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United States Securities and Exchange Commission
Washington, D. C. 20549
 ___________________________________________________________________
FORM 10-K
x Annual Report Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
For the fiscal year ended March 31, 2018
OR
o Transition Report Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
For the transition period from                      to                     
Commission file number 1-37614
STERIS plc
(Exact name of registrant as specified in its charter)
England and Wales
 
98-1203539
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer Identification No.)
 
 
 
Rutherford House Stephensons Way Chaddesden, Derby, England
(Address of principal executive offices)
DE21 6LY

(Zip Code)
44 1332 387100
(Registrant’s telephone number
including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class
Name of Exchange on Which Registered
Ordinary Shares, 10 pence par value
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  x    No   o
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  o   No  x
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  x    No   o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x    No   o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer  x
 
Accelerated Filer  o
Non-Accelerated Filer  o
(Do not check if a smaller reporting company)
 
Smaller Reporting Company  o
 
 
Emerging Growth Company  o
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. o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o    No   x As of September 30, 2017, the aggregate market value of shares held by non-affiliates of STERIS Corporation (the predecessor issuer pursuant to Rule 12g-3(a) under the Securities Exchange Act of 1934), based upon the closing sale price of its shares on September 29, 2017, was approximately $7,420.7 million.
The number of Ordinary Shares outstanding as of May 25, 2018: 84,618,075
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2018 Annual Meeting – Part III

1

STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)



 Table of Contents
  
 
  
Page
Part I
Item 1
 
 
 
 
 
 
 
Item 1A
 
Item 1B
 
Item 2
 
Item 3
 
Item 4
 
Part II
Item 5
 
Item 6
 
Item 7
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 7A
 
 
 
 
 
 
 
Item 8
 
Item 9
 
Item 9A
 
Item 9B
 
Part III
Item 10
 
Item 11
 
Item 12
 
Item 13
 
Item 14
 
Part IV
Item 15
 
Item 16
 
 
 

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PART I
Throughout this Annual Report, STERIS plc and its subsidiaries together are called “STERIS,” “the Company,” “we,” “us,” or “our,” unless otherwise noted. References in this Annual Report to a particular “year,” "fiscal year," or “year-end” mean our fiscal year, which ends on March 31. For example, fiscal year 2018 ended on March 31, 2018.
ITEM 1.
BUSINESS

INTRODUCTION
STERIS plc is a leading provider of infection prevention and other procedural products and services. Our mission is to help our Customers create a healthier and safer world by providing innovative healthcare and life science product and service solutions around the globe. We offer our Customers a unique mix of innovative capital equipment products, such as sterilizers and washers, surgical tables, lights and equipment management systems and connectivity solutions such as operating room integration; consumable products such as detergents and gastrointestinal endoscopy accessories and other products; services, including equipment installation and maintenance, microbial reduction of medical devices, instrument and scope repair solutions, laboratory services and outsourced reprocessing.
STERIS plc (“Parent”) was organized in 2014 under the laws of England and Wales under the name Solar New HoldCo Limited as a private limited company for the purpose of effecting under the laws of England and Wales the combination (“Combination”) of STERIS Corporation, an Ohio corporation (“Old STERIS”), and Synergy Health plc, a public limited company organized under the laws of England and Wales (“Synergy”). Effective November 2, 2015 the Parent was re-registered as a public company under the name of STERIS plc and the Combination closed. As a result of the Combination closing, STERIS plc became the ultimate parent company of Old STERIS and Synergy. Synergy has been re-registered under the name of Synergy Health Limited. The acquisition of Old STERIS was accounted for in the consolidated financial statements as a merger between entities under common control; accordingly the historical consolidated financial statements of Old STERIS for periods prior to November 2, 2015, are considered to be the historical financial statements of STERIS plc. Due to the timing of the Combination, the results of Synergy are only reflected in the results of operations of the Company from November 2, 2015 forward, which will affect the comparability to the prior period historical operations of the Company throughout this Annual Report on Form 10-K.
With registered offices located in Derby, England, STERIS plc has approximately 12,000 employees worldwide. Through our field sales and service and a network of dealers and distributors, we serve Customers in more than 100 countries around the world.
We operate and report in four reportable business segments: Healthcare Products, Healthcare Specialty Services, Life Sciences, and Applied Sterilization Technologies. Non-allocated operating costs that support the entire Company and items not indicative of operating trends are excluded from segment operating income. Certain minor organizational changes were made to better align with our Customers, resulting in several smaller operations shifting among the segments. The prior period revenues and operating income measures have been recast for comparability.
The bulk of our revenues are derived from the healthcare and pharmaceutical industries. Much of the growth in these industries is driven by the aging of the population throughout the world, as an increasing number of individuals are entering their prime healthcare consumption years, and is dependent upon advancement in healthcare delivery, acceptance of new technologies, government policies, and general economic conditions. The pharmaceutical industry has been impacted by increased regulatory scrutiny of cleaning and validation processes, mandating that manufacturers improve their processes. Within healthcare, there is increased concern regarding the level of hospital acquired infections around the world; increased demand for medical procedures, including preventive screenings such as endoscopies and colonoscopies; and a desire by our Customers to operate more efficiently, all of which are driving increased demand for many of our products and services. 
INFORMATION RELATED TO BUSINESS SEGMENTS
Our chief operating decision maker is our President and Chief Executive Officer (“CEO”). The CEO is responsible for performance assessment and resource allocation. The CEO regularly receives discrete financial information about each reportable segment and uses this information to assess performance and allocate resources. The accounting policies of the reportable segments are the same as those described in Note 1 to the Consolidated Financial Statements titled, “Nature of Operations and Summary of Significant Accounting Policies,” of this Annual Report. Segment performance information for fiscal years 2018, 2017, and 2016 is presented in Note 11 to our Consolidated Financial Statements titled, “Business Segment Information” and in Item 7 titled, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”), of this Annual Report.

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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.
Customer Concentration. Our Healthcare Products segment sells consumables, services and capital equipment, to Customers in the United Kingdom, United States and many other countries throughout the world. For the year ended March 31, 2018, no Customer represented more than 10% of the Healthcare Product segment's total revenues.
Competition. We compete with a number of large companies that have significant product portfolios and global reach, as well as a number of small companies with very limited product offerings and operations in one or a limited number of countries. On a product basis, competitors include 3M, Belimed, Cantel Medical, Ecolab, Getinge, Hill-Rom, Johnson & Johnson, Skytron, and Stryker.
HEALTHCARE SPECIALTY SERVICES SEGMENT
Description of Business. Our Healthcare Specialty Services segment provides a range of solutions and managed services including; hospital sterilization services and instrument and scope repairs to acute care hospitals and other healthcare settings that aid our Customers in improving the safety, quality and productivity of their operations.
Services Offered. Our Healthcare Specialty Services segment provides comprehensive instrument and endoscope repair and maintenance solutions (on-site or at one of our dedicated facilities), custom process improvement consulting and outsourced sterile processing (on-site at the hospital and in off-site reprocessing centers). Linen Management Services were divested during fiscal 2017.
Customer Concentration. Our Healthcare Specialty Services segment offers an array of services to Customers in the United Kingdom, United States and many other countries throughout the world. For the year ended March 31, 2018, no Customer represented more than 10% of the Healthcare Specialty Services segment's total revenues.
Competition. We compete with a number of large companies that have significant product portfolios and global reach, as well as a number of small companies with very limited service offerings and operations in one or a limited number of countries. On a service line basis, competitors include Owens & Minor, Stryker, Olympus, Pentax, Karl Storz, Mobile, Northfield, BBraun Sterilog Limited, Berendsen plc, CleanLease (Clean Lease Fortex), Rentex Awé and Rentex Floren.
LIFE SCIENCES SEGMENT
Description of Business.  Our Life Sciences segment designs, manufactures and sells consumable products, equipment maintenance, specialty services and capital equipment primarily to pharmaceutical manufacturers around the world.
Products Offered.  These solutions include formulated cleaning chemistries, barrier products, sterility assurance products, steam and vaporized hydrogen peroxide sterilizers and washer disinfectors.
Services Offered.  Our Life Sciences segment service associates install, maintain, upgrade, repair, and troubleshoot equipment throughout the world. We offer various preventive maintenance programs and repair services to support the effective operation of capital equipment over its lifetime.
Customer Concentration.  Our Life Sciences segment sells consumables, services and capital equipment, to Customers in the United Kingdom, United States and many other countries throughout the world. For the year ended March 31, 2018, no Customer represented more than 10% of the Life Sciences segment’s total revenues.
Competition.  Our Life Sciences segment operates in highly regulated environments where the most intense competition results from technological innovations, product performance, convenience and ease of use, and overall cost-effectiveness. We compete for pharmaceutical Customers with a number of large companies that have significant product portfolios and global reach, as well as a number of small companies with very limited product offerings and operations in one or a limited number of countries. Competitors include Belimed, Ecolab, Fedegari, Getinge, MECO, Stilmas, and Techniplast.

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APPLIED STERILIZATION TECHNOLOGIES SEGMENT
Description of Business. Our Applied Sterilization Technologies ("AST") segment provides contract sterilization services through a network of over 50 facilities located in 16 countries. As a technology neutral service provider, we offer unbiased technology assessments dependent on the individual requirements of each product. Our Customers are primarily medical device and pharmaceutical manufacturers.
Services Offered. We offer two main modalities for sterilization: irradiation and gas. Within irradiation, we offer Gamma, electron beam and X-ray technologies. Gamma utilizes radioisotope (cobalt-60). Electron beam and X-ray utilize high energy electrons as their radiation source. Our offerings for gas sterilization are ethylene oxide ("EO") and hydrogen peroxide. In addition, we offer an array of laboratory testing services that complements the manufacturing of sterile products. Our locations are in major population centers and core distribution corridors throughout the Americas, Europe and Asia. Our technical services group supports Customers in all phases of product development, materials testing, and process validation.
Customer Concentration.  Our Applied Sterilization Technologies segment’s services are offered to Customers throughout the world. For the year ended March 31, 2018, no Customer represented more than 10% of the segment’s revenues.
Competition.  Applied Sterilization Technologies operates in a highly regulated industry and competes with Sterigenics International, Inc., other smaller contract sterilization companies and manufacturers that sterilize products in-house.
INFORMATION WITH RESPECT TO OUR BUSINESS IN GENERAL
Sources and Availability of Raw Materials.  We purchase raw materials, sub-assemblies, components, and other supplies needed in our operations from numerous suppliers in the United States and internationally. The principal raw materials and supplies used in our operations include stainless and carbon steel, organic and inorganic chemicals, fuel, and plastic components. These raw materials and supplies are generally available from several suppliers and in sufficient quantities that we do not currently expect any significant sourcing problems in fiscal 2019. We have long-term supply contracts for certain materials for which there are few suppliers, or those that are single-sourced in certain regions of the world, such as EO and cobalt-60, which are necessary to our AST operations.
Intellectual Property.  We protect our technology and products by, among other means, obtaining United States and foreign patents. There can be no assurance, however, that any patent will provide adequate protection for the technology, system, product, service, or process it covers. In addition, the process of obtaining and protecting patents can be long and expensive. We also rely upon trade secrets, technical know-how, and continuing technological innovation to develop and maintain our competitive position.
As of March 31, 2018, we held approximately 380 United States patents and approximately 1,400 in other jurisdictions and had approximately 125 United States patent applications and 350 patent applications pending in other jurisdictions. Patents for individual products extend for varying periods according to the date of filing or grant and legal term of patents in various countries where a patent is obtained. The actual protection a patent provides varies from country to country and depends in part upon the type of patent, the scope of its coverage, and the availability of legal remedies in each country.
Our products are sold around the world under various brand names and trademarks. We consider our brand names and trademarks to be valuable in the marketing of our products. As of March 31, 2018, we had a total of approximately 1,990 trademark registrations worldwide.
Research and Development.  Research and development is an important factor in our long-term strategy. For the years ended March 31, 2018, 2017, and 2016, research and development expenses were $60.8 million, $59.4 million, and $56.7 million, respectively. We incurred these expenses primarily for the research and development of commercial products.
We are focused on introducing products that increase efficiencies for our Customers. We have new products throughout our business, including hydrogen peroxide sterilizers, washer disinfectors, steam sterilizers, consumables, including sterility assurance products, accessories for use in GI procedures and surgical products including the latest generation of operating room integration products.
Quality Assurance.  We manufacture, assemble, and package products in several countries. Each of our production facilities are dedicated to particular processes and products. Our success depends upon Customer confidence in the quality of our production process and the integrity of the data that supports our product safety and effectiveness. We have implemented quality assurance procedures to support the quality and integrity of scientific information and production processes.

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Government Regulation.  Our business is subject to various degrees of governmental regulation in the countries in which we operate. In the United States, the United States Food and Drug Administration (“FDA”), the United States Environmental Protection Agency (“EPA”), the United States Nuclear Regulatory Commission (“NRC”), and other governmental authorities regulate the development, manufacture, sale, and distribution of our products and services. Our international operations also are subject to a significant amount of government regulation, including country-specific rules and regulations and U.S. regulations applicable to our international operations. Government regulations include detailed inspection of, and controls over, research and development, clinical investigations, product approvals and manufacturing, marketing and promotion, sampling, distribution, record-keeping, storage, and disposal practices.
Compliance with applicable regulations is a significant expense for us. Past, current or future regulations, their interpretation, or their application could have a material adverse impact on our operations. Also, additional governmental regulation may be passed that could prevent, delay, revoke, or result in the rejection of regulatory clearance of our products. We cannot predict the effect on our operations resulting from current or future governmental regulation or the interpretation or application of these regulations.
If we fail to comply with any applicable regulatory requirements, sanctions could be imposed on us. For more information about the risks we face regarding regulatory requirements, see Part I, Item 1A of this Annual Report titled, “Risk Factors, We are subject to extensive regulatory requirements and must receive and maintain regulatory clearance or approval for many products and operations. Failure to receive or maintain, or delays in receiving, clearance or approvals may hurt our revenues, profitability, financial condition, or value."
In the past, we have received warning letters, paid civil penalties, conducted product recalls and field corrections, and been subject to other regulatory sanctions. We believe that we are currently compliant in all material respects with applicable regulatory requirements. However, there can be no assurance that future or current regulatory, governmental, or private action will not have a material adverse affect on us or on our performance, results, or financial condition.
Environmental Matters.  We are subject to various laws and governmental regulations concerning environmental matters and employee safety and health in the United Kingdom, United States and in other countries. We have made, and continue to make, significant investments to comply with these laws and regulations. We cannot predict the future capital expenditures or operating costs required to comply with environmental laws and regulations. We believe that we are currently compliant with applicable environmental, health, and safety requirements in all material respects. However, there can be no assurance that future or current regulatory, governmental, or private action will not have a material adverse affect on our performance, results, or financial condition. Please refer to Note 10 of our consolidated financial statements titled, "Commitments and Contingencies" for further information.
In the future, if a loss contingency related to environmental matters, employee safety, health or conditional asset retirement obligations is significantly greater than the current estimated amount, we would record a liability for the obligation and it may result in a material impact on net income for the annual or interim period during which the liability is recorded. The investigation and remediation of environmental obligations generally occur over an extended period of time, and therefore we do not know if these events would have a material adverse affect on our financial condition, liquidity, or cash flow, nor can there be any assurance that such liabilities would not have a material adverse affect on our performance, results, or financial condition.
Competition.  The markets in which we operate are highly competitive and generally highly regulated. Competition is intense in all of our business segments and includes many large and small competitors. Brand, design, quality, safety, ease of use, serviceability, price, product features, warranty, delivery, service, and technical support are important competitive factors to us. We expect to face continued competition in the future as new infection prevention, sterile processing, contamination control, gastrointestinal and surgical support products and services enter the market. We believe many organizations are working with a variety of technologies and sterilizing agents. Also, a number of companies have developed disposable medical instruments and other devices designed to address the risk of contamination.
We believe that our long-term competitive position depends on our success in discovering, developing, and marketing innovative, cost-effective products and services. We devote significant resources to research and development efforts and we believe STERIS is positioned as a global competitor in the search for technological innovations. In addition to research and development, we invest in quality control, Customer programs, distribution systems, technical services, and other information services.
There can be no assurance that we will develop significant new products or services, or that the new products or services we provide or develop in the future will be more commercially successful than those provided or developed by our competitors. In addition, some of our existing or potential competitors may have greater resources than us. Therefore, a competitor may succeed in developing and commercializing products more rapidly than we do. Competition, as it relates to our business segments and product categories, is discussed in more detail in the section above titled, “Information Related to Business Segments.”

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Employees.  As of March 31, 2018, we had approximately 12,000 employees throughout the world. We believe we generally have good relations with our employees.
Methods of Distribution.  Sales and service activities are supported by a staff of regionally based clinical specialists, system planners, corporate account managers, and in-house Customer service and field support departments. We also contract with distributors and dealers in select markets.
Customer training is important to our business. We provide a variety of courses at Customer locations, at our training and education centers, and over the internet. Our training programs help Customers understand the science, technology, and operation of our products and services. Many of our operator training programs are approved by professional certifying organizations and offer continuing education credits to eligible course participants.
Seasonality.  Our financial results have been, from time to time, subject to seasonal patterns. We cannot assure you that these patterns will continue.
International Operations.  We believe we have opportunity to expand internationally, as we currently serve only a portion of the world that could benefit from our products. Through our subsidiaries, we operate in various international locations. United States revenues represented 70% of our fiscal 2018 revenues. Revenues from the United Kingdom and Europe, Middle East and Africa ("EMEA") were 8% and 13%, respectively, of our fiscal 2018 revenues. The remaining 9% was generated in Canada, the Asia Pacific and Latin American regions.
Also see Note 11 to our Consolidated Financial Statements titled, “Business Segment Information,” and Item 7 of Part II, for a geographic presentation of our revenues for the three years ended March 31, 2018, 2017 and 2016.
We conduct manufacturing in the United States, United Kingdom, Canada, Mexico, Brazil, China and various other European countries. Cost of revenues incurred in currencies other than the United States dollar have represented approximately 40% of our total cost of revenues. There are, in varying degrees, a number of inherent risks to our international operations. We describe some of these risks in Part I, Item 1A of this Annual Report titled, "Risk Factors. We conduct manufacturing, sales, and distribution operations on a worldwide basis and are subject to a variety of risk associated with doing business internationally."
Backlog.  We define backlog as the amount of unfilled capital equipment purchase orders at a point in time. At March 31, 2018, we had a backlog of $193.9 million. Of this amount, $133.0 million and $60.8 million related to our Healthcare Products and Life Sciences segments, respectively. At March 31, 2017, we had backlog orders of $162.9 million. Of this amount, $109.7 million and $53.2 million related to our Healthcare Products and Life Sciences segments, respectively. A significant portion of the backlog orders at March 31, 2018 is expected to ship in the 2019 fiscal year.
Availability of Securities and Exchange Commission Filings.  We make available free of charge on or through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we electronically file such material with, or furnish such material to the Securities and Exchange Commission (“SEC”). You may access these documents, as well as other SEC filings related to the Company, on the Investor Relations page of our website at http://www.steris-ir.com. You may also obtain copies of these documents by visiting the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549 or by accessing the SEC’s website at http://www.sec.gov. You may obtain information on the Public Reference Room by calling the SEC at 1-800-SEC-0330. The content on or accessible through any website referred to in this Annual Report on Form 10-K is not incorporated by reference into this Form 10-K unless expressly noted.
We also make available free of charge on our website our Corporate Governance Guidelines, our Director Code of Ethics, and our Code of Business Conduct, as well as the Charters of the Audit Committee, the Compensation Committee, the Nominating and Governance Committee, and the Compliance Committee of the Company’s Board of Directors.

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Executive Officers of the Registrant. The following table presents certain information regarding our executive officers at March 31, 2018. All executive officers serve at the pleasure of the Board of Directors.
Name
 
Age
 
Position
Kathleen L. Bardwell
 
62
 
Senior Vice President and Chief Compliance Officer
Karen L. Burton
 
50
 
Vice President, Controller and Chief Accounting Officer
Daniel A. Carestio
 
45
 
Senior Vice President, Sterilization and Disinfection
Dr. Adrian Coward
 
48
 
Senior Vice President, Healthcare Specialty Services
Michiel de Zwaan
 
46
 
Vice President and Chief Human Resources Officer
Gulam A. Khan
 
51
 
Senior Vice President, Procedural Solutions
Sudhir K. Pahwa
 
65
 
Senior Vice President, Infection Prevention Technologies
Walter M Rosebrough, Jr.
 
64
 
President and Chief Executive Officer
Renato G. Tamaro
 
49
 
Vice President and Corporate Treasurer
Michael J. Tokich
 
49
 
Senior Vice President and Chief Financial Officer
J. Adam Zangerle
 
51
 
Vice President, General Counsel, and Secretary
The following discussion provides a summary of each executive officer's recent business experience through March 31, 2018:
Kathleen L. Bardwell serves as Senior Vice President and Chief Compliance Officer. She assumed this role in February 2014. From March 2008 to February 2014, she served as Vice President, Chief Compliance Officer. Mrs. Bardwell is a Director of First Financial Bancorp.
Karen L. Burton serves as Vice President, Controller and Chief Accounting Officer. She assumed this role in January 2017. She served as Vice President, Corporate Controller from May 2008 to January 2017.
Daniel A. Carestio serves as Senior Vice President, Sterilization and Disinfection. He assumed this role in February 2018. From August 2015 to February 2018, he served as Senior Vice President, STERIS Applied Sterilization Technologies and Life Sciences. From 2011 to August 2015, he served as Vice President, Sales and Marketing for Isomedix Services and General Manager of Life Sciences.
Dr. Adrian Coward serves as Senior Vice President, Healthcare Specialty Services. He assumed this role in November 2015. From April 2014 to November 2015, he served as Chief Operating Officer of Synergy Health plc. From April 2010 to March 2014, Dr. Coward served as CEO of UK & Ireland of Synergy Health plc.
Michiel de Zwaan serves as Vice President and Chief Human Resources Officer. He assumed this role in September 2017. He served as Senior Vice President and Chief Human Resources Officer at Hill-Rom Inc. from August 2014 through December 2015, and as Vice President of Human Resources, International, at Hill-Rom Europe B.V. from September 2011 through July 2014.
Gulam A. Khan serves as Senior Vice President, Procedural Solutions. He assumed this role in August 2015. He served as Chief Executive Officer of United States Endoscopy Group, Inc. from January 2003, prior to its acquisition by STERIS in August 2012, remaining with STERIS until June 2013. From April 2014 until August 2015, he provided independent consulting services to corporations, including business integration consulting services to STERIS.
Sudhir K. Pahwa serves as Senior Vice President, Infection Prevention Technologies. He assumed this role in February 2014. From December 2008 to February 2014, he served as Vice President and General Manager, Infection Prevention Technologies.
Walter M Rosebrough, Jr. serves as President and Chief Executive Officer. He assumed this role when he joined STERIS in October 2007. Mr. Rosebrough is a Director of Varex Imaging Corporation.
Renato G. Tamaro serves as Vice President and Corporate Treasurer. He assumed this role in August 2017. From March 2006 to July 2017, he served as Assistant Treasurer.
Michael J. Tokich serves as Senior Vice President and Chief Financial Officer. He assumed this role in August 2017. From February 2014 to July 2017, he served as the Senior Vice President, Chief Financial Officer and Treasurer. From March 2008 to February 2014, he served as Senior Vice President and Chief Financial Officer.
J. Adam Zangerle serves as Vice President, General Counsel, and Secretary. He assumed this role in July 2013. From May 2007 to July 2013 he served as Associate General Counsel and Group General Counsel, Healthcare.    

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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
Discussion
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.
We maintain significant international operations, including operations in the U.S., Canada, Mexico, Europe, Asia Pacific and Latin America. As a result, we are subject to a number of risks and complications associated with international manufacturing, sales, services, and other operations. These include: risks associated with currency exchange rate fluctuations; difficulties in enforcing agreements and collecting receivables through some foreign legal systems; enhanced credit risks in certain European countries as well as emerging market regions; Customers with longer payment cycles than Customers in the United States; significant variations in tax rates among the countries in which we do business, and tax withholding obligations in respect of our earnings; tax laws that restrict our ability to use tax credits, offset gains, or repatriate funds; tariffs, exchange controls or other trade restrictions including transfer pricing restrictions when products produced in one country are sold to an affiliated entity in another country; general economic and political conditions in countries where we operate or where end users of our products are situated, including the potential implications of the U.K. “Brexit” or the withdrawal from the EU of other member countries; difficulties associated with managing a large organization spread throughout various countries; difficulties in enforcing intellectual property rights or weaker intellectual property right protections in some countries and difficulties associated with compliance with a variety of laws and regulations governing international trade, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act and laws and regulations dealing with trade with persons in sanctioned countries.
Compliance with multiple, and potentially conflicting, international laws and regulations, import and export limitations, anti-corruption laws, and exchange controls may be difficult, burdensome or expensive.
We are subject to compliance with various laws and regulations, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, and similar anti-bribery laws, which generally prohibit companies and their intermediaries from making improper payments to officials for the purpose of obtaining or retaining business. We are also subject to limitations on trade with persons in sanctioned countries. While our employees and agents are required to comply with these laws, we cannot assure you that our internal policies and procedures will always protect us from violations of these laws, despite our commitment to legal compliance and corporate ethics.
 
 
 
 
 
 
 
 
 
 
 
 

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Risk or uncertainty
Discussion
Economic conditions and financial market access
 
Changes in economic climate may adversely affect us.
Adverse economic cycles or conditions and Customer, regulatory or government response to those cycles or conditions, could affect our results of operations. 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 acquisition activity and ability to grow organically may be adversely affected if we are unable to continue to access the financial markets.
Our recent acquisitions have been financed largely through 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
Discussion
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.
 We sell many of our products and services to hospitals and other healthcare providers and pharmaceutical manufacturers. Many of these Customers are subject to or supported by government programs or receive reimbursement for services from third-party payors, such as government programs, including Medicare and Medicaid, private insurance plans, and managed care programs. Reimbursement systems vary significantly by country. However, government-managed healthcare systems control reimbursement for healthcare services in many countries. Public budgetary constraints may significantly impact the ability of hospitals, pharmaceutical manufacturers, and other Customers supported by such systems to purchase our products. Government or other third-party payors may deny or change coverage, reduce their current levels of reimbursement for healthcare services, or otherwise implement measures to regulate pricing or contain costs. In addition, our costs may increase more rapidly than reimbursement levels or permissible pricing increases or we may not satisfy the standards or requirements for reimbursement.
Among other provisions, the U.S. Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, imposed an excise tax on medical devices manufactured or offered for sale in the United States. Early in 2018, U.S. Congress enacted legislation that extended the suspension of the excise tax, which suspension had been in place in since the beginning of calendar year 2016, for 2018 and 2019. Should the U.S. Congress take no further action with regard to this tax we will begin to incur excise tax in the fourth quarter of fiscal 2020. We incurred $5.8 million in medical device excise taxes for fiscal 2016. In addition, we have been required to commit significant resources to “Sunshine Act” compliance. Various additional health care reform proposals have emerged at the federal and state level, and we are unable to predict which, if any, of those proposals will be enacted.
 
 

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Risk or uncertainty
Discussion
Product related regulations and claims
 
We are subject to extensive regulatory requirements and must receive and maintain regulatory clearance or approval for many products and operations. Failure to receive or maintain, or delays in receiving, clearance or approvals may hurt our revenues, profitability, financial condition, or value.
Our 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.
Our products are subject to recalls and restrictions, even after receiving United States or foreign regulatory clearance or approval.
Ongoing medical device reporting regulations require that we report to appropriate governmental authorities in the United States and/or other countries when our products cause or contribute to a death or serious injury or malfunction in a way that would be reasonably likely to contribute to a death or serious injury if the malfunction were to recur. Governmental authorities can require product recalls or impose restrictions for product design, manufacturing, labeling, clearance, or other issues. For the same reasons, we may voluntarily elect to recall or restrict the use of a product. Any recall or restriction could divert managerial and financial resources and might harm our reputation among our Customers and other healthcare professionals who use or recommend 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.
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.
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.
Tax and trade risks
 
Current economic and political conditions make tax rules in any jurisdiction subject to significant change.
The U.S. Tax Cuts and Jobs Act (“TCJA”) was signed into law on December 22, 2017. Additional guidance is likely to be issued clarifying the application of this new legislation. We cannot predict the overall impact that the additional guidance may have on our business. It is reasonable to expect that global taxing authorities will be reviewing current legislation for potential modifications in reaction to the implementation of the TCJA. In addition, further changes in the tax laws of other jurisdictions could arise, including as a result of the base erosion and profit shifting (BEPS) project undertaken by the Organization for Economic Cooperation and Development (OECD). The OECD, which represents a coalition of member countries, has issued recommendations that, in some cases, would make substantial changes to numerous long-standing tax positions and principles. These contemplated changes, to the extent adopted by OECD members and/or other countries, could increase tax uncertainty and may adversely impact our provision for income taxes.

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.
There can be no assurance that we will be able to maintain any particular worldwide effective corporate tax rate. We cannot give any assurance as to what our effective tax rate will be in the future because of, among other things, uncertainty regarding the tax policies of the jurisdictions in which we and our affiliates operate, including the potential tax implications of the U.K. “Brexit”. Our actual effective tax rate may vary from our expectations, and such variance may be material. Additionally, tax laws or their implementation and applicable tax authority practices in any particular jurisdiction could change in the future, possibly on a retroactive basis, and any such change could have a material adverse impact on us and our affiliates.
Changes in tax treaties and trade agreements could negatively impact our costs, results of operations and earnings per share.
Legislative and regulatory action may be taken in the U.S. which, if ultimately adopted, could override or otherwise adversely impact tax treaties upon which we rely or broaden the circumstances under which STERIS would be considered a U.S. resident, each of which could materially and adversely affect our tax obligations. We cannot predict the outcome of any specific legislative or regulatory proposals. However, if proposals were adopted that had the effect of disregarding our incorporation in the U.K. or limiting our ability as a U.K. company to take advantage of tax treaties with the U.S., we could be subject to increased taxation and/or potentially significant expense.
Existing free trade laws and regulations, such as the North American Free Trade Agreement, provide certain beneficial duties and tariffs for qualifying imports and exports, subject to compliance with the applicable classification and other requirements. Changes in laws and regulations or policies governing the terms of foreign trade, and in particular, increased trade restrictions, tariffs or taxes on imports from countries where we manufacture products could have a material adverse impact on our business and financial results.

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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.
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.
The U.S. Internal Revenue Service (the “IRS”) may not agree that we are a foreign corporation for U.S. federal tax purposes.
Although we are incorporated under the laws of England and Wales and are a tax resident in the U.K. for U.K. tax purposes, the IRS may assert that we should be treated as a U.S. corporation (and, therefore, a U.S. tax resident) for U.S. federal tax purposes pursuant to Section 7874 of the Internal Revenue Code of 1986, as amended (the “Code” and such Section, “Section 7874”). For U.S. federal tax purposes, a corporation generally is considered to be a tax resident in the jurisdiction of its organization or incorporation. Because we are incorporated under the laws of England and Wales, we would generally be classified as a non-U.S. corporation (and, therefore, a non-U.S. tax resident) under these rules. Section 7874, however, provides an exception to this general rule under which a non-U.S. incorporated entity may, in certain circumstances (including a transaction pursuant to which a U.S. corporation is acquired by a non-U.S. corporation), be treated as a U.S. corporation for U.S. federal tax purposes.
If we were to be treated as a U.S. corporation for U.S. federal tax purposes, we could be subject to substantial additional U.S. tax liability. Additionally, if we were treated as a U.S. corporation for U.S. federal tax purposes, non-U.S. holders of STERIS ordinary shares would be subject to U.S. withholding tax on the gross amount of any dividends we paid to such shareholders. For U.K. tax purposes, we are expected, regardless of any application of Section 7874, to be treated as a U.K. tax resident. Consequently, if we are treated as a U.S. corporation for U.S. federal tax purposes under Section 7874, we could be liable for both U.S. and U.K. taxes, which could have a material adverse effect on our financial condition and results of operations.
BUSINESS AND OPERATIONAL RISKS
Risk or uncertainty
Discussion
Competition
 
Our businesses are highly competitive, and if we fail to compete successfully, our revenues and results of operations may be hurt.
We operate in a highly competitive global environment. Our businesses compete with other broad-line manufacturers, as well as many smaller businesses specializing in particular products or services, primarily on the basis of brand, design, quality, safety, ease of use, serviceability, price, product features, warranty, delivery, service, and technical support. We face increased competition from new infection prevention, sterile processing, contamination control, surgical support, cleaning consumables, gastrointestinal endoscopy accessories, contract sterilization, and other products and services entering the market. Competitors and potential competitors also are attempting to develop alternate technologies and sterilizing agents, as well as disposable medical instruments and other devices designed to address the risk of contamination.
Consolidations among our healthcare and pharmaceutical Customers may result in a loss of Customers or more significant pricing pressures.
A number of our Customers have consolidated. These consolidations are due in part to healthcare cost reduction measures initiated by competitive pressures as well as legislators, regulators and third-party payors. In an effort to attract Customers, some of our competitors have also reduced production costs and lowered prices. This has resulted in greater pricing pressures on us and in some cases loss of Customers. Additional consolidations could result in a loss of Customers or more significant pricing pressures.

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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.
We purchase raw materials, fabricated and other components, and energy supplies from a variety of suppliers. Key materials include stainless steel, organic and inorganic chemicals, fuel, cobalt-60, EO, and plastic components. The availability and prices of raw materials and energy supplies are subject to volatility and are influenced by worldwide economic conditions, speculative action, world supply and demand balances, inventory levels, availability of substitute materials, currency exchange rates, anticipated or perceived shortages, and other factors. Also, certain of our key materials and components have a limited number of suppliers. Some are single-sourced in certain regions of the world, such as cobalt-60 and EO, which are necessary to our AST operations; the unavailability or short supply of these products might disrupt or cause shutdowns of portions of our AST operations or have other adverse consequences. Shortages in supply, regulatory or security requirements, or increases in the price of raw materials, components and energy supplies may adversely affect us.
Our operations, and those of our suppliers, are subject to a variety of business continuity hazards and risks, any of which could interrupt production or operations or otherwise adversely affect our performance, results, or value.
Business continuity hazards and other risks include: 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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We engage in acquisitions and affiliations, divestitures, and other business arrangements. Our growth may be adversely affected if we are unable to successfully identify, price, and integrate strategic business candidates or otherwise optimize our business portfolio.
Our success depends, in part, on strategic acquisitions and joint ventures, which are intended to complement or expand our businesses, divestiture of non-strategic businesses, and other actions intended to optimize our portfolio of businesses. This strategy depends upon our ability to identify, appropriately price, and complete these types of business development transactions or arrangements and to obtain any necessary financing. In the last several fiscal years we have made a number of acquisitions, the most significant of which was the acquisition of Synergy Health plc. We also completed several divestitures of non-strategic businesses or product lines during fiscal 2018 and 2017 including linen management services in the U.K., U.S. and Netherlands, laboratory services in the U.K., a consumables product line in the U.K., and our Applied Infection Control product line.
Our success with respect to these recent and future acquisitions will depend on our ability to integrate the businesses acquired, retain key personnel, realize identified cost synergies and otherwise execute our strategies. Our success will also depend on our ability to develop satisfactory working arrangements with our strategic partners in joint ventures or other affiliations, or to divest or realign businesses. Competition for strategic business candidates may result in increases in costs and price for acquisition candidates and market valuation issues may reduce the value available for divestiture of non-strategic businesses. These types of transactions are also subject to a number of other risks and uncertainties, including: delays in realizing or failure to realize anticipated benefits of the transactions; diversion of management’s time and attention from other business concerns; difficulties in retaining key employees, Customers, or suppliers of the acquired or divested businesses; difficulties in maintaining uniform standards, controls, procedures and policies, or other integration or divestiture difficulties; adverse effects on existing business relationships with suppliers or Customers; other events contributing to difficulties in generating future cash flows; risks associated with the assumption of contingent or other liabilities of acquisition targets or retention of liabilities for divested businesses and difficulties in obtaining financing.
If our continuing efforts to create a lean business and in-source production to reduce costs are not successful, our profitability may be hurt or our business otherwise might be adversely affected.
We have undertaken various activities to create a lean business, including in-sourcing. We continue to look for opportunities to in-source production that is currently provided by third parties and have made large investments during the past few fiscal years. These activities may not produce the full efficiencies and cost reduction benefits that we expect or efficiencies and benefits might be delayed. Implementation costs also might exceed expectations.
Our business and results of operations may be adversely affected if we are unable to recruit and retain qualified management and other personnel or other compliance matters adversely impact our personnel.
Our continued success depends, in large part, on our ability to hire and retain highly qualified people and if we are unable to do so, our business and operations may be impaired or disrupted. Competition for highly qualified people is intense and there is no assurance that we will be successful in attracting or retaining replacements to fill vacant positions, successors to fill retirements or employees moving to new positions, or other highly qualified personnel. In addition, legal, regulatory or compliance matters create significant distraction or diversion of significant or unanticipated resources or attention that could have a material adverse effect on the responsibilities and retention of qualified employees.

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We could experience a failure of a key information technology system, process or site or a breach of information security, including a cybersecurity breach or failure of one or more key information technology systems, networks, processes, associated sites or service providers.

We rely extensively on information technology (IT) systems to conduct business. In addition, we rely on networks and services, including internet sites, data hosting and processing facilities and tools and other hardware, software and technical applications and platforms, some of which are managed, hosted, provided and/or used by third-parties or their vendors, to assist in conducting our business. Numerous and evolving cybersecurity threats pose potential risks to the security of our IT systems, networks and services, as well as the confidentiality, availability and integrity of our data. While we have made investments seeking to address these threats, including monitoring of networks and systems, hiring of experts, employee training and security policies for employees and third-party providers, the techniques used in these attacks change frequently and may be difficult to detect for periods of time and we may face difficulties in anticipating and implementing adequate preventative measures. If our IT systems are damaged or cease to function properly, the networks or service providers we rely upon fail to function properly, or we or one of our third-party providers suffer a loss or disclosure of our business or stakeholder information due to any number of causes ranging from catastrophic events or power outages to improper data handling or security breaches and our business continuity plans do not effectively address these failures on a timely basis, we may be exposed to reputational, competitive and business harm as well as litigation and regulatory action. Enforcement of the General Data Protection Regulation (“GDPR”) is effective as of May 2018. The GDPR is focused on the protection of personal data not merely the privacy of personal data. The GDPR creates a range of new compliance obligations and will significantly increase financial penalties for noncompliance (including possible fines of up to 4% of global annual turnover for the preceding financial year or €20 million (whichever is higher) for the most serious infringements).

ITEM 1B.UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The following table sets forth the principal plants and other materially important properties of the Company and its subsidiaries as of March 31, 2018. The Company believes that its facilities are adequate for operations and are maintained in good condition. The Company is confident that, if needed, it will be able to acquire additional facilities at commercially reasonable rates.
In the table below, “Contract Sterilization” refers to locations of the Applied Sterilization Technologies segment. “Manufacturing,” “Warehousing,” “Operations,” or “Sales Offices” refer to locations serving one or more of the Healthcare Products, Healthcare Specialty Services and Life Sciences segments.
United Kingdom (U.K.), United States (U.S.) Locations (including Puerto Rico) and International Locations (INTL)
Location
  
U.K/U.S./INTL*
  
Use
  
Owned/Leased
Montgomery, AL
  
U.S.
  
Manufacturing
  
Owned
Ontario, CA
  
U.S.
  
Contract Sterilization
  
Owned
San Diego, CA
  
U.S.
  
Contract Sterilization
  
Owned
Temecula, CA
  
U.S.
  
Contract Sterilization
  
Owned
Libertyville, IL (2 locations)
  
U.S.
  
Contract Sterilization
  
Owned
Northborough, MA
  
U.S.
  
Contract Sterilization
  
Owned
Brooklyn Park, MN
 
U.S.
 
Contract Sterilization
 
Owned
St. Louis, MO (4 locations)
  
U.S.
  
Manufacturing
  
Owned
South Plainfield, NJ
  
U.S.
  
Contract Sterilization
  
Owned
Whippany, NJ
  
U.S.
  
Contract Sterilization
  
Owned
Chester, NY (2 locations)
  
U.S.
  
Contract Sterilization
  
Owned

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United Kingdom (U.K.), United States (U.S.) Locations (including Puerto Rico) and International Locations (INTL)
Location
  
U.K/U.S./INTL*
  
Use
  
Owned/Leased
Groveport, OH
  
U.S.
  
Contract Sterilization
  
Owned
Mentor, OH (14 locations)
  
U.S.
  
Operations
  
Owned
 
  
U.S.
  
Sales Offices
  
Owned
 
  
U.S.
  
Manufacturing/Warehousing
  
Owned
 
 
U.S.
 
Manufacturing/Operations
 
Owned
Philadelphia, PA
 
U.S.
 
Manufacturing/Warehousing
 
Owned
Spartanburg, SC
  
U.S.
  
Contract Sterilization
  
Owned
El Paso, TX (2 locations)
  
U.S.
  
Contract Sterilization
  
Owned
Grand Prairie, TX
  
U.S.
  
Contract Sterilization
  
Owned
Sandy, UT
  
U.S.
  
Contract Sterilization
  
Owned
Minneapolis, MN (2 locations)
  
U.S.
  
Contract Sterilization
  
Owned
Birmingham, AL (5 locations)
 
U.S.
 
Manufacturing/Warehousing
 
Owned
Vega Alta, PR
  
U.S.
  
Contract Sterilization
  
Owned
Sturbridge, MA
 
U.S.
 
Operations
 
Owned
Feasterville, PA
 
U.S.
 
Warehousing
 
Owned
Berkshire, England
 
U.K.
 
Contract Sterilization
 
Owned
Derby, England
 
U.K.
 
Operations
 
Owned
Lancashire, England
 
U.K.
 
Operations
 
Owned
Lancing, England
 
U.K.
 
Manufacturing/Operations
 
Owned
Swindon, England (2 locations)
 
U.K.
 
Contract Sterilization
 
Owned
Yorkshire, England (2 locations)
 
U.K.
 
Contract Sterilization
 
Owned
Northamptonshire, England
 
U.K.
 
Contract Sterilization
 
Owned
Mogi das Cruzes, Brazil
 
INTL
 
Manufacturing/Sales Office
 
Owned
Quebec City, Canada
  
INTL
  
Manufacturing
  
Owned
Whitby, Canada
  
INTL
  
Contract Sterilization
  
Owned
Suzhou, China
 
INTL
 
Contract Sterilization
 
Owned
Alajuela, Costa Rica (2 locations)
 
INTL
 
Contract Sterilization
 
Owned
Velka Bites, Czech Republic
 
INTL
 
Contract Sterilization
 
Owned
Tuusula, Finland
  
INTL
  
Manufacturing/Sales Office
  
Owned
Bordeaux, France
 
INTL
 
Manufacturing/Sales Office
 
Owned
Tullamore, Ireland
 
INTL
 
Contract Sterilization
 
Owned
Westport, Ireland
 
INTL
 
Contract Sterilization
 
Owned
Calcinate, Italy
 
INTL
 
Contract Sterilization
 
Owned
Bastia di Rovolon, Italy
 
INTL
 
Contract Sterilization
 
Owned
Spresiano, Italy
 
INTL
 
Contract Sterilization
 
Owned
Rawang, Malaysia
 
INTL
 
Contract Sterilization
 
Owned
Etten-Leur, Netherlands
 
INTL
 
Contract Sterilization
 
Owned
Venlo, Netherlands
 
INTL
 
Contract Sterilization
 
Owned
Michalovce, Slovakia
 
INTL
 
Contract Sterilization
 
Owned
Pribenik, Slovakia
 
INTL
 
Contract Sterilization
 
Owned
Johannesburg, South Africa
 
INTL
 
Contract Sterilization
 
Owned
Daniken, Switzerland
 
INTL
 
Contract Sterilization
 
Owned
Chonburi, Thailand
 
INTL
 
Contract Sterilization
 
Owned

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United Kingdom (U.K.), United States (U.S.) Locations (including Puerto Rico) and International Locations (INTL)
Location
  
U.K/U.S./INTL*
  
Use
  
Owned/Leased
Radeberg, Germany
 
INTL
 
Contract Sterilization
 
Owned
Komenda, Slovenia
 
INTL
 
Contract Sterilization
 
Owned
Bitterfeld-Wolfen, Germany
 
INTL
 
Contract Sterilization
 
Owned
Ede, Netherlands
 
INTL
 
Contract Sterilization
 
Owned
St. Louis, MO
  
U.S.
  
Warehousing/Operations
  
Leased
Reno, NV (2 locations)
  
U.S.
  
Warehousing
  
Leased
Cleveland, Ohio
 
U.S.
 
Operations
 
Leased
Stow, OH
 
U.S.
 
Sales Office/Operations
 
Leased
Hillsborough, NJ
 
U.S.
 
Sales Office/Operations
 
Leased
Keller, TX (2 locations)
 
U.S.
 
Sales Office/Operations
 
Leased
Tustin, CA
 
U.S.
 
Sales Office/Operations
 
Leased
Melville, NY
 
U.S.
 
Sales Office/Operations
 
Leased
Santa Clara, CA
 
U.S.
 
Sales Office
 
Leased
Chesterfield, MO
 
U.S.
 
Sales Office/Operations
 
Leased
Cooper City, FL
 
U.S.
 
Operations
 
Leased
Rockville, MD
 
U.S.
 
Operations
 
Leased
Springdale, OH
 
U.S.
 
Operations/Warehousing
 
Leased
Franklin Park, IL
 
U.S.
 
Manufacturing/ Operations
 
Leased
Bensenville, IL
 
U.S.
 
Operations/Warehousing
 
Leased
Montgomery, AL
 
U.S.
 
Operations/Warehousing
 
Leased
Ooltewah, TN
 
U.S.
 
Operations/Warehousing
 
Leased
Bethlehem, PA
 
U.S.
 
Sales Office/Operations
 
Leased
Westborough, MA
 
U.S.
 
Sales Office/Operations
 
Leased
Belair, MD
 
U.S.
 
Sales Office/Operations
 
Leased
Point Richmond, CA
 
U.S.
 
Manufacturing/ Operations /Sales Offices/ Warehousing
 
Leased
San Diego, CA
 
U.S.
 
Contract Sterilization
 
Leased
Denver, CO
 
U.S.
 
Contract Sterilization
 
Leased
Lima, OH
 
U.S.
 
Contract Sterilization
 
Leased
Saxonburg, PA
 
U.S.
 
Contract Sterilization
 
Leased
Petaluma, CA
 
U.S.
 
Contract Sterilization
 
Leased
Tampa, FL
 
U.S.
 
Operations
 
Leased
Temple Terrace, FL
 
U.S.
 
Operations
 
Leased
Hamilton, OH
 
U.S.
 
Operations/Warehouse
 
Leased
Henrico, VA
 
U.S.
 
Operations
 
Leased
Rochester, NY
 
U.S.
 
Operations
 
Leased
Birmingham, AL
 
U.S.
 
Warehouse
 
Leased
Long Island City, NY
 
U.S.
 
Operations
 
Leased
Chusclan, France
 
INTL
 
Contract Sterilization
 
Leased
Calcinate, Italy
 
INTL
 
Contract Sterilization
 
Leased
Jalan Persiaran, Malaysia
 
INTL
 
Sales Office/Operations
 
Leased
Riyadh, Saudi Arabia
 
INTL
 
Operations
 
Leased
Toronto, Canada
 
INTL
 
Operations
 
Leased

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United Kingdom (U.K.), United States (U.S.) Locations (including Puerto Rico) and International Locations (INTL)
Location
  
U.K/U.S./INTL*
  
Use
  
Owned/Leased
Malle, Belgium
 
INTL
 
Sales Office/ Operations/ Warehousing
 
Leased
Antwerpen, Belgium
 
INTL
 
Sales Office/Operations
 
Leased
Sao Paulo, Brazil
  
INTL
  
Sales Office
  
Leased
Mississauga, Canada
  
INTL
  
Sales Office/Warehousing
  
Leased
Beijing, China
  
INTL
  
Sales Office
  
Leased
Nanjing, China
 
INTL
 
Operations
 
Leased
Shanghai, China
  
INTL
  
Sales Office/ Manufacturing
  
Leased
Suzhou, China
 
INTL
 
Operations
 
Leased
Wuhan, China
 
INTL
 
Operations
 
Leased
La Chapelle St. Mesmin, France
  
INTL
  
Sales Office
  
Leased
Marseille, France
 
INTL
 
Contract Sterilization
 
Leased
Paris, France
 
INTL
 
Sales Office
 
Leased
Toussieu, France
 
INTL
 
Warehousing
 
Leased
Allershausen, Germany
 
INTL
 
Contract Sterilization
 
Leased
Cologne, Germany
  
INTL
  
Sales Office
  
Leased
Gokul Nagar, India
  
INTL
  
Sales Office
  
Leased
Poggio Rusco, Italy
 
INTL
 
Contract Sterilization
 
Leased
Segrate, Italy
  
INTL
  
Sales Office
  
Leased
Seriate, Italy
 
INTL
 
Contract Sterilization/Operations

 
Leased
Trescore Balneario, Italy
 
INTL
 
Operations
 
Leased
Tokyo, Japan
  
INTL
  
Sales Office
  
Leased
Kuala Ketil, Malaysia
 
INTL
 
Contract Sterilization
 
Leased
Kulim, Malaysia
 
INTL
 
Contract Sterilization
 
Leased
MINT Bangi, Malaysia
 
INTL
 
Contract Sterilization
 
Leased
Petaling Jaya, Malaysia
  
INTL
  
Sales Office
  
Leased
Guadalupe, Mexico
  
INTL
  
Manufacturing
  
Leased
Utrecht, Netherlands
 
INTL
 
Operations
 
Leased
Moscow, Russia
  
INTL
  
Sales Office
  
Leased
Singapore (2 locations)
  
INTL
  
Sales Office/Warehousing
  
Leased
Madrid, Spain
  
INTL
  
Sales Office
  
Leased
New Cross, England
 
U.K
 
Operations
 
Leased
Basingstoke, England
  
U.K.
  
Sales Office
  
Leased
Derby, England
 
U.K.
 
Operations
 
Leased
Hoddesdon, England
 
U.K.
 
Operations
 
Leased
Chorley, England
 
U.K.
 
Operations
 
Leased
Leicester, England (2 locations)
 
U.K.
 
Warehousing/Operations
 
Leased
Lincoln, England
 
U.K.
 
Operations
 
Leased
Grimsby England
 
U.K.
 
Operations
 
Leased
Knowsley, England
 
U.K.
 
Operations
 
Leased
Oxfordshire, England
 
U.K.
 
Contract Sterilization
 
Leased
Sheffield, England
 
U.K.
 
Operations
 
Leased
Strathclyde, Scotland
 
U.K.
 
Operations
 
Leased
Swindon, England
 
U.K.
 
Operations
 
Leased

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United Kingdom (U.K.), United States (U.S.) Locations (including Puerto Rico) and International Locations (INTL)
Location
  
U.K/U.S./INTL*
  
Use
  
Owned/Leased
Wythenshawe, England (2 locations)
 
U.K.
 
Operations
 
Leased
Bishop Stortford, Hertfordshire, England

 
U.K.
 
Manufacturing/Warehousing/Operations
 
Leased
Pitsford, England
 
U.K.
 
Operations
 
Leased
Homeston, England
 
U.K.
 
Operations
 
Leased
Guildford, England
 
U.K.
 
Operations
 
Leased
Horrow, England
 
U.K.
 
Operations
 
Leased
Salisbury, England
 
U.K.
 
Operations
 
Leased
* International includes all countries other than the U.K. and U.S.
ITEM 3.
LEGAL PROCEEDINGS
Information regarding our legal proceedings is included in Item 7 of Part II, Management's Discussion and Analysis ("MD&A"), and Note 10 of our consolidated financial statements titled, "Commitments and Contingencies," and incorporated herein by reference thereto.
ITEM 4.    MINE SAFETY DISCLOSURES
None.

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PART II
ITEM 5.
MARKET FOR REGISTRANT’S ORDINARY EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information. Our ordinary shares are traded on the New York Stock Exchange under the symbol “STE.” The following table presents, for the quarters ending on the dates indicated, the high and low sales prices for our shares.
Quarters Ended
 
March 31
 
December 31
 
September 30
 
June 30
Fiscal 2018
 
 
 
 
 
 
 
 
High
 
$
96.43

 
$
93.39

 
$
88.43

 
$
83.54

Low
 
82.88

 
86.02

 
80.74

 
69.11

Fiscal 2017
 
 
 
 
 
 
 
 
High
 
$
72.35

 
$
73.06

 
$
74.63

 
$
74.10

Low
 
65.27

 
63.80

 
67.25

 
63.26

Holders. As of March 31, 2018, there were approximately 82 holders of record of our ordinary shares. However, we believe that we have a significantly larger number of beneficial holders of our shares.
Dividend Policy. The Company’s Board of Directors decides the timing and amount of any dividends we may pay. During fiscal 2018, we paid cash dividends totaling $1.21 per outstanding share in respect for all shares outstanding for the entire fiscal year ($0.28 per outstanding share to shareholders of record on June 7, 2017, and $0.31 per outstanding share to shareholders of record on the following dates: August 29, 2017, November 22, 2017 and February 28, 2018). During fiscal 2017, we paid cash dividends totaling $1.09 per outstanding share ($0.25 per outstanding share to shareholders of record on June 8, 2016, and $0.28 per outstanding share to shareholders of record on the following dates: August 30, 2016, November 23, 2016 and February 28, 2017).
Recent Sales of Unregistered Securities. On November 2, 2015, we issued 100,000 preferred shares, par value of £0.10 each, for an aggregate consideration of £10,000, or approximately $15,000, to one of our service providers in satisfaction of debt owed to such service provider. This issuance of preferred shares was made pursuant to the exemption from registration provided for in Section 4(a)(2) of the Securities Act of 1933 by virtue of it being a private placement. Please refer to Note 12 of our Consolidated Financial Statements for more information regarding our preferred stock.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers. On August 9, 2016, the Company announced that its Board of Directors had authorized the purchase of up to $300 million (net of taxes, fees and commissions) of our ordinary shares. We may enter into share repurchase contracts until August 2, 2021 to effect these purchases. Shares may be repurchased from time to time through open market transactions, including 10b5-1 plans. The repurchase program may be suspended or discontinued at any time. We purchased 664,963 of our ordinary shares during fiscal 2018 for the aggregate amount of $59,234 which included $294 of taxes and commissions. As of March 31, 2018, $151.1 million remains available for repurchase of ordinary shares under this authorization.
The following table presents information with respect to purchases STERIS made of its ordinary shares during the fourth quarter of the 2018 fiscal year:
 
 
(a)
Total Number of
Shares Purchased
 
(b)
Average Price Paid
Per Share
 
(c)
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
 
(d)
Maximum Dollar Value  of Shares that May Yet Be Purchased Under the
Plans at Period End (dollars in thousands)
January 1-31
 
84,000

  
$
90.53

  
84,000

 
$
164,225

February 1-28
 
70,116

  
88.78

  
70,116

 
158,000

March 1-31
 
74,300

  
93.39

  
74,300

 
151,061

Total
 
228,416

(1) 
$
90.92

(1) 
228,416

 
$
151,061

(1) Does not include 11 shares purchased during the quarter at an average price of $90.78 per share by the STERIS Corporation 401(k) Plan on behalf of certain executive officers of the Company who may be deemed to be affiliated purchasers.



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ITEM 6.    SELECTED FINANCIAL DATA
 
 
Years Ended March 31,
(in thousands, except per share data)
 
2018 (1)
 
2017 (1)
 
2016 (1)
 
2015(1)
 
2014(1)
Statements of Income Data:
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
2,619,996

 
$
2,612,756

 
$
2,238,764

 
$
1,850,263

 
$
1,622,252

Gross profit
 
1,094,223

 
1,025,632

 
895,481

 
774,301

 
649,622

Restructuring expenses
 
103

 
215

 
(820
)
 
(391
)
 
13,204

Income from continuing operations
 
403,454

 
227,595

 
212,927

 
227,211

 
206,807

Income taxes
 
63,360

 
74,015

 
60,299

 
73,756

 
58,934

Net income attributable to shareholders
 
290,915

 
109,965

 
110,763

 
135,064

 
129,442

Basic income per ordinary share:
 
 
 
 
 
 
 
 
 
 
Net income
 
$
3.42

 
$
1.29

 
$
1.57

 
$
2.27

 
$
2.20

Shares used in computing net income per ordinary share – basic
 
85,028

 
85,473

 
70,698

 
59,413

 
58,966

Diluted income per ordinary share:
 
 
 
 
 
 
 
 
 
 
Net income
 
$
3.39

 
$
1.28

 
$
1.56

 
$
2.25

 
$
2.17

Shares used in computing net income per ordinary share – diluted
 
85,713

 
86,094

 
71,184

 
60,045

 
59,745

Dividends per ordinary share
 
$
1.21

 
$
1.09

 
$
0.98

 
$
0.90

 
$
0.82

Balance Sheets Data:
 
 
 
 
 
 
 
 
 
 
Working capital
 
$
591,195

 
$
636,219

 
$
571,919

 
$
437,101

 
$
420,239

Total assets
 
5,200,334

 
4,924,555

 
5,346,416

 
2,097,291

 
1,887,162

Long-term indebtedness
 
1,316,001

 
1,478,361

 
1,567,796

 
621,075

 
493,480

Total liabilities
 
1,983,034

 
2,114,422

 
2,307,524

 
1,023,645

 
845,916

Total shareholders’ equity
 
$
3,205,960

 
$
2,798,602

 
$
3,023,034

 
$
1,071,632

 
$
1,038,705

(1) See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
.

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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 2018, 2017 and 2016, as well as Part I, Item 1A, “Risk Factors” and Note 10 of our consolidated financial statements titled, "Commitments and Contingencies" for a discussion of some of the matters that can adversely affect our business and results of operations. This information, discussion, and disclosure may be important to you in making decisions about your investments in STERIS.
FINANCIAL MEASURES
In the following sections of the MD&A, we may, at times, refer to financial measures that are not required to be presented in the consolidated financial statements under U.S. GAAP. We sometimes use the following financial measures in the context of this report: backlog; debt-to-total capital; and days sales outstanding. We define these financial measures as follows:
•
Backlog – We define backlog as the amount of unfilled capital equipment purchase orders at a point in time. We use this figure as a measure to assist in the projection of short-term financial results and inventory requirements.
•
Debt-to-total capital – We define debt-to-total capital as total debt divided by the sum of total debt and shareholders’ equity. We use this figure as a financial liquidity measure to gauge our ability to borrow and fund growth.
•
Days sales outstanding (“DSO”) – We define DSO as the average collection period for accounts receivable. It is calculated as net accounts receivable divided by the trailing four quarters’ revenues, multiplied by 365 days. We use this figure to help gauge the quality of accounts receivable and expected time to collect.
We, at times, may also refer to financial measures which are considered to be “non-GAAP financial measures” under SEC rules. We have presented these financial measures because we believe that meaningful analysis of our financial performance is enhanced by an understanding of certain additional factors underlying that performance. These financial measures should not be considered an alternative to measures required by accounting principles generally accepted in the United States. Our calculations of these measures may differ from calculations of similar measures used by other companies and you should be careful when comparing these financial measures to those of other companies. Additional information regarding these financial measures, including reconciliations of each non- GAAP financial measure, is available in the subsection of MD&A titled, "Non-GAAP Financial Measures."

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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.
•
Capital Equipment Revenues – We define capital equipment revenues as revenues generated from sales of capital equipment, which includes steam sterilizers, low temperature liquid chemical sterilant processing systems, including SYSTEM 1 and 1E, washing systems, VHP® technology, water stills, and pure steam generators; surgical lights and tables; and integrated OR.
•
Consumable Revenues – We define consumable revenues as revenues generated from sales of the consumable family of products, which includes SYSTEM 1 and 1E consumables, V-Pro consumables, gastrointestinal endoscopy accessories, sterility assurance products, skin care products, cleaning consumables, barrier product solutions and surgical instruments.
•
Recurring Revenues – We define recurring revenues as revenues generated from sales of consumable products and service revenues.
GENERAL OVERVIEW AND EXECUTIVE SUMMARY
STERIS plc is a leading provider of infection prevention and other procedural products and services. Our mission is to help our Customers create a healthier and safer world by providing innovative healthcare and life science product and service solutions around the globe. We offer our Customers a unique mix of innovative consumable products, such as detergents, gastrointestinal ("GI") endoscopy accessories, barrier product solutions, and other products and services, including: equipment installation and maintenance, microbial reduction of medical devices, instrument and scope repair solutions, laboratory testing services, on-site and off-site reprocessing, and capital equipment products, such as sterilizers and surgical tables, and connectivity solutions such as operating room (“OR”) integration.
STERIS plc (“Parent”) was organized in 2014 under the laws of England and Wales under the name Solar New HoldCo Limited as a private limited company for the purpose of effecting under the laws of England and Wales the combination (“Combination”) of STERIS Corporation, an Ohio corporation (“Old STERIS”), and Synergy Health plc, a public limited company organized under the laws of England and Wales (“Synergy”). Effective November 2, 2015, the Parent was re-registered as a public company under the name of STERIS plc and the Combination closed. As a result of the Combination closing, STERIS plc became the ultimate parent company of Old STERIS and Synergy. Synergy has been re-registered under the name of Synergy Health Limited. The acquisition of Old STERIS was accounted for in the consolidated financial statements as a merger between entities under common control; accordingly, the historical consolidated financial statements of Old STERIS for periods prior to November 2, 2015, are considered to be the historical financial statements of STERIS plc.
Due to the timing of the closing of the Combination, the results of Synergy are only reflected in the results of operations of the Company from November 2, 2015 forward, which will affect comparability for the fiscal 2016 periods to more recent fiscal periods of the Company throughout this Annual Report on From 10-K.
We operate and report in four reportable business segments: Healthcare Products, Healthcare Specialty Services, Life Sciences, and Applied Sterilization Technologies. We describe our business segments in Note 11 to our consolidated financial statements, titled "Business Segment Information."
The bulk of our revenues are derived from the healthcare and pharmaceutical industries. Much of the growth in these industries is driven by the aging of the population throughout the world, as an increasing number of individuals are entering their prime healthcare consumption years, and is dependent upon advancement in healthcare delivery, acceptance of new technologies, government policies, and general economic conditions. The pharmaceutical industry has been impacted by increased regulatory scrutiny of cleaning and validation processes, mandating that manufacturers improve their processes. Within healthcare, there is increased concern regarding the level of hospital acquired infections around the world; increased

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demand for medical procedures, including preventive screenings such as endoscopies and colonoscopies; and a desire by our Customers to operate more efficiently, all which are driving increased demand for many of our products and services. 
We completed several acquisitions and asset purchases in fiscal 2018 and 2017 that expanded our product and service offerings to our Customers.
During fiscal 2018, we divested our Synergy Health Healthcare Consumable Solutions ("HCS") business with annual revenues of approximately $40 million. During fiscal 2017, we divested our Applied Infection Control ("AIC") product line (annual revenues of approximately $50 million) and four businesses acquired in the Combination with Synergy consisting of: the UK Linen Management Services business (annual revenues of approximately $50 million), U.S. Linen Management Services business (annual revenues of approximately $50 million), Synergy Health Netherlands Linen Management Services (annual revenues of approximately $75 million) and Synergy Health Laboratory Services (annual revenues of approximately $15 million).
We continue to invest in manufacturing in-sourcing projects and lean process improvements for the purpose of improving quality, cost and delivery of our products to our Customers.
U.S. Tax Reform. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “TCJA”). The TCJA makes broad and complex changes to the U.S. tax code that will affect the Company’s fiscal year ending March 31, 2018, including, but not limited to, (1) requiring a one-time transition tax on certain unrepatriated earnings of non-U.S. subsidiaries which is payable over eight years, (2) bonus depreciation that will allow for full expensing of qualified property and (3) reduction of the U.S. federal corporate tax rate. The TCJA reduces the federal corporate income tax rate to 21.0 percent beginning January 1, 2018. Section 15 of the Internal Revenue Code stipulates that our fiscal year ending March 31, 2018, will have a U.S. blended corporate income tax rate of approximately 31.5 percent, which is based on the applicable tax rates before and after the TCJA and the number of days in the fiscal year.
The TCJA also establishes new tax laws that may affect the Company’s fiscal year 2019 and forward, including, but not limited to, (1) reduction of the U.S. federal corporate income tax rate as noted above; (2) elimination of the corporate alternative minimum tax ("AMT"); (3) the creation of the base erosion anti-abuse tax ("BEAT"), a new minimum tax; (4) a general elimination of U.S. federal income taxes on dividends from non-U.S. subsidiaries; (5) a new provision designed to tax global intangible low-taxed income ("GILTI"), which allows for the possibility of using foreign tax credits ("FTCs") and a deduction of up to 50 percent to offset the income tax liability (subject to some limitations); (6) a new limitation on deductible interest expense; (7) the repeal of the domestic production activity deduction; (8) limitations on the deductibility of certain executive compensation; (9) limitations on the use of FTCs to reduce the U.S. income tax liability; and (10) limitations on net operating losses ("NOLs") generated after December 31, 2017, to 80.0 percent of taxable income.
Highlights.  Revenues increased $7.2 million, or 0.3%, to $2,620.0 million for the year ended March 31, 2018, as compared to $2,612.8 million for the year ended March 31, 2017. The increase reflects organic revenue growth within all business segments, the favorable impact of our recent acquisitions and the positive impact of fluctuations in currencies, which more than offset the impact of our recent divestitures.
Fiscal 2018 operating income increased 77.3% to $403.5 million over the fiscal 2017 operating income of $227.6 million. The increase is attributable to gross profit improvements, recent acquisitions, and lower acquisition and integration related expenses. Fiscal 2017 was also negatively impacted by losses from the divestiture of certain non-core operations and a goodwill impairment loss.
Net cash flows from operations were $457.6 million and free cash flow was $294.3 million in fiscal 2018 compared to net cash flows from operations of $424.1 million and free cash flow of $256.0 million in fiscal 2017 (see subsection of MD&A titled, "Non-GAAP Financial Measures" for additional information and related reconciliation of non-GAAP financial measures to the most comparable GAAP measures). Cash flow from operations and free cash flow increased primarily due to higher earnings and lower requirements to fund operating assets and liabilities.
Our debt-to-total capital ratio was 29.1% at March 31, 2018. During the year, we increased our quarterly dividend for the twelfth consecutive year to $0.31 per share per quarter.
Outlook. Fluctuations in currency rates can impact revenues and costs outside of the United States, creating variability in our results for fiscal 2019 and beyond.
In fiscal 2019 and beyond, we expect to continue to manage our costs, grow our business with internal product and service development, invest in greater capacity, and augment these value creating methods with acquisitions of additional products and services.

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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 fund future debt principal repayments and growth outside of core operations, repurchase shares, and pay cash dividends. The following table summarizes the calculation of our free cash flow for the years ended March 31, 2018, 2017 and 2016:
 
 
Years Ended March 31,
(dollars in thousands)
 
2018
 
2017
 
2016
Net cash flows provided by operating activities
 
$
457,632

 
$
424,086

 
$
254,675

Purchases of property, plant, equipment and intangibles, net
 
(165,457
)
 
(172,901
)
 
(126,407
)
Proceeds from the sale of property, plant, equipment and intangibles
 
2,094

 
4,846

 
844

Free cash flow
 
$
294,269

 
$
256,031

 
$
129,112

RESULTS OF OPERATIONS
In the following subsections, we discuss our earnings and the factors affecting them. We begin with a general overview of our operating results and then separately discuss earnings for our operating segments.

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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:
 
 
Years Ended March 31,
 
 
 
Percent
(dollars in thousands)
 
2018
 
2017
 
Change
 
Change
Total revenues
 
$
2,619,996

 
$
2,612,756

 
$
7,240

 
0.3
 %
 
 
 
 
 
 
 
 
 
Revenues by type:
 
 
 
 
 
 
 
 
Service revenues
 
1,399,363

 
1,414,437

 
(15,074
)
 
(1.1
)%
Consumable revenues
 
581,563

 
558,834

 
22,729

 
4.1
 %
Capital equipment revenues
 
639,070

 
639,485

 
(415
)
 
(0.1
)%
 
 
 
 
 
 
 
 
 
Revenues by geography:
 
 
 
 
 
 
 
 
United Kingdom revenues
 
207,514

 
229,603

 
(22,089
)
 
(9.6
)%
United States revenues
 
1,836,414

 
1,803,457

 
32,957

 
1.8
 %
Other foreign revenues
 
576,068

 
579,696

 
(3,628
)
 
(0.6
)%
Revenues increased $7.2 million, or 0.3%, to $2,620.0 million for the year ended March 31, 2018, as compared to $2,612.8 million for the year ended March 31, 2017. This increase is primarily attributable to organic growth within all business segments, favorable pricing, the benefit of acquisitions and the positive impact of fluctuations in currencies. These increases were largely offset by the impact of our recent divestitures.
Service revenues for fiscal 2018 decreased $15.1 million, or 1.1%, over fiscal 2017, as the impact of recent divestitures more than offset increases in other service offerings. Consumable revenues increased $22.7 million, or 4.1%, during fiscal 2018 over fiscal 2017, reflecting growth within the Healthcare Products and Life Sciences business segments, which more than offset the impact of the divestitures of the AIC product line and HCS business within the Healthcare Products segment. Capital equipment revenues decreased by $0.4 million, or 0.1%, during fiscal 2018 as compared to fiscal 2017, reflecting a decline in revenues from the Healthcare Products segment, which was offset by growth in revenues from the Life Sciences segment.
United Kingdom revenues for fiscal 2018 were $207.5 million, a decrease of $22.1 million, or 9.6%, over fiscal 2017 revenues of $229.6 million, reflecting a 11.1% decline in service revenues, primarily resulting from our fiscal 2017 divestitures of our laboratory and linen management services.
United States revenues for fiscal 2018 were $1,836.4 million, an increase of $33.0 million, or 1.8%, over fiscal 2017 revenues of $1,803.5 million. Strength in Life Sciences capital equipment and service offerings within the Healthcare Products, Life Sciences and Applied Sterilization Technologies segments more than offset the negative impact of the decline in capital equipment revenues from the Healthcare Products segment and the recent divestitures.
Revenues from other foreign locations for fiscal 2018 were $576.1 million, a decrease of 0.6% over the fiscal 2017 revenues of $579.7 million, primarily due to the fiscal 2017 divestiture of the Netherlands Linen Management Services, which more than offset growth in Canada and in the Asia Pacific and Latin America regions.

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Gross Profit. The following table compares our gross profit for the year ended March 31, 2018 to the year ended March 31, 2017: 
 
 
Years Ended March 31,
 
Change
 
Percent
Change
(dollars in thousands)
 
2018
 
2017
 
Gross profit:
 
 
 
 
 
 
 
 
Product
 
$
574,456

 
$
574,299

 
$
157

 
NM

Service
 
519,767

 
451,333

 
68,434

 
15.2
%
Total gross profit
 
$
1,094,223

 
$
1,025,632

 
$
68,591

 
6.7
%
Gross profit percentage:
 
 
 
 
 
 
 
 
Product
 
47.1
%
 
47.9
%
 
 
 
 
Service
 
37.1
%
 
31.9
%
 
 
 
 
Total gross profit percentage
 
41.8
%
 
39.3
%
 
 
 
 
Our gross profit is affected by the volume, pricing and mix of sales of our products and services, as well as the costs associated with the products and services that are sold. Our gross profit increased $68.6 million and gross profit percentage increased 250 basis points to 41.8% for fiscal 2018 as compared to 39.3% for fiscal 2017. The increase in our gross profit percentage was due to the favorable impact of the divestiture of lower margin operations (190 basis points), favorable mix (60 basis points), and favorable pricing (30 basis points) which were partially offset by the negative impact of currencies (30 basis points).
Operating Expenses. The following table compares our operating expenses for the year ended March 31, 2018 to the year ended March 31, 2017:
 
 
Years Ended March 31,
 
Change
 
Percent
Change
(dollars in thousands)
 
2018
 
2017
 
Operating expenses:
 
 
 
 
 
 
 
 
Selling, general, and administrative
 
$
629,884

 
$
680,069

 
$
(50,185
)
 
(7.4
)%
Goodwill impairment loss
 
—

 
58,356

 
(58,356
)
 
NM

Research and development
 
60,782

 
59,397

 
1,385

 
2.3
 %
Restructuring expenses
 
103

 
215

 
(112
)
 
NM

Total operating expenses
 
$
690,769

 
$
798,037

 
$
(107,268
)
 
(13.4
)%
NM - Not meaningful
Selling, General, and Administrative Expenses. Significant components of total Selling, general, and administrative expenses (“SG&A”) are compensation and benefit costs, fees for professional services, travel and entertainment, facilities costs, gains or losses from divestitures, and other general and administrative expenses. SG&A decreased 7.4% in fiscal 2018 over fiscal 2017. The decline was primarily attributable to a lower net loss on divestitures and lower acquisition and integration costs incurred in fiscal 2018 as compared to fiscal 2017.
Goodwill impairment loss. Goodwill impairment loss of $58.4 million was recorded during fiscal 2017 as a result of our annual goodwill impairment review in the third quarter relative to the Synergy Health Netherlands linen management reporting unit.
Research and Development. Research and development expenses increased $1.4 million during fiscal 2018, as compared to fiscal 2017. Research and development expenses are influenced by the number and timing of in-process projects and labor hours and other costs associated with these projects. Our research and development initiatives continue to emphasize new product development, product improvements, and the development of new technological platform innovations. During fiscal 2018, our investments in research and development continued to be focused on, but were not limited to, enhancing capabilities of sterile processing combination technologies, procedural products and accessories, and devices and support accessories used in gastrointestinal endoscopy procedures.
Non-Operating Expenses, Net. Non-operating expense (income), net consists of interest expense on debt, offset by interest earned on cash, cash equivalents, short-term investment balances, and other miscellaneous expense. The following table

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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:
 
 
Years Ended March 31,
 
 
(dollars in thousands)
 
2018
 
2017
 
Change
Non-operating expenses, net:
 
 
 
 
 
 
Interest expense
 
$
50,629

 
$
44,520

 
$
6,109

Interest income and miscellaneous expense
 
(2,157
)
 
(1,571
)
 
(586
)
Non-operating expenses, net
 
$
48,472

 
$
42,949

 
$
5,523

Interest expense increased $6.1 million during fiscal 2018 as compared to 2017. This increase was primarily due to an increase in the proportion of higher-cost, fixed rate debt following the issuance and sale of senior notes in a private placement to certain investors on February 27, 2017. Interest income and miscellaneous expense is immaterial.
Additional information regarding our outstanding debt is included in Note 6 to our consolidated financial statements titled, “Debt,” and in the subsection of this MD&A titled, “Liquidity and Capital Resources.”
Income Tax Expense. The following table compares our income tax expense and effective income tax rates for the years ended March 31, 2018 and March 31, 2017:
 
 
Years Ended March 31,
 
Change
 
Percent
Change
(dollars in thousands)
 
2018
 
2017
 
Income tax expense
 
$
63,360

 
$
74,015

 
$
(10,655
)
 
(14.4)%
Effective income tax rate
 
17.8
%
 
40.1
%
 
 
 
 
The effective income tax rate for fiscal 2018 was 17.8% as compared to 40.1% for fiscal 2017. The fiscal 2018 effective tax rate decreased when compared to fiscal 2017 primarily due to the TCJA impact and non-recurring nondeductible costs related to divestitures. Additional information regarding our income tax expense is included in Note 8 to our consolidated financial statements titled, “Income Taxes.”
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “TCJA”). The SEC staff issued Staff Accounting Bulletin No.118 (“SAB 118”), which provides guidance on accounting for the tax effects of the TCJA. SAB 118, provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting under Accounting Standards Codification (“ASC”) Topic 740, Income Taxes. Our accounting for the various elements of the TCJA is incomplete. However, in accordance with SAB 118 guidance, we were able to make what we believe to be reasonable estimates of certain effects and therefore recorded a provisional net tax benefit of approximately $18.9 million related to the reduction of the U.S. federal corporate income tax rate and the deemed repatriation transition tax. While we were able to make what we believe to be reasonable estimates of the tax rate reduction and transition tax effects, both items may be affected by other analyses related to the TCJA as well as actual activities to occur in the remainder of the Company’s measurement period. We are continuing to gather information and will reflect final effects within the measurement period permitted by SAB 118.
Business Segment Results of Operations. We operate and report in four reportable business segments: Healthcare Products, Healthcare Specialty Services, Life Sciences, and Applied Sterilization Technologies. Non-allocated operating costs that support the entire Company and items not indicative of operating trends are excluded from segment operating income.
Our Healthcare Products segment offers infection prevention and procedural solutions for healthcare providers worldwide, including consumable products, equipment maintenance and installation services, and capital equipment.
Our Healthcare Specialty Services segment provides a range of specialty services for healthcare providers including hospital sterilization services and instrument and scope repairs. Linen Management Services were divested in fiscal 2017.
Our Life Sciences segment offers consumable products, equipment maintenance, specialty services and capital equipment primarily for pharmaceutical manufacturers.
Our Applied Sterilization Technologies segment offers contract sterilization and laboratory services primarily for medical device and pharmaceutical Customers.
Certain minor organizational changes were made to better align with our Customers, resulting in several smaller operations shifting among the segments. The prior period revenues and operating income measures have been recast for comparability.

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The accounting policies for reportable segments are the same as those for the consolidated Company. Management will evaluate performance and allocate resources based on a segment operating income measure. Operating income (loss) for each segment is calculated as the segment’s gross profit less direct expenses and indirect cost allocations, which result in the full allocation of all distribution and research and development expenses, and the partial allocation of corporate costs. These allocations are based upon variables such as segment headcount and revenues. In addition, the Healthcare Products segment is responsible for the management of all but two manufacturing facilities and uses standard cost to sell products to the other segments. Corporate and other includes certain non-allocated corporate costs related to being a publicly traded company and legacy pension and post-retirement benefits. Segment operating income excludes certain adjustments which include acquisition related costs, amortization of acquired intangibles, restructuring costs and other charges that management believes may or may not recur with similar materiality or impact on operating income in future periods. Management believes that by adjusting for these items they gain better insight and greater transparency of the operating performance of the segments, thus aiding them in more meaningful financial trend analysis and operational decision making. For more information regarding our segments please refer to Note 11 to our consolidated financial statements titled “Business Segment Information,” and Item 1, “Business,” provide detailed information regarding each business segment.
The following table compares business segment and Corporate and other revenues and operating income for the year ended March 31, 2018 to the year ended March 31, 2017:
 
 
Years ended March 31,
 
 
 
Percent
(dollars in thousands)
 
2018
 
2017
 
Change
 
Change
Revenues:
 
 
 
 
 
 
 
 
Healthcare Products
 
$
1,276,054

 
$
1,266,517

 
$
9,537

 
0.8
 %
Healthcare Specialty Services
 
469,065

 
539,536

 
(70,471
)
 
(13.1
)%
Life Sciences
 
361,590

 
328,866

 
32,724

 
10.0
 %
Applied Sterilization Technologies
 
513,287

 
477,837

 
35,450

 
7.4
 %
Total revenues
 
$
2,619,996

 
$
2,612,756

 
$
7,240

 
0.3
 %
Operating income (loss):
 
 
 
 
 
 
 
 
Healthcare Products
 
221,795

 
227,707

 
(5,912
)
 
(2.6
)%
Healthcare Specialty Services
 
28,910

 
10,573

 
18,337

 
173.4
 %
Life Sciences
 
106,737

 
97,180

 
9,557

 
9.8
 %
Applied Sterilization Technologies
 
173,375

 
158,379

 
14,996

 
9.5
 %
Corporate
 
(17,439
)
 
(17,307
)
 
(132
)
 
NM

Total operating income before adjustments
 
$
513,378

 
$
476,532

 
$
36,846

 
7.7
 %
Less: Adjustments
 
 
 
 
 
 
 
 
Goodwill impairment loss (1)
 
—

 
58,356

 
 
 
 
Amortization of inventory and property "step up" to fair value (2)
 
1,599

 
4,743

 
 
 
 
Amortization and impairment of purchased intangible assets (2)
 
67,793

 
66,398

 
 
 
 
Acquisition related transaction and integration charges (3)
 
16,211

 
30,082

 
 
 
 
Loss (gain) on fair value adjustment of acquisition related contingent consideration
 
(593
)
 
2,569

 
 
 
 
Net loss on divestiture of businesses (2)
 
14,547

 
86,574

 
 
 
 
Impact of the U.S. Tax Cuts and Jobs Act (4)
 
10,264

 
—

 
 
 
 
Restructuring charges
 
103

 
215

 
 
 
 
Total operating income
 
$
403,454

 
$
227,595

 
 
 
 
(1) For more information regarding our goodwill impairment loss see Note 3 to our consolidated financial statements titled, "Goodwill and Intangible Assets".
(2) For more information regarding our recent acquisitions and divestitures see Note 2 to our consolidated financial statements titled, "Business Acquisitions and Divestitures".
(3) Acquisition and integration related charges include transaction costs and integration expenses associated with acquisitions.
(4) Represents a one-time special employee bonus paid to most U.S. employees and associated professional fees.

Healthcare Products revenues increased 0.8% in the fiscal 2018 year, as compared to fiscal 2017, reflecting growth in consumable and service revenues of 2.2% and 7.2%, respectively, which were partially offset by a 4.0% decline in capital equipment revenues. The increase was attributable to organic growth, acquisitions and the positive impact of fluctuations in currencies, and was partially offset by divestitures. At March 31, 2018, the Healthcare Products segment’s backlog amounted to $133.0 million, increasing $23.3 million, or 21.3%, compared to the backlog of $109.7 million at March 31, 2017.

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Healthcare Specialty Services revenues decreased 13.1% in the fiscal 2018 year, as compared to fiscal 2017. The negative impact of the divestitures was partially offset by organic growth and the positive impact of fluctuations in currencies.
Life Sciences revenues increased 10.0% in the fiscal 2018 year, as compared to fiscal 2017, reflecting growth of 19.6%, 5.2% and 8.6% in capital equipment, consumable and service revenues, respectively. The increase was primarily attributable to organic growth and the positive impact of fluctuations in currencies. Life Sciences backlog at March 31, 2018 amounted to $60.8 million, increasing $7.7 million compared to the backlog of $53.2 million at March 31, 2017.
Applied Sterilization Technologies revenues increased 7.4% in the fiscal year 2018, as compared to fiscal 2017. Revenues in fiscal 2018 were favorably impacted by increased volume from our core medical device Customers and the positive impact of fluctuations in currencies, which was partially offset by the impact of the divestitures.
The Healthcare Products segment’s operating income decreased $5.9 million to $221.8 million in fiscal year 2018, as compared to $227.7 million in fiscal year 2017. The segment's operating margin was 17.4% for fiscal year 2018 compared to 18.0% for fiscal year 2017. The decrease in operating income in fiscal 2018 was primarily due to increased spending on research and development, negative fluctuations in currencies, and higher allocated corporate costs, which more than offset organic growth.
The Healthcare Specialty Services segment’s operating income increased $18.3 million to $28.9 million for fiscal year 2018 as compared to $10.6 million in fiscal year 2017. The segment’s operating margin was 6.2% for fiscal year 2018 compared to 2.0% for fiscal year 2017. The increase in operating income in fiscal 2018 was primarily due to the divestiture of the low margin Linen Management Services operations and growth in retained businesses.
The Life Sciences business segment’s operating income increased $9.6 million to $106.7 million for fiscal year 2018 as compared to $97.2 million in fiscal year 2017. The segment’s operating margin was 29.5% for fiscal year 2018 compared to 29.6% for fiscal year 2017. The increase in operating income in fiscal 2018 was primarily attributable to higher volume which was partially offset by unfavorable product mix.
The Applied Sterilization Technologies segment’s operating income increased $15.0 million to $173.4 million for fiscal year 2018 as compared to $158.4 million for fiscal year 2017. The Applied Sterilization Technologies segment's operating margin was 33.8% for fiscal year 2018 compared to 33.1% for fiscal year 2017. The segment’s operating income increase in fiscal 2018 over fiscal 2017 was primarily due to increased volume from the segment’s core medical device Customers.

FISCAL 2017 AS COMPARED TO FISCAL 2016
Revenues. The following table compares our revenues, in total and by type and geography, for the year ended March 31, 2017 to the year ended March 31, 2016:
 
 
Years Ended March 31,
 
 
 
Percent
(dollars in thousands)
 
2017
 
2016
 
Change
 
Change
Total revenues
 
$
2,612,756

 
$
2,238,764

 
$
373,992

 
16.7
%
 
 
 
 
 
 
 
 
 
Revenues by type:
 
 
 
 
 
 
 
 
Service revenues
 
1,414,437

 
1,109,779

 
304,658

 
27.5
%
Consumable revenues
 
558,834

 
516,044

 
42,790

 
8.3
%
Capital equipment revenues
 
639,485

 
612,941

 
26,544

 
4.3
%
 
 
 
 
 
 
 
 
 
Revenues by geography:
 
 
 
 
 
 
 
 
United Kingdom revenues
 
229,603

 
144,577

 
85,026

 
58.8
%
United States revenues
 
1,803,457

 
1,662,050

 
141,407

 
8.5
%
Other foreign revenues
 
579,696

 
432,137

 
147,559

 
34.1
%
Revenues increased $374.0 million, or 16.7%, to $2,612.8 million for the year ended March 31, 2017, as compared to $2,238.8 million for the year ended March 31, 2016. This increase is primarily attributable to the Combination, along with organic growth within all reportable business segments, partially offset by divestitures and the negative impact of foreign currency.

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Table of Contents

Service revenues for fiscal 2017 increased $304.7 million, or 27.5%, over fiscal 2016 driven by the Combination and organic growth in all reportable business segments. Consumable revenues increased $42.8 million, or 8.3%, during fiscal 2017 from fiscal 2016. The increase was due, in part, to recent acquisitions, but also strong organic growth in both the Healthcare Products and Life Sciences business segments, partially offset by the sale of the Applied Infection Control (AIC) product line. Capital equipment revenues increased by $26.5 million, or 4.3%, during fiscal 2017 as compared to fiscal 2016. This increase was driven primarily by growth within the Healthcare Products business segment.
United Kingdom revenues for fiscal 2017 were $229.6 million, an increase of $85.0 million, or 58.8%, over fiscal 2016 revenues of $144.6 million. This increase reflects growth in capital equipment, consumable and service revenues of 9.6%, 71.2% and 62.8%, respectively. The increases are attributable to acquisitions, including the Combination with Synergy, partially offset by divestitures and the negative impact of foreign currency.
United States revenues for fiscal 2017 were $1,803.5 million, an increase of $141.4 million, or 8.5%, over fiscal 2016 revenues of $1,662.1 million. This increase reflects growth in capital equipment, consumable and service revenues of 7.2%, 3.5%, and 11.5%, respectively. The increases are attributable to acquisitions, including the Combination, as well as organic growth, partially offset by divestitures.
Revenues from other foreign locations for fiscal 2017 were $579.7 million, an increase of 34.1% over the fiscal 2016 revenues of $432.1 million. This increase reflects revenue growth in Canada, the EMEA region outside of the United Kingdom, as well as in the Asia Pacific and Latin American regions. Service revenues attributable to the Combination were the most significant driver of the growth in these regions.
Gross Profit. The following table compares our gross profit for the year ended March 31, 2017 to the year ended March 31, 2016: 
 
 
Years Ended March 31,
 
Change
 
Percent
Change
(dollars in thousands)
 
2017
 
2016
 
Gross profit:
 
 
 
 
 
 
 
 
Product
 
$
574,299

 
$
511,617

 
$
62,682

 
12.3
%
Service
 
451,333

 
383,864

 
67,469

 
17.6
%
Total gross profit
 
$
1,025,632

 
$
895,481

 
$
130,151

 
14.5
%
Gross profit percentage:
 
 
 
 
 
 
 
 
Product
 
47.9
%
 
45.3
%
 
 
 
 
Service
 
31.9
%
 
34.6
%
 
 
 
 
Total gross profit percentage
 
39.3
%
 
40.0
%
 
 
 
 
Our gross profit is affected by the volume, pricing and mix of sales of our products and services, as well as the costs associated with the products and services that are sold. Our gross profit increased $130.2 million and gross profit percentage decreased 70 basis points to 39.3% for fiscal 2017 as compared to 40.0% for fiscal 2016. The decrease in our gross profit percentage was primarily due to the addition of Synergy's hospital sterilization services and linen management business (240 basis points), partially offset by the favorable impact of the divestiture of lower margin operations (110 basis points) and foreign currency (50 basis points). We have applied our "four walls" approach to the operation of Synergy, which reports all direct and indirect costs related to the delivery of services as costs of goods sold. This approach caused additional costs to be included in costs of goods sold rather than in selling, general and administrative costs as Synergy would have previously reported.
Operating Expenses. The following table compares our operating expenses for the year ended March 31, 2017 to the year ended March 31, 2016:
 
 
Years Ended March 31,
 
Change
 
Percent
Change
(dollars in thousands)
 
2017
 
2016
 
Operating expenses:
 
 
 
 
 
 
 
 
Selling, general, and administrative
 
$
680,069

 
$
626,710

 
$
53,359

 
8.5
%
Goodwill impairment loss
 
58,356

 
—

 
58,356

 
NM

Research and development
 
59,397

 
56,664

 
2,733

 
4.8
%
Restructuring expenses
 
215

 
(820
)
 
1,035

 
NM

Total operating expenses
 
$
798,037

 
$
682,554

 
$
115,483

 
16.9
%
NM - Not meaningful

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Table of Contents

Selling, General, and Administrative Expenses. Significant components of total Selling, general, and administrative expenses (“SG&A”) are compensation and benefit costs, fees for professional services, travel and entertainment, facilities costs, gains or losses from divestitures, and other general and administrative expenses. SG&A increased 8.5% in fiscal 2017 over fiscal 2016. Contributing to this increase was the loss on the sale of businesses of $86.6 million and the acceleration of amortization associated with the Synergy Health trade name, partially offset by lower acquisition related expenses.
Goodwill impairment loss. Goodwill impairment loss of $58.4 million was recorded during fiscal 2017 as a result of our annual goodwill impairment review in the third quarter relative to the Synergy Health Netherlands linen management reporting unit.
Research and Development. Research and development expenses increased $2.7 million during fiscal 2017, as compared to fiscal 2016. Contributing to these increases was the additional spending in connection with the development of Healthcare Products and Life Sciences products and accessories. Research and development expenses are influenced by the number and timing of in-process projects and labor hours and other costs associated with these projects. Our research and development initiatives continue to emphasize new product development, product improvements, and the development of new technological platform innovations. During fiscal 2017, our investments in research and development continued to be focused on, but were not limited to, enhancing capabilities of sterile processing combination technologies, procedural products and accessories, and devices and support accessories used in gastrointestinal endoscopy procedures.
Non-Operating Expenses, Net. Non-operating expense (income), net consists of interest expense on debt, offset by interest earned on cash, cash equivalents, short-term investment balances, and other miscellaneous expense. The following table compares our non-operating expense (income), net for the year ended March 31, 2017 to the year ended March 31, 2016:
 
 
Years Ended March 31,
 
 
(dollars in thousands)
 
2017
 
2016
 
Change
Non-operating expenses, net:
 
 
 
 
 
 
Interest expense
 
$
44,520

 
$
42,708

 
$
1,812

Interest income and miscellaneous expense
 
(1,571
)
 
(1,665
)
 
94

Non-operating expenses, net
 
$
42,949

 
$
41,043

 
$
1,906

Interest expense during fiscal 2017 increased as compared to 2016 primarily due to higher debt levels resulting from additional borrowings to fund acquisitions, including the Combination and the operations of acquired companies. This increase was partially offset by one-time payments made in the third quarter of fiscal 2016 associated with paying off Synergy's debt. Additionally, the weighted average interest rate was higher as of March 31, 2017 compared to March 31, 2016. Interest income and miscellaneous expense is immaterial.
Additional information regarding our outstanding debt is included in Note 6 to our consolidated financial statements titled, “Debt,” and in the subsection of MD&A titled, “Liquidity and Capital Resources.”
Income Tax Expense. The following table compares our income tax expense and effective income tax rates for the years ended March 31, 2017 and March 31, 2016:
 
 
Years Ended March 31,
 
Change
 
Percent
Change
(dollars in thousands)
 
2017
 
2016
 
Income tax expense
 
$
74,015

 
$
60,299

 
$
13,716

 
22.7%
Effective income tax rate
 
40.1
%
 
35.1
%
 
 
 
 
The effective income tax rate for fiscal 2017 was 40.1% as compared to 35.1% for fiscal 2016. The fiscal 2017 effective tax rate increased when compared to fiscal 2016 primarily due to nondeductible costs related to divestitures offset by a decrease in nondeductible or capitalized acquisition costs. Additional information regarding our income tax expense is included in Note 8 to our consolidated financial statements titled, “Income Taxes.”
Business Segment Results of Operations. We operate and report in four reportable business segments: Healthcare Products, Healthcare Specialty Services, Life Sciences, and Applied Sterilization Technologies. Non-allocated operating costs that support the entire Company and items not indicative of operating trends are excluded from segment operating income.
Our Healthcare Products segment offers infection prevention and procedural solutions for healthcare providers worldwide, including consumable products, equipment maintenance and installation services, and capital equipment.
Our Healthcare Specialty Services segment provides a range of specialty services for healthcare providers including hospital sterilization services and instrument and scope repairs. Linen Management Services were divested in fiscal 2017.

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Our Life Sciences segment offers consumable products, equipment maintenance, specialty services and capital equipment primarily for pharmaceutical manufacturers.
Our Applied Sterilization Technologies segment offers contract sterilization and laboratory services primarily for medical device and pharmaceutical Customers.
Certain minor organizational changes were made during fiscal 2018 to better align with our Customers, resulting in several smaller operations shifting among the segments. The prior period revenues and operating income measures have been recast for comparability.
The accounting policies for reportable segments are the same as those for the consolidated Company. Management will evaluate performance and allocate resources based on a segment operating income measure. Operating income (loss) for each segment is calculated as the segment’s gross profit less direct expenses and indirect cost allocations, which result in the full allocation of all distribution and research and development expenses, and the partial allocation of corporate costs. These allocations are based upon variables such as segment headcount and revenues. In addition, the Healthcare Products segment is responsible for the management of all but two manufacturing facilities and uses standard cost to sell products to the other segments. Corporate and other includes the gross profit and direct expenses of the Defense and Industrial business unit, as well as certain non-allocated corporate costs related to being a publicly traded company and legacy pension and post-retirement benefits. Segment operating income excludes certain adjustments which include acquisition related costs, amortization of acquired intangibles, restructuring costs and other charges that management believes may or may not recur with similar materiality or impact on operating income in future periods. Management believes that by adjusting for these items they gain better insight and greater transparency of the operating performance of the segments, thus aiding them in more meaningful financial trend analysis and operational decision making. For more information regarding our segments please refer to Note 11 to our consolidated financial statements titled “Business Segment Information,” and Item 1, “Business,” provide detailed information regarding each business segment.
The following table compares business segment and Corporate and other revenues and operating income for the year ended March 31, 2017 to the year ended March 31, 2016:
 
 
Years ended March 31,
 
 
 
Percent
(dollars in thousands)
 
2017
 
2016
 
Change
 
Change
Revenues:
 
 
 
 
 
 
 
 
Healthcare Products
 
$
1,266,517

 
$
1,204,774

 
$
61,743

 
5.1
 %
Healthcare Specialty Services
 
539,536

 
420,220

 
119,316

 
28.4
 %
Life Sciences
 
328,866

 
297,733

 
31,133

 
10.5
 %
Applied Sterilization Technologies
 
477,837

 
316,037

 
161,800

 
51.2
 %
Total revenues
 
$
2,612,756

 
$
2,238,764

 
$
373,992

 
16.7
 %
Operating income (loss):
 
 
 
 
 
 
 
 
Healthcare Products
 
227,707

 
181,265

 
46,442

 
25.6
 %
Healthcare Specialty Services
 
10,573

 
24,299

 
(13,726
)
 
(56.5
)%
Life Sciences
 
97,180

 
84,564

 
12,616

 
14.9
 %
Applied Sterilization Technologies
 
158,379

 
99,854

 
58,525

 
58.6
 %
Corporate
 
(17,307
)
 
(11,320
)
 
(5,987
)
 
NM

Total operating income before adjustments
 
$
476,532


$
378,662


$
97,870


25.8
 %
Less: Adjustments
 
 
 
 
 
 
 
 
Goodwill impairment loss (1)
 
58,356

 
—

 

 
 
Amortization of inventory and property "step up" to fair value (2)
 
4,743

 
9,907

 
 
 
 
Amortization and impairment of purchased intangible assets (2)
 
66,398

 
47,704

 
 
 
 
Acquisition related transaction and integration charges (3)
 
30,082

 
82,891

 
 
 
 
Loss (gain) on fair value adjustment of acquisition related contingent consideration
 
2,569

 
(736
)
 
 
 
 
Net loss on divestiture of businesses (2)
 
86,574

 
—

 
 
 
 
Settlement of pension obligation (4)
 
—

 
26,470

 
 
 
 
Restructuring charges
 
215

 
(501
)
 
 
 
 
Total operating income
 
$
227,595

 
$
212,927

 
 
 
 
1) For more information regarding our goodwill impairment loss see Note 3 to our consolidated financial statements titled, "Goodwill and Intangible Assets".

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(2) For more information regarding our recent acquisitions and divestitures see Note 2 to our consolidated financial statements titled, "Business Acquisitions and Divestitures".
(3) Acquisition and integration related charges include transaction costs and integration expenses associated with acquisitions.
(4) See Note 9 to our consolidated financial statements, titled, "Benefit Plans" for more information related to the settlement of the pension obligation.
Healthcare Products revenues increased 5.1% in the fiscal 2017 year as compared to fiscal 2016. This increase reflects growth in capital equipment, consumable and service revenues of 5.4%, 5.8% and 3.7%, respectively. The increases were primarily attributable to acquisitions and organic growth, partially offset by divestitures and the negative impact of foreign currency. At March 31, 2017, the Healthcare Products segment’s backlog amounted to $109.7 million, decreasing $9.7 million, or 8.1%, compared to the backlog of $119.4 million at March 31, 2016.
Healthcare Specialty Services revenues increased 28.4% in the fiscal 2017 year as compared to fiscal 2016. The increases are primarily due to the Combination, but also reflect organic growth in instrument repair services and the outsourcing of central sterile services. These increases were partially offset by divestitures and the negative impact of foreign currency.
Life Sciences revenues increased 10.5% in the fiscal 2017 year, as compared to fiscal 2016. The growth reflects increases of 18.3% and 12.8% in the consumable and service revenues, respectively. These increases are primarily attributable to our recent acquisitions, organic growth and new service offerings. Capital equipment revenues declined 2.9%. Life Sciences backlog at March 31, 2017 amounted to $53.2 million, increasing $7.9 million compared to the backlog of $45.3 million at March 31, 2016.
Applied Sterilization Technologies revenues increased 51.2% in the fiscal year 2017, as compared to fiscal 2016. Revenues in fiscal 2017 were favorably impacted by the Combination and increased volume from our core medical device Customers.
The Healthcare Products segment’s operating income increased $46.4 million to $227.7 million in fiscal year 2017, as compared to $181.3 million in fiscal year 2016. The segment's operating margin was 18.0% for fiscal year 2017 compared to 15.0% for fiscal year 2016. The increase in fiscal year 2017 is primarily due to higher volumes, the positive impact of operational efficiencies, the suspension of the medical device excise tax, and favorable foreign currency rate movements.
The Healthcare Specialty Services segment’s operating income decreased $13.7 million to $10.6 million for fiscal year 2017 as compared to $24.3 million in fiscal year 2016. The segment’s operating margin was 2.0% for fiscal year 2017 compared to 5.8% for fiscal year 2016. The decrease in fiscal 2017 was primarily the result of the addition of Synergy's hospital sterilization services and linen management services.
The Life Sciences business segment’s operating income increased $12.6 million to $97.2 million for fiscal year 2017 as compared to $84.6 million in fiscal year 2016. The segment’s operating margin was 29.6% for fiscal year 2017 compared to 28.4% for fiscal year 2016. The increase in operating margin in fiscal 2017 was primarily attributable to higher volume, partially offset by unfavorable product mix.
The Applied Sterilization Technologies segment’s operating income increased $58.5 million to $158.4 million for fiscal year 2017 as compared to $99.9 million for fiscal year 2016. The Applied Sterilization Technologies segment's operating margin was 33.1% for fiscal year 2017 compared to 31.6% for fiscal year 2016. The segment’s operating margin increase in fiscal 2017 was the result of the Combination, increased demand from core medical device Customers and operational efficiencies, including cost synergies.

LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes significant components of our cash flows for the years ended March 31, 2018, 2017 and 2016:
 
 
Years Ended March 31,
(dollars in thousands)
 
2018
 
2017
 
2016
Net cash provided by operating activities
 
$
457,632

 
$
424,086

 
$
254,675

Net cash used in investing activities
 
(203,829
)
 
(104,255
)
 
(729,584
)
Net cash (used in) provided by financing activities
 
(356,184
)
 
(267,099
)
 
560,289

Debt-to-total capital ratio
 
29.1
%
 
34.6
%

34.2
%
Free cash flow
 
$
294,269

 
$
256,031

 
$
129,112

Net Cash Provided By Operating Activities – The net cash provided by our operating activities was $457.6 million for the year ended March 31, 2018 compared to $424.1 million for the year ended March 31, 2017 and $254.7 million for the year

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ended March 31, 2016. The following discussion summarizes the significant changes in our operating cash flows for the years ended March 31, 2018, 2017 and 2016:
•
Net cash provided by operating activities increased 7.9% in fiscal 2018 compared to fiscal 2017. The improvement is primarily due to higher earnings and lower requirements to fund operating assets and liabilities.
•
Net cash provided by operating activities increased 66.5% in fiscal 2017 compared to fiscal 2016. The improvement was primarily due to higher cash earnings and lower acquisition and integration expenses.
Net Cash Used In Investing Activities – The net cash used in our investing activities was $203.8 million for the year ended March 31, 2018, compared to $104.3 million for the year ended March 31, 2017 and $729.6 million for the year ended March 31, 2016. The following discussion summarizes the significant changes in our investing cash flows for the years ended March 31, 2018, 2017 and 2016:
•
Purchases of property, plant, equipment, and intangibles, net – Capital expenditures totaled $165.5 million during fiscal 2018, $172.9 million during fiscal 2017 and $126.4 million during fiscal 2016. The increase in capital expenditures in fiscal 2017 over fiscal 2016 is the result of the inclusion of capital expenditures related to the operations of Synergy and investments to expand capacity in certain of our Applied Sterilization Technologies facilities.
•
Proceeds from the sale of business – During fiscal 2018 and 2017, we received $8.9 million and $135.7 million, respectively, for the proceeds from the sale of certain non-core businesses. For more information, refer to our Note 2 to our consolidated financial statements, titled "Business Acquisitions and Divestitures".
•
Investments in business, net of cash acquired – During fiscal 2018, 2017 and 2016, we used $46.3 million, $65.6 million and $604.0 million, respectively, for acquisitions. For more information on these acquisitions refer to Note 2 to our consolidated financial statements titled, "Business Acquisitions and Divestitures".
•
Purchases of investments – During fiscal 2017, we invested an additional $6.4 million in the common stock of Servizi Italia, S.p.A., a leading provider of integrated linen washing and outsourced sterile processing services to hospital Customers.
•
Other – In connection with the Netherlands Linen Management Services divestiture, we entered into a loan agreement to provide financing to the buyer for a period of 15 years. During fiscal 2018, we provided $3.1 million under this agreement. For more information on these acquisitions refer to Note 2 to our consolidated financial statements titled, "Business Acquisitions and Divestitures".
Net Cash (Used In) Provided By Financing Activities – Net cash used in financing activities was $356.2 million for the year ended March 31, 2018, compared to net cash used by financing activities of $267.1 million, and net cash provided by financing activities of $560.3 million for the years ended March 31, 2017 and March 31, 2016, respectively. The following discussion summarizes the significant changes in our financing cash flows for the years ended March 31, 2018, 2017 and 2016:
•
Proceeds from the issuance of long-term obligations – On February 27, 2017, we issued and sold to various institutional investors fixed-rate Series A Senior Notes, in the aggregate principal amount of $95.0 million, €99.0 million, and £75.0 million or a total of approximately $293.7 million. On May 15, 2015, we issued the aggregate principal amount of $350.0 million of senior notes in a private placement, which were long term obligations. We provide additional information about our debt structure in Note 6 to our consolidated financial statements titled, “Debt,” and in this section of the MD&A titled, “Liquidity and Capital Resources” in the subsection titled, “Sources of Credit.”
•
Payments on long-term obligations - During fiscal 2018 and fiscal 2017, we repaid $222.5 million and $172.5 million on our bank term loan. During fiscal 2016, we repaid $24.0 million of senior notes and $68.6 million of our term loan.
•
Proceeds under credit facilities, net – At the end of fiscal 2018, $331.2 million of debt was outstanding under our bank credit facility, compared to $521.6 million and $905.2 million of debt outstanding under this facility at the end of fiscal 2017 and 2016, respectively. We provide additional information about our bank credit facility including the fiscal 2018 refinancing in Note 6 to our consolidated financial statements titled, “Debt”.
•
Repurchases of shares – During fiscal 2018, we purchased 656,663 of our ordinary shares in the aggregate amount of $58.5 million, which included $0.3 million of taxes and commissions. We also obtained 127,903 of our ordinary shares in connection with our stock-based compensation award programs in the amount $7.0 million during fiscal 2018. During fiscal 2017, we purchased 1,286,183 of our ordinary shares in the aggregate amount of $90.5 million, which included $0.5 million of taxes and commissions. We also obtained 168,906 of our ordinary shares in connection with our stock-based compensation award programs in the amount $7.0 million. During fiscal 2016, we obtained 267,696 shares in connection with our stock-based compensation award programs in the amount of $14.4 million. We provide additional information about our share repurchases in Note 13 to our consolidated financial statements titled, “Repurchases of Ordinary Shares.”

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•
Deferred financing fees and debt issuance costs - We paid $2.0 million, $1.1 million and $5.2 million in fiscal 2018, 2017 and 2016, respectively, for financing fees and debt issuance costs related to our Credit Agreement, Private Placement debt, and former Bridge Credit Agreement. For more information on our debt refer to Note 6 to our consolidated financial statements titled, "Debt".
•
Cash dividends paid to ordinary shareholders – During fiscal 2018, we paid cash dividends totaling $102.9 million or $1.21 per outstanding share. During fiscal 2017, we paid cash dividends totaling $93.2 million or $1.09 per outstanding share. During fiscal 2016, we paid cash dividends totaling $65.2 million, or $0.98 per outstanding share.
•
Stock option and other equity transactions, net – We generally receive cash for issuing shares upon the exercise of options under our employee stock option program. During fiscal 2018, fiscal 2017 and fiscal 2016, we received cash proceeds totaling $11.1 million, $5.0 million, and $11.2 million, respectively, under these programs. During fiscal 2018 we also paid dividends in the amount of $1.4 million to minority interest shareholders.
•
Excess tax benefit from share-based compensation – For the year ended March 31, 2016 our income taxes were reduced by $6.3 million as a result of deductions allowed for stock options exercised and restricted share vestings.
Cash Flow Measures. Free cash flow was $294.3 million in fiscal 2018 compared to $256.0 million in fiscal 2017. The increase in cash flow from operations and free cash flow was primarily due to higher earnings and lower requirements to fund operating assets and liabilities.
Our debt-to-total capital ratio was 29.1% at March 31, 2018 and 34.6% at March 31, 2017.
Cash Requirements. We intend to use our existing cash and cash equivalent balances and cash generated from operations to fund capital expenditures and meet our other liquidity needs. Our capital requirements depend on many uncertain factors, including our rate of sales growth, our Customers’ acceptance of our products and services, the costs of obtaining adequate manufacturing capacities, the timing and extent of our research and development projects, changes in our operating expenses and other factors. To the extent that existing and anticipated sources of cash are not sufficient to fund our future activities, we may need to raise additional funds through additional borrowings or the sale of equity securities. There can be no assurance that our financing arrangements will provide us with sufficient funds or that we will be able to obtain any additional funds on terms favorable to us or at all.
Sources of Credit.  Our sources of credit as of March 31, 2018 are summarized in the following table:
(dollars in thousands)
Maximum
Amounts
Available
 
Reductions in
Available Credit
Facility for Other
Financial  Instruments
 
March 31, 2018 Amounts
Outstanding
 
March 31, 2018 Amounts
Available
Sources of Credit
 
 
 
 
 
 
 
Private placement
$
988,190

 
$
—

 
$
988,190

 
$
—

Credit Agreement (1)
1,000,000

 
13,406

 
331,206

 
655,388

Total Sources of Credit
$
1,988,190

 
$
13,406


$
1,319,396


$
655,388

(1) At March 31, 2018, there was $13.4 million of letters of credit outstanding under the Credit Agreement.
Our sources of funding from credit as of March 31, 2018 are summarized below:
•
On March 23, 2018, we entered into a Credit Agreement (the "Credit Agreement") with various financial institutions as lenders, and JPMorgan Chase Bank, N.A., as Administrative Agent. The Credit Agreement replaced a bank credit facility dated March 31, 2015. The Credit Agreement provides up to $1.0 billion of credit, in the form of a revolver facility, which may be utilized for revolving credit borrowings, swing line borrowings and letters of credit, with sublimits for swing line borrowings and letters of credit. The revolver facility may be increased in specified circumstances by up to $500.0 million. The Credit Agreement will mature on March 23, 2023, and all unpaid borrowings, together with accrued and unpaid interest thereon, are repayable on that date. The Credit Agreement contains leverage and interest coverage covenants. Borrowings may be taken in U.S. dollars, euros, and pounds sterling and certain other specified currencies and bear interest at our option based upon either the Base Rate or the Eurocurrency Rate, plus the Applicable Margin in effect from time to time under the Credit Agreement. The Applicable Margin is determined based on the ratio of Consolidated Total Debt to Consolidated EBITDA (as such terms are defined in the Credit Agreement). Interest on Base Rate Advances is payable quarterly in arrears and interest on Eurocurrency Rate Advances is payable at the end of the relevant interest period therefor, but in no event less frequently than every three months. Borrowings at closing were used to repay outstanding balances of debt outstanding under the former bank credit facility dated March 31, 2015 that was scheduled to mature on March 31, 2020 and for other general corporate purposes.

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Our outstanding Senior Notes at March 31, 2018 were as follows:
(dollars in thousands)
 
Applicable Note Purchase Agreement
 
Maturity Date
 
U.S. Dollar Value at March 31, 2018
$85,000 Senior notes at 6.33%
 
2008 Private Placement
 
August 2018
 
$
85,000

$35,000 Senior notes at 6.43%
 
2008 Private Placement
 
August 2020
 
35,000

$91,000 Senior notes at 3.20%
 
2012 Private Placement
 
December 2022
 
91,000

$80,000 Senior notes at 3.35%
 
2012 Private Placement
 
December 2024
 
80,000

$25,000 Senior notes at 3.55%
 
2012 Private Placement
 
December 2027
 
25,000

$125,000 Senior notes at 3.45%
 
2015 Private Placement
 
May 2025
 
125,000

$125,000 Senior notes at 3.55%
 
2015 Private Placement
 
May 2027
 
125,000

$100,000 Senior notes at 3.70%
 
2015 Private Placement
 
May 2030
 
100,000

$50,000 Senior notes at 3.93%
 
2017 Private Placement
 
February 2027
 
50,000

€60,000 Senior notes at 1.86%
 
2017 Private Placement
 
February 2027
 
73,912

$45,000 Senior notes at 4.03%
 
2017 Private Placement
 
February 2029
 
45,000

€20,000 Senior notes at 2.04%
 
2017 Private Placement
 
February 2029
 
24,637

£45,000 Senior notes at 3.04%
 
2017 Private Placement
 
February 2029
 
63,141

€19,000 Senior notes at 2.30%
 
2017 Private Placement
 
February 2032
 
23,406

£30,000 Senior notes at 3.17%
 
2017 Private Placement
 
February 2032
 
42,094

Total Senior Notes
 
 
 
 
 
$
988,190

•
On February 27, 2017, we issued and sold an aggregate principal amount of $95.0 million, €99.0 million, and £75.0 million, of senior notes in a private placement to certain institutional investors in an offering that was exempt from the registration requirements of the Securities Act of 1933. These notes have maturities of between 10 and 15 years from the issue date. The agreement governing these notes contains leverage and interest coverage covenants.
•
On May 15, 2015, Old STERIS issued and sold $350.0 million of senior notes, in a private placement to certain institutional investors in an offering that was exempt from the registration requirements of the Securities Act of 1933. These notes have maturities of 10 to 15 years from the issue date. The agreement governing these notes contains leverage and interest coverage covenants.
•
The agreements governing certain senior notes issued and sold in February 2013, December 2012, and August 2008, were amended and restated in their entirety on March 31, 2015. All of these notes were issued and sold in private placements to certain institutional investors in offerings that were exempt from the registration requirements of the Securities Act of 1933. The amended and restated agreements, which have been consolidated into a single agreement for the 2013 and 2012 notes, and a separate single agreement for the 2008 notes, contain leverage and interest coverage covenants.
As of March 31, 2018 a total of $331.2 million was outstanding under the Credit Agreement, based on currency exchange rates as of March 31, 2018. At March 31, 2018, we had $655.4 million of unused funding available under the Credit Agreement. The Credit Agreement includes a sub-limit that reduces the maximum amount available to us by letters of credit outstanding. At March 31, 2018, there was $13.4 million in letters of credit outstanding under the Credit Agreement.
At March 31, 2018, we were in compliance with all financial covenants associated with our indebtedness. We provide additional information regarding our debt structure and payment obligations in the section of the MD&A titled, “Liquidity and Capital Resources” in the subsection titled, “Contractual and Commercial Commitments” and in Note 6 to our consolidated financial statements titled, “Debt.”
CAPITAL EXPENDITURES
Our capital expenditure program is a component of our long-term strategy. This program includes, among other things, investments in new and existing facilities, business expansion projects, radioisotope (cobalt-60), and information technology enhancements and research and development advances. During fiscal 2018, our capital expenditures amounted to $165.5 million. We use cash provided by operating activities and our cash and cash equivalent balances to fund capital expenditures. We expect fiscal 2019 capital expenditures to increase to approximately $190.0 million, reflecting continued facility expansions, integration of IT systems, new product development and general maintenance for existing facilities.

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CONTRACTUAL AND COMMERCIAL COMMITMENTS
At March 31, 2018, we had commitments under non-cancelable operating leases totaling $109.2 million.
Our contractual obligations and commercial commitments as of March 31, 2018 are presented in the following tables. Commercial commitments include standby letters of credit, letters of credit required as security under our self-insured risk retention policies, and other potential cash outflows resulting from events that require us to fulfill commitments.
 
 
Payments due by March 31,
 
 
(dollars in thousands)
 
2019
 
2020
 
2021
 
2022
 
2023 and thereafter
 
Total
Contractual Obligations:
 
 
 
 
 
 
 
 
 
 
 
 
Debt
 
$
85,000

 
$
—

 
$
35,000

 
$
—

 
$
1,199,396

 
$
1,319,396

Operating leases
 
24,116

 
19,933

 
14,666

 
11,051

 
39,464

 
109,230

Purchase obligations
 
29,276

 
29,617

 
30,785

 
27,430

 
11,363

 
128,471

Benefit payments under defined benefit plans
 
3,899

 
3,903

 
4,143

 
4,608

 
32,719

 
49,272

Trust assets available for benefit payments under defined benefit plans
 
(3,785
)
 
(3,795
)
 
(4,042
)
 
(4,514
)
 
(32,234
)
 
(48,370
)
Benefit payments under other post-retirement benefits plans
 
1,907

 
1,694

 
1,548

 
1,436

 
6,034

 
12,619

Total Contractual Obligations
 
$
140,413

 
$
51,352

 
$
82,100

 
$
40,011

 
$
1,256,742

 
$
1,570,618

The table above includes only the principal amounts of our contractual obligations. We provide information about the interest component of our long-term debt in the subsection of MD&A titled, “Liquidity and Capital Resources,” and in Note 6 to our consolidated financial statements titled, “Debt.”
Purchase obligations shown in the table above relate to minimum purchase commitments with suppliers for materials purchases and long term construction contracts.
The table above excludes contributions we make to our defined contribution plans. Our future contributions to the defined contribution plans depend on uncertain factors, such as the amount and timing of employee contributions and discretionary employer contributions. We provide additional information about our defined benefit pension plans, defined contribution plan, and other post-retirement benefits plan in Note 9 to our consolidated financial statements titled, “Benefit Plans."
 
 
Amount of Commitment Expiring March 31,
 
 
(dollars in thousands)
 
2019
 
2020
 
2021
 
2022
 
2023 and thereafter
 
Totals
Commercial Commitments:
 
 
 
 
 
 
 
 
 
 
 
 
Performance and surety bonds
 
$
53,219

 
$
449

 
$
4,086

 
$
62

 
$
1,482

 
$
59,298

Letters of credit as security for self-insured risk retention policies
 
7,694

 
—

 
—

 
—

 
—

 
7,694

Total Commercial Commitments
 
$
60,913

 
$
449

 
$
4,086

 
$
62

 
$
1,482

 
$
66,992

CRITICAL ACCOUNTING POLICIES, ESTIMATES, AND ASSUMPTIONS
The following subsections describe our most critical accounting policies, estimates, and assumptions. Our accounting policies are more fully described in Note 1 to our consolidated financial statements titled, “Nature of Operations and Summary of Significant Accounting Policies.”
Estimates and Assumptions.  Our discussion and analysis of financial condition and results of operations is based on our consolidated financial statements that were prepared in accordance with United States generally accepted accounting principles. We make certain estimates and assumptions that we believe to be reasonable when preparing these financial statements. These estimates and assumptions involve judgments with respect to numerous factors that are difficult to predict and are beyond management’s control. As a result, actual amounts could be materially different from these estimates. We periodically review these critical accounting policies, estimates, assumptions, and the related disclosures with the Audit Committee of the Company’s Board of Directors.

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Revenue Recognition.  We recognize revenue for products when ownership passes to the Customer, which is based on contract or shipping terms and for services when the service is provided to the Customer. Our Customers include end users as well as dealers and distributors who market and sell our products. Our revenue is not contingent upon resale by the dealer or distributor. We have no further obligations related to bringing about resale, and our standard return and restocking fee policies are applied.
We also have individual Customer contracts that offer extended payment terms and/or discounted pricing. Dealers and distributors may be offered sales incentives in the form of rebates. We reduce revenue for discounts and estimated returns, rebates, and other similar allowances in the same period the related revenues are recorded. Returns, rebates, and similar allowances are estimated based on historical experience and trend analysis.
In transactions that contain multiple elements, such as when products, maintenance services, and other services are combined, we recognize revenue as each product is delivered or service is provided to the Customer. We allocate the total arrangement consideration to each element based on its relative fair value, based on the price for the product or service when it is sold separately.
We offer preventive maintenance agreements to our Customers with contract terms that range from one to five years, which require us to maintain and repair our products during this time. Amounts received under these Customer contracts are initially recorded as deferred service revenues and then recognized as service revenues ratably over the contract term.
We classify shipping and handling amounts billed to Customers in sales transactions as revenues.
Allowance for Doubtful Accounts Receivable.  We maintain an allowance for uncollectible accounts receivable for estimated losses in the collection of amounts owed by Customers. We estimate the allowance based on analyzing a number of factors, including amounts written off historically, Customer payment practices, and general economic conditions. We also analyze significant Customer accounts on a regular basis and record a specific allowance when we become aware of a specific Customer’s inability to pay. As a result, the related accounts receivable are reduced to an amount that we reasonably believe is collectible. These analyses require a considerable amount of judgment. If the financial condition of our Customers worsens, or economic conditions change, we may be required to make changes to our allowance for doubtful accounts receivable.
Allowance for Sales Returns.  We maintain an allowance for sales returns based upon known returns and estimated returns for both capital equipment and consumables. We estimate returns of capital equipment and consumables based upon historical experience.
Inventories and Reserves.  Inventories are stated at the lower of their cost or market value. We determine cost based upon a combination of the last-in, first-out (“LIFO”) and first-in, first-out (“FIFO”) cost methods. We determine the LIFO inventory value at the end of the year based on inventory levels and costs at that time. For inventories valued using the LIFO method, we believe that the use of the LIFO method results in a matching of current costs and revenues. Inventories valued using the LIFO method represented approximately 26.0% and 29.0% of total inventories at March 31, 2018 and 2017, respectively. Inventory costs include material, labor, and overhead. If we had used only the FIFO method of inventory costing, inventories would have been $17.3 million and $16.7 million higher than those reported at March 31, 2018 and 2017, respectively.
We review inventory on an ongoing basis, considering factors such as deterioration and obsolescence. We record an allowance for estimated losses when the facts and circumstances indicate that particular inventories will not be usable. If future market conditions vary from those projected, and our estimates prove to be inaccurate, we may be required to write-down inventory values and record an adjustment to cost of revenues.
Asset Impairment Losses.  Property, plant, equipment, and identifiable intangible assets are reviewed for impairment when events and circumstances indicate that the carrying value of such assets may not be recoverable. Impaired assets are recorded at the lower of carrying value or estimated fair value. We conduct this review on an ongoing basis and, if impairment exists, we record the loss in the Consolidated Statements of Income during that period.
When we evaluate assets for impairment, we make certain judgments and estimates, including interpreting current economic indicators and market valuations, evaluating our strategic plans with regards to operations, historical and anticipated performance of operations, and other factors. If we incorrectly anticipate these factors, or unexpected events occur, our operating results could be materially affected.
Asset Retirement Obligations. We incur retirement obligations for certain assets. We record an initial liability for the asset retirement obligations (ARO) at fair value. Accounting for the ARO at inception and in subsequent periods includes the determination of the present value of a liability and offsetting asset, the subsequent accretion of that liability and depletion of the asset, and a periodic review of the ARO liability estimates and discount rates used in the analysis. We provide additional information about our asset retirement obligations in Note 5 to our consolidated financial statements titled, “Property, Plant and Equipment.”

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Restructuring.  We record specific accruals in connection with plans for restructuring elements of our business. These accruals include estimates principally related to employee separation costs, the closure and/or consolidation of facilities, and contractual obligations. Actual amounts could differ from the original estimates. We review our restructuring-related accruals on a quarterly basis and changes to plans are appropriately recognized in the Consolidated Statements of Income in the period the change is identified.
Purchase Accounting and Goodwill.  Assets and liabilities of the business acquired are accounted for at their estimated fair values as of the acquisition date. Any excess of the cost of the acquisition over the fair value of the net tangible and intangible assets acquired is recorded as goodwill. We supplement management expertise with valuation specialists in performing appraisals to assist us in determining the fair values of assets acquired and liabilities assumed. These valuations require us to make estimates and assumptions, especially with respect to intangible assets. We generally amortize our intangible assets over their useful lives with the exception of indefinite lived intangible assets. We do not amortize goodwill, but we evaluate it annually for impairment. Therefore, the allocation of the purchase price to intangible assets and goodwill has a significant impact on future operating results.
We evaluate the recoverability of recorded goodwill amounts annually, or when evidence of potential impairment exists. We may consider qualitative indicators of the fair value of a reporting unit when it is unlikely that a reporting unit has impaired goodwill. We may also utilize a discounted cash flow analysis that requires certain assumptions and estimates be made regarding market conditions and our future profitability. In those circumstances, we test goodwill for impairment by reviewing the book value compared to the fair value at the reporting unit level. We calculate the fair value of our reporting units based on the present value of estimated future cash flows. Considerable management judgment is necessary to evaluate the impact of operating and macroeconomic changes and to estimate future cash flows to measure fair value. Assumptions used in our impairment evaluations, such as forecasted growth rates and cost of capital, are consistent with internal projections and operating plans. We believe such assumptions and estimates are also comparable to those that would be used by other marketplace participants.
As a result of our annual impairment review for goodwill and other indefinite lived intangible assets for fiscal year 2018, no indicators of impairment were identified. As a result of our annual goodwill impairment review for fiscal year 2017, we concluded that the carrying value of one of our reporting units exceeded its fair value. Prior to its divestiture in fiscal 2017, the Synergy Health Netherlands linen management unit was reported within our Healthcare Specialty Services segment. Financial forecasts prepared for the annual assessment reflected pricing pressures, volume declines driven by overcapacity in the market, and a decline in the overall market size. These factors resulted in further degradation of the already low operating margin and cash flows of this unit. We incurred a goodwill impairment charge of $58.4 million as a result, which is recorded within Goodwill impairment loss in the Consolidated Statements of Income. The fair market value of the reporting unit was determined under an income approach using discounted cash flows and estimated fair market values. Fair value calculated using a discounted cash flow analysis is classified within level 3 of the fair value hierarchy and requires several assumptions including risk adjusted discount rates and financial forecasts.
We evaluate indefinite lived intangible assets annually, or when evidence of potential impairment exists. We evaluate several qualitative indicators and assumptions, and trends that influence the valuation of the assets to determine if any evidence of potential impairment exists. During the third quarter of fiscal 2017, we adopted a new branding strategy change as part of the integration of certain Synergy Health operations into the Healthcare Specialty Services Segment. Under this new branding strategy, hospital sterilization services and instrument repair services will utilize the STERIS Instrument Management Services brand name. The Synergy Health trade name was phased out during the fourth quarter of fiscal 2017. As a result, we shortened the estimated useful life of the Synergy Health trade name and accelerated the corresponding amortization expense over the remainder of fiscal 2017, which totaled $14.4 million and was recorded within the Selling, general and administrative expense line on the Consolidated Statements of Income.
Income Taxes.  Our provision for income taxes is based on our current period income, changes in deferred income tax assets and liabilities, income tax rates, changes in uncertain tax benefits, and tax planning opportunities available to us in the various jurisdictions in which we operate. Tax laws are complex and subject to different interpretations by the taxpayer and the respective governmental taxing authorities. We use significant judgment in determining our annual effective income tax rate and evaluating our tax positions. We prepare and file tax returns based on our interpretation of tax laws and regulations, and we record estimates based on these judgments and interpretations. We cannot be sure that the tax authorities will agree with all of the tax positions taken by us. The actual income tax liability for each jurisdiction in any year can, in some instances, ultimately determined be several years after the tax return is filed and the financial statements are published.

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We evaluate our tax positions using the recognition threshold and measurement attribute in accordance with current accounting guidance. We determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, we presume that the position will be examined by the appropriate taxing authority and that the taxing authority will have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The appropriate unit of account for determining what constitutes an individual tax position, and whether the more-likely-than-not recognition threshold is met for a tax position, is a matter of judgment based on the individual facts and circumstances of that position evaluated in light of all available evidence. We review and adjust our tax estimates periodically because of ongoing examinations by and settlements with the various taxing authorities, as well as changes in tax laws, regulations and precedent.
We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. We regularly review our deferred tax assets for recoverability and establish a valuation allowance based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences, and the implementation of tax planning strategies. If we are unable to generate sufficient future taxable income in certain tax jurisdictions, or if there is a material change in the effective income tax rates or time period within which the underlying temporary differences become taxable or deductible, we could be required to increase our valuation allowance, which would increase our effective income tax rate and could result in an adverse impact on our consolidated financial position, results of operations, or cash flows.
We believe that adequate accruals have been made for income taxes. Differences between the estimated and actual amounts determined upon ultimate resolution, individually or in the aggregate, are not expected to have a material adverse effect on our consolidated financial position, but could possibly be material to our consolidated results of operations or cash flow for any one period.
Additional information regarding income taxes is included in Note 8 to our consolidated financial statements titled, “Income Taxes.”
Self-Insurance Liabilities.  We record a liability for self-insured risks that we retain for general and product liabilities, workers’ compensation, and automobile liabilities based on actuarial calculations. We use our historical loss experience and actuarial methods to calculate the estimated liability. This liability includes estimated amounts for both losses and incurred but not reported claims. We review the assumptions used to calculate the estimated liability at least annually to evaluate the adequacy of the amount recorded. We maintain insurance policies to cover losses greater than our estimated liability, which are subject to the terms and conditions of those policies. The obligation covered by insurance contracts will remain on the balance sheet as we remain liable to the extent insurance carriers do not meet their obligation. Estimated amounts receivable under the contracts are included in the "Prepaid expenses and other current assets" line, and the "Other assets" line of our consolidated balance sheets. Our accrual for self-insured risk retention as of March 31, 2018 and 2017 was $20.9 million and $22.7 million, respectively.
We are also self-insured for employee medical claims. We estimate a liability for incurred but not reported claims based upon recent claims experience. Our self-insured liabilities contain uncertainties because management must make assumptions and apply judgments to estimate the ultimate cost to settle reported claims and claims incurred but not reported as of the balance sheet date. If actual results are not consistent with these assumptions and judgments, we could be exposed to additional costs in subsequent periods.
Contingencies.  We are, and will likely continue to be, involved in a number of legal proceedings, government investigations, and claims, which we believe generally arise in the course of our business, given our size, history, complexity, and the nature of our business, products, Customers, regulatory environment, and industries in which we participate. These legal proceedings, investigations and claims generally involve a variety of legal theories and allegations, including, without limitation, personal injury (e.g., slip and falls, burns, vehicle accidents), product liability or regulation (e.g., based on product operation or claimed malfunction, failure to warn, failure to meet specification, or failure to comply with regulatory requirements), product exposure (e.g., claimed exposure to chemicals, asbestos, contaminants, radiation), property damage (e.g., claimed damage due to leaking equipment, fire, vehicles, chemicals), commercial claims (e.g., breach of contract, economic loss, warranty, misrepresentation), financial (e.g., taxes, reporting), employment (e.g., wrongful termination, discrimination, benefits matters), and other claims for damage and relief.
We record a liability for such contingencies to the extent we conclude that their occurrence is both probable and estimable. We consider many factors in making these assessments, including the professional judgment of experienced members of management and our legal counsel. We have made estimates as to the likelihood of unfavorable outcomes and the amounts of such potential losses. In our opinion, the ultimate outcome of these proceedings and claims is not anticipated to have a material adverse affect on our consolidated financial position, results of operations, or cash flows. However, the ultimate outcome of

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proceedings, government investigations, and claims is unpredictable and actual results could be materially different from our estimates. We record expected recoveries under applicable insurance contracts when we are assured of recovery. Refer to Note 10 of our consolidated financial statements titled, "Commitments and Contingencies" for additional information.
We are subject to taxation from federal, state and local, and foreign jurisdictions. Tax positions are settled primarily through the completion of audits within each individual tax jurisdiction or the closing of a statute of limitation. Changes in applicable tax law or other events may also require us to revise past estimates. The IRS of the United States routinely conducts audits of our federal income tax returns.
Additional information regarding our commitments and contingencies is included in Note 10 to our consolidated financial statements titled, “Commitments and Contingencies.”
Benefit Plans.  We provide defined benefit pension plans for certain employees and retirees. In addition, we sponsor an unfunded post-retirement benefits plan for two groups of United States retirees. Benefits under this plan include retiree life insurance and retiree medical insurance, including prescription drug coverage.
Employee pension and post-retirement benefits plans are a cost of conducting business and represent obligations that will be settled in the future and therefore, require us to use estimates and make certain assumptions to calculate the expense and liabilities related to the plans. Changes to these estimates and assumptions can result in different expense and liability amounts. Future actual experience may be significantly different from our current expectations. We believe that the most critical assumptions used to determine net periodic benefit costs and projected benefit obligations are the expected long-term rate of return on plan assets and the discount rate. A summary of significant assumptions used to determine the March 31, 2018 projected benefit obligations and the fiscal 2018 net periodic benefit costs is as follows:
 
Synergy Health plc
Isotron BV
Synergy Health Daniken AG
Synergy Health Radeberg
Synergy Health Allershausen
Harwell Dosimeters Ltd
U.S. Post-
Retirement Benefits Plan
Funding Status
Funded
Funded
Funded
Unfunded
Unfunded
Funded
Unfunded
Assumptions used to determine March 31, 2018
 
 
 
 
 
 
 
Benefit obligations:
 
 
 
 
 
 
 
Discount rate
2.50
%
1.60
%
0.95
%
1.60
%
1.60
%
2.55
%
3.50
%
Assumptions used to determine fiscal 2018
 
 
 
 
 
 
 
Net periodic benefit costs:
 
 
 
 
 
 
 
Discount rate
2.60
%
1.60
%
0.65
%
1.50
%
1.50
%
2.55
%
3.50
%
Expected return on plan assets
4.97
%
1.60
%
1.40
%
n/a

n/a

n/a

n/a

NA – Not applicable.

We develop our expected long-term rate of return on plan assets assumptions by evaluating input from third-party professional advisors, taking into consideration the asset allocation of the portfolios, and the long-term asset class return expectations. Generally, net periodic benefit costs increase as the expected long-term rate of return on plan assets assumption decreases. Holding all other assumptions constant, lowering the expected long-term rate of return on plan assets assumption for our funded defined benefit pension plans by 50 basis points would have increased the fiscal 2018 benefit costs by $0.01 million.
We develop our discount rate assumptions by evaluating input from third-party professional advisers, taking into consideration the current yield on country specific investment grade long-term bonds which provide for similar cash flow streams as our projected benefit obligations. Generally, the projected benefit obligations and the net periodic benefit costs both increase as the discount rate assumption decreases. Holding all other assumptions constant, lowering the discount rate assumption for our defined benefit pension plans and for the other post-retirement benefits plan by 50 basis points would have decreased the fiscal 2018 net periodic benefit costs by less than $0.1 million and would have increased the projected benefit obligations by approximately $11.3 million at March 31, 2018.

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We have made assumptions regarding healthcare costs in computing our other post-retirement benefit obligation. The assumed rates of increase generally decline ratably over a five year-period from the assumed current year healthcare cost trend rate of 7.0% to the assumed long-term healthcare cost trend rate. A 100 basis point change in the assumed healthcare cost trend rate (including medical, prescription drug, and long-term rates) would have had the following effect at March 31, 2018:
 
100 Basis Point
(dollars in thousands)
Increase
 
Decrease
Effect on total service and interest cost components
$
1

 
$
(1
)
Effect on postretirement benefit obligation
21

 
(20
)

We recognize an asset for the overfunded status or a liability for the underfunded status of defined benefit pension and post-retirement benefit plans in our balance sheets. This amount is measured as the difference between the fair value of plan assets and the benefit obligation (the projected benefit obligation for pension plans and the accumulated post-retirement benefit obligation for other post-retirement benefit plans). Changes in the funded status of the plans are recorded in other comprehensive income in the year they occur. We measure plan assets and obligations as of the balance sheet date. Note 9 to our consolidated financial statements titled, “Benefit Plans,” contains additional information about our pension and other post-retirement welfare benefits plans.
Share-Based Compensation.  We measure the estimated fair value for share-based compensation awards, including grants of employee stock options at the grant date and recognize the related compensation expense over the period in which the share-based compensation vests. We selected the Black-Scholes-Merton option pricing model as the most appropriate method for determining the estimated fair value of our share-based stock option compensation awards. This model involves assumptions that are judgmental and affect share-based compensation expense.
Share-based compensation expense was $22.2 million in fiscal 2018, $18.8 million in fiscal 2017 and $16.1 million in fiscal 2016. Note 14 to our consolidated financial statements titled, “Share-Based Compensation,” contains additional information about our share-based compensation plans.
RECENTLY ISSUED ACCOUNTING STANDARDS IMPACTING THE COMPANY
Recently issued accounting standards that are relevant to us are presented in Note 1 to our consolidated financial statements titled, “Nature of Operations and Summary of Significant Accounting Policies.”
INFLATION
Our business has not been significantly impacted by the overall effects of inflation. We monitor the prices we charge for our products and services on an ongoing basis and plan to adjust those prices to take into account future changes in the rate of inflation. However, we may not be able to completely offset the impact of inflation.

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FORWARD-LOOKING STATEMENTS
This Form 10-K may contain statements concerning certain trends, expectations, forecasts, estimates, or other forward-looking information affecting or relating to STERIS or its industry, products or activities that are intended to qualify for the protections afforded “forward-looking statements” under the Private Securities Litigation Reform Act of 1995 and other laws and regulations. Forward-looking statements speak only as to the date specified in this Annual Report and may be identified by the use of forward-looking terms such as “may,” “will,” “expects,” “believes,” “anticipates,” “plans,” “estimates,” “projects,” “targets,” “forecasts,” “outlook,” “impact,” “potential,” “confidence,” “improve,” “optimistic,” “deliver,” “comfortable,” “trend”, and “seeks,” or the negative of such terms or other variations on such terms or comparable terminology. Many important factors could cause actual results to differ materially from those in the forward-looking statements including, without limitation, disruption of production or supplies, changes in market conditions, political events, pending or future claims or litigation, competitive factors, technology advances, actions of regulatory agencies, and changes in laws, government regulations, labeling or product approvals or the application or interpretation thereof. Other risk factors are described herein and in STERIS’s other securities filings, including Item 1A of this Annual Report on Form 10-K. Many of these important factors are outside of STERIS’s control. No assurances can be provided as to any result or the timing of any outcome regarding matters described in this Annual Report or otherwise with respect to any regulatory action, administrative proceedings, government investigations, litigation, warning letters, cost reductions, business strategies, earnings or revenue trends or future financial results. References to products are summaries only and should not be considered the specific terms of the product clearance or literature. Unless legally required, STERIS does not undertake to update or revise any forward-looking statements even if events make clear that any projected results, express or implied, will not be realized. Other potential risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements include, without limitation, (a) STERIS’s ability to meet expectations regarding the accounting and tax treatments of the Combination (the “Combination”) with STERIS Corporation and Synergy Health plc (“Synergy”), (b) the possibility that the parties may be unable to achieve expected synergies and operating efficiencies in connection with the Combination within the expected time-frames or at all and to successfully integrate the operations of the companies, (c) the integration of the operations of the companies being more difficult, time-consuming or costly than expected, (d) operating costs, customer loss and business disruption (including, without limitation, difficulties in maintaining relationships with employees, customers, clients or suppliers) being greater than expected following the Combination, (e) the retention of certain key employees of Synergy being difficult, (f) STERIS’s ability to meet expectations regarding the accounting and tax treatment of the Tax Cuts and Jobs Act (“TCJA”) or the possibility that anticipated benefits resulting from the TCJA will be less than estimated, (g) changes in tax laws or interpretations that could increase our consolidated tax liabilities, including, changes in tax laws that would result in STERIS being treated as a domestic corporation for United States federal tax purposes, (h) the potential for increased pressure on pricing or costs that leads to erosion of profit margins, (i) the possibility that market demand will not develop for new technologies, products or applications or services, or business initiatives will take longer, cost more or produce lower benefits than anticipated, (j) the possibility that application of or compliance with laws, court rulings, certifications, regulations, regulatory actions, including without limitation those relating to FDA, warning notices or letters, government investigations, the outcome of any pending FDA requests, inspections or submissions, or other requirements or standards may delay, limit or prevent new product introductions, affect the production and marketing of existing products or services or otherwise affect STERIS’s performance, results, prospects or value, (k) the potential of international unrest, economic downturn or effects of currencies, tax assessments, adjustments or anticipated rates, raw material costs or availability, benefit or retirement plan costs, or other regulatory compliance costs, (l) the possibility of reduced demand, or reductions in the rate of growth in demand, for STERIS’s products and services, (m) the possibility of delays in receipt of orders, order cancellations, or delays in the manufacture or shipment of ordered products or in the provisions of services, (n) the possibility that anticipated growth, cost savings, new product acceptance, performance or approvals, or other results may not be achieved, or that transition, labor, competition, timing, execution, regulatory, governmental, or other issues or risks associated with STERIS’s businesses, industry or initiatives including, without limitation, those matters described in this Annual Report on Form 10-K and other securities filings, may adversely impact STERIS’s performance, results, prospects or value, (o) the impact on STERIS and its operations of the “Brexit” or the exit of other member countries from the EU, (p) the impact on STERIS and its operations of any new legislation, regulations or orders, including, but not limited to any new trade or tax legislations, regulations or orders, that may be implemented by the new U.S. Administration or Congress, or of any responses thereto, (q) the possibility that anticipated financial results or benefits of recent acquisitions, including the Combination, or of STERIS’s restructuring efforts, or of recent divestitures, will not be realized or will be other than anticipated, and (r) the effects of contractions in credit availability, as well as the ability of STERIS’s Customers and suppliers to adequately access the credit markets when needed.


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ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the ordinary course of business, we are exposed to various risks, including, but not limited to, interest rate, foreign currency, and commodity risks. These risks are described in the sections that follow.
INTEREST RATE RISK
As of March 31, 2018, we had $988.2 million in fixed rate senior notes outstanding. As of March 31, 2018, we had $331.2 million in outstanding borrowings under our Credit Agreement which are exposed to changes in interest rates. We monitor our interest rate risk, but do not engage in any hedging activities using derivative financial instruments. For additional information regarding our debt structure, refer to Note 6 to our Consolidated Financial Statements titled, “Debt.”
FOREIGN CURRENCY RISK
We are exposed to the impact of foreign currency exchange fluctuations. This foreign currency exchange risk arises when we conduct business in a currency other than the U.S. dollar. For most operations, local currencies have been determined to be the functional currencies. The financial statements of subsidiaries are translated to their U.S. dollar equivalents at end-of-period exchange rates for assets and liabilities and at average currency exchange rates for revenues and expenses. Translation adjustments for subsidiaries whose local currency is their functional currency are recorded as a component of accumulated other comprehensive income (loss) within equity. Note 18 to our consolidated financial statements titled, “Accumulated Other Comprehensive Income (Loss),” contains additional information about the impact of translation on accumulated other comprehensive income (loss) and equity. Transaction gains and losses arising from fluctuations in currency exchange rates on transactions denominated in currencies other than the functional currency are recognized in the Consolidated Statements of Income. Since we operate internationally and approximately 30% of our revenues and 40% of our cost of revenues are generated outside the United States, foreign currency exchange rate fluctuations can significantly impact our financial position, results of operations, and competitive position.
We enter into foreign currency forward contracts to hedge monetary assets and liabilities denominated in foreign currencies, including inter-company transactions. We do not use derivative financial instruments for speculative purposes. At March 31, 2018, we held foreign currency forward contracts to buy 13.0 million Canadian dollars.
COMMODITY RISK
We are dependent on basic raw materials, sub-assemblies, components, and other supplies used in our operations. Our financial results could be affected by the availability and changes in prices of these materials. Some of these materials are sourced from a limited number of suppliers or only a single supplier. These materials are also key source materials for our competitors. Therefore, if demand for these materials rises, we may experience increased costs and/or limited or unavailable supplies. As a result, we may not be able to acquire key production materials on a timely basis, which could impact our ability to produce products and satisfy incoming sales orders on a timely basis. In addition, the costs of these materials can rise suddenly and result in significantly higher costs of production. We believe that we have adequate sources of supply for many of our key materials and energy sources. Where appropriate, we enter into long-term supply contracts as a basis to guarantee a reliable supply. We may also enter into commodity swap contracts to hedge price changes in a certain commodity that impacts raw materials included in our cost of revenues. At March 31, 2018, we held commodity swap contracts to buy 592,460 pounds of nickel.

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ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
 
  
Page
 
 
Consolidated Financial Statements:
 
 
 
 
 
 
 
 
Financial Statement Schedule:
 
 




49

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of
STERIS plc

Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of STERIS plc and subsidiaries (the Company) as of March 31, 2018 and 2017, the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended March 31, 2018, and the related notes and the financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at March 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2018, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of March 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated May 30, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1989.
Cleveland, Ohio
May 30, 2018



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STERIS PLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
 
March 31,
 
2018
 
2017
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
201,534

 
$
282,918

Accounts receivable (net of allowances of $12,472 and $10,357, respectively)
 
528,066

 
483,451

Inventories, net
 
205,731

 
197,837

Prepaid expenses and other current assets
 
54,326

 
53,596

Total current assets
 
989,657

 
1,017,802

Property, plant, and equipment, net
 
1,010,524

 
915,908

Goodwill and intangibles, net
 
3,160,764

 
2,956,190

Other assets
 
39,389

 
34,555

Total assets
 
$
5,200,334

 
$
4,924,455

Liabilities and equity
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
135,866

 
$
133,479

Accrued income taxes
 
379

 
14,640

Accrued payroll and other related liabilities
 
94,000

 
78,575

Accrued expenses and other
 
168,217

 
154,889

Total current liabilities
 
398,462

 
381,583

Long-term indebtedness
 
1,316,001

 
1,478,361

Deferred income taxes, net
 
159,971

 
171,805

Other liabilities
 
108,600

 
82,673

Total liabilities
 
$
1,983,034

 
$
2,114,422

Commitments and contingencies (see Note 11)
 


 


Preferred shares, with £0.10 par value; 100 shares authorized; 100 issued and outstanding
 
15

 
15

Ordinary shares, with £0.10 par value; £17,006 aggregate par amount authorized; 84,747 and 84,948 ordinary shares issued and outstanding, respectively
 
2,048,037

 
2,085,134

Retained earnings
 
1,146,223

 
954,155

Accumulated other comprehensive income (loss)
 
11,685

 
(240,702
)
Total shareholders’ equity
 
3,205,960

 
2,798,602

Noncontrolling interests
 
11,340

 
11,431

Total equity
 
3,217,300

 
2,810,033

Total liabilities and equity
 
$
5,200,334

 
$
4,924,455

See notes to consolidated financial statements.



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STERIS PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)

 
Years Ended March 31,
 
2018
 
2017
 
2016
Revenues:
 
 
 
 
 
 
Product
 
$
1,220,633

 
$
1,198,319

 
$
1,128,985

Service
 
1,399,363

 
1,414,437

 
1,109,779

Total revenues
 
2,619,996

 
2,612,756

 
2,238,764

Cost of revenues:
 
 
 
 
 
 
Product
 
646,177

 
624,020

 
617,368

Service
 
879,596

 
963,104

 
725,915

Total cost of revenues
 
1,525,773

 
1,587,124

 
1,343,283

Gross profit
 
1,094,223

 
1,025,632

 
895,481

Operating expenses:
 
 
 
 
 
 
Selling, general, and administrative
 
629,884

 
680,069

 
626,710

Goodwill impairment loss
 
—

 
58,356

 
—

Research and development
 
60,782

 
59,397

 
56,664

Restructuring expenses
 
103

 
215

 
(820
)
Total operating expenses
 
690,769

 
798,037

 
682,554

Income from operations
 
403,454

 
227,595

 
212,927

Non-operating expenses, net:
 
 
 
 
 
 
Interest expense
 
50,629

 
44,520

 
42,708

Interest income and miscellaneous expense
 
(2,157
)
 
(1,571
)
 
(1,665
)
Total non-operating expenses, net
 
48,472

 
42,949

 
41,043

Income before income tax expense
 
354,982

 
184,646

 
171,884

Income tax expense
 
63,360

 
74,015

 
60,299

Net income
 
291,622

 
110,631

 
111,585

Less: Net income attributable to noncontrolling interests
 
707

 
666

 
822

Net income attributable to shareholders
 
$
290,915

 
$
109,965

 
$
110,763

 
 

 

 
 
Net income per share attributable to shareholders:
 
 
 
 
 
 
Basic
 
$
3.42

 
$
1.29

 
$
1.57

Diluted
 
$
3.39

 
$
1.28

 
$
1.56

Cash dividends declared per ordinary share outstanding
 
$
1.21

 
$
1.09

 
$
0.98


See notes to consolidated financial statements.
 

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STERIS PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)


Years Ended March 31,
 
2018
 
2017
 
2016
Net income
 
$
291,622

 
$
110,631

 
$
111,585

   Less: Net income attributable to noncontrolling interests
 
707

 
666

 
822

Net income attributable to shareholders
 
$
290,915

 
$
109,965

 
$
110,763

 
 
 
 
 
 
 
Other comprehensive (loss) income
 
 
 
 
 
 
Unrealized gain (loss) on available for sale securities, (net of taxes of $516, $402 and $(266), respectively)
 
1,792

 
851

 
(1,741
)
Amortization of pension and postretirement benefit plans costs, (net of taxes of $1,860, $963, and ($700), respectively)
 
(4,387
)
 
(7,463
)
 
(3,032
)
Pension settlement (net of taxes of $0, $0 and $10,563, respectively)
 
—

 
—

 
17,029

Change in cumulative foreign currency translation adjustment
 
254,982

 
(165,931
)
 
(13,746
)
Total other comprehensive income (loss) attributable to shareholders
 
252,387

 
(172,543
)
 
(1,490
)
Comprehensive (loss) income attributable to shareholders
 
$
543,302

 
$
(62,578
)
 
$
109,273

  
See notes to consolidated financial statements.




53
Table of Contents

STERIS PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended March 31,
 
2018
 
2017
 
2016
Operating activities:
 
 
 
 
 
 
Net income
 
$
291,622

 
$
110,631

 
$
111,585

Adjustments to reconcile net income to net cash provided by
operating activities:
 
 
 
 
 
 
Depreciation, depletion, and amortization
 
178,332

 
188,142

 
143,740

Deferred income taxes
 
(24,722
)
 
31,274

 
704

Share-based compensation expense
 
22,187

 
18,794

 
16,147

Pension settlement expense
 
—

 
—

 
26,470

Pension contributions made in settlement
 
—

 
—

 
(4,641
)
Loss on the disposal of property, plant, equipment,
and intangibles, net
 
2,582

 
760

 
1,813

Loss on sale of businesses
 
14,547

 
86,574

 
—

Excess tax benefit from share-based compensation
 
—

 
—

 
(6,281
)
Goodwill impairment loss
 
—

 
58,356

 
—

Other items
 
32,229

 
(13,242
)
 
(14,328
)
Changes in operating assets and liabilities, net of effects of acquisitions:
 
 
 
 
 
 
Accounts receivable, net
 
(37,731
)
 
(48,140
)
 
(31,560
)
Inventories, net
 
(5,178
)
 
(12,829
)
 
1,810

Other current assets
 
(1,244
)
 
2,324

 
(9,599
)
Accounts payable
 
563

 
6,884

 
5,249

Accruals and other, net
 
(15,555
)
 
(5,442
)
 
13,566

Net cash provided by operating activities
 
457,632

 
424,086

 
254,675

Investing activities:
 
 
 
 
 
 
Purchases of property, plant, equipment, and intangibles, net
 
(165,457
)
 
(172,901
)
 
(126,407
)
Proceeds from the sale of property, plant, equipment, and intangibles
 
2,094

 
4,846

 
844

Proceeds from the sale of businesses
 
8,888

 
135,713

 
—

Purchases of investments
 
—

 
(6,356
)
 
—

Acquisition of business, net of cash acquired
 
(46,271
)
 
(65,557
)
 
(604,021
)
Other
 
(3,083
)
 
—

 
—

Net cash used in investing activities
 
(203,829
)
 
(104,255
)
 
(729,584
)
Financing activities:
 
 
 
 
 
 
Proceeds from the issuance of long-term obligations
 
—

 
293,730

 
350,000

Payments on long-term obligations
 
(222,500
)
 
(172,500
)
 
(92,567
)
Proceeds under credit facilities, net
 
29,065

 
(196,613
)
 
369,451

Deferred financing fees and debt issuance costs
 
(2,029
)
 
(1,073
)
 
(5,169
)
Acquisition related deferred or contingent consideration
 
(2,064
)
 
(9,918
)
 
—

Repurchases of common shares
 
(65,485
)
 
(97,509
)
 
(14,369
)
Cash dividends paid to common shareholders
 
(102,929
)
 
(93,193
)
 
(65,203
)
Proceeds from issuance of equity to minority shareholders
 
—

 
5,022

 
625

Stock option and other equity transactions, net
 
9,758

 
4,955

 
11,240

Excess tax benefit from share-based compensation
 
—

 
—

 
6,281

Net cash (used in) provided by financing activities
 
(356,184
)
 
(267,099
)
 
560,289

Effect of exchange rate changes on cash and cash equivalents
 
20,997

 
(18,655
)
 
(4,228
)
Increase (decrease) in cash and cash equivalents
 
(81,384
)
 
34,077

 
81,152

Cash and cash equivalents at beginning of period
 
282,918

 
248,841

 
167,689

Cash and cash equivalents at end of period
 
$
201,534

 
$
282,918

 
$
248,841

See notes to consolidated financial statements.

54
Table of Contents

STERIS PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)

Ordinary Shares
Preferred Shares
Treasury Shares
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Non-controlling
Interest
Total
Equity
  
Number
Amount
Number
Amount
Number
Amount
 
 
 
 
Balance at March 31, 2015
59,675

$
264,853

—

$
—

10,364

$
(320,343
)
$
1,193,791

$
(66,669
)
$
2,014

$
1,073,646

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
Net income
—

—

—

—

—

—

110,763

—

822

111,585

Other comprehensive loss
—

—

—

—

—

—

—

(1,490
)
—

(1,490
)
Repurchases of ordinary shares
(267
)
(1,020
)
—

—

248

(12,974
)
(375
)
—

—

(14,369
)
Equity compensation programs
664

13,624

—

—

(538
)
13,667

—

—

—

27,291

Retirement of treasury shares
—

(20,133
)
—

—

(10,074
)
319,650

(299,517
)
—

—

—

Issuance of shares for Synergy Combination
25,839

1,887,479

100

15

—

—

—

—

13,574

1,901,068

Purchase of subsidiary shares from noncontrolling interest
9

635

—

—

—

—

—

—

(1,453
)
(818
)
Issuance of subsidiary shares to noncontrolling interest
—

—

—

—

—

—

—

—

1,443

1,443

Tax benefit of stock options exercised
—

6,281

—

—

—

—

—

—

—

6,281

Cash dividends – $0.98 per ordinary share
—

—

—

—

—

—

(65,203
)
—

—

(65,203
)
Change in noncontrolling interest
—

—

—

—

—

—

—

—

(542
)
(542
)
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
—

—

—



—

—

109,965

—

666

110,631

Other comprehensive loss
—

—

—

—

—

—

—

(172,543
)
—

(172,543
)
Repurchases of ordinary shares
(1,455
)
(95,433
)
—

—

—

—

(2,076
)
—

—

(97,509
)
Equity compensation programs and other
416

23,826

—

—

—

—

—

—

—

23,826

Purchase of subsidiary shares from noncontrolling interest
67

5,022

—

—

—

—

—

—

(5,374
)
(352
)
Issuance of subsidiary shares to noncontrolling interest
—

—

—

—

—

—

—

—

530

530

Cash dividends – $1.09 per ordinary share
—

—

—

—

—

—

(93,193
)
—

—

(93,193
)
Other changes in noncontrolling interest
—

—

—

—

—

—

—

—

(249
)
(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
—

—

—

—

—

—

290,915

—

707

291,622

Other comprehensive income
—

—

—

—

—

—

—

252,387

—

252,387

Repurchases of ordinary shares
(793
)
(69,567
)
—

—

—

—

4,082

—

—

(65,485
)
Equity compensation programs and other
592

32,470

—

—

—

—

—

—

—

32,470

Cash dividends – $1.21 per ordinary share
—

—

—

—

—

—

(102,929
)
—

—

(102,929
)
Other changes in noncontrolling interest
—

—

—

—

—

—

—



(798
)
(798
)
Balance at March 31, 2018
84,747

$
2,048,037

100

$
15

—

$
—

$
1,146,223

$
11,685

$
11,340

$
3,217,300

See notes to consolidated financial statements.

55
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


 
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations.  STERIS plc (“Parent”) was organized in 2014 under the laws of England and Wales under the name Solar New HoldCo Limited as a private limited company for the purpose of effecting the combination (“Combination”) of STERIS Corporation, an Ohio corporation (“Old STERIS”), and Synergy Health plc, a public limited company organized under the laws of England and Wales (“Synergy”). Effective November 2, 2015, the Parent was re-registered as a public company under the name of STERIS plc and the Combination closed. As a result of the Combination closing, STERIS plc became the ultimate parent company of Old STERIS and Synergy. Synergy has been re-registered under the name of Synergy Health Limited. The acquisition of Old STERIS was accounted for in the consolidated financial statements as a merger between entities under common control; accordingly the historical consolidated financial statements of Old STERIS for periods prior to November 2, 2015, are considered to be the historical financial statements of STERIS plc.
STERIS plc is a leading provider of infection prevention and other procedural products and services. We offer our Customers a unique mix of innovative consumable products, such as detergents, gastrointestinal ("GI") endoscopy accessories, barrier product solutions, and other products and services, including: equipment installation and maintenance, microbial reduction of medical devices, instrument and scope repair solutions, laboratory testing services, on-site and off-site reprocessing, and capital equipment products, such as sterilizers and surgical tables, and connectivity solutions such as operating room (“OR”) integration.
We operate and report in four reportable business segments: Healthcare Products, Healthcare Specialty Services, Life Sciences, and Applied Sterilization Technologies. We describe our business segments in Note 11 to our consolidated financial statements titled, "Business Segment Information."
Our fiscal year ends on March 31. References in this Annual Report to a particular "year," "fiscal year," or "year-end" mean our fiscal year. The significant accounting policies applied in preparing the accompanying consolidated financial statements of the Company are summarized below.
Principles of Consolidation. We use the consolidation method to report our investment in our subsidiaries. Therefore, the accompanying consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. We eliminate inter-company accounts and transactions when we consolidate these accounts. Investments in equity of unconsolidated affiliates, over which the Company has significant influence, but not control, over the financial and operating polices, are accounted for primarily using the equity method. These investments are immaterial to the Company's Consolidated Financial Statements. In prior periods, we presented income attributable to noncontrolling interests in the "Interest income and miscellaneous expense" line of our Consolidated Statements of Income and the amounts were not material.
Use of Estimates. We make certain estimates and assumptions when preparing financial statements according to U.S. GAAP that affect the reported amounts of assets and liabilities at the financial statement dates and the reported amounts of revenues and expenses during the periods presented. These estimates and assumptions involve judgments with respect to many factors that are difficult to predict and are beyond our control. Actual results could be materially different from these estimates. We revise the estimates and assumptions as new information becomes available.
Cash Equivalents and Supplemental Cash Flow Information. Cash equivalents are all highly liquid investments with a maturity of three months or less when purchased. We invest our excess cash in short-term instruments including money market funds and time deposits with major banks and financial institutions. We select investments in accordance with the criteria established in our investment policy. Our investment policy specifies, among other things, maturity, credit quality and concentration restrictions with the objective of preserving capital and maintaining adequate liquidity.






56
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


Information supplementing our Consolidated Statements of Cash Flows is as follows:
Years Ended March 31,
 
2018
 
2017
 
2016
Cash paid during the year for:
 
 
 
 
 
 
Interest
 
$
48,663

 
$
42,797

 
$
37,165

Income taxes
 
85,629

 
78,009

 
60,885

Cash received during the year for income tax refunds
 
7,747

 
2,002

 
1,697

Revenue Recognition. We recognize revenue for products when ownership passes to the Customer, which is based on contract or shipping terms and for services when the service is provided to the Customer. Our Customers include end users as well as dealers and distributors who market and sell our products. Our revenue is not contingent upon resale by the dealer or distributor. We have no further obligations related to bringing about resale and our standard return and restocking fee policies are applied. Revenues are reported net of sales and value-added taxes collected from Customers.
We also have individual Customer contracts that offer discounted pricing. Dealers and distributors may be offered sales incentives in the form of rebates. We reduce revenue for discounts and estimated returns, rebates, and other similar allowances in the same period the related revenues are recorded. Returns, rebates, and similar allowances are estimated based on historical experience and trend analysis.
In transactions that contain multiple elements, such as when products, maintenance services, and other services are combined, we recognize revenue as each product is delivered or service is provided to the Customer. We allocate the total arrangement consideration to each element based on its relative selling price, based on the price for the product or service when it is sold separately.
We offer preventive maintenance agreements to our Customers with contract terms of one to five years which require us to maintain and repair our products during this time. Amounts received under these Customer contracts are initially recorded as deferred service revenues and then recognized as service revenues ratably over the contract term.
Accounts Receivable. Accounts receivable are presented at their face amount, less allowances for sales returns and uncollectible accounts. Accounts receivable consist of amounts billed and currently due from Customers and amounts earned but unbilled. We generally obtain and perfect security interest in products sold in the United States when we have a concern with the Customer's risk profile.
We maintain an allowance for uncollectible accounts receivable for estimated losses in the collection of amounts owed by Customers. We estimate the allowance based on analyzing a number of factors, including amounts written off historically, Customer payment practices, and general economic conditions. We also analyze significant Customer accounts on a regular basis and record a specific allowance when we become aware of a specific Customer’s inability to pay. As a result, the related accounts receivable are reduced to an amount that we reasonably believe is collectible.
We maintain an allowance for sales returns based upon known returns and estimated returns for both capital equipment and consumables. We estimate returns of capital equipment and consumables based upon recent historical experience.
Inventories, net. Inventories are stated at the lower of their cost or market value. We determine cost based upon a combination of the last-in, first-out (“LIFO”) and first-in, first-out (“FIFO”) cost methods. For inventories valued using the LIFO method, we believe that the use of the LIFO method results in a matching of current costs and revenues. Inventories valued using the LIFO method represented approximately 26.0% and 29.0% of total inventories at March 31, 2018 and 2017, respectively. Inventory costs include material, labor, and overhead. If we had used only the FIFO method of inventory costing, inventories would have been $17,280 and $16,706 higher than those reported at March 31, 2018 and 2017, respectively.
We review inventory on an ongoing basis, considering factors such as deterioration, obsolescence, and other items. We record an allowance for estimated losses when the facts and circumstances indicate that particular inventories will not be usable. If future market conditions vary from those projected, and our estimates prove to be inaccurate, we may be required to write-down inventory values and record an adjustment to cost of revenues.
Property, Plant, and Equipment.  Our property, plant, and equipment consists of land and land improvements, buildings and leasehold improvements, machinery and equipment, information systems, radioisotope (cobalt-60), and construction in progress. Property, plant, and equipment are presented at cost less accumulated depreciation and depletion. We capitalize additions and improvements. Repairs and maintenance are charged to expense as they are incurred.

57
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


Land is not depreciated and construction in progress is not depreciated until placed in service. Depreciation of most assets is computed on the cost less the estimated salvage value by using the straight-line method over the estimated remaining useful lives. Depletion of radioisotope is computed using the annual decay factor of the material, which is similar to the sum-of-the-years-digits method.
We generally depreciate or deplete property, plant, and equipment over the useful lives presented in the following table:
Asset Type
 
Useful Life
(years)
Land improvements
 
3-40

Buildings and leasehold improvements
 
2-50

Machinery and equipment
 
2-20

Information Systems
 
2-20

Radioisotope (cobalt-60)
 
20

When we sell, retire, or dispose of property, plant, and equipment, we remove the asset’s cost and accumulated depreciation from our Consolidated Balance Sheet. We recognize the net gain or loss on the sale or disposition in the Consolidated Statements of Income in the period when the transaction occurs.
Interest.  We capitalize interest costs incurred during the construction of long-lived assets. We capitalized interest costs of $528 and $1,141 for the years ended March 31, 2018 and 2017, respectively. Total interest expense for the years ended March 31, 2018, 2017, and 2016 was $50,629, $44,520, and $42,708, respectively.
Identifiable Intangible Assets.  Our identifiable intangible assets include product technology rights, trademarks, licenses, and Customer and vendor relationships. We record these assets at cost, or when acquired as part of a business acquisition, at estimated fair value. We generally amortize identifiable intangible assets over periods ranging from 5 to 20 years using the straight-line method. Our intangible assets also include indefinite lived assets including certain trademarks and tradenames that were acquired in connection with business combinations. These assets are tested at least annually for impairment.
Investments.  Investments in marketable securities are stated at fair value and are included in "Other assets" on the Consolidated Balance Sheets. Unrealized gains and losses on marketable securities classified as available-for-sale are recorded in Accumulated Other Comprehensive Income (Loss).
Asset Impairment Losses.  Property, plant, equipment, and identifiable intangible assets are reviewed for impairment when indicators of impairment exist and circumstances indicate that the carrying value of such assets may not be recoverable. Impaired assets are recorded at the lower of carrying value or estimated fair value. We monitor for such indicators on an ongoing basis and if an impairment exists, we record the loss in the Consolidated Statements of Income during that period.
Asset Retirement Obligations. We incur retirement obligations for certain assets. We record initial liabilities for the asset retirement obligations ("ARO") at fair value. Recognition of ARO includes: estimating the present value of a liability and offsetting asset, the subsequent accretion of that liability and depletion of the asset, and a periodic review of the ARO liability estimates and discount rates used in the analysis. We provide additional information about our asset retirement obligations in Note 5 to our consolidated financial statements titled, “Property, Plant and Equipment.”
Acquisitions of Business.  Assets acquired and liabilities assumed in a business combination are accounted for at fair value on the date of acquisition. Costs related to the acquisition are expensed as incurred.
Goodwill.  We perform our annual impairment test for goodwill in the third quarter of each year. We may consider qualitative indicators of the fair value of a reporting unit when it is unlikely that a reporting unit has impaired goodwill. We may also utilize a discounted cash flow analysis that requires certain assumptions and estimates be made regarding market conditions and our future profitability. We review the book value compared to the fair value at the reporting unit level. We calculate the fair value of our reporting units based on the present value of estimated future cash flows. Considerable management judgment is necessary to evaluate the impact of operating and macroeconomic changes and to estimate future cash flows to measure fair value. Assumptions used in our impairment evaluations, such as forecasted growth rates and cost of capital, are consistent with internal projections, strategic plans, and operating plans. We believe such assumptions and estimates are also comparable to those that would be used by other market place participants.

58
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


Self-Insurance Liabilities.  We record a liability for self-insured risks that we retain for general and product liabilities, workers’ compensation, and automobile liabilities based on actuarial calculations. We use our historical loss experience and actuarial methods to calculate the liability. This liability includes estimates for both losses and incurred but not reported claims. We review the assumptions used to calculate the estimated liability at least annually to evaluate the adequacy of the amount recorded. We maintain insurance policies to cover losses greater than our estimated liability, which are subject to the terms and conditions of those policies. We are also self-insured for certain employee medical claims. We estimate a liability for incurred but not reported claims based upon recent claims experience.
Benefit Plans.  We sponsor defined benefit pension plans. We also sponsor a post-retirement benefits plan for certain former employees. We determine our costs and obligations related to these plans by evaluating input from third-party professional advisers. These costs and obligations are affected by assumptions including the discount rate, expected long-term rate of return on plan assets, the annual rate of change in compensation for eligible employees, estimated changes in costs of healthcare benefits, and other factors. We review the assumptions used on an annual basis.
We recognize an asset for the overfunded status or a liability for the underfunded status of defined benefit pension and post-retirement benefits plans in our consolidated balance sheets. This amount is measured as the difference between the fair value of plan assets and the benefit obligation (the projected benefit obligation for pension plans and the accumulated post-retirement benefit obligation for other post-retirement benefit plans). Changes in the funded status of the plans are recorded in other comprehensive income in the year they occur. We measure plan assets and obligations as of the balance sheet date. We provide additional information about our pension and other post-retirement benefits plans in Note 9 to our consolidated financial statements titled, “Benefit Plans.”
Fair Value of Financial Instruments.  Except for long-term debt, our financial instruments are highly liquid or have short-term maturities. We provide additional information about the fair value of our financial instruments in Note 17 titled, “Fair Value Measurements.”
Foreign Currency Translation.  Most of our operations use their local currency as their functional currency. Financial statements of subsidiaries are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and a weighted average exchange rate for each period for revenues, expenses, gains and losses. Translation adjustments for subsidiaries whose local currency is their functional currency are recorded as a component of accumulated other comprehensive income (loss) within equity. Transaction gains and losses resulting from fluctuations in currency exchange rates on transactions denominated in currencies other than the functional currency are recognized as incurred in the accompanying Consolidated Statement of Income, except for certain inter-company balances designated as long-term in nature.
Forward and Swap Contracts.  We enter into foreign currency forward contracts to hedge assets and liabilities denominated in foreign currencies, including inter-company transactions.We may also enter into commodity swap contracts to hedge price changes in nickel that impact raw materials included in our cost of revenues. We do not use derivative financial instruments for speculative purposes. These contracts are marked to market, with gains and losses recognized within “Selling, general, and administrative expenses” or "Cost of revenues" in the accompanying Consolidated Statements of Income.
Warranty.  Warranties are provided on the sale of certain of our products and services and an accrual for estimated future claims is recorded at the time revenue is recognized. We estimate warranty expense based primarily on historical warranty claim experience.
Shipping and Handling.  We record shipping and handling costs in costs of revenues. Shipping and handling costs charged to Customers are recorded as revenues in the period the product revenues are recognized.
Advertising Expenses.  Costs incurred for communicating, advertising and promoting our products are generally expensed when incurred as a component of Selling, General and Administrative Expense. We incurred $10,886, $12,622, and $10,785 of advertising costs during the years ended March 31, 2018, 2017, and 2016, respectively.
Research and Development.  We incur research and development costs associated with commercial products and expense these costs as incurred. If a Customer reimburses us for research and development costs, the costs are charged to the related contracts as costs of revenues.

59
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


Income Taxes.  We defer income taxes for all temporary differences between pre-tax financial and taxable income and between the book and tax basis of assets and liabilities. We record valuation allowances to reduce net deferred tax assets to an amount that we expect will more-likely-than-not be realized. In making such a determination, we consider all available information, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and if applicable, any carryback claims that can be filed. In the event we were to determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance which would reduce the provision for income taxes and the effective tax rate.
We evaluate uncertain tax positions in accordance with a two-step process. The first step is recognition: The determination of whether or not it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, we presume that the position will be examined by the appropriate tax authority and that the tax authority will have full knowledge of all relevant information. The second step is measurement: A tax position that meets the more-likely-than-not threshold is measured to determine the amount of benefit to recognize in the financial statements. The measurement process requires the determination of the range of possible settlement amounts and the probability of achieving each of the possible settlements. The tax position is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. No tax benefits are recognized for positions that do not meet the more-likely-than-not threshold. Tax positions that previously failed to meet the more-likely-than-not threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold are derecognized in the first subsequent financial reporting period in which the threshold is no longer met. We describe income taxes further in Note 8 to our consolidated financial statements titled, “Income Taxes.”
Medical Device Excise Tax. The Medical Device Excise Tax became effective January 1, 2013. The excise tax was mandated by the 2010 health care reform legislation and assesses a 2.3% tax on the sale or use of certain medical devices that are sold or manufactured in the United States. Many of our products are subject to the excise tax. Late in 2015, Congress enacted legislation that suspended the excise tax for 2016 and 2017. Early in 2018, U.S. Congress enacted legislation that extended the suspension of the excise tax for 2018 and 2019. Therefore, we did not incur Medical Device Excise taxes during fiscal 2018 or 2017. Should the U.S. Congress take no further action with regard to this tax we will begin to incur excise tax in the fourth quarter of fiscal 2020. We incurred Medical Device Excise taxes of $5,802 during fiscal year 2016, which was included in cost of revenues in the period of sale.
Share-Based Compensation.  We describe share-based compensation in Note 14 to our consolidated financial statements titled, “Share-Based Compensation.” We measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. We record liability awards at fair value each reporting period and the change in fair value is reflected as share-based compensation expense in our Consolidated Statements of Income. The expense is classified as cost of goods sold, selling, general and administrative expenses or research and development expenses in a manner consistent with the employee’s compensation and benefits. These costs are recognized in the Consolidated Statement of Income over the period during which an employee is required to provide service in exchange for the award.
Restructuring.  We recognize restructuring expenses as incurred. Asset impairment and accelerated depreciation expenses primarily relate to inventory write-downs for rationalized products and adjustments in the carrying value of the related facilities and machinery and equipment to their estimated fair value. In addition, the remaining useful lives of other property, plant, and equipment associated with the related operations are reevaluated based on the respective restructuring plan, which may result in the acceleration of depreciation and amortization of certain assets.

60
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


Recently Issued Accounting Standards Impacting the Company

Recently Issued Accounting Standards Impacting the Company are presented in the following table:
Standard
 
Date of Issuance
 
Description
 
Date of Adoption
 
Effect on the financial statements or other significant matters
Standards that have recently been adopted
ASU 2016-07, "Investments - Equity Method and Joint Ventures, Simplifying the Transition to the Equity Method of Accounting"
(Topic 323)
 
March 2016
 
The standard replaces the previous requirement to retroactively adopt the equity method. The new standard requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor's previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The standard is effective for annual periods beginning after December 15, 2016 and interim periods within that period. Early adoption is permitted.
 
First Quarter Fiscal 2018
 
The prospective adoption of this standard did not have a material impact on our consolidated financial statements.

ASU 2015-11, "Inventory - Simplifying the Measurement of Inventory"
(Topic 330)
 
July 2015
 
The standard requires an entity to measure inventory within the scope of this update at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. The standard is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years and should be applied prospectively. Early adoption is permitted.
 
First Quarter Fiscal 2018
 
The prospective adoption of this standard did not have a material impact on our consolidated financial statements.

ASU 2017-04, "Intangibles - Goodwill and Other, Simplifying the Test for Goodwill Impairment"
(Topic 350)
 
January 2017
 
This standard eliminates Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedures that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments of this standard, an entity would perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. The loss should not exceed the total amount of goodwill allocated to that reporting unit. Tax effects should be considered. The standard is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted.
 
Third Quarter Fiscal 2018
 
The prospective adoption of this standard did not have a material impact on our consolidated financial statements.


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STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


ASU 2016-09, "Stock Compensation: Improvements to Employee Share-Based Payment Accounting"
(Topic 718)
 
March 2016
 
The standard simplifies several aspects of the accounting for share-based payment award transactions, including income tax consequences, the classification of awards as either equity or liabilities, and the classification on the statement of cash flows. The standard is effective for annual periods beginning after December 15, 2016 and interim periods within that period. Early adoption is permitted.
 
First Quarter Fiscal 2017
 
As a result of the adoption of this standard, we recorded $6.6 million and $5.1 million of excess tax benefits associated with share based compensation in the Consolidated Statements of Income for the years ended March 31, 2018 and 2017, respectively, and have included the associated cash flows as cash provided by operating activities. Prior periods have not been restated.
Standards that have not yet been adopted
ASU 2014-09, "Revenue from Contracts with Customers" and subsequently issued amendments
 
May 2014
 
The standard will replace existing revenue recognition standards and significantly expand the disclosure requirements for revenue arrangements. It may be adopted either retrospectively or on a modified retrospective basis to new contracts and existing contracts with remaining performance obligations as of the effective date. The standard update is effective for annual periods beginning after December 15, 2017 and interim periods within that period. Early adoption is not permitted before the original public entity effective date of December 15, 2016.
 
N/A
 
We have completed our evaluation of our revenue streams and contracts and have adopted this standard on April 1, 2018 using the modified retrospective method. We have identified certain historical revenue transactions for which the timing of recognition would have been different under this standard. The amount of the cumulative adjustment required to defer revenue based on these transactions at the end of fiscal 2018 represents less than 0.5% of fiscal 2018 revenues, which will reduce retained earnings as of April 1, 2018. We are in the process of finalizing our revenue accounting policy and implementing changes to our business processes, disclosures and controls. Additionally, we expect to provide the required additional disclosures in periods subsequent to the adoption.


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STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


ASU 2016-01, "Financial Instruments - Overall - Recognition and Measurement of Financial Assets and Liabilities"
(Subtopic
825-10)
 
January 2016
 
The standard changes how equity investments are measured and presents changes in the fair value of financial liabilities measured under the fair value option. Presentation and disclosure requirements for financial instruments are also affected. Entities will be required to measure equity investments that do not result in consolidation and are not recorded under the equity method at fair value with changes in fair value recognized in net income. The standard clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale securities. The accounting for other financial instruments, such as loans, investments in debt securities, and financial liabilities is largely unchanged. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.
 
N/A
 
The impact that the standard will have on our consolidated financial statements will depend on the future variability in the fair values of our equity investments. However, based on current investment holdings, the impact is not expected to be material.
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.
 
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 anticipate that most of our operating leases will result in the recognition of additional assets and corresponding liabilities in our Consolidated Balance Sheet, however we do not expect the standard to have a material impact on our financial position. The actual impact will depend on our lease portfolio at the time of adoption. More information regarding our total operating lease commitments at March 31, 2018, is disclosed in Note 5, "Property, Plant and Equipment".

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.
 
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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STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


ASU 2016-15, "Statement of Cash Flows"
(Topic 230)
 
August 2016
 
This standard provides guidance on the following specific cash flow issues: Debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. The standard is effective for annual periods beginning after December 15, 2017 and interim periods within that period. Early adoption is permitted.
 
N/A
 
The impact that the standard will have will depend on the future occurrence of the relevant transactions or conditions addressed by the standard.
ASU 2016-16, "Income Taxes, Intra-Entity Transfers of Assets Other Than Inventory"
(Topic 740)
 
October 2016
 
The standard improves the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. The new standard requires the recognition of income tax consequences resulting from an intra-entity transfer of an asset other than inventory when the transfer occurs. The standard is effective for annual periods beginning after December 15, 2017. Early adoption is permitted.
 
N/A
 
We are in the process of evaluating the impact that the standard will have on our consolidated financial statements. The impact will depend on the value of future intra-entity transfers.
ASU 2017-07
"Compensation - Retirement Benefits - Improving the Presentation of Net Periodic Pension and Net Periodic Postretirement Benefit Cost"
(Topic 715)
 
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. The standard is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted.
 
N/A
 
The adoption of this standard is not expected to have a material impact on our consolidated financial statements as it principally relates to classification of costs within our Consolidated Statements of Income. The components of our net periodic benefit costs are disclosed in Note 9, "Benefit Plans".

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. This standard is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted.

 
N/A
 
The impact 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)


ASU 2017-12 "Targeted Improvements to Accounting for Hedging Activities" (Topic 815)
 
August 2017
 
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.

 
N/A
 
We do not expect this standard to have a material impact on our consolidated financial statements.
ASU 2018-02
"Income Statement - Reporting Comprehensive Income" (Topic 220)
 
February 2018
 
The standard allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act and requires certain disclosures about stranded tax effects. The underlying guidance requiring that the effect of a change in tax laws or rates be in included in income form continuing operations is not affected. This standard is effective for fiscal years beginning after December 15, 2018 and interim periods within those years. Early adoption is permitted.
 
N/A
 
We are in the process of evaluating the impact that the standard will have on our consolidated financial statements.
2. BUSINESS ACQUISITIONS AND DIVESTITURES
Fiscal 2018 Acquisitions
We completed six minor purchases that continued to expand our product and service offerings in the Healthcare Products, Healthcare Specialty Services and Applied Sterilization Technologies segments. The aggregate purchase price associated with these transactions was approximately $52.9 million, net of cash acquired and including potential contingent consideration of $5.4 million. The purchase price for the acquisitions was financed with both cash on hand and with credit facility borrowings. Purchase price allocations will be finalized within a measurement period not to exceed one year from the applicable closing.
Fiscal 2017 Acquisitions
Compass Medical, Inc.
On September 16, 2016, we purchased the assets of Compass Medical, Inc. ("Compass'') for approximately $16.0 million. The purchase price was financed with bank credit facility borrowings. Compass specializes in the sale and repair of flexible endoscopes. On an annual basis, Compass has generated revenues of approximately $6.0 million and is being integrated into our Healthcare Specialty Services segment.
Phoenix Surgical Holdings, Ltd. and Endo-Tek LLP

65
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


On August 31, 2016, we purchased 100% of the shares of Phoenix Surgical Holdings, Ltd. and the assets of Endo-Tek LLP ("Phoenix Surgical and Endo-Tek") for approximately $14.3 million combined, net of cash acquired. The purchase price was financed with cash on hand. On an annual basis, these operations, which specialize in the repair of endoscopes, generated approximately $8.0 million in combined revenue and are being integrated into our Healthcare Specialty Services segment.
Medisafe
On July 22, 2016, we purchased 100% of the shares of Medisafe Holdings, Ltd. ("Medisafe"), a U.K. manufacturer of washer/disinfector equipment and related consumables and services for approximately $34.5 million, net of cash acquired. The purchase price was financed with cash on hand. On an annual basis, the Medisafe product line has generated $18.0 million in revenue. The acquisition of Medisafe provides washer manufacturing and research and development capabilities in the U.K. Medisafe's products and services are being integrated into our Healthcare Products segment.
Fiscal 2016 Acquisitions
Synergy Health plc
On November 2, 2015, STERIS acquired all outstanding shares of Synergy in a cash and stock transaction valued at £24.80 ($38.17) per Synergy share, or a total of approximately $2.3 billion based on the lowest trading price of Old STERIS’s stock of $73.02 per share on November 2, 2015. The Combination brought together businesses that generate revenues from over 100 countries and that are geographically complementary. Total costs of approximately $63.8 million before tax were incurred during fiscal year 2016 related to the Combination and are reported in Selling, general and administrative expense.
During the fiscal 2017 third quarter, adjustments were made to finalize the opening balance sheet fair value estimates. Adjustments related primarily to property, plant and equipment, intangible assets and goodwill. The cumulative impact of the final purchase price allocation resulted in a cumulative decrease in depreciation, amortization and depletion expense of approximately $20.0 million, of which approximately $17.0 million was recorded within Selling, general and administrative expense and approximately $3.0 million was recorded within Cost of revenues in the Consolidated Statements of Income. The cumulative foreign currency translation adjustment recorded as a result of the finalization of purchase accounting was approximately $170.0 million.
Actual and Pro Forma Impact
Our fiscal 2016 consolidated financial statements include Synergy's results of operations from the date of acquisition on November 2, 2015 through March 31, 2016. Net sales and operating income attributable to Synergy during this period and included in our consolidated financial statements for the fiscal year ended March 31, 2016 total $254.9 million and $3.7 million, respectively.
The following unaudited pro forma information gives effect to our acquisition of Synergy as if the acquisition had occurred at the beginning of fiscal 2016 and Synergy had been included in our consolidated results of operations for fiscal year ended March 31, 2016.
 
 
Fiscal Year Ending
Amounts are unaudited
 
March 31, 2016
Net revenues
 
$
2,619,056

Net income from continuing operations
 
188,269

The historical consolidated financial information of STERIS and Synergy has been adjusted in the pro forma information to give effect to pro forma events that are (1) directly attributable to the transaction, (2) factually supportable and (3) expected to have a continuing impact on the combined results. The unaudited pro forma results include adjustments to reflect the amortization of the inventory step-up, the incremental depreciation from the fair value adjustments to property, plant and equipment, and the incremental intangible asset amortization to be incurred based on the valuations of the assets acquired. Adjustments to financing costs and income tax expense also were made to reflect the capital structure and anticipated effective tax rate of the combined entity. These pro forma amounts are not necessarily indicative of the results that would have been obtained if the acquisition had occurred prior to the beginning of the period presented or that may occur in the future, and does not reflect future synergies, integration costs, or other such costs or savings.

66
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


Gepco
On July 31, 2015, we acquired all of the outstanding shares of General Econopak, Inc. (“Gepco”), since renamed STERIS Barrier Products Solutions, Inc., for a purchase price of $176.5 million in cash, including a customary working capital adjustment. Gepco is a Pennsylvania-based manufacturer of product solutions in the areas of sterility maintenance, barrier protection, and sterile cleanroom products for pharmaceutical, biotechnology and veterinary Customers. Gepco has been integrated into our Life Sciences business segment. The purchase price was financed through a combination of credit facility borrowings and cash on hand. The purchase price has been allocated to the net assets acquired based on fair values at the acquisition date. The acquisition qualified for joint election tax benefit under Section 338 (h)(10) of the Internal Revenue Code, which allows goodwill and intangibles to be fully deductible for tax purposes.
Black Diamond
On June 12, 2015, we acquired the capital stock of Black Diamond Video, Inc. ("Black Diamond"), a California-based developer and provider of operating room integration systems. The purchase price was approximately $46.2 million, which included a working capital adjustment, deferred consideration of $5.9 million and contingent consideration of $0.8 million. The transaction consideration paid at closing was funded with cash on hand. Black Diamond has been integrated into our Healthcare Products business segment. The purchase price has been allocated to the net assets acquired based on fair values at the acquisition date.
Other 2016 Acquisitions
We also completed several other minor purchases that continued to expand our service offerings in the Healthcare Products, Healthcare Specialty Services and Life Sciences segments. The aggregate purchase price associated with these transactions was approximately $41.1 million, including potential contingent consideration of $1.8 million.
Fair Value of Assets Acquired and Liabilities Assumed
The table below summarizes the allocation of the purchase price to the net assets acquired based on fair values at the acquisition dates for our fiscal 2018, 2017 and 2016 acquisitions.
 
Fiscal Year 2018
 
Fiscal Year 2017
 
Fiscal Year 2016
(dollars in thousands)
All Acquisitions (1)
 
Medisafe
 
Compass
 
Phoenix Surgical and Endo-Tek
 
Synergy Health plc
 
Gepco
 
Black Diamond
 
Other Acquisitions
Cash
$
235

 
$
3,751

 
$
—

 
$
769

 
$
53,057

 
$
1,108

 
$
—

 
$
—

Accounts receivable
1,464

 
3,634

 
629

 
1,123

 
103,093

 
4,161

 
2,966

 
3,859

Inventory
2,289

 
2,454

 
659

 
950

 
30,074

 
1,926

 
3,309

 
1,108

Property, plant and equipment
3,420

 
639

 
13

 
1,092

 
496,555

 
3,421

 
607

 
1,979

Other assets
126

 
—

 
31

 
46

 
19,175

 
946

 
54

 
—

Intangible assets
15,318

 
17,151

 
5,992

 
7,824

 
504,196

 
61,900

 
13,500

 
14,829

Goodwill
35,766

 
19,599

 
8,987

 
5,938

 
1,685,524

 
104,485

 
31,792

 
20,630

Total Assets
58,618

 
47,228

 
16,311

 
17,742

 
2,891,674

 
177,947

 
52,228

 
42,405

Current liabilities
(2,833
)
 
(5,562
)
 
(309
)
 
(1,373
)
 
(107,932
)
 
(1,473
)
 
(4,525
)
 
(1,277
)
Long-term indebtedness
—

 
—

 
—

 
—

 
(321,082
)
 
—

 
—

 
—

Non-current liabilities
(2,622
)
 
(3,398
)
 
—

 
(1,263
)
 
(159,112
)
 
—

 
(1,548
)
 
(49
)
Total Liabilities
(5,455
)
 
(8,960
)
 
(309
)
 
(2,636
)
 
(588,126
)
 
(1,473
)
 
(6,073
)
 
(1,326
)
Net Assets
$
53,163

 
$
38,268

 
$
16,002

 
$
15,106

 
$
2,303,548

 
$
176,474

 
$
46,155

 
$
41,079

(1) Purchase price allocation is still preliminary as of March 31, 2018, as valuations have not been finalized.
Acquisition related transaction and integration costs totaled $16.2 million, $30.1 million, and $82.9 million for the fiscal years ended March 31, 2018, 2017, and 2016, respectively. These costs are included in Selling, general, and administrative expenses in the Consolidated Statements of Income.

67
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


Divestitures
Synergy Health Healthcare Consumable Solutions
On November 20, 2017, we sold our Synergy Health Healthcare Consumable Solutions ("HCS") business to Vernacare. Annual revenues for the HCS business were approximately $40.0 million and were included in the Healthcare Products segment. We recorded proceeds of $8.2 million, net of cash divested, and subject to a working capital adjustment. We also recognized a pre-tax loss on the sale, subject to final working capital adjustments, of $13.5 million in Selling, general, and administrative expense in the Consolidated Statement of Income.
Netherlands Linen Management Services
On February 9, 2017, we sold our Synergy Health Netherlands Linen Management Services business to EMEA B.V. Annual revenues for Synergy Health Netherlands Linen Management Services were approximately $75 million and were included in the Healthcare Specialty Services segment. We recorded a $43.0 million pre-tax loss on the sale in Selling, general, and administrative expense in the Consolidated Statements of Income as a result of the divestiture. In connection with the divestiture, we entered into a loan agreement to provide financing of up to €15 million for a term of up to 15 years. The loan carries an interest rate of 4 percent for the first four years and 12 percent thereafter. Outstanding borrowings under the agreement totaled $3.1 million at March 31, 2018.
U.S. Linen Management Services
On November 3, 2016, we sold our Synergy Health U.S. Linen Management Services business to SRI Healthcare LLC. Annual revenues for U.S. Linen Management Services were approximately $50 million and were included in the Healthcare Specialty Services segment. We recorded proceeds of $4.5 million and recognized a pre-tax loss on the sale, subject to final adjustments, of $31.2 million in Selling, general, and administrative expense in the Consolidated Statements of Income.
Synergy Health Labs
On September 2, 2016, we sold Synergy Health Laboratory Services to SYNLAB International. Annual revenues for the Synergy Health Labs were approximately $15.0 million and were included in the Applied Sterilization Technologies segment. We recorded proceeds of $26.3 million, net of cash divested, and recognized a pre-tax gain on the sale of $18.7 million in Selling, general, and administrative expense in the Consolidated Statements of Income.
Applied Infection Control
On August 31, 2016, we completed the sale of our Applied Infection Control ("AIC") product line to DEB USA, Inc., a wholly-owned subsidiary of S.C. Johnson & Son, Inc. Annual revenues for the AIC product line were typically less than $50.0 million and were included in the Healthcare Products segment. We recorded proceeds of $41.8 million and recognized a pre-tax gain on the sale of $36.2 million in Selling, general, and administrative expense in the Consolidated Statements of Income.
UK Linen Management Services
On July 1, 2016, we sold our Synergy Health UK Linen Management Services business to STAR Mayan Limited. Annual revenues for UK Linen Management Services were approximately $50.0 million and were included in the Healthcare Specialty Services segment. We recorded proceeds of $65.4 million, net of cash divested, and recognized a pre-tax loss on the sale of $66.4 million in Selling, general, and administrative expense in the Consolidated Statements of Income.

68
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


3. GOODWILL AND INTANGIBLE ASSETS
Changes to the carrying amount of goodwill for the years ended March 31, 2018, 2017 and 2016 were as follows:
  
 
Healthcare Products
Segment
 
Healthcare Specialty Services Segment
 
Life Sciences
Segment
 
Applied Sterilization Technologies Segment
 
Synergy Combination
 
Total
Balance at March 31, 2016
 
363,770

 
154,272

 
147,334

 
83,035

 
1,408,192

 
2,156,603

Goodwill acquired or allocated
 
19,618

 
21,781

 
—

 
—

 
—

 
41,399

Synergy allocation
 
—

 
376,807

 
—

 
1,308,717

 
(1,411,781
)
 
273,743

Divestitures
 
—

 
(85,806
)
 
—

 
—

 
—

 
(85,806
)
Impairment
 
—

 
(58,356
)
 
—

 
—

 
—

 
(58,356
)
Foreign currency translation adjustments
 
(5,623
)
 
(32,819
)
 
(820
)
 
(60,607
)
 
3,589

 
(96,280
)
Balance at March 31, 2017
 
$
377,765

 
$
375,879

 
$
146,514

 
$
1,331,145

 
$
—

 
$
2,231,303

Goodwill acquired or allocated
 
16,418

 
3,501

 
—

 
15,847

 
—

 
35,766

Reassignment
 
—

 
(1,855
)
 
—

 
1,855

 
—

 
—

Foreign currency translation adjustments
 
10,491

 
10,500

 
2,302

 
143,422

 
—

 
166,715

Balance at March 31, 2018
 
$
404,674


$
388,025


$
148,816


$
1,492,269


$
—


$
2,433,784

The fiscal 2018 goodwill increase was due to our recent business acquisitions, which are discussed in Note 2, titled "Business Acquisitions" and the impact of foreign currency. The fiscal 2018 reassignment between the Healthcare Specialty Services and the Applied Sterilization Technologies segments resulted from certain minor organizational changes that were made to better align with our Customers.
The fiscal 2017 goodwill increase within the Healthcare Products segment primarily relates to the acquisition of Medisafe. The fiscal 2017 goodwill increase within the Healthcare Specialty Services and Applied Sterilization Technologies segments was primarily the result of the finalization of purchase accounting related to the Synergy acquisition. The Healthcare Specialty Services segment was also impacted by the fiscal 2017 acquisitions of Compass Medical, Inc., Phoenix Surgical Holdings, Ltd., and Endo-Tek LLP, the Synergy Health UK Linen Management Services divestiture and the Synergy Health Netherlands goodwill impairment discussed below.
We evaluate the recoverability of recorded goodwill amounts annually during the third fiscal quarter, or when evidence of potential impairment exists. As a result of our annual goodwill impairment review for fiscal year 2017, we concluded that the carrying value of one of our reporting units exceeded its fair value. The Synergy Health Netherlands linen management unit was reported within our Healthcare Specialty Services segment. Financial forecasts prepared for the annual assessment reflected pricing pressures, volume declines driven by overcapacity in the market, and a decline in the overall market size. These factors resulted in further degradation of the already low operating margin and cash flows of this unit. We incurred a goodwill impairment charge of $58,356 as a result, which is recorded within Goodwill impairment loss in the Consolidated Statements of Income. The fair market value of the reporting unit was determined under an income approach using discounted cash flows and estimated fair market values. Fair value calculated using a discounted cash flow analysis is classified within level 3 of the fair value hierarchy and requires several assumptions including risk adjusted discount rates and financial forecasts.
As a result of our annual impairment review for goodwill for fiscal year 2018 and fiscal year 2016, no indicators of impairment were identified.
Our fiscal 2018, 2017, and 2016 acquisitions are described in Note 2 to our consolidated financial statements titled, "Business Acquisitions and Divestitures".

69
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


Information regarding our intangible assets is as follows:
 
 
2018
 
2017
March 31,
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Gross
Carrying
Amount
 
Accumulated
Amortization
       Customer relationships
 
$
663,532

 
$
150,358

 
$
597,386

 
$
96,648

       Non-compete agreements
 
4,738

 
3,790

 
4,722

 
3,629

       Patents and technology
 
226,318

 
107,598

 
211,812

 
86,665

       Trademarks and tradenames
 
83,509

 
36,864

 
80,223

 
32,547

       Supplier relationships
 
54,800

 
7,307

 
54,800

 
4,567

       Other
 
10

 
10

 
10

 
10

       Total
 
$
1,032,907

 
$
305,927

 
$
948,953

 
$
224,066

Certain trademarks and tradenames obtained as a result of business combinations are indefinite-lived assets. We evaluate our indefinite-lived intangible assets annually during the third quarter, or when evidence of potential impairment exists. No impairment was taken for the fiscal years 2018, 2017 or 2016. The approximate carrying value of these assets at March 31, 2018 and March 31, 2017 was $35,266 and $34,970, respectively. Total amortization expense for finite-lived intangible assets was $70,195, $68,607, and $49,782 for the years ended March 31, 2018, 2017, and 2016, respectively. Based upon the current amount of intangible assets subject to amortization, the amortization expense for each of the five succeeding fiscal years is estimated to be as follows:
  
 
2019
 
2020
 
2021
 
2022
 
2022
Estimated amortization expense
 
$
68,447

 
$
67,390

 
$
66,742

 
$
63,832

 
$
59,061

The estimated annual amortization expense presented in the preceding table has been calculated based upon March 31, 2018 currency exchange rates.
During the third quarter of fiscal 2017, we adopted a new branding strategy change as part of the integration of certain Synergy Health operations into the Healthcare Specialty Services Segment. Under this new branding strategy, hospital sterilization services and instrument repair services will utilize the STERIS Instrument Management Services brand name. The Synergy Health trade name was phased out during the fourth quarter of fiscal 2017. As a result, we shortened the estimated useful life of the Synergy Health trade name and accelerated the corresponding amortization expense over the remainder of fiscal 2017, resulting in an additional expense of $14,444 within the Selling, general and administrative expense line on the Consolidated Statements of Income.
4. INVENTORIES, NET
Inventories, net consisted of the following:
March 31,
 
2018
 
2017
Raw materials
 
$
83,741

 
$
65,300

Work in process
 
34,904

 
26,538

Finished goods
 
124,005

 
140,559

LIFO reserve
 
(17,280
)
 
(16,706
)
Reserve for excess and obsolete inventory
 
(19,639
)
 
(17,854
)
Inventories, net
 
$
205,731

 
$
197,837


70
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


5. PROPERTY, PLANT AND EQUIPMENT
Information related to the major categories of our depreciable assets is as follows:
 March 31,
 
2018
 
2017
Land and land improvements (1)
 
$
55,417

 
$
46,848

Buildings and leasehold improvements
 
449,316

 
393,692

Machinery and equipment
 
575,607

 
508,247

Information systems
 
145,726

 
119,920

Radioisotope
 
476,578

 
436,787

Construction in progress (1)
 
87,745

 
77,421

Total property, plant, and equipment
 
1,790,389

 
1,582,915

Less: accumulated depreciation and depletion
 
(779,865
)
 
(667,007
)
Property, plant, and equipment, net
 
$
1,010,524

 
$
915,908

(1) Land is not depreciated. Construction in progress is not depreciated until placed in service.

Depreciation and depletion expense were $108,137, $119,536 and $93,958, for the years ended March 31, 2018, 2017, and 2016, respectively.
Rental expense for operating leases was $30,474, $32,740, and $23,238 for the years ended March 31, 2018, 2017, and 2016, respectively. Operating leases primarily relate to manufacturing, warehouse and office space, service facilities, vehicles, equipment, and communication systems. Certain lease agreements grant us varying renewal and purchase options.
Future minimum annual rentals payable under noncancelable operating lease agreements at March 31, 2018 were as follows:
  
 
Operating
Leases
2019
 
$
24,116

2020
 
19,933

2021
 
14,666

2022
 
11,051

2023 and thereafter
 
39,464

Total minimum lease payments
 
$
109,230

In the preceding table, the future minimum annual rentals payable under noncancelable leases denominated in foreign currencies have been calculated using March 31, 2018 foreign currency exchange rates.
Asset Retirement Obligations
We provide contract sterilization services including Gamma irradiation which utilizes cobalt-60 in the form of cobalt pencils. We have incurred asset retirement obligations (ARO) associated with the future disposal of these assets once depleted. Recognition of ARO includes: the present value of a liability and offsetting asset, the subsequent accretion of that liability and depletion of the asset, and the periodic review of the ARO liability estimates and discount rates used in the analysis.

71
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


The following table summarizes the activity in the liability for asset retirement obligations.
 
 
Asset Retirement Obligations
Balance at March 31, 2017
 
$
9,953

Liabilities incurred during the period
 
89

Liabilities settled during the period
 
(352
)
Accretion expense
 
1,198

Foreign currency movement
 
751

Balance at March 31, 2018
 
$
11,639

6. DEBT
Indebtedness as of March 31, 2018 and 2017 was as follows:
 
 
2018
 
2017
Credit Agreement and Swing Line Facility
 
$
331,206

 
$
521,604

Private Placement
 
988,190

 
960,684

Deferred financing fees
 
(3,395
)
 
(3,927
)
Total long term debt
 
$
1,316,001

 
$
1,478,361

On March 23, 2018, we entered into a Credit Agreement (the "Credit Agreement") with various financial institutions as lenders, and JPMorgan Chase Bank, N.A., as Administrative Agent. The Credit Agreement replaced a bank credit facility dated March 31, 2015. The Credit Agreement provides up to $1,000,000 of credit, in the form of a revolver facility, which may be utilized for revolving credit borrowings, swing line borrowings and letters of credit, with sublimits for swing line borrowings and letters of credit. The revolver facility may be increased in specified circumstances by up to $500,000. The Credit Agreement will mature on March 23, 2023, and all unpaid borrowings, together with accrued and unpaid interest thereon, are repayable on that date. The Credit Agreement contains leverage and interest coverage covenants. Borrowings may be taken in U.S. dollars, euros, and pounds sterling and certain other specified currencies and bear interest at our option based upon either the Base Rate or the Eurocurrency Rate, plus the Applicable Margin in effect from time to time under the Credit Agreement. The Applicable Margin is determined based on the ratio of Consolidated Total Debt to Consolidated EBITDA (as such terms are defined in the Credit Agreement). Interest on Base Rate Advances is payable quarterly in arrears and interest on Eurocurrency Rate Advances is payable at the end of the relevant interest period therefor, but in no event less frequently than every three months. Borrowings at closing were used to repay outstanding balances of debt outstanding under the former bank credit facility dated March 31, 2015 that was scheduled to mature on March 31, 2020 and for other general corporate purposes.
As of March 31, 2018 a total of $331,206 of Credit Agreement and Swing Line Facility borrowings were outstanding under the Credit Agreement, based on currency exchange rates as of March 31, 2018.

72
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


Our outstanding Senior Notes at March 31, 2018 were as follows:
 
 
Applicable Note Purchase Agreement
 
Maturity Date
 
U.S. Dollar Value at March 31, 2018
 
U.S. Dollar Value at March 31, 2017
$85,000 Senior notes at 6.33%
 
2008 Private Placement
 
August 2018
 
$
85,000

 
$
85,000

$35,000 Senior notes at 6.43%
 
2008 Private Placement
 
August 2020
 
35,000

 
35,000

$91,000 Senior notes at 3.20%
 
2012 Private Placement
 
December 2022
 
91,000

 
91,000

$80,000 Senior notes at 3.35%
 
2012 Private Placement
 
December 2024
 
80,000

 
80,000

$25,000 Senior notes at 3.55%
 
2012 Private Placement
 
December 2027
 
25,000

 
25,000

$125,000 Senior notes at 3.45%
 
2015 Private Placement
 
May 2025
 
125,000

 
125,000

$125,000 Senior notes at 3.55%
 
2015 Private Placement
 
May 2027
 
125,000

 
125,000

$100,000 Senior notes at 3.70%
 
2015 Private Placement
 
May 2030
 
100,000

 
100,000

$50,000 Senior notes at 3.93%
 
2017 Private Placement
 
February 2027
 
50,000

 
50,000

€60,000 Senior notes at 1.86%
 
2017 Private Placement
 
February 2027
 
73,912

 
64,414

$45,000 Senior notes at 4.03%
 
2017 Private Placement
 
February 2029
 
45,000

 
45,000

€20,000 Senior notes at 2.04%
 
2017 Private Placement
 
February 2029
 
24,637

 
21,472

£45,000 Senior notes at 3.04%
 
2017 Private Placement
 
February 2029
 
63,141

 
56,040

€19,000 Senior notes at 2.30%
 
2017 Private Placement
 
February 2032
 
23,406

 
20,398

£30,000 Senior notes at 3.17%
 
2017 Private Placement
 
February 2032
 
42,094

 
37,360

Total Senior Notes
 
 
 
 
 
$
988,190

 
$
960,684

On February 27, 2017, we issued and sold an aggregate principal amount of $95,000, €99,000, and £75,000, of senior notes in a private placement to certain institutional investors in an offering that was exempt from the registration requirements of the Securities Act of 1933. These notes have maturities of between 10 and 15 years from the issue date. The agreement governing these notes contains leverage and interest coverage covenants.
On May 15, 2015, Old STERIS issued and sold $350,000 of senior notes, in a private placement to certain institutional investors in an offering that was exempt from the registration requirements of the Securities Act of 1933. These notes have maturities of 10 to 15 years from the issue date. The agreement governing these notes contains leverage and interest coverage covenants.
The agreements governing certain senior notes issued and sold in February 2013, December 2012, and August 2008, were amended and restated in their entirety on March 31, 2015. All of these notes were issued and sold in private placements to certain institutional investors in offerings that were exempt from the registration requirements of the Securities Act of 1933. The amended and restated agreements, which have been consolidated into a single agreement for the 2013 and 2012 notes, and a separate single agreement for the 2008 notes, contain leverage and interest coverage covenants.
At March 31, 2018, we were in compliance with all financial covenants associated with our indebtedness.
The combined annual aggregate amount of maturities of our outstanding debt by fiscal year is as follows:
2019
$
85,000

2020
—

2021
35,000

2022
—

2023 and thereafter
1,199,396

Total
$
1,319,396


73
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,
 
2018
 
2017
Accrued payroll and other related liabilities:
 
 
 
 
Compensation and related items
 
$
30,270

 
$
29,777

Accrued vacation/paid time off
 
11,011

 
8,651

Accrued bonuses
 
31,716

 
20,715

Accrued employee commissions
 
17,168

 
16,201

Other post-retirement benefits obligations-current portion
 
1,906

 
2,187

Other employee benefit plans' obligations-current portion
 
1,929

 
1,044

Total accrued payroll and other related liabilities
 
$
94,000

 
$
78,575

Accrued expenses and other:
 
 
 
 
Deferred revenues
 
$
74,698

 
$
71,020

Self-insured risk reserves-current portion
 
7,349

 
6,633

Accrued dealer commissions
 
16,121

 
16,122

Accrued warranty
 
6,872

 
6,861

Asset retirement obligation-current portion
 
1,798

 
—

Other
 
61,379

 
54,253

Total accrued expenses and other
 
$
168,217

 
$
154,889

Other liabilities:
 
 
 
 
Self-insured risk reserves-long-term portion
 
$
15,008

 
$
15,584

Other post-retirement benefits obligations-long-term portion
 
12,194

 
13,821

Defined benefit pension plans obligations-long-term portion
 
29,407

 
27,234

Other employee benefit plans obligations-long-term portion
 
3,221

 
3,661

Accrued long-term income taxes
 
18,922

 
2,089

Asset retirement obligation-long-term portion
 
9,841

 
9,953

Other
 
20,007

 
10,331

Total other liabilities
 
$
108,600

 
$
82,673

8. INCOME TAXES
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “TCJA”). The SEC staff issued Staff Accounting Bulletin No.118 (“SAB 118”), which provides guidance on accounting for the tax effects of the TCