fiscal 2019, 2018 and 2017 we received $5.6
million, $2.1 million and $4.8 million, respectively, for proceeds from the sale of property, plant, equipment and
intangibles.
Proceeds from the sale of business – During fiscal 2019, 2018 and 2017 we received $2.5 million, $8.9 million and $135.7
million, respectively, for proceeds from the sale of certain non-core businesses. For more information, refer to our Note 18
to our consolidated financial statements, titled "Business Acquisitions and Divestitures".
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•
•
Purchases of investments – During fiscal 2019, we completed an equity investment for approximately $5.0 million. 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.
Investments in business, net of cash acquired – During fiscal 2019, 2018 and 2017, we used $13.3 million, $46.3 million
and $65.6 million respectively, for acquisitions. For more information on these acquisitions refer to Note 18 to our
consolidated financial statements titled, "Business Acquisitions and Divestitures".
• Other – During fiscal 2019 and 2018 we provided approximately $13.4 and $3.1 million, respectively under borrowing
agreements. For more information on these agreements. For more information, refer to our Note 18 to our consolidated
financial statements, titled "Business Acquisitions and Divestitures".
Net Cash Used In Financing Activities – Net cash used in financing activities was $294.8 million for the year ended
March 31, 2019, compared to net cash used in financing activities of $356.2 million, and $267.1 million for the years ended
March 31, 2018 and March 31, 2017, respectively. The following discussion summarizes the significant changes in our
financing cash flows for the years ended March 31, 2019, 2018 and 2017:
•
•
•
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. 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 2019 we repaid $85.0 million in private placement notes that matured
on August 15, 2018. During fiscal 2018 and fiscal 2017 we repaid $222.5 million and $172.5 million, respectively on our
bank term loan.
Proceeds under credit facilities, net – At the end of fiscal 2019, $301.8 million of debt was outstanding under our bank
credit facility, compared to $331.2 million and $521.6 million of debt outstanding under this facility at the end of fiscal
2018 and 2017, 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 2019, we purchased 659,393 of our ordinary shares in the aggregate amount of $73.2
million, which included $0.4 million of taxes and commissions. We also obtained 112,356 of our ordinary shares in
connection with our stock-based compensation award programs in the amount of $8.3 million during fiscal 2019. 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 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. We provide additional information about our share repurchases in Note 13 to our consolidated financial statements
titled, “Repurchases of Ordinary Shares.”
• Deferred financing fees and debt issuance costs – We paid $0.5 million, $2.0 million and $1.1 million in fiscal 2019, 2018
and 2017, respectively, for financing fees and debt issuance costs related to our Credit Agreement and Private Placement
debt. 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 2019, we paid cash dividends totaling $112.5 million or $1.33
per outstanding share. 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.
•
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 2019, fiscal 2018 and fiscal 2017, we received cash proceeds
totaling $13.3 million, $11.1 million, and $5.0 million, respectively, under these programs. During fiscal 2018 we also paid
dividends in the amount of $1.4 million to minority interest shareholders.
Cash Flow Measures. Free cash flow was $355.4 million in fiscal 2019 compared to $294.3 million in fiscal 2018. The
improvement in cash flow was primarily due to improved cash from operations, which was partially offset by higher capital
expenditures.
Our debt-to-total capital ratio was 27.1% at March 31, 2019 and 29.1% at March 31, 2018.
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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, 2019 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, 2019
Amounts
Outstanding
March 31, 2019
Amounts
Available
Private placement
Credit Agreement (1)
Total Sources of Credit
(1) At March 31, 2019, there was $4.8 million of letters of credit outstanding under the Credit Agreement.
1,000,000
1,884,967
4,763
4,763
884,967
— $
$
$
$
$
$
884,967
301,846
1,186,813
$
$
—
693,391
693,391
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Our sources of funding from credit as of March 31, 2019 are summarized below:
• On March 23, 2018, STERIS UK and certain of its subsidiaries entered into a Credit Agreement (the "Credit Agreement")
with various financial institutions as lenders, and JPMorgan Chase Bank, N.A., as Administrative Agent. STERIS Ireland
subsequently became a borrower and guarantor under the Credit Agreement. 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.
• The Credit Agreement was amended in March 2019, in connection with the Redomiciliation to permit the Redomiciliation.
The amendments did not effect any material changes in the terms of the Credit Agreement regarding borrowings or the
issuance of letters of credit.
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Our outstanding Senior Notes at March 31, 2019 were as follows:
(dollars in thousands)
$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
Maturity Date
2008 Private Placement
August 2020
U.S. Dollar Value
at March 31, 2019
35,000
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
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
91,000
80,000
25,000
125,000
125,000
100,000
50,000
67,352
45,000
22,450
58,702
21,328
39,135
$
884,967
• On February 27, 2017, STERIS UK 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, STERIS Corporation 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.
• All of the note agreements were amended in March 2019, in connection with the Redomiciliation. The amendments waived
certain repurchase rights of the note holders and increased the size of certain baskets to more closely align with Credit
Agreement baskets.
As of March 31, 2019, a total of $301.8 million was outstanding under the Credit Agreement, based on currency exchange
rates as of March 31, 2019. At March 31, 2019, we had $693.4 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, 2019, there was $4.8 million in letters of credit outstanding under the Credit Agreement.
At March 31, 2019, 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.”
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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 2019, our capital expenditures amounted to $189.7
million. We use cash provided by operating activities and our cash and cash equivalent balances to fund capital expenditures.
We expect fiscal 2020 capital expenditures to increase to approximately $280.0 million, reflecting continued facility
expansions, particularly within the Applied Sterilization Technologies segment and general maintenance for existing facilities.
CONTRACTUAL AND COMMERCIAL COMMITMENTS
At March 31, 2019, we had commitments under non-cancelable operating leases totaling $162.4 million.
Our contractual obligations and commercial commitments as of March 31, 2019 are presented in the following tables.
Commercial commitments include standby letters of credit, letters of credit required as security under our self-insured risk
retention policies, and other potential cash outflows resulting from events that require us to fulfill commitments.
(dollars in thousands)
Contractual Obligations:
Debt
Operating leases
Purchase obligations
Benefit payments under defined benefit
plans
Trust assets available for benefit payments
under defined benefit plans
Benefit payments under other post-
retirement benefits plans
Expected contributions to defined benefit
plans
Payments due by March 31,
2020
2021
2022
2023
2024 and
thereafter
Total
$
— $
35,033
$
— $ 392,846
$
758,967
$ 1,186,846
24,008
106,045
18,567
34,504
13,917
26,571
11,929
11,007
93,939
—
162,360
178,127
5,613
5,767
5,928
6,441
40,356
64,105
(5,613)
(5,767)
(5,928)
(6,441)
(40,356)
(64,105)
1,633
1,499
1,394
1,261
5,383
11,170
3,781
3,971
4,169
2,110
—
14,031
Total Contractual Obligations
$ 135,467
$
93,574
$
46,051
$ 419,153
$
858,289
$ 1,552,534
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:
Letters of credit and surety bonds
Letters of credit as security for self-
insured risk retention policies
Total Commercial Commitments
$
$
Amount of Commitment Expiring March 31,
2020
2021
2022
2023
2024 and
thereafter
Totals
50,382
$
6,465
$
6,829
$
1,088
$
1,207
$
65,971
7,794
—
—
—
—
7,794
58,176
$
6,465
$
6,829
$
1,088
$
1,207
$
73,765
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CRITICAL ACCOUNTING POLICIES, ESTIMATES, AND ASSUMPTIONS
The following subsections describe our most critical accounting policies, estimates, and assumptions. Our accounting
policies are more fully described in Note 1 to our consolidated financial statements titled, “Nature of Operations and Summary
of Significant Accounting Policies.”
Estimates and Assumptions. Our discussion and analysis of financial condition and results of operations is based on our
consolidated financial statements that were prepared in accordance with United States generally accepted accounting principles.
We make certain estimates and assumptions that we believe to be reasonable when preparing these financial statements. These
estimates and assumptions involve judgments with respect to numerous factors that are difficult to predict and are beyond
management’s control. As a result, actual amounts could be materially different from these estimates. We periodically review
these critical accounting policies, estimates, assumptions, and the related disclosures with the Audit Committee of the
Company’s Board of Directors.
Revenue Recognition. Revenue is recognized when obligations under the terms of the contract are satisfied and control of the
promised products or services has transferred to the Customer. Revenues are measured at the amount of consideration that we
expect to be paid in exchange for the products or services. Product revenue is recognized when control passes to the Customer,
which is generally based on contract or shipping terms. Service revenue is recognized when the Customer benefits from the
service, which occurs either upon completion of the service or as it 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, and we have no further obligations related to bringing about resale. Our standard return and restocking fee
policies are applied to sales of products. Shipping and handling costs charged to Customers are included in Product revenues.
The associated expenses are treated as fulfillment costs and are included in Cost of revenues. Revenues are reported net of sales
and value-added taxes collected from Customers.
We 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. The reduction in revenue for these items is estimated based on historical
experience and trend analysis to the extent that it is probable that a significant reversal of revenue will not occur. Estimated
returns are recorded gross on the Consolidated Balance Sheets.
In transactions that contain multiple performance obligations, 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 performance obligation based on its relative standalone selling price, which is the
price for the product or service when it is sold separately.
Payment terms vary by the type and location of the Customer and the products or services offered. Generally, the time
between when revenue is recognized and when payment is due is not significant. We do not evaluate whether the selling price
contains a financing component for contracts that have a duration of less than one year.
We do not capitalize sales commissions as substantially all of our sales commission programs have an amortization period
of one year or less.
Certain costs to fulfill a contract are capitalized and amortized over the term of the contract if they are recoverable, directly
related to a contract and generate resources that we will use to fulfill the contract in the future. At March 31, 2019 assets related
to costs to fulfill a contract were not material to our Consolidated Financial Statements.
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 25.2% and 26.0% of total inventories at March 31, 2019 and 2018, respectively. Inventory
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costs include material, labor, and overhead. If we had used only the FIFO method of inventory costing, inventories would have
been $16.8 million and $17.3 million higher than those reported at March 31, 2019 and 2018, 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.”
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 2019
and 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
was 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.
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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 2019, management adopted a branding strategy that included
phasing out the usage of a tradename associated with certain products in the Healthcare Products business segment. As a result,
management recorded an impairment charge of $16.2 million, which is included within the Selling, general, and administrative
line of the Consolidated Statements of Income. The remaining fair value of the asset was calculated using an income approach
(the relief from royalty method). The remaining fair value was not material and will be amortized over the asset's remaining
useful life. Fair value calculated using this approach is classified within Level 3 of the fair value hierarchy and requires several
assumption. 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
be determined be several years after the tax return is filed and the financial statements are published.
We evaluate our tax positions using the recognition threshold and measurement attribute in accordance with current
accounting guidance. We determine whether it is more-likely-than-not that a tax position will be sustained upon examination,
including resolution of related appeals or litigation processes, based on the technical merits of the position. In evaluating
whether a tax position has met the more-likely-than-not recognition threshold, we presume that the position will be examined
by the appropriate taxing authority and that the taxing authority will have full knowledge of all relevant information. A tax
position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater
than 50 percent likely of being realized upon ultimate settlement. The appropriate unit of account for determining what
constitutes an individual tax position, and whether the more-likely-than-not recognition threshold is met for a tax position, is a
matter of judgment based on the individual facts and circumstances of that position evaluated in light of all available evidence.
We review and adjust our tax estimates periodically because of ongoing examinations by and settlements with the various
taxing authorities, as well as changes in tax laws, regulations and precedent.
We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts
and the tax basis of assets and liabilities. We regularly review our deferred tax assets for recoverability and establish a valuation
allowance based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing
temporary differences, and the implementation of tax planning strategies. If we are unable to generate sufficient future taxable
income in certain tax jurisdictions, or if there is a material change in the effective income tax rates or time period within which
the underlying temporary differences become taxable or deductible, we could be required to increase our valuation allowance,
which would increase our effective income tax rate and could result in an adverse impact on our consolidated financial position,
results of operations, or cash flows.
We believe that adequate accruals have been made for income taxes. Differences between the estimated and actual amounts
determined upon ultimate resolution, individually or in the aggregate, are not expected to have a material adverse effect on our
consolidated financial position, but could possibly be material to our consolidated results of operations or cash flows for any
one period.
Additional information regarding income taxes is included in Note 8 to our consolidated financial statements titled,
“Income Taxes.”
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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, 2019 and 2018 was $19.7 million and $20.9 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
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.
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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, 2019
projected benefit obligations and the fiscal 2019 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%
1.20%
0.85%
1.60%
1.60%
2.35%
3.50%
2.50%
5.02%
1.60%
1.60%
0.95%
1.20%
1.60%
1.60%
2.55%
n/a
n/a
n/a
3.50%
n/a
Funding Status
Assumptions used to determine
March 31, 2019
Benefit obligations:
Discount rate
Assumptions used to determine fiscal
2019
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 2019 benefit costs by less than $0.1
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 2019 net periodic benefit costs by less than $0.1 million and would have increased the projected benefit
obligations by approximately $11.8 million at March 31, 2019.
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 6.8% 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, 2019:
(dollars in thousands)
Effect on total service and interest cost components
Effect on postretirement benefit obligation
100 Basis Point
Increase
Decrease
$
— $
11
—
(11)
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.
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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 $24.0 million in fiscal 2019, $22.2 million in fiscal 2018 and $18.8 million in
fiscal 2017. 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.
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 the statement is made 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,” “orders,” “backlog,”
“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 STERIS’s securities filings 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 achieve the expected benefits regarding the accounting and tax treatments of the
Redomiciliation transaction, (b) 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 Redomiciliation, (c) 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, (d) 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, (e) the potential for increased
pressure on pricing or costs that leads to erosion of profit margins, (f) 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, (g) 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, (h) the potential of international unrest, economic
downturn or effects of currencies, tax assessments, tariffs and/or other trade barriers, adjustments or anticipated rates, raw
material costs or availability, benefit or retirement plan costs, or other regulatory compliance costs, (i) the possibility of reduced
demand, or reductions in the rate of growth in demand, for STERIS’s products and services, (j) the possibility of delays in
receipt of orders, order cancellations, or delays in the manufacture or shipment of ordered products or in the provision of
services, (k) the possibility that anticipated growth, cost savings, new product acceptance, performance or approvals, or other
47
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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 Form 10-K and other securities filings, may adversely impact STERIS’s performance, results, prospects or value, (l) the
impact on STERIS and its operations, or tax liabilities, of Brexit or the exit of other member countries from the EU, and the
Company’s ability to respond to such impacts, (m) the impact on STERIS and its operations of any legislation, regulations or
orders, including but not limited to any new trade or tax legislation, regulations or orders, that may be implemented by the U.S.
administration or Congress, or of any responses thereto, (n) the possibility that anticipated financial results or benefits of recent
acquisitions, or of STERIS’s restructuring efforts, or of recent divestitures, or of the targeted restructuring plan will not be
realized or will be other than anticipated, and (o) 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.
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116023s2_STE 03.31.19 10-K _sw
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, 2019, we had $885.0 million in fixed rate senior notes outstanding. As of March 31, 2019, we had $301.8
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 19 to our consolidated financial statements titled, “ Reclassifications
out of 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, 2019, we held foreign currency forward contracts to buy 9.0 million Canadian dollars and 150.0 million Mexican
pesos.
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, 2019, we held commodity swap contracts to buy 652,900 pounds
of nickel.
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116023s2_STE 03.31.19 10-K _sw
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
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116023s2_STE 03.31.19 10-K _sw
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, 2019 and 2018, 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, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended March
31, 2019, 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, 2019, 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, 2019 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.
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We have served as the Company’s auditor since 1989.
/s/ Ernst & Young LLP
Cleveland, Ohio
May 30, 2019
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116023s2_STE 03.31.19 10-K _sw
116023s2_STE 03.31.19 10-K _sw
STERIS PLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31,
Current assets:
Assets
2019
2018
Cash and cash equivalents
$
220,633
$
564,830
208,243
60,029
1,053,735
1,031,582
2,322,928
604,614
60,212
201,534
528,066
205,731
54,326
989,657
1,010,524
2,433,784
726,980
39,389
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$
$
5,073,071
$
5,200,334
152,913
$
135,866
15,460
109,058
187,765
465,196
1,183,227
151,038
87,812
379
94,000
168,217
398,462
1,316,001
159,971
108,600
$
1,887,273
$
1,983,034
—
15
1,998,564
1,339,024
(159,778)
3,177,810
7,988
3,185,798
$
5,073,071
$
2,048,037
1,146,223
11,685
3,205,960
11,340
3,217,300
5,200,334
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6
1
1
Accounts receivable (net of allowances of $9,645 and $12,472, respectively)
Inventories, net
Prepaid expenses and other current assets
Total current assets
Property, plant, and equipment, net
Goodwill
Intangibles, net
Other assets
Total assets
Current liabilities:
Accounts payable
Accrued income taxes
Liabilities and equity
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 10)
Preferred shares, with $0.001 and £0.10 par value, respectively; 50,000 and 100 shares
authorized, respectively; 0 and 100 issued and outstanding, respectively
Ordinary shares, with $75.00 and £0.10 par value, respectively; 500,000 shares and
£17,006 shares aggregate par value authorized, respectively; 84,517 and 84,747
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.
52
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116023s2_STE 03.31.19 10-K _sw
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:
2019
2018
2017
$
1,296,025
$
1,220,633
$
1,198,319
1,486,145
2,782,170
1,399,363
2,619,996
1,414,437
2,612,756
702,295
904,448
1,606,743
1,175,427
646,177
881,073
1,527,250
1,092,746
624,020
962,523
1,586,543
1,026,213
Selling, general, and administrative
669,937
631,978
682,039
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6
1
1
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
—
63,038
30,987
763,962
411,465
45,015
(3,020)
41,995
369,470
64,394
305,076
1,025
—
60,782
103
692,863
399,883
50,629
(5,728)
44,901
354,982
63,360
291,622
707
58,356
59,397
215
800,007
226,206
44,520
(2,960)
41,560
184,646
74,015
110,631
666
304,051
$
290,915
$
109,965
3.59
3.56
1.33
$
$
$
3.42
3.39
1.21
$
$
$
1.29
1.28
1.09
$
$
$
$
1
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See notes to consolidated financial statements.
53
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116023s2_STE 03.31.19 10-K _sw
STERIS PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Years Ended March 31,
Net income
Less: Net income attributable to noncontrolling interests
Net income attributable to shareholders
Other comprehensive (loss) income
Unrealized gain on available for sale securities, (net of taxes of $0, $516 and
$402, respectively)
Pension and postretirement benefit plan changes (net of taxes of ($423),
$1,860, and $963, respectively)
Change in cumulative foreign currency translation adjustment
Total other comprehensive (loss) income attributable to shareholders
Comprehensive income (loss) attributable to shareholders
2019
305,076
1,025
304,051
$
$
2018
2017
291,622
707
290,915
$
$
110,631
666
109,965
—
1,792
851
2,538
(172,031)
(169,493)
134,558
$
(4,387)
254,982
252,387
543,302
$
(7,463)
(165,931)
(172,543)
(62,578)
$
$
$
See notes to consolidated financial statements.
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116023s2_STE 03.31.19 10-K _sw
116023s2_STE 03.31.19 10-K _sw
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:
Depreciation, depletion, and amortization
Deferred income taxes
Share-based compensation expense
Loss on the disposal of property, plant, equipment,
and intangibles, net
(Gain) loss on sale of businesses
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
(Payments) proceeds under credit facilities, net
Deferred financing fees and debt issuance costs
Acquisition related deferred or contingent consideration
Repurchases of shares
Cash dividends paid to common shareholders
Proceeds from issuance of equity to minority shareholders
Stock option and other equity transactions, net
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
2019
2018
2017
$
305,076
$
291,622
$
110,631
225,921
(6,511)
23,965
924
(1,370)
—
(18,397)
(48,486)
(14,617)
(7,371)
21,244
59,127
539,505
(189,715)
5,567
2,478
(4,955)
(13,313)
(13,286)
(213,224)
—
(85,000)
(27,087)
(488)
(1,327)
(81,494)
(112,503)
—
13,107
(294,792)
(12,390)
19,099
201,534
220,633
$
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
$
See notes to consolidated financial statements.
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116023s2_STE 03.31.19 10-K _sw
STERIS PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except per share amounts)
Ordinary Shares
Preferred Shares
Number
Amount
Number Amount
Accumulated
Other
Comprehensive
Income (Loss)
Non-
controlling
Interest
Retained
Earnings
Total
Equity
Balance at March 31, 2016
85,920 $
2,151,719
100 $
15 $ 939,459 $
(68,159) $
15,858 $
3,038,892
Comprehensive income:
Net income
Other comprehensive loss
—
—
—
—
Repurchases of ordinary shares
(1,455)
(95,433)
Equity compensation programs
416
23,826
Purchase of subsidiary shares from
noncontrolling interest
Issuance of subsidiary shares to noncontrolling
interest
Cash dividends – $1.09 per ordinary share
Change in noncontrolling interest
67
—
—
—
5,022
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
109,965
—
666
110,631
—
(172,543)
(2,076)
—
—
—
(93,193)
—
—
—
—
—
—
—
—
—
—
(5,374)
530
—
(249)
(172,543)
(97,509)
23,826
(352)
530
(93,193)
(249)
Balance at March 31, 2017
84,948 $
2,085,134
100 $
15 $ 954,155 $
(240,702) $
11,431 $
2,810,033
Comprehensive income:
Net income
Other comprehensive loss
—
—
—
—
Repurchases of ordinary shares
(793)
(69,567)
Equity compensation programs and other
Cash dividends – $1.21 per ordinary share
Other changes in noncontrolling interest
592
—
—
32,470
—
—
—
—
—
—
—
—
290,915
—
707
—
—
—
—
4,082
—
— (102,929)
—
—
252,387
—
—
—
—
291,622
252,387
(65,485)
32,470
(102,929)
—
—
—
—
(798)
(798)
Balance at March 31, 2018
84,747 $
2,048,037
100 $
15 $ 1,146,223 $
11,685 $
11,340 $
3,217,300
304,051
—
1,025
305,076
Comprehensive income:
Net income
Other comprehensive income
—
—
—
—
Repurchases of ordinary shares
(763)
(86,414)
Equity compensation programs and other
533
36,941
—
—
—
—
—
—
—
—
Retirement of shares resulting from
Redomiciliation
Issuance of shares resulting from
Redomiciliation
Adoption of Accounting Standards (note 1)
Cash dividends – $1.33 per ordinary share
Other changes in noncontrolling interest
(84,514)
(10,592,117)
(100)
(15)
84,514
10,592,117
—
—
—
—
—
—
—
—
—
—
—
—
—
4,920
—
—
—
(169,493)
—
—
—
—
(3,667)
(1,970)
— (112,503)
—
—
—
—
—
—
—
—
—
—
—
(169,493)
(81,494)
36,941
(10,592,132)
10,592,117
(5,637)
(112,503)
(4,377)
(4,377)
Balance at March 31, 2019
84,517 $
1,998,564
— $
— $ 1,339,024 $
(159,778) $
7,988 $
3,185,798
See notes to consolidated financial statements.
56
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116023s2_STE 03.31.19 10-K _sw
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. On March 28, 2019, STERIS plc, a public limited company organized under the laws of England and
Wales (“STERIS UK”), completed a redomiciliation from the United Kingdom to Ireland (the “Redomiciliation”). The
Redomiciliation was achieved through the insertion of a new Irish public limited holding company (“STERIS Ireland”) on top
of STERIS UK pursuant to a court-approved scheme of arrangement under English law (the “Scheme”). Following the Scheme
effectiveness, STERIS UK was re-registered as a private limited company with the name STERIS Limited, and STERIS
Emerald IE Limited, a company established in Ireland and a wholly-owned direct subsidiary of STERIS Ireland, was interposed
as the direct parent company of STERIS UK.
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," "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.
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116023s2_STE 03.31.19 10-K _sw
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,
2019
2018
2017
Cash paid during the year for:
Interest
Income taxes
Cash received during the year for income tax refunds
$
$
44,118
64,668
2,189
$
48,663
85,629
7,747
42,797
78,009
2,002
Revenue Recognition and Associated Liabilities. We adopted Accounting Standards Update ("ASU") 2014-09 “Revenue from
Contracts with Customers” and the subsequently issued amendments on April 1, 2018 using the modified retrospective
approach to contracts that were not completed as of April 1, 2018. Under this standard, certain capital equipment contracts are
comprised of a single performance obligation, resulting in the deferral of the corresponding capital equipment revenue and cost
of revenues until installation is complete. Previously, these capital equipment revenues and cost of revenues were recognized
based upon shipping terms. We recorded a cumulative effect adjustment in the beginning of fiscal 2019 to Retained earnings of
$5,638, based on the current terms and conditions for certain open capital equipment contracts as of March 31, 2018. The
impact of the adoption of this standard on our Consolidated Balance Sheets at March 31, 2019 is reflected in the table below.
The adoption of this standard did not have a material impact on our Consolidated Statements of Income for the year-to-date
period ending March 31, 2019. Comparative information has not been restated and continues to be reported under the
accounting standards in effect for those periods.
Balance Sheet
Total assets
Total liabilities
Total equity
As Reported
March 31,
2019
Total
Adjustments
ASC 605
March 31,
2019
$
5,073,071 $
1,887,273
3,185,798
(8,429) $
(14,448)
6,019
5,064,642
1,872,825
3,191,817
Revenue is recognized when obligations under the terms of the contract are satisfied and control of the promised products
or services have transferred to the Customer. Revenues are measured at the amount of consideration that we expect to be paid in
exchange for the products or services. Product revenue is recognized when control passes to the Customer, which is generally
based on contract or shipping terms. Service revenue is recognized when the Customer benefits from the service, which occurs
either upon completion of the service or as it 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, and
we have no further obligations related to bringing about resale. Our standard return and restocking fee policies are applied to
sales of products. Shipping and handling costs charged to Customers are included in Product revenues. The associated
expenses are treated as fulfillment costs and are included in Cost of revenues. Revenues are reported net of sales and value-
added taxes collected from Customers.
We 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. The reduction in revenue for these items is estimated based on historical
experience and trend analysis to the extent that it is probable that a significant reversal of revenue will not occur. Estimated
returns are recorded gross on the Consolidated Balance Sheets.
In transactions that contain multiple performance obligations, 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 performance obligation based on its relative standalone selling price, which is the
price for the product or service when it is sold separately.
Payment terms vary by the type and location of the Customer and the products or services offered. Generally, the time
between when revenue is recognized and when payment is due is not significant. We do not evaluate whether the selling price
contains a financing component for contracts that have a duration of less than one year.
We do not capitalize sales commissions as substantially all of our sales commission programs have an amortization period
of one year or less.
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116023s2_STE 03.31.19 10-K _sw
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
Certain costs to fulfill a contract are capitalized and amortized over the term of the contract if they are recoverable, directly
related to a contract and generate resources that we will use to fulfill the contract in the future. At March 31, 2019 assets related
to costs to fulfill a contract were not material to our Consolidated Financial Statements.
Refer to Note 11, titled "Business Segment Information" for disaggregation of revenue.
Product Revenue
Product revenues consist of revenues generated from sales of consumables and capital equipment. These contracts are
primarily based on a Customer’s purchase order and may include a Distributor, Dealer or Group Purchasing Organization
("GPO") agreement. We recognize revenue for sales of product when control passes to the Customer, which generally occurs
either when the products are shipped or when they are received by the Customer. Revenue related to certain capital equipment
products is deferred until installation is complete as the capital equipment and installation are highly integrated and form a
single performance obligation.
Service Revenue
Within our Healthcare Products and Life Sciences segments, service revenues consist of revenue generated from parts and
labor associated with the maintenance, repair and installation of capital equipment. These contracts are primarily based on a
Customer’s purchase order and may include a Distributor, Dealer, or GPO agreement. For maintenance, repair and installation
of capital equipment, revenue is recognized upon completion of the service.
We also offer preventive maintenance and separately priced extended warranty agreements to our Customers, which require
us to maintain and repair our products over the duration of the contract. Generally, these contract terms are cancelable without
penalty and range from one to five years. Amounts received under these Customer contracts are initially recorded as a service
liability and are recognized as service revenue ratably over the contract term using a time-based input measure.
Within our Healthcare Specialty Services segment, revenues relate primarily to outsourced instrument reprocessing
services and instrument repairs. Contracts for outsourced instrument reprocessing services are primarily based on an agreement
with a Customer, ranging in length from several months to 15 years. Outsourced instrument reprocessing services revenue is
recognized ratably over the contract term using a time-based input measure, adjusted for volume and other performance
metrics, to the extent that it is probable that a significant reversal of revenue will not occur. Contracts for instrument repairs are
primarily based on a Customer’s purchase order, and the associated revenue is recognized upon completion of the repair.
Within our Applied Sterilization Technologies segment, service revenues include contract sterilization and laboratory
services. Sales contracts for contract sterilization and laboratory services are primarily based on a Customer’s purchase order
and associated Customer agreement and revenues are generally recognized upon completion of the service.
Contract Liabilities
Payments received from Customers are based on invoices or billing schedules as established in contracts with Customers.
Deferred revenue is recorded when payment is received in advance of performance under the contract. Deferred revenue is
recognized as revenue upon completion of the performance obligation, which generally occurs within one year. During fiscal
2019, we recognized revenue of $30,169 that was included in our contract liability balance at the beginning of the period.
Refer to Note 7, titled "Additional Consolidated Balance Sheet Information" for Deferred revenue balances.
Service Liabilities
Payments received in advance of performance for cancelable preventative maintenance and separately priced extended
warranty contracts are recorded as service liabilities. Service liabilities are recognized as revenue as performance is rendered
under the contract. Prior to the adoption of Accounting Standards Codification ("ASC") 606, these amounts were included in
Deferred revenues.
Refer to Note 7, titled "Additional Consolidated Balance Sheet Information" for Service liability balances.
Remaining Performance Obligations
Remaining performance obligations reflect only the performance obligations related to agreements for which we have a
firm commitment from a Customer to purchase and exclude variable consideration related to unsatisfied performance
obligations. With regard to products, these remaining performance obligations include capital equipment and consumable
orders which have not shipped. With regard to service, these remaining performance obligations primarily include installation,
certification, and outsourced instrument reprocessing services. As of March 31, 2019, the transaction price allocated to
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116023s2_STE 03.31.19 10-K _sw
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
remaining performance obligations was approximately $900,000. We expect to recognize approximately 47% of the transaction
price within one year and approximately 49% beyond one year. The remainder has yet to be scheduled for delivery.
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 25.2% and 26.0% of total inventories at March 31, 2019 and 2018, respectively.
Inventory costs include material, labor, and overhead. If we had used only the FIFO method of inventory costing, inventories
would have been $16,757 and $17,280 higher than those reported at March 31, 2019 and 2018, 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.
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 $495
and $528 for the years ended March 31, 2019 and 2018, respectively. Total interest expense for the years ended March 31,
2019, 2018, and 2017 was $45,015, $50,629, and $44,520, respectively.
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116023s2_STE 03.31.19 10-K _sw
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
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. Following the fiscal 2019 adoption of ASU 2016-01, "Financial Instruments - Overall -
Recognition and Measurement of Financial Assets and Liabilities, changes in the fair value of these investments are recorded in
the "Interest income and miscellaneous expense line" of the Consolidated Statement of Income.
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.
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.”
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116023s2_STE 03.31.19 10-K _sw
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
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 $10,691, $10,886, and $12,622 of
advertising costs during the years ended March 31, 2019, 2018, and 2017, 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.
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.”
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116023s2_STE 03.31.19 10-K _sw
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
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 2019,
2018 or 2017. Should the U.S. Congress take no further action with regard to this tax we may begin to incur excise tax in the
fourth quarter of fiscal 2020.
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.
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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
Effect on the financial
statements or other significant
matters
First
Quarter
Fiscal
2019
Additional information is
disclosed in Note 1 under the
heading, "Revenue
Recognition and Associated
Liabilities".
First
Quarter
Fiscal
2019
We adopted the standard on a
modified retrospective basis
at the beginning of fiscal
2019 and we recorded a
cumulative effect adjustment
to our opening retained
earnings balance of $1,970
that increased retained
earnings and decreased
accumulated other
comprehensive income.
First
Quarter
Fiscal
2019
We adopted this standard
effective April 1, 2018. The
impact will depend on the
future occurrence of the
relevant transactions or
conditions addressed by the
standard.
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Standard
Date of
Issuance
Description
May
2014
Standards that have recently been adopted
ASU 2014-09,
"Revenue from
Contracts with
Customers" and
subsequently
issued
amendments
The standard replaced existing revenue
recognition standards and significantly expands
the disclosure requirements for revenue
arrangements.
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January
2016
ASU 2016-01,
"Financial
Instruments -
Overall -
Recognition and
Measurement of
Financial Assets
and Liabilities"
(Subtopic
825-10)
ASU 2016-15,
"Statement of
Cash Flows"
(Topic 230)
August
2016
The standard changed how equity investments
are measured and presented changes in the fair
value of financial liabilities measured under the
fair value option. Presentation and disclosure
requirements for financial instruments were also
affected. Entities are 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.
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.
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STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
October
2016
ASU 2016-16,
"Income Taxes,
Intra-Entity
Transfers of
Assets Other
Than Inventory"
(Topic 740)
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.
First
Quarter
Fiscal
2019
We adopted this standard
effective April 1, 2018 with
no material impact to our
Consolidated Balance Sheets.
The impact to our
Consolidated Statements of
Income will depend on the
value of future intra-entity
transfers.
ASU 2017-01
"Clarifying the
Definition of a
Business"
January
2017
The standard update narrows the definition of a
business by providing a screen to determine
when an integrated set of assets and activities is
not a business. The screen specifies that an
integrated set of assets and activities is not a
business if substantially all of the fair value of
the gross assets acquired or disposed of is
concentrated in a single or a group of similar
identifiable assets.
First
Quarter
Fiscal
2019
We adopted this standard
effective April 1, 2018. The
impact will depend on the
future occurrence of the
relevant transactions or
conditions addressed by the
standard.
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March
2017
This standard requires that an employer report
the service cost component in the same line item
or items as other compensation costs arising from
services rendered by the pertinent employees
during the period. The other components of net
benefit cost are required to be presented in the
income statement separately from the service
cost component and outside the subtotal of
income from operations, if one is presented.
First
Quarter
Fiscal
2019
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)
May
2017
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.
First
Quarter
Fiscal
2019
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We retrospectively adopted
the standard in the first
quarter of fiscal 2019. Prior
periods have been recast for
the adoption of this standard.
Changes have been reflected
in the Cost of Revenues,
Selling, general and
administrative expense, and
Interest income and
miscellaneous expense lines
of our Consolidated
Statements of Income.
Amounts are not considered
material for additional
disclosure.
We adopted this standard
effective April 1, 2018. The
impact will depend on the
future occurrence of the
relevant terms or conditions
addressed by the standard.
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STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
N/A
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 expect to
adopt this standard using the
additional, optional transition
method, the package of
transitional practical
expedients relating to the
identification, classification
and initial direct costs of
leases, and the transitional
practical expedient for the
treatment of existing land
easements. 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. We
currently estimate the impact
of the adoption will result in
the recognition of the right of
use assets and lease liabilities
within the range of
approximately $110,000 to
$130,000 as of April 1, 2019.
For more information
regarding our total operating
lease commitments refer to
Note 5, "Property, Plant and
Equipment".
N/A
We are in the process of
evaluating the impact that the
standard will have on our
consolidated financial
statements.
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Standards that have not yet been adopted
ASU 2016-02,
"Leases"
(Topic 842)
February
2016
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.
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ASU 2016-13,
"Measurement of
Credit Losses on
Financial
Instruments"
June
2016
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.
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116023s2_STE 03.31.19 10-K _sw
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
N/A
We do not expect this
standard to have a material
impact on our consolidated
financial statements.
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N/A
We are in the process of
evaluating the impact that the
standard will have on our
consolidated financial
statements.
N/A
N/A
We do not expect this
standard to have a material
impact on our consolidated
financial statements as it
modifies disclosure
requirements only.
We do not expect this
standard to have a material
impact on our consolidated
financial statements as it
modifies disclosure
requirements only.
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)
August
2018
August
2018
ASU 2018-13
"Fair Value
Measurement
(Topic 820)
Disclosure
Framework-
Changes to
Disclosure
Requirements for
Fair Value
Measurement”
ASU 2018-14
"Compensation-
Retirement
Benefits -
Defined Benefit
Plans- General
Topic (715-20):
Disclosure
Framework-
Changes to the
Disclosure
Requirements for
Defined Benefit
Plans"
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
("TCJA") and requires certain disclosures about
stranded tax effects. The underlying guidance
requiring that the effect of a change in tax laws
or rates be included in income from 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.
The standard modifies the disclosure
requirements by adding, removing, and
modifying certain required disclosures for fair
value measurements for assets and liabilities
disclosed within the fair value hierarchy. The
standard is effective for fiscal years, and interim
periods within those fiscal years, beginning after
December 15, 2019 and early adoption is
permitted.
The standard modifies the disclosure
requirements by adding, removing, and
modifying certain required disclosures for
employers that sponsor defined benefit pension
or other post-retirement benefit plans. The
standard also clarifies disclosure requirements
for defined benefit pension plans relating to the
projected benefit obligation and accumulated
benefit obligation. The standard is effective for
fiscal years ending after December 15, 2019 and
early adoption is permitted.
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STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
August
2018
The standard aligns the requirements for
capitalizing implementation costs incurred in a
hosting arrangement that is a service contract
with the requirements for capitalizing
implementation costs incurred to develop or
obtain internal-use software. The standard is
effective for fiscal years ending after December
15, 2019 and early adoption is permitted.
N/A
We do not expect this
standard to have a material
impact on our consolidated
financial statements.
ASU 2018-15
"Intangibles-
Goodwill and
Other- Internal
Use Software
(Subtopic
350-40):
Customer’s
Accounting for
Implementation
Costs Incurred in
a Cloud
Computing
Arrangement that
is a Service
Contract"
w
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1
1
2. RESTRUCTURING
Fiscal 2019 Restructuring Plan. During the third quarter of fiscal 2019, we adopted and announced a targeted restructuring
plan (the "Fiscal 2019 Restructuring Plan"), which included the closure of two manufacturing facilities, one in Brazil and one in
England, as well as other actions including the rationalization of certain products. Fewer than 200 positions are being
eliminated. The Company will relocate the production of certain impacted products to other existing manufacturing operations
during fiscal 2020. These restructuring actions are designed to enhance profitability and improve efficiency.
We have incurred pre-tax expenses totaling $40,708 related to these restructuring actions, of which $30,987 was recorded
as restructuring expenses and $9,721 was recorded in cost of revenues, with a total of $28,417, $2,518, $664, and $7,794
related to the Healthcare Products, Healthcare Specialty Services, Life Sciences, and Applied Sterilization Technologies
segments, respectively. Corporate related restructuring charges were $1,315. We expect to incur additional restructuring
expenses related to this plan of approximately $3,000 in fiscal 2020 and beyond.
The following table summarizes our total pre-tax restructuring expenses for fiscal 2019:
1
1
6
0
2
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Year Ended March 31, 2019
Severance and other compensation related costs
Accelerated depreciation and amortization
Asset impairment
Lease termination costs and other
Product rationalization (1)
Total restructuring expenses
(1) Recorded in cost of revenues on the Consolidated Statements of Income.
Fiscal 2019
Restructuring
Plan
$
$
5,651
16,194
4,312
4,830
9,721
40,708
Liabilities related to restructuring activities are recorded as current liabilities on the accompanying Consolidated Balance
Sheets within “Accrued payroll and other related liabilities” and “Accrued expenses and other.” The following table
summarizes our restructuring liability balances:
Fiscal 2019 Restructuring Plan
Severance and termination benefits
Lease termination obligations and other
Total
March 31,
2018
Provisions
$
$
— $
—
— $
5,651
4,830
10,481
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Payments /
Impairments (1)
$
(1,549) $
(2,801)
(4,350) $
$
March 31,
2019
4,102
2,029
6,131
116023s2_STE 03.31.19 10-K _sw
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
(1) Certain amounts reported include the impact of foreign currency movements relative to the U.S. dollar.
3. GOODWILL AND INTANGIBLE ASSETS
Changes to the carrying amount of goodwill for the years ended March 31, 2019, 2018 and 2017 were as follows:
Balance at March 31, 2017
Goodwill acquired or allocated
Reassignment
Foreign currency translation adjustments
Balance at March 31, 2018
Goodwill acquired or allocated
Foreign currency translation adjustments
Balance at March 31, 2019
Healthcare
Products
Segment
Healthcare
Specialty
Services
Segment
Life Sciences
Segment
Applied
Sterilization
Technologies
Segment
Total
377,765
16,418
—
10,491
404,674
(1,202)
(6,188)
397,284
375,879
146,514
1,331,145
2,231,303
3,501
(1,855)
10,500
$
$
388,025
(907)
(12,208)
374,910
$
$
—
—
2,302
148,816
—
(1,021)
147,795
15,847
1,855
143,422
35,766
—
166,715
$ 1,492,269
5,341
(94,671)
$ 1,402,939
$ 2,433,784
3,232
(114,088)
$ 2,322,928
$
$
The fiscal 2018 goodwill increase was due to our recent business acquisitions, which are discussed in Note 18, 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.
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 impairment review for goodwill for fiscal years 2019 and 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. 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.
Our fiscal 2019, 2018, and 2017 acquisitions are described in Note 18 to our consolidated financial statements titled,
"Business Acquisitions and Divestitures".
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1
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1
3
.
3
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2
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3
2
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6
1
1
1
1
6
0
2
3
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2
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3
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3
1
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1
9
1
0
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116023s2_STE 03.31.19 10-K _sw
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
2019
2018
Gross
Carrying
Amount
$
623,774
Accumulated
Amortization
189,752
$
Gross
Carrying
Amount
Accumulated
Amortization
$
663,532
$
150,358
4,693
226,520
63,570
54,800
—
3,945
126,149
38,850
10,047
—
4,738
226,318
83,509
54,800
10
3,790
107,598
36,864
7,307
10
$
973,357
$
368,743
$ 1,032,907
$
305,927
Certain trademarks and tradenames obtained as a result of business combinations are indefinite-lived assets. The
approximate carrying value of these assets at March 31, 2019 and March 31, 2018 was $13,000 and $35,266, respectively. We
evaluate our indefinite-lived intangible assets annually during the third quarter, or when evidence of potential impairment
exists. During the third quarter of fiscal 2019, management adopted a branding strategy that included phasing out the usage of a
tradename associated with certain products in the Healthcare Products business segment. As a result, management recorded an
impairment charge of $16,249, which is included within the Selling, general, and administrative line of the Consolidated
Statements of Income. The remaining fair value of the asset was calculated using an income approach (the relief from royalty
method). The remaining fair value was not material and will be amortized over the asset's remaining useful life. Fair value
calculated using this approach is classified within Level 3 of the fair value hierarchy and requires several assumptions. No
impairment was recognized for the fiscal years 2018 or 2017.
Total amortization expense for finite-lived intangible assets was $98,747, $70,195, and $68,607 for the years ended
March 31, 2019, 2018, and 2017, 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
$
71,917
$
66,716
$
63,853
$
58,412
$
52,452
2020
2021
2022
2023
2024
The estimated annual amortization expense presented in the preceding table has been calculated based upon March 31,
1
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0
2
3
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2
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3
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3
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1
.
1
3
.
3
0
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2
0
6
1
1
2019 currency exchange rates.
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
2019
2018
$
83,009
$
30,694
131,051
(16,757)
(19,754)
208,243
$
$
83,741
34,904
124,005
(17,280)
(19,639)
205,731
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116023s2_STE 03.31.19 10-K _sw
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
2019
63,522
480,359
656,956
169,711
483,080
133,689
1,987,317
(955,735)
1,031,582
$
$
2018
55,417
467,063
631,623
151,360
458,440
87,745
1,851,648
(841,124)
1,010,524
$
$
(1) Land is not depreciated. Construction in progress is not depreciated until placed in service.
Depreciation and depletion expense were $127,174, $108,137 and $119,536, for the years ended March 31, 2019, 2018,
and 2017, respectively.
Rental expense for operating leases was $30,319, $30,474, and $32,740 for the years ended March 31, 2019, 2018, and
2017, 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, 2019 were as
follows:
2020
2021
2022
2023
2024 and thereafter
Total minimum lease payments
$
Operating
Leases
24,008
18,567
13,917
11,929
93,939
$
162,360
In the preceding table, the future minimum annual rentals payable under noncancelable leases denominated in foreign
currencies have been calculated using March 31, 2019 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.
1
1
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0
2
3
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3
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3
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9
1
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9
1
.
1
3
.
3
0
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s
3
2
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6
1
1
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116023s2_STE 03.31.19 10-K _sw
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116023s2_STE 03.31.19 10-K _sw
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 and other
Balance at March 31, 2018
Liabilities incurred during the period
Accretion expense
Foreign currency and other
Balance at March 31, 2019
6. DEBT
Asset
Retirement
Obligations
$
9,953
89
(352)
1,198
751
11,639
1,033
385
(671)
12,386
$
$
Indebtedness as of March 31, 2019 and 2018 was as follows:
Credit Agreement
Private Placement
Deferred financing fees
Other
Total long term debt
2019
2018
$
301,846
$
331,206
884,967
(3,619)
33
1,183,227
$
988,190
(3,395)
—
1,316,001
$
On March 23, 2018, STERIS UK and certain of its subsidiaries entered into a Credit Agreement (the "Credit Agreement")
with various financial institutions as lenders, and JPMorgan Chase Bank, N.A., as Administrative Agent. STERIS Ireland
subsequently became a borrower and guarantor under the Credit Agreement. 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.
The Credit Agreement was amended in March 2019, in connection with the Redomiciliation to permit the Redomiciliation. The
amendments did not effect any material changes in the terms of the Credit Agreement regarding borrowings or the issuance of
letters of credit.
As of March 31, 2019 a total of $301,846 of Credit Agreement and Swing Line Facility borrowings were outstanding
under the Credit Agreement, based on currency exchange rates as of March 31, 2019.
72
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3
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3
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6
1
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116023s2_STE 03.31.19 10-K _sw
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, 2019 and 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, 2019
—
35,000
91,000
80,000
25,000
125,000
125,000
100,000
50,000
67,352
45,000
22,450
58,702
21,328
39,135
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
$
884,967
$
988,190
On February 27, 2017, STERIS UK 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 years and 15 years from the issue date.
The agreement governing these notes contains leverage and interest coverage covenants.
On May 15, 2015, STERIS Corporation 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 years 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.
All of the note agreements were amended in March 2019, in connection with the Redomiciliation. The amendments waived
certain repurchase rights of the note holders and increased the size of certain baskets to more closely align with Credit
Agreement baskets.
At March 31, 2019, 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:
2020
2021
2022
2023
2024 and thereafter
Total
$
$
—
35,033
—
392,846
758,967
1,186,846
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3
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116023s2_STE 03.31.19 10-K _sw
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
Service liabilities
Self-insured and related 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
2019
2018
$
37,251
$
$
$
$
$
10,191
40,194
17,854
1,633
1,935
109,058
55,333
42,101
6,537
15,283
7,194
2,656
58,661
187,765
14,445
10,918
16,168
4,711
13,515
9,730
18,325
$
$
$
$
30,270
11,011
31,716
17,168
1,906
1,929
94,000
31,621
43,077
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
$
87,812
$
108,600
The Tax Cuts and Jobs Act (the “TCJA”) was enacted on December 22, 2017. The TCJA reduces the U.S. federal
corporate income tax rate from 35.0% to 21.0%, requires companies to pay a one-time transition tax on earnings of certain
foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. The Company
applied the guidance in Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cut and Jobs Act
when accounting for the enactment-date effects of the TCJA. As of March 31, 2018, the Company had recorded a provisional
tax benefit of $18.9 million related to the reduction of the U.S. federal corporate income tax rate and the deemed repatriation
tax. During fiscal 2019, the Company completed its accounting for the tax effects of the TCJA. During the nine months ended
December 31, 2018, the Company recorded an immaterial favorable adjustment to the provisional amounts recorded as of
March 31, 2018 for remeasurement of the Company’s deferred tax balances and the one-time transition tax.
The TCJA also subjects a U.S. shareholder to current tax on global intangible low-taxed income (“GILTI”) earned by
certain foreign subsidiaries and allows a benefit for foreign-derived intangible income (“FDII”). The Company has confirmed
its policy decision to treat GILTI as a period expense in the period the tax is incurred. The Company has included the impacts
of GILTI and FDII in the estimated annual effective tax rate for the year ended March 31, 2019. The impact was not
significant.
74
116023s2_STE 03.31.19 10-K _sw
1
1
6
0
2
3
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3
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3
1
.
1
9
1
0
-
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116023s2_STE 03.31.19 10-K _sw
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
We consider the tax expense recorded for the TCJA to be complete at this time. However, it is possible that additional
legislation, regulations and/or guidance may be issued in the future that may result in additional adjustments to the tax expense
recorded related to the TCJA. We will continue to monitor and assess the impact of any new developments.
Income from continuing operations before income taxes was as follows:
Years Ended March 31,
United States operations
Ireland operations
Other locations operations
2019
2018
2017
$
$
235,405
$
203,872
$
13,693
120,372
11,837
139,273
369,470
$
354,982
$
189,429
8,597
(13,380)
184,646
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
Ireland
Other locations
Deferred:
United States federal
United States state and local
Ireland
Other locations
w
s
_
K
-
0
1
9
1
.
1
3
.
3
0
E
T
S
_
2
s
3
2
0
6
1
1
2019
2018
2017
$
29,943
$
47,728
$
12,484
2,627
26,824
71,878
5,775
2,836
(546)
(15,549)
(7,484)
64,394
$
7,727
2,596
26,742
84,793
(15,728)
2,656
(280)
(8,081)
(21,433)
63,360
$
43,900
8,171
1,899
19,557
73,527
10,293
2,131
(645)
(11,291)
488
74,015
1
1
6
0
2
3
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2
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S
T
E
0
3
.
3
1
.
1
9
1
0
-
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_
s
w
Total Provision for Income Taxes
$
75
116023s2_STE 03.31.19 10-K _sw
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_
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-
0
1
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1
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1
3
.
3
0
E
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_
2
s
3
2
0
6
1
1
116023s2_STE 03.31.19 10-K _sw
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
The total provision for income taxes can be reconciled to the tax computed at the Ireland statutory tax rate for 2019 and the
United Kingdom statutory tax rate for 2018 and 2017 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-Ireland tax rates
Difference in non-United Kingdom tax rates
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
U.S. tax reform impact, GILTI and FDII
Acquisitions and divestitures
Goodwill impairment on divestitures
Capitalized acquisition, redomiciliation costs
All other, net
Total Provision for Income Taxes
2019
2018
2017
12.5 %
— %
3.1 %
0.4 %
(0.6)%
(0.2)%
4.5 %
— %
— %
(2.2)%
(0.6)%
(0.3)%
0.3 %
— %
— %
0.5 %
— %
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 %
17.4 %
17.8 %
40.1 %
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
Decreases for tax provisions of prior year
Other, including currency translation
Unrecognized Tax Benefits Balance at March 31
2019
2018
2,500
$
1,884
178
(186)
(178)
2,314
356
—
260
$
2,500
$
$
We recognized interest and penalties related to uncertain tax positions in the provision for income taxes. As of March 31,
2019, and 2018 we had $360 and $295 accrued for interest and penalties, respectively. If all unrecognized tax benefits were
recognized, the net impact on the provision for income tax expense would be $2,674. 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
2016 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 2013. We remain subject to tax authority audits in various jurisdictions
wherever we do business.
76
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1
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2
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116023s2_STE 03.31.19 10-K _sw
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
In May 2019, we received two notices of proposed tax adjustment from the U.S. Internal Revenue Service (the “IRS”)
regarding the deductibility of interest paid on certain intercompany debt. The notices relate to fiscal years 2016 and 2017. The
IRS adjustment would result in a tax liability of approximately $25,000. We intend to contest the IRS’s assertions, including
pursuing all available remedies such as appeals and litigation, if necessary. We have not established reserves related to these
notices. An unfavorable outcome is not expected to have a material adverse impact on our consolidated financial position but
could be material to our consolidated results of operations and cash flows for any one period.
We estimate that the tax benefit from our Costa Rican Tax Holiday is $1,008 (or $0.01 per fully diluted share), annually.
The Tax Holiday runs fully exempt, from income tax, through 2025 and partially exempt through 2029.
Deferred Taxes. The significant components of the deferred tax assets and liabilities recorded in our accompanying balance
sheets at March 31, 2019 and 2018 were as follows:
w
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1
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1
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3
.
3
0
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_
2
s
3
2
0
6
1
1
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)
2019
2018
$
3,142
$
14,275
19,195
4,858
3,187
7,509
1,386
3,364
7,707
64,623
13,478
51,145
61,060
128,479
2,197
191,736
(140,591) $
$
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)
1
1
6
0
2
3
s
2
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S
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0
3
.
3
1
.
1
9
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-
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w
At March 31, 2019, we had U.S. federal operating loss carryforwards of $13,665, which remain subject to a 20 year
carryforward period. Additionally, we had non-U.S. operating loss carry forwards of $46,595. 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 2020 and 2040. In addition, we have recorded tax benefits of $2,602 related to state operating loss
carryforwards. If unused, these state operating loss carryforwards will expire between fiscal years 2020 and 2039. At March 31,
2019, we had $1,379 of tax credit carryforwards. These credit carryforwards can be used through fiscal 2029.
We review the need for a valuation allowance against our deferred tax assets. A valuation allowance of $13,478 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 2019 by $118.
Other than the 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 2020 when the analysis is complete. The amount of undistributed earnings
of subsidiaries was approximately $1,300,000 at March 31, 2019. 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.
77
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STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
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.
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1
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1
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1
3
.
3
0
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_
2
s
3
2
0
6
1
1
1
1
6
0
2
3
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2
_
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0
3
.
3
1
.
1
9
1
0
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116023s2_STE 03.31.19 10-K _sw
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.
We also sponsor several defined benefit pension schemes outside the United States: two in the UK, one in the Netherlands,
two in Germany, and one in Switzerland. 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 also sponsor 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.
1
1
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2
3
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2
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3
.
3
1
.
1
9
1
0
-
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_
s
w
w
s
_
K
-
0
1
9
1
.
1
3
.
3
0
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_
2
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3
2
0
6
1
1
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116023s2_STE 03.31.19 10-K _sw
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, 2019 and 2018,
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
Prior service cost
Interest cost
Actuarial loss (gain)
Benefits and expenses
Employee contributions
Impact of foreign currency exchange rate changes
(11,847)
16,451
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
2019
2018
2019
2018
$ 148,848
$ 128,897
$
14,100
$
16,008
—
2,394
831
3,255
(4,402)
(6,150)
743
—
6,543
5,005
742
(6,150)
(8,077)
3,843
2,402
—
3,262
(697)
—
—
—
457
(106)
—
—
—
519
(501)
(6,075)
(1,900)
(1,926)
765
—
—
—
—
4,462
1,052
5,150
765
12,427
—
—
—
1,900
—
—
—
—
1,926
—
—
—
—
—
(6,078)
(1,900)
(1,926)
133,672
148,848
12,551
14,100
119,441
101,663
117,504
119,441
$ (16,168) $ (29,407) $ (12,551) $ (14,100)
Other Defined Benefit
Pension Plans
Other Post-Retirement
Benefits Plan
2019
2018
2019
2018
$
— $
— $
(1,633) $
(1,906)
(16,168)
(29,407)
(10,918)
(12,194)
$ (16,168) $ (29,407) $ (12,551) $ (14,100)
1
1
6
0
2
3
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2
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3
.
3
1
.
1
9
1
0
-
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_
s
w
w
s
_
K
-
0
1
9
1
.
1
3
.
3
0
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_
2
s
3
2
0
6
1
1
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116023s2_STE 03.31.19 10-K _sw
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, 2019, was approximately $15,326 and $10,833, respectively. During fiscal 2020, 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
$
8
$
552
71
(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, 2019 and 2018:
Aggregate fair value of plan assets
Aggregate accumulated benefit obligations
Aggregate projected benefit obligations
Other Defined Benefit
Pension Plans
2019
2018
$ 117,504
$ 119,441
130,669
133,672
148,848
148,848
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
2019
2018
2017
2019
2018
2017
Service cost
Interest cost
Expected return on plan assets
Prior service cost recognition
Net amortization and deferral
$
2,394
3,139
(4,930)
51
474
Net periodic benefit cost
$
1,128
$
Recognized in other comprehensive
loss (income) before tax:
$
2,402
$
1,650
$
3,262
(4,835)
—
126
955
3,434
(2,853)
—
—
— $
457
(3,263)
552
— $
519
—
(3,263)
648
—
554
—
(3,263)
739
$
2,231
$
(2,254) $
(2,096) $
(1,970)
Net loss (gain) occurring during year
$
(6,545)
$
(697) $
(7,553) $
106
$
501
$
531
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)
781
(468)
(6,232)
—
(126)
(823)
—
—
(7,553)
3,263
(552)
2,817
3,263
(648)
3,116
3,263
(739)
3,055
$
(5,104)
$
132
$
(5,322) $
563
$
1,020
$
1,085
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116023s2_STE 03.31.19 10-K _sw
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
2019
2018
2.50%
1.20%
0.85%
1.60%
1.60%
2.35%
3.50%
2.50%
1.60%
0.95%
1.60%
1.60%
2.55%
3.50%
The following table presents significant assumptions used to determine the net periodic benefit costs for the years ended
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
Expected Return on Plan Assets:
Synergy Health plc Retirement Benefits Scheme
Isotron BV Pension Plan
Synergy Health Daniken AG
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1
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3
.
3
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0
6
1
1
2019
2018
2017
2.50%
1.60%
0.95%
1.60%
1.60%
2.55%
3.50%
5.02%
1.60%
1.20%
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%
1
1
6
0
2
3
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2
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3
.
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1
.
1
9
1
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-
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_
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w
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
2019
2018
2017
6.8%
6.8%
4.5%
7.0%
7.0%
4.5%
7.0%
7.0%
4.5%
To determine the healthcare cost trend rates, we evaluate a combination of information, including ongoing claims cost
monitoring, annual statistical analyses of claims data, reconciliation of forecasted claims against actual claims, review of trend
82
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.
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3
2
0
6
1
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116023s2_STE 03.31.19 10-K _sw
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
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, 2019:
Effect on total service and interest cost components
Effect on other post-retirement benefit obligation
One-Percentage Point
Increase
Decrease
$
— $
11
—
(11)
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, 2019,
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, 2019 and 2018 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
(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, 2019
Quoted
Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Other
Unobservable
Inputs
(Level 3)
Total
$
450
$
450
$
— $
14,720
5,089
73,532
23,713
—
—
—
—
14,720
—
—
—
—
—
5,089
—
—
$
117,504
$
450
$
14,720
$
5,089
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
74,081
24,581
$
119,441
$
83
67
—
—
—
—
67
$
— $
15,228
—
—
—
—
—
5,484
—
—
$
15,228
$
5,484
116023s2_STE 03.31.19 10-K _sw
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116023s2_STE 03.31.19 10-K _sw
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
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 2019
due to the following:
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
Gains (losses) related to assets still held at year-end
Transfers out of Level 3
Foreign currency
Balance at March 31, 2019
Insurance
contracts
3,959
(43)
2,231
(852)
189
5,484
29
(132)
(292)
5,089
$
$
$
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 $3,781 during fiscal
2020.
Based upon the actuarial assumptions utilized to develop our benefit obligations at March 31, 2019, the following benefit
payments are expected to be made to plan participants:
2020
2021
2022
2023
2024
2025-2030
Other Defined
Benefit Pension
Plans
Other Post-
Retirement
Benefits Plan
$
5,613
$
5,767
5,928
6,441
6,254
34,102
1,633
1,499
1,394
1,261
1,139
4,244
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 $706 and $383, during fiscal
2019 and fiscal 2018, respectively, which reduced the retiree responsibility for costs in excess of the caps established in the
post-retirement benefit plan.
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1
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1
3
.
3
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1
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116023s2_STE 03.31.19 10-K _sw
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
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 $703,740 at March 31, 2019. At March 31, 2019, the U.S. plan held
617,900 STERIS ordinary shares with a fair value of $79,110. We paid dividends of $826, $781, and $734 to the plan and
participants on STERIS shares held by the plan for the years ended March 31, 2019, 2018, and 2017, respectively. We
contributed approximately $25,935, $24,037, and $22,676, to the defined contribution plans for the years ended March 31,
2019, 2018, and 2017, 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 $1,400 and $1,583 at March 31, 2019 and March 31, 2018, 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.
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.
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STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
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, 2019 and 2018, our commercial commitments totaled $73,765 and $66,992, 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 $7,794 and $7,694 of the
March 31, 2019 and 2018 totals, respectively, relate to letters of credit required as security under our self-insured risk retention
policies.
As of March 31, 2019, we had minimum purchase commitments with suppliers for raw material purchases totaling
$96,087. As of March 31, 2019, we also had commitments of $82,040 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.
We disclose a measure of segment income that is consistent with the way management operates and views the business.
The accounting policies for reportable segments are the same as those for the consolidated Company. In fiscal 2019, we ceased
the allocation of certain corporate costs to our segments to align with internal management measures. The prior period
operating income measures have been recast for comparability.
For the year ended March 31, 2019, revenues from a single Customer did not represent ten percent or more of any
reportable segment’s revenues.
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-
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STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
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 acquired intangible assets (2)
Acquisition and integration related transaction charges (3)
(Gain) loss on fair value adjustment of acquisition related
contingent consideration
Net (gain) loss on divestiture of businesses (2)
Impact of the U.S. Tax Cuts and Jobs Act (4)
Redomiciliation costs (5)
Restructuring charges (6)
2019
2018
2017
$
1,338,428
$
1,276,054
$
1,266,517
510,057
378,558
555,127
469,065
361,590
513,287
539,536
328,866
477,837
$
2,782,170
$
2,619,996
$
2,612,756
323,684
64,222
132,129
221,828
294,162
58,458
123,889
196,297
741,863
(184,900)
556,963
$
672,806
(162,999)
509,807
$
$
—
2,440
86,878
8,901
(842)
(1,370)
—
8,783
40,708
—
1,599
67,793
16,211
(593)
14,547
10,264
—
103
285,177
41,019
109,953
176,397
612,546
(137,403)
475,143
58,356
4,743
66,398
30,082
2,569
86,574
—
—
215
1
1
6
0
2
3
s
2
_
S
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0
3
.
3
1
.
1
9
1
0
-
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_
s
w
w
s
_
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-
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1
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1
.
1
3
.
3
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_
2
s
3
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6
1
1
Total operating income
411,465
(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 18 titled, "Business Acquisitions and Divestitures". Amortization of
purchased intangible assets fiscal 2019 total includes an impairment charge of $16,249, see Note 3 titled, "Goodwill and Intangible Assets", for more
information.
399,883
$
$
$
226,206
(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.
(5) Costs incurred in connection with the decision to redomicile.
(6) See Note 2 titled, "Restructuring", for more information.
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.
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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 (1)
Healthcare Specialty Services
Applied Sterilization Technologies (1)
Total Depreciation, Depletion, and Amortization
2019
2018
$
$
$
$
$
$
1,611,852
805,349
2,655,870
5,073,071
2018
52,767
16,497
96,193
165,457
52,025
29,269
97,038
178,332
$
$
$
$
$
$
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
2019
49,688
39,950
100,077
189,715
81,264
33,392
111,265
225,921
$
$
$
$
(1) The fiscal 2019 totals include the impact of Restructuring and an impairment charge. See Note 2 titled, "Restructuring" and Note 3 titled, "Goodwill and
Intangible Assets", for additional information.
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.
March 31,
Property, Plant, and Equipment, Net
Ireland
United States
Other locations
Property, Plant, and Equipment, Net
Years Ended March 31,
Revenues:
Ireland
United States
Other locations
Total Revenues
2019
2018
$
$
$
$
41,137
577,113
413,332
1,031,582
2018
48,246
1,836,414
735,336
2,619,996
$
$
$
$
38,946
530,591
440,987
1,010,524
2017
42,733
1,803,457
766,566
2,612,756
2019
$
$
56,784
1,976,814
748,572
2,782,170
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116023s2_STE 03.31.19 10-K _sw
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
Years Ended March 31,
Healthcare Products:
Capital equipment
Consumables
Service
Total Healthcare Products Revenues
Total Healthcare Specialty Services Revenues
Life Sciences:
Capital equipment
Consumables
Service
Total Life Sciences Revenues
Applied Sterilization Technologies Service Revenues
Total Revenues
12. SHARES AND PREFERRED SHARES
Ordinary Shares
2019
2018
2017
$
$
$
$
$
$
$
568,811
414,969
354,648
1,338,428
510,057
102,714
161,780
114,064
378,558
555,127
2,782,170
$
$
$
$
$
527,402
412,495
336,157
1,276,054
469,065
100,555
150,656
110,379
361,590
513,287
2,619,996
549,238
403,747
313,532
1,266,517
539,536
84,069
143,143
101,654
328,866
477,837
2,612,756
$
$
$
$
$
In connection with the Redomiciliation, STERIS UK shareholders exchanged their shares of stock in STERIS UK for
STERIS Ireland shares of stock pursuant to a cancellation scheme of arrangement under UK law. Each STERIS UK ordinary
shareholder received one ordinary share, par value $75.00, of STERIS Ireland for each STERIS UK ordinary share held. The
par value of these shares was subsequently reduced to $0.001 per share, as described further in note 21 to our Consolidated
Financial Statements titled, "Subsequent Events."
We calculate basic earnings per share based upon the weighted average number of shares outstanding. We calculate diluted
earnings per share based upon the weighted average number of shares outstanding plus the dilutive effect of share equivalents
calculated using the treasury stock method. The following is a summary of shares and share equivalents outstanding used in the
calculations of basic and diluted earnings per share:
Years ended March 31,
Denominator (shares in thousands):
Weighted average shares outstanding—basic
Dilutive effect of share equivalents
Weighted average shares outstanding and share equivalents—
diluted
2019
2018
2017
84,577
891
85,468
85,028
685
85,713
85,473
621
86,094
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)
2019
2018
2017
352
393
576
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 were entitled to a fixed cumulative preferential annual dividend of 5 percent on the amount paid periodically
on the preferred shares respectively held by them. The shares were redeemed in connection with the Redomiciliation that
occurred on March 28, 2019 and the holders of the preferred shares received £0.10 per preferred share plus accrued but unpaid
dividends, and will not be entitled to any further participation in the assets of the Company.
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STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
Additional Authorized Shares
STERIS Ireland has an additional authorized share capital of 50,000,000 preferred shares of $0.001 each, plus €25,000
divided into 25,000 deferred ordinary shares of €1.00 each, in order to satisfy minimum statutory capital requirements for all
Irish public limited companies.
13. REPURCHASE OF ORDINARY SHARES
On August 9, 2016, STERIS UK 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 repurchased 651,093 of our ordinary shares during fiscal 2019
for the amount of $72,082, excluding taxes, fees and commissions. We repurchased 664,963 of our ordinary shares during fiscal
2018 for the amount of $58,939, excluding taxes, fees and commissions. As a result of the Redomiciliation that share
repurchase authorization terminated.
On May 7, 2019, our Board of Directors authorized the continuation of the share repurchase program by STERIS Ireland.
There is approximately $80,000 (net of taxes, fees and commissions) of remaining availability under the authorization. Under
the authorization, the Company may repurchase its shares from time to time through open market purchases, including 10b5-1
plans. The repurchase program may be suspended or discontinued at any time.
We obtained 112,356 of our shares during fiscal 2019 in the aggregate amount of $8,262 in connection with stock based
compensation award programs. We obtained 127,903 of our shares during fiscal 2018 in the aggregate amount of $7,014 in
connection with these programs. We obtained 168,906 of our shares during fiscal 2017 in the aggregate amount of $7,034 in
connection with these programs.
14. SHARE-BASED COMPENSATION
We maintain a long-term incentive plan that makes available shares for grants, at the discretion of the Compensation and
Organization Development Committee of the Board of Directors, or 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. We
satisfy share award incentives through the issuance of new ordinary shares.
Stock options provide the right to purchase our shares at the market price on the date of grant, or for options granted to
employees in fiscal 2019 and thereafter, 110% of the market price on the date of grant, subject to the terms of the option plan
and agreements. Generally, one-fourth of the stock options granted to employees become exercisable for each full year of
employment following the grant date. Stock options granted generally expire 10 years after the grant date, or in some cases
earlier if the option holder is no longer employed by us. 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, 2019, 4,400,306 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 2019, fiscal 2018 and fiscal
2017:
Risk-free interest rate
Expected life of options
Expected dividend yield of stock
Expected volatility of stock
Fiscal 2019
Fiscal 2018
Fiscal 2017
2.64%
6.2 years
1.47%
19.91%
2.01%
5.7 years
1.58%
22.08%
1.29%
5.7 years
1.54%
22.92%
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116023s2_STE 03.31.19 10-K _sw
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 2.37%, 2.25% and
1.85% was applied in fiscal 2019, 2018 and 2017, 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, 2018
Granted
Exercised
Forfeited
Outstanding at March 31, 2019
Exercisable at March 31, 2019
Number of
Options
2,021,662
436,121
(335,358)
(17,740)
2,104,685
1,164,583
$
$
$
Weighted
Average
Exercise
Price
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
58.56
114.49
40.70
79.91
72.82
57.81
6.7 years
5.5 years
$
$
116,199
81,780
We estimate that 924,224 of the non-vested stock options outstanding at March 31, 2019 will ultimately vest.
The aggregate intrinsic value in the table above represents the total pre-tax difference between the $128.03 closing price of
our ordinary shares on March 29, 2019 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, 2019, 2018 and 2017 was $25,371,
$16,096 and $6,454, respectively. Net cash proceeds from the exercise of stock options were $13,308, $11,093 and $4,955 for
the years ended March 31, 2019, 2018 and 2017, respectively. The tax benefit from stock option exercises was $8,306, $6,581
and $5,058 for the years ended March 31, 2019, 2018 and 2017, respectively.
The weighted average grant date fair value of stock option grants was $18.12, $15.51 and $13.42 for the years ended
March 31, 2019, 2018 and 2017, 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, 2019, 2018 and 2017 was $889, $1,437, and $1,622, 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, 2018
Granted
Vested
Forfeited
Non-vested at March 31, 2019
Number of
Restricted
Shares
Number of
Restricted Share
Units
Weighted-Average
Grant Date
Fair Value
763,201
178,142
(233,629)
(31,341)
676,373
35,431
22,038
(23,290)
(960)
33,219
$
$
68.65
104.83
62.15
76.98
80.86
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 2019 was $15,968.
As of March 31, 2019, there was a total of $39,023 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 2.09 years.
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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
16. DERIVATIVES AND HEDGING
2019
2018
2017
$
$
6,872
$
6,861
$
11,177
(10,855)
12,305
(12,294)
7,194
$
6,872
$
5,909
11,823
(10,871)
6,861
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, 2019, we held foreign currency forward contracts to buy 9.0 million
Canadian dollars and 150.0 million Mexican pesos. At March 31, 2019, we held commodity swap contracts to buy 652.9
thousand pounds of nickel.
Balance Sheet Location
Prepaid & Other
Accrued expenses and other
Asset Derivatives
Liability Derivatives
Fair Value at
March 31, 2019
Fair Value at
March 31, 2018
Fair Value at
March 31, 2019
Fair Value at
March 31, 2018
$
$
552
$
— $
$
187
— $
— $
278
$
—
—
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,
2019
235
434
$
$
2018
(1,357) $
$
373
2017
(1,886)
376
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 $51,916 at March 31,
2019. 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.
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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, 2019 and
March 31, 2018:
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
2019
2018
2019
2018
2019
2018
2019
2018
$
220,633 $
201,534
$ 220,633 $ 201,534
$
— $
— $
— $
552
13,873
2,545
187
12,961
3,421
—
13,873
2,545
—
12,961
3,421
552
—
—
187
—
—
—
—
—
$
278 $
— $
— $
— $
278 $
— $
— $
1,564
1,694
1,564
1,694
—
—
— 1,200,558
1,305,181
—
—
1,183,227
1,316,001
5,950
8,068
—
—
—
—
—
5,950
8,068
—
—
—
—
—
—
—
At March 31,
Assets:
Cash and cash equivalents
Forward and swap contracts (1)
Equity investments (2)
Other investments
Liabilities:
Forward and swap contracts (1)
Deferred compensation plans (2)
Long term debt (3)
Contingent consideration
obligations (4)
(1) 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.
(2) We maintain a frozen domestic non-qualified deferred compensation plan covering certain employees, which allowed 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. 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. Beginning in fiscal 2019,
changes in the fair value of these investments are recorded in the "Interest income and miscellaneous expense line" of the Consolidated
Statement of Income. During fiscal 2019, we recorded a loss of $2,731, related to these investments.
(3) 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.
(4) 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.
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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, 2019 are summarized
as follows:
Balance at March 31, 2017
Additions
Payments
Reductions and adjustments
Foreign currency translation adjustments
Balance at March 31, 2018
Payments
Reductions and adjustments
Foreign currency translation adjustments
Balance at March 31, 2019
Contingent
Consideration
$
$
$
4,451
5,774
(1,735)
(593)
171
8,068
(691)
(1,466)
39
5,950
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Additions and payments of contingent consideration obligations during fiscal year 2019 and 2018 were primarily related to
our fiscal year 2018 and 2017 acquisitions. Refer to Note 18, "Business Acquisitions and Divestitures" for more information.
18. BUSINESS ACQUISITIONS AND DIVESTITURES
Fiscal 2019 Acquisitions
During fiscal 2019, we completed a minor purchase to expand our service offerings in the Applied Sterilization
Technologies segment. The total purchase price was $13,313, and 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 closing.
Fiscal 2018 Acquisitions
We completed several 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 $52,527, net of cash acquired and including contingent consideration of
$5,018. The purchase price for the acquisitions was financed with both cash on hand and with credit facility borrowings.
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Fiscal 2017 Acquisitions
Compass Medical, Inc.
On September 16, 2016, we purchased the assets of Compass Medical, Inc. ("Compass'') for approximately $16,000. The
purchase price was financed with bank credit facility borrowings. Compass specializes in the sale and repair of flexible
endoscopes. Prior to the acquisition, Compass generated annual revenues of approximately $6,000 and was integrated into our
Healthcare Specialty Services segment.
Phoenix Surgical Holdings, Ltd. and Endo-Tek LLP
On August 31, 2016, we purchased 100% of the shares of Phoenix Surgical Holdings, Ltd. and the assets of Endo-Tek LLP
("Phoenix Surgical and Endo-Tek") for approximately $14,300 combined, net of cash acquired. The purchase price was
financed with cash on hand. Prior to the acquisition, these operations, which specialize in the repair of endoscopes, generated
approximately $8,000 in combined annual revenue and were 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 $34,500, net of cash acquired. The
purchase price was financed with cash on hand. Prior to the acquisition, the Medisafe product line generated $18,000 in annual
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.
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STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
Fair Value of Assets Acquired and Liabilities Assumed
The table below summarizes the allocation of the purchase price to the net assets acquired based on fair values at the
acquisition dates for our fiscal 2019, 2018 and 2017 acquisitions.
(dollars in thousands)
Cash
Accounts receivable
Inventory
Property, plant and equipment
Other assets
Intangible assets
Goodwill
Total Assets
Current liabilities
Non-current liabilities
Total Liabilities
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Fiscal Year
2019
Fiscal Year
2018
All
Acquisitions
(1)
All
Acquisitions
Fiscal Year 2017
Medisafe
Compass
Phoenix
Surgical and
Endo-Tek
$
— $
235
$
3,751
$
— $
750
51
2,004
479
4,070
6,614
13,968
(146)
(509)
(655)
1,464
2,289
3,381
126
17,404
32,384
57,283
(2,077)
(2,679)
(4,756)
3,634
2,454
639
—
17,151
19,599
47,228
(5,562)
(3,398)
(8,960)
629
659
13
31
5,992
8,987
16,311
(309)
—
(309)
769
1,123
950
1,092
46
7,824
5,938
17,742
(1,373)
(1,263)
(2,636)
15,106
Net Assets
(1) Purchase price allocation is still preliminary as of March 31, 2019, as valuations have not been finalized.
13,313
52,527
$
$
$
38,268
$
16,002
$
Acquisition related transaction and integration costs totaled $8,901, $16,211, and $30,082 for the fiscal years ended
March 31, 2019, 2018, and 2017, respectively. These costs are included in Selling, general, and administrative expenses in the
Consolidated Statements of Income.
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 $40,000 and were included in the Healthcare Products segment. We
recorded proceeds of $8,891, net of cash divested, including a working capital adjustment. We also recognized a pre-tax loss on
the sale, subject to final working capital adjustments, of $13,021 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 $75,000 and were included
in the Healthcare Specialty Services segment. We recorded a $43,000 pre-tax loss on the sale in Selling, general, and
administrative expense in the Consolidated Statements of Income as a result of the divestiture.
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 $50,000 and were included in the Healthcare
Specialty Services segment. We recorded proceeds of $4,500 and recognized a pre-tax loss on the sale, subject to final
adjustments, of $31,200 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 $15,000 and were included in the Applied Sterilization Technologies segment. We
recorded proceeds of $26,300, net of cash divested, and recognized a pre-tax gain on the sale of $18,700 in Selling, general, and
administrative expense in the Consolidated Statements of Income.
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STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
Applied Infection Control
On August 31, 2016, we completed the sale of our Applied Infection Control ("AIC") product line to DEB USA, Inc., a
wholly-owned subsidiary of S.C. Johnson & Son, Inc. Annual revenues for the AIC product line were typically less than
$50,000 and were included in the Healthcare Products segment. We recorded proceeds of $41,800 and recognized a pre-tax gain
on the sale of $36,200 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 $50,000 and were included in the Healthcare Specialty
Services segment. We recorded proceeds of $65,400, net of cash divested, and recognized a pre-tax loss on the sale of $66,400
in Selling, general, and administrative expense in the Consolidated Statements of Income.
Loans Receivable
In connection with a fiscal 2019 equity investment of $4,955, we agreed to provide a credit facility of up to approximately
$10,000 for a term of up to 7 years. Loans carry an interest rate of 4% compounded daily and interest is payable annually.
Outstanding borrowings under the agreement totaled $7,465 at March 31, 2019.
In connection with the fiscal 2017 divestiture of Synergy Health Netherlands Linen Management Services, we entered into
a loan agreement to provide financing of up to €15,000 for a term of up to 15 years. The loan carries an interest rate of 4% for
the first four years and 12% thereafter. Outstanding borrowings under the agreement totaled $8,494 (or €7,550) at March 31,
2019.
Amounts for loan receivables as noted above are recorded in the "Other assets" line of our Consolidated balance sheets.
Interest income is not material.
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. Accumulated other comprehensive income (loss) shown in our Consolidated
Statements of Shareholders' Equity and changes in our balances, net of tax, for the years ended March 31, 2019, 2018 and 2017
were as follows:
Gain (Loss) on
Available for Sale
Securities (1)
2018
2017
2019
Defined Benefit
Plans (2)
2018
2019
2017
2019
Foreign Currency
Translation (3)
2018
2017
Total Accumulated Other
Comprehensive Income
(Loss)
2019
2018
2017
Beginning
Balance
Other
Comprehensive
Income (Loss)
before
reclassifications
Reclassified
from
Accumulated
Other
Comprehensive
Income (Loss)
Net current-
period Other
Comprehensive
Income (Loss)
$ 1,970 $
178 $ (673) $ (6,742) $ (2,355) $ 5,108 $
16,457 $(238,525) $ (72,594) $ 11,685 $ (240,702) $ (68,159)
— 1,703
745
3,920
(2,291)
(5,491)
(172,031)
254,982
(165,931)
(168,111)
254,394
(170,677)
—
89
106
(1,382)
(2,096)
(1,972)
—
—
—
(1,382)
(2,007)
(1,866)
— 1,792
851
2,538
(4,387)
(7,463)
(172,031)
254,982
(165,931)
(169,493)
252,387
(172,543)
Cumulative
adjustment to
Retained
Earnings (4)
Ending
Balance
(1) Realized gain (loss) on available for sale securities is reported in the Interest income and miscellaneous expense line of the Consolidated
178 $ (4,204) $ (6,742) $ (2,355) $ (155,574) $ 16,457 $ (238,525) $(159,778) $
$ (1,970) $ — $ — $
$ — $ 1,970 $
11,685 $(240,702)
(1,970) $
— $
— $
— $
— $
— $
— $
— $
—
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STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
Statements of Income for fiscal 2018 and 2017.
(2) Amortization (gain) of defined benefit plan items are reported in the Interest income and miscellaneous expense line of our 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.
(4) As a result of the adoption of ASC 2016-01 we recorded a cumulative effect adjustment to our opening fiscal 2019 retained earnings
balance that increased retained earnings and decreased accumulated other comprehensive income. See Note 1 titled, "Nature of Operations
and Summary of Significant Accounting Policies" for further details.
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116023s2_STE 03.31.19 10-K _sw
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 2019
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 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
March 31,
December 31,
September 30,
June 30,
$ 374,937
393,276
768,213
$ 327,639
368,599
696,238
$ 314,659
364,302
678,961
$ 278,790
359,968
638,758
201,357
232,140
433,497
334,716
43.6%
4,840
$ 108,745
$
$
1.29
1.27
$
$
$
182,229
227,012
409,241
286,997
41.2%
26,147
47,858
0.57
0.56
172,107
222,190
394,297
284,664
41.9%
—
77,457
0.92
0.91
$
$
$
$
$
$
146,602
223,106
369,708
269,050
42.1%
—
69,991
0.83
0.82
$ 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
235,898
423,608
292,365
40.8 %
(53)
73,598
0.87
0.86
$
$
$
$
$
$
162,611
221,071
383,682
278,218
42.0 %
78
94,781
1.12
1.11
$
$
$
152,611
215,151
367,762
266,397
42.0 %
27
64,459
0.76
0.75
$
$
$
143,245
208,953
352,198
255,766
42.1 %
51
58,077
0.68
0.68
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116023s2_STE 03.31.19 10-K _sw
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
21. SUBSEQUENT EVENTS
Under Irish law, STERIS Ireland may only declare dividends and make distributions out of distributable profits. As a new
holding company, with no operational history, STERIS Ireland had no distributable profits as of March 31, 2019.
In connection with the Redomiciliation, on February 28, 2019, the shareholders of STERIS UK approved a special
resolution authorizing a capital reduction of, and the creation of distributable profits for, STERIS Ireland through a reduction in
the nominal value of its ordinary shares. To implement the approved proposal, STERIS Ireland authorized, subject to the
confirmation of the High Court of Ireland, the creation of approximately $6,338,536 of distributable profits within STERIS
Ireland by reducing the nominal value from $75.00 to $0.001 per share and cancelling the associated company capital paid-up
on each of the ordinary shares of STERIS Ireland issued (1) pursuant to the Scheme, and (2) following the effective time of the
Scheme and up to 11:59 a.m. on the day immediately prior to the High Court confirmation hearing (the “Par Value Reduction”).
On May 2, 2019, the High Court of Ireland confirmed the creation of distributable profits of STERIS Ireland via the Par
Value Reduction, such that the reserve resulting from the cancellation of paid-up company capital will be treated as
distributable profits of STERIS Ireland, and made a related order (the “Order”). The Par Value Reduction took effect on May 3,
2019, upon the registration with the Irish Registrar of Companies of the Order and of an associated minute approved by the
High Court with respect to the company capital of STERIS Ireland. In connection with the Par Value Reduction, the authorized
share capital of STERIS Ireland was also amended to (a) 500,000,000 ordinary shares, $0.001 par value per share, (b)
50,000,000 preferred shares, $0.001 par value per share and (c) 25,000 deferred ordinary shares, €1.00 par value per share. The
rights and obligations of the ordinary shares of STERIS Ireland otherwise remain unchanged.
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116023s2_STE 03.31.19 10-K _sw
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
Description
(in thousands)
Year ended March 31, 2019
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, 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
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Balance at
Beginning
of Period
Charges
to Costs
and
Expenses
Charges
to Other
Accounts
Deductions
Balance at
End of
Period
$
12,472
$
19,639
356
(673) (2)
$
(327) (3)
788 (3)
$
(2,856) (4)
—
$
9,645
19,754
13,596
4,055
(1,653) (3)
(2,520)
13,478
$
20,949
$
4,456
$
(1,158)
$
(4,505)
$
19,742
$
10,357
$
17,854
2,183
2,446 (2)
$
1,925 (3)
(661) (3)
—
$ (1,993) (4)
$
12,472
16,366
3,535
209 (3)
(6,514)
19,639
13,596
$
22,718
$
5,713
$
(2,563)
$
(4,919)
$
20,949
$
11,185
$
18,707
1,248
(171) (2)
$
16,435
4,014
11 (3)
(682) (3)
(214) (3)
$
(2,087) (4)
—
$
10,357
17,854
(3,869)
16,366
$
20,222
$
5,000
$
768
$
(3,272)
$
22,718
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(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.
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116023s2_STE 03.31.19 10-K _sw
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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, 2019, 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, 2019 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 the entity that was acquired during fiscal 2019. Total assets of the acquired business (inclusive
of acquired intangible assets and goodwill) represented approximately 0.25 percent of our total assets as of March 31, 2019 and
approximately 0.15 percent of our total revenues for the year ended March 31, 2019. Based on this evaluation under this
framework, management concluded that the internal control over financial reporting was effective as of March 31, 2019.
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, 2019, 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, 2019, 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 the entity that was acquired during the year ended March 31, 2019, which is included in the fiscal 2019 consolidated
financial statements of the Company and constituted approximately 0.25% of total assets as of March 31, 2019 and
approximately 0.15% 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 the entity that was acquired
during the year ended March 31, 2019.
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, 2019 and 2018, 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, 2019, and the related notes and the financial statement schedule listed in the Index at Item 15(a) and our report
dated May 30, 2019 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
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116023s2_STE 03.31.19 10-K _sw
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.
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, 2019
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116023s2_STE 03.31.19 10-K _sw
ITEM 9B. OTHER INFORMATION
None.
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116023s2_STE 03.31.19 10-K _sw
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 2019 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 and is incorporated herein
by reference. 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, 2019.
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)
2,104,685
—
2,104,685
$72.82
—
$72.82
4,400,306
—
4,400,306
Plan Category
Equity compensation plans
approved by security holders
Equity compensation plans
not approved by security
holders
Total
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.
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116023s2_STE 03.31.19 10-K _sw
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, 2019 and 2018.
Consolidated Statements of Income – Years ended March 31, 2019, 2018, and 2017.
Consolidated Statements of Comprehensive Income – Years ended March 31, 2019, 2018, and 2017.
Consolidated Statements of Cash Flows – Years ended March 31, 2019, 2018, and 2017.
Consolidated Statements of Shareholders’ Equity – Years ended March 31, 2019, 2018, and 2017.
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
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
Exhibit Description
STERIS plc Amended Memorandum and Articles of Association.
STERIS plc 2006 Long-Term Equity Incentive Plan, as Assumed, Amended and Restated
Effective March 28, 2019 (filed as Exhibit 10.1 to STERIS plc Form 8-K filed March 28, 2019
(Commission File No. 001-38848) and incorporated herein by reference).*
STERIS Corporation Form of Nonqualified Stock Option Agreement for Nonemployee Directors
(filed as Exhibit 10.4 to Form 10-Q for the fiscal quarter ended June 30, 2008 (Commission File
No. 1-14643), and incorporated herein by reference).*
STERIS Corporation Form of Non-Qualified Stock Option Agreement for Employees (filed as
Exhibit 10.2 to Form 10-Q for the fiscal quarter ended June 30, 2009 (Commission File No.
1-14643), and incorporated herein by reference).*
STERIS Corporation Form of Non-Qualified Stock Option Agreement for Employees. (filed as
Exhibit 10.22 to Form 10-K for the fiscal year ended March 31, 2011(Commission File No.
1-14643), and incorporated herein by reference).*
STERIS Corporation Form of 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).*
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116023s2_STE 03.31.19 10-K _sw
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
STERIS Corporation Form of Nonqualified Stock Option Agreement for Employees (filed as
Exhibit 10.13 to Form 10-Q for the fiscal quarter ended December 31, 2012 (Commission File
No. 1-14643), and incorporated herein by reference).*
STERIS Corporation Form of Nonqualified Stock Option Agreement for Employees (filed as
Exhibit 10.14 to Form 10-Q for the fiscal quarter ended December 31, 2012 (Commission File
No. 1-14643), and incorporated herein by reference).*
STERIS Corporation Form of Career Restricted Stock Unit Agreement for Nonemployee
Directors (filed as Exhibit 10.33 to Form 10-K for the fiscal year ended March 31, 2013
(Commission File No. 1-14643), and incorporated by reference).*
STERIS Corporation Form of Nonqualified Stock Option Agreement for Nonemployee
Directors(filed as Exhibit 10.34 to Form 10-K for the fiscal year ended March 31, 2013
(Commission File No. 1-14643), and incorporated by reference).*
STERIS plc Form of Nonqualified Stock Option Agreement for Employees (filed as Exhibit 10.2
to STERIS plc Form 10-Q for the fiscal quarter ended December 31, 2015 (Commission File No.
1-37614) and incorporated herein by reference).*
STERIS plc Form of Nonqualified Stock Option Agreement for Employees (filed as Exhibit
10.16 to STERIS plc Form 10-K for the fiscal year ended March 31, 2018 (Commission File No.
1-37614) and incorporated herein by reference).*
Amendment to STERIS plc Nonqualified Stock Option Agreement (filed as Exhibit 10.4 to
STERIS plc Form 10-Q for the fiscal quarter ended September 30, 2018 (Commission File No.
1-37614) and incorporated herein by reference).*
Form of STERIS plc Nonqualified Stock Option Agreement for Employees (filed as Exhibit 10.2
to STERIS plc Form 10-Q for the fiscal quarter ended September 30, 2018 (Commission File
No. 1-37614) and incorporated herein by reference).*
STERIS plc Form of Restricted Stock Agreement for Employees (filed as Exhibit 10.3 to
STERIS plc Form 10-Q for the fiscal quarter ended December 31, 2015 (Commission File No.
1-37614) and incorporated herein by reference).*
STERIS plc Form of Nonqualified Stock Option Agreement for Nonemployee Directors (filed as
Exhibit 10.20 to STERIS plc Form 10-K for the year ended March 31, 2016 (Commission File
No. 1-37614) and incorporated herein by reference).*
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).*
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 September 30, 2018 (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)*
Description of STERIS plc Non-Employee Director Compensation Program (filed as Exhibit
10.1 to STERIS plc Form 10-Q for the fiscal quarter ended September 30, 2018 (Commission
File No. 1-37614), and incorporated herein by reference)*
STERIS Corporation Deferred Compensation Plan Document (filed as Exhibit 10.1 to Form 8-K
filed September 1, 2006 (Commission File No. 1-14643), and incorporated herein by reference).*
STERIS Corporation Deferred Compensation Plan Document (as Amended and Restated
Effective January 1, 2009) (filed as Exhibit 10.1 to Form 10-Q for the fiscal quarter ended
December 31, 2008 (Commission File No. 1-14643), and incorporated herein by reference).*
106
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116023s2_STE 03.31.19 10-K _sw
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
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 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).*
STERIS plc Management Incentive Compensation Plan (As Amended and Restated Effective
March 28, 2019) (filed as Exhibit 10.2 to STERIS plc Form 8-K filed March 28, 2019
(Commission File No. 001-38848), 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).*
STERIS plc Senior Executive Severance Plan, As Adopted effective March 28, 2019 (filed as
Exhibit 10.3 to STERIS plc 8-K filed March 28, 2019 (Commission File No. 001-38848), 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).
Form of Deed of Indemnity for STERIS plc directors and executive officers (filed as Exhibit
10.4 to STERIS plc Form 8-K filed March 28, 2019 (Commission File No. 001-38848), and
incorporated herein by reference).
Agreement dated as of April 23, 2008 by and among STERIS Corporation, Richard C. Breeden,
Robert H. Fields, and the Breeden Investors identified therein (filed as Exhibit 10.1 to Form 8-K
filed April 24, 2008 (Commission File No. 1-14643), and incorporated herein by reference).
Agreement dated November 4, 2011 between STERIS Corporation and Bank of America, N.A.
providing Transfer and Advised Line for Letters of Credit (filed as Exhibit 10.2 to Form 10-Q for
the fiscal quarter ended December 31, 2011 (Commission File No. 1-14643), and incorporated
herein by reference).
107
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1
1
116023s2_STE 03.31.19 10-K _sw
10.43
10.44
10.45
10.46
10.47
10.48
10.49
10.50
10.51
10.52
10.53
10.54
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).
First Amendment dated March 5, 2019 to the Credit Agreement, dated as of March 23, 2018, by
and among STERIS Corporation and STERIS plc, as borrowers and guarantors, 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 form 8-K filed
March 5, 2019 (Commission File No. 001-14643), and incorporated herein by reference).
Borrower Joinder Agreement dated March 28, 2019 among STERIS plc and Synergy Health
Limited and JPMorgan Chase Bank, N.A., as Administrative Agent.
Guarantor Joinder Agreement dated March 28, 2019 by STERIS plc and STERIS Emerald IE
Limited in favor of JPMorgan Chase Bank, N.A., as Administrative Agent.
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).
Second Amendment dated as of March 5, 2019 to the Amended and Restated Note Purchase
Agreement dated as of March 31, 2015, as amended by that certain First Amendment dated as of
January 23, 2017, by and among STERIS Corporation and each of the purchasers listed in
Schedule A thereto, filed as Exhibit 10.2 to Form 8-K filed March 5, 2019 (Commission File No.
001-37614), 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).
Guaranty Supplement dated March 28, 2019 by STERIS plc and STERIS Emerald IE Limited
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.
108
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1
116023s2_STE 03.31.19 10-K _sw
10.55
10.56
10.57
10.58
10.59
10.60
10.61
10.62
10.63
10.64
10.65
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).
Second Amendment dated as of March 5, 2019 to the Amended and Restated Note Purchase
Agreement dated as of March 31, 2015, as amended by that certain First Amendment dated as of
January 23, 2017, by and among STERIS Corporation and each of the purchasers listed in
Schedule A thereto, filed as Exhibit 10.3 to Form 8-K filed March 5, 2019 (Commission File No.
1-37614), and incorporated herein by reference).
Affiliate Guaranty, dated as of March 31, 2015, by STERIS Corporation and each of American
Sterilizer Company, Integrated Medical Systems International, Inc., STERIS Europe, Inc.,
STERIS Inc., United States Endoscopy Group, Inc., Isomedix Inc. and Isomedix Operations Inc.,
of the December 4, 2012 Note Purchase Agreements, as amended and restated, and Notes issued
pursuant thereto (filed as Exhibit 10.8 to Form 8-K filed April 2, 2015 (Commission File No.
1-14643), and incorporated herein by reference).
Guaranty Supplement dated September 9, 2015 by General Econopak, Inc. and STERIS
Corporation of Affiliate Guaranty dated as of March 31, 2015 of STERIS Corporation December
4, 2012 Note Purchase Agreements, as amended and restated, and of the Notes issued pursuant
thereto (filed as Exhibit 10.11 to STERIS plc Form 10-Q for the fiscal quarter ended December
31, 2015 (Commission File No. 1-37614), and incorporated herein by reference).
Guaranty Supplement dated November 2, 2015 by Solar New US Holding Co, LLC, Solar New
US Parent Co, LLC and Solar New US Acquisition Co, LLC and STERIS Corporation of
Affiliate Guaranty dated as of March 31, 2015 of STERIS Corporation December 4, 2012 Note
Purchase Agreements, as amended and restated, and of the Notes issued pursuant thereto (filed as
Exhibit 10.57 to STERIS plc Form 10-K for the year ended March 31, 2016 (Commission File
No. 1-37614), and incorporated herein by reference).
Guaranty Supplement dated January 12, 2016 by Synergy Health Holdings Limited, Synergy
Health Sterilisation UK Limited, Synergy Health (UK) Limited, Synergy Health Investments
Limited and Synergy Health US Holdings Limited of Affiliate Guaranty dated as of March 31,
2015 of STERIS Corporation December 4, 2012 Note Purchase Agreements, as amended and
restated and of the Notes issued pursuant thereto (filed as Exhibit 10.58 to STERIS plc Form 10-
K for the year ended March 31, 2016 (Commission File No. 1-37614), and incorporated herein
by reference).
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).
Guaranty Supplement dated March 28, 2019 by STERIS plc and STERIS Emerald IE Limited
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.
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).
Second Amendment dated as of March 5, 2019 to the Note Purchase Agreement dated as of May
15, 2015, as amended by that certain First Amendment dated as of January 23, 2017, by and
among STERIS Corporation and each of the purchasers listed in Schedule A thereto, filed as
Exhibit 10.4 to Form 8-K filed March 5, 2019 (Commission File No. 1-37614), 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).
109
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116023s2_STE 03.31.19 10-K _sw
10.66
10.67
10.68
10.69
10.70
10.71
10.72
10.73
10.74
10.75
10.76
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).
Guaranty Supplement dated March 28, 2019 by STERIS plc and STERIS Emerald IE Limited
and STERIS Corporation of Affiliate Guaranty dated as of May 15, 2015 of STERIS Corporation
May 15, 2015 Note Purchase Agreement, as amended and restated, and of the Notes issued
pursuant thereto.
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).
First Amendment dated as of March 5, 2019 to the Note Purchase Agreement dated as of January
23, 2017, by and among STERIS plc and each of the purchasers listed in Schedule A thereto,
filed as Exhibit 10.5 to Form 8-K filed March 5, 2019 (Commission File No. 1-37614), and
incorporated herein by reference).
Affiliated Guaranty, dated as of January 23, 2017, by STERIS plc and each of the American
Sterilizer Company, Integrated Medical Systems International, Inc., Isomedix Inc., Isomedix
Operations Inc., Solar New US Holding Co, LLC, Solar New US Parent Co, LLC, Solar US
Acquisition Co, LLC, STERIS Barrier Products Solutions, Inc., STERIS Corporation, STERIS
Europe, Inc., STERIS Inc., Synergy Health Holdings Limited, Synergy Health Limited, Synergy
Health Sterilisation UK Limited, Synergy Health (UK) Limited, Synergy Health Investments
Limited, Synergy Health US Holdings Limited, and United States Endoscopy Group, Inc., of
STERIS plc January 23, 2017 Note Purchase Agreement and Notes issued pursuant thereto (filed
as Exhibit 10.2 to Form 8-K filed January 26, 2017 (Commission File No. 1-37614), and
incorporated herein by reference).
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).
Guaranty Supplement dated March 28, 2019 by STERIS plc and STERIS Emerald IE Limited
and STERIS Limited of Affiliate Guaranty dated as of January 23, 2017 of STERIS plc January
23, 2017 Note Purchase Agreement, as amended and restated, and of the Notes issued pursuant
thereto.
Stock Purchase Agreement dated July 16, 2012 by and among STERIS Corporation, United
States Endoscopy Group, Inc. and the shareholders party thereto (filed as Exhibit 2.1 to Form 8-
K filed August 15, 2012 (Commission File No. 1-14643), and incorporated herein by reference).
110
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116023s2_STE 03.31.19 10-K _sw
10.77
10.78
21.1
23.1
24.1
31.1
31.2
32.1
Stock Purchase Agreement dated March 31, 2014 by and among STERIS Corporation, Integrated
Medical Systems International, Inc. and the shareholders party thereto (filed as Exhibit 2.1 to
Form 8-K filed May 9, 2014 (Commission File No. 1-14643), and incorporated herein by
reference).
Stock Purchase Agreement dated June 23, 2015 by and among STERIS Corporation, General
Econopak, Inc. and each of the Stockholders of General Econopak, Inc. (filed as Exhibit 10.1 to
STERIS Corporation Form 10-Q for the fiscal quarter ended June 30, 2015 (Commission File
No. 1-14643), and incorporated herein by reference).
Subsidiaries of STERIS plc.
Consent of Independent Registered Public Accounting Firm.
Power of Attorney
Certification of the Principal Executive Officer Pursuant to Exchange Act Rule 13a-14(a)/
15d-14(a).
Certification of the Principal Financial Officer Pursuant to Exchange Act Rule 13a-14(a)/
15d-14(a).
Certification of the Principal Executive Officer and the Principal Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
EX-101
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.
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116023s2_STE 03.31.19 10-K _sw
116023s2_STE 03.31.19 10-K _sw
ITEM 16. FORM 10-K SUMMARY
None.
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116023s2_STE 03.31.19 10-K _sw
116023s2_STE 03.31.19 10-K _sw
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, 2019
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, 2019
Walter M Rosebrough, Jr.
/S/ MICHAEL J. TOKICH
Michael J. Tokich
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
May 30, 2019
/S/ KAREN L. BURTON
Vice President, Controller and Chief Accounting Officer
May 30, 2019
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Karen L. Burton
*
Mohsen M. Sohi
*
Richard C. Breeden
*
Cynthia L. Feldmann
*
David B. Lewis
*
Jacqueline B. Kosecoff
*
Sir Duncan K. Nichol
*
Nirav R. Shah
*
Richard M. Steeves
*
Loyal W. Wilson
*
Michael B. Wood
Chairman and Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
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May 30, 2019
May 30, 2019
May 30, 2019
May 30, 2019
May 30, 2019
May 30, 2019
May 30, 2019
May 30, 2019
May 30, 2019
May 30, 2019
*
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, 2019
By:
/S/ J. ADAM ZANGERLE
J. Adam Zangerle,
Attorney-in-Fact for Directors
113
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116023s2_STE 03.31.19 10-K _sw
SUBSIDIARIES OF STERIS PLC
STERIS plc has no parent company. As of March 31, 2019, its direct and indirect subsidiaries(1) were as follows:
EXHIBIT 21.1
Albert Browne Limited
American Sterilizer Company
Anecto Test Services DAC
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
Gammaster Sweden AB
Genii, Inc.
Harwell Dosimeters Limited
Herotron E-Beam Service GmbH
Isomedix Inc.
Isomedix Operations Inc.
Isotron Limited
Medisafe America, L.L.C.
Medisafe Holdings Limited
Medisafe UK Limited
PeriOptimum, Inc.
Phoenix Optics Limited
Phoenix Surgical Holdings 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
STERIS AB
STERIS Applied Sterilization Technologies ULC
STERIS Asia Pacific, Inc.
116023s2_STE 03.31.19 10-K _sw
England & Wales
Pennsylvania
Ireland
Egypt
Malaysia
California
England & Wales
Ohio
England & Wales
England & Wales
England & Wales
England & Wales
Sweden
Minnesota
England & Wales
Germany
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
Sweden
Canada
Delaware
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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 Sales ULC
STERIS Canada ULC
STERIS CH Limited
STERIS China Holdings Limited
STERIS Corporation
STERIS Corporation de Costa Rica, S.A.
STERIS Deutschland GmbH
STERIS Dover AST Holdings Limited
STERIS Dover Canada Holdings Limited
STERIS Dover Limited
STERIS Emerald IE 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 Inc.
STERIS (India) Private Limited
STERIS Instrument Management Services, Inc.
STERIS Ireland Limited
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
STERIS Personnel Services, Inc.
STERIS Personnel Services Mexico, S. de R.L. de C.V.
116023s2_STE 03.31.19 10-K _sw
Czech Republic
Slovenia
Slovakia
Pennsylvania
Delaware
British Virgin Islands
Canada
Canada
England & Wales
Hong Kong
Ohio
Costa Rica
Germany
England & Wales
England & Wales
England & Wales
Ireland
Russia
Delaware
Luxembourg
Luxembourg
Switzerland
Netherlands
Spain
Canada
England & Wales
Delaware
India
Delaware
Ireland
Ireland
Ireland
Puerto Rico
Japan
Minnesota
Delaware
Luxembourg
Luxembourg
Republic of Mauritius
Mexico
Belgium
Delaware
Mexico
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STERIS S.r.l.
STERIS SAS
STERIS SEA Sdn. Bhd.
STERIS (Shanghai) Trading Co., Ltd.
STERIS Singapore Pte Ltd
STERIS Solutions Limited
STERIS Solutions Pte. 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 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
Synergy Sterilisation Kulim (M) Sdn Bhd
Synergy Sterilisation (M) Sdn Bhd
Synergy Sterilisation Rawang (M) Sdn Bhd
116023s2_STE 03.31.19 10-K _sw
Italy
France
Malaysia
China
Singapore
England & Wales
Singapore
Italy
England & Wales
Hong Kong
China
Delaware
Germany
The Netherlands
Delaware
Costa Rica
Switzerland
The Netherlands
France
The Netherlands
England & Wales
England & Wales
Ireland
England & Wales
The Netherlands
France
The Netherlands
Germany
England & Wales
China
China
England & Wales
Thailand
New York
England & Wales
Delaware
England & Wales
The Netherlands
Ireland
Malaysia
Malaysia
Malaysia
Malaysia
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Synergy Sterilisation South Africa (Proprietary) Limited
United States Endoscopy Group, Inc.
Vernon and Co. Limited
Vernon Carus (Malta) Limited
Vernon-Carus Limited
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 2019 a “significant subsidiary” within the meaning of Rule 1-02(w) of Regulation
S-X have been excluded.
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116023s2_STE 03.31.19 10-K _sw
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
(1)
(2)
Registration Statement (Form S-8, No. 333-230557) of STERIS plc pertaining to the STERIS Corporation 401(k)
Plan, and
Registration Statement (From S-8, No. 333-230558) of STERIS plc pertaining to the STERIS plc 2006 Long-Term
Equity Incentive Plan (As Assumed, Amended and Restated Effective March 28, 2019);
of our reports dated May 30, 2019, 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, 2019.
/s/ Ernst & Young LLP
Cleveland, Ohio
May 30, 2019
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116023s2_STE 03.31.19 10-K _sw
STERIS PLC
POWER OF ATTORNEY
FORM 10-K
Exhibit 24.1
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, 2019, 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 29th
day of May, 2019.
/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/ MOHSEN M. SOHI
Mohsen M. Sohi, Chairman of the Board
/s/ LOYAL W. WILSON
Loyal W. Wilson, Director
/s/ WALTER M ROSEBROUGH, JR
Walter M Rosebrough, Jr.
President and Chief Executive Officer
(Principal Executive Officer), Director
/s/ CYNTHIA L. FELDMANN
Cynthia L. Feldmann, Director
/s/ DAVID B. LEWIS
David B. Lewis, Director
/s/ NIRAV R. SHAH
Nirav R. Shah, Director
/s/ RICHARD M. STEEVES
Richard M. Steeves, Director
/s/ MICHAEL B. WOOD
Michael B. Wood, Director
/s/ MICHAEL J. TOKICH
Michael J. Tokich
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)
116023s2_STE 03.31.19 10-K _sw
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116023s2_STE 03.31.19 10-K _sw
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, 2019
/S/ WALTER M ROSEBROUGH, JR.
Walter M Rosebrough, Jr.
President and Chief Executive Officer
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116023s2_STE 03.31.19 10-K _sw
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, 2019
/S/ MICHAEL J. TOKICH
Michael J. Tokich
Senior Vice President and Chief Financial Officer
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116023s2_STE 03.31.19 10-K _sw
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, 2019, 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, 2019
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116023s2_STERIS After 10-k_sw
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
2019
2018
2019
2018
2019
GAAP
Growth
2019
Organic
Growth
2019
Constant
Currency
Organic
Growth
2019
Segment revenues:
Healthcare Products
$ 1,338,428
$ 1,276,054
$
— $
(25,907) $
(4,690)
Healthcare Specialty
Services
Life Sciences
Applied Sterilization
Technologies
510,057
378,558
469,065
361,590
555,127
513,287
—
—
—
—
—
—
Total
$ 2,782,170
$ 2,619,996
$
— $
(25,907) $
(1,286)
(1,415)
(2,328)
(9,719)
4.9%
8.7%
4.7%
8.2%
6.2%
7.1%
8.7%
4.7%
8.2%
7.3%
7.4%
9.0%
5.1%
8.6%
7.6%
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
2019
2018
2019
2018
2019
2018
2019
2018
$ 1,175,427 $ 1,092,746
$
411,465 $
399,883
$
304,051 $
290,915
$
3.56 $
3.39
2,604
2,619
2,440
1,599
721
207
86,878
67,793
2,145
4,202
8,901
16,211
—
—
9,721
—
—
—
—
—
—
(842)
(593)
(1,370)
14,547
40,708
8,783
103
—
5,542
—
10,264
—
(13,597)
113,497
78,309
1.33
$ 1,190,618 $ 1,105,316
$
556,963 $
509,807
$
417,548 $
355,627
$
4.89 $
0.76
4.15
GAAP
Adjustments:
Amortization of inventory and
property "step up" to fair value
Amortization of
acquired intangible assets
Acquisition related transaction and
integration charges
(Gain) on fair value adjustment
of acquisition related contingent
consideration
Net (gain) loss on divestiture of
businesses
Restructuring charges
Redomiciliation costs
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.
** The tax expense includes both the current and deferred income tax impact of the adjustments.
116023s2_STERIS After 10-k_sw
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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 pay cash dividends, fund
growth outside of core operations, fund future debt principal repayments, and repurchase shares.
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,
2019
2018
(Unaudited)
Unaudited)
$
$
539,505 $
(189,715)
5,567
355,357 $
457,632
(165,457)
2,094
294,269
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, 2014 in our ordinary shares and
in each of the named indices. The past performance shown in this graph does not necessarily guarantee future performance.
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Copyright© 2019 Standard and Poor's, Inc. Used with permission. All rights reserved.
Copyright© 2019 Dow Jones, Inc. Used with permission. All rights reserved.
STERIS plc
S&P 500 Index
Dow Jones US Medical Supplies Index
3/14
100.00
100.00
100.00
3/15
149.43
112.73
122.20
3/16
153.32
114.74
130.68
3/17
152.26
134.45
143.21
3/18
207.55
153.26
156.43
3/19
287.96
167.81
161.31
116023s2_STERIS After 10-k_sw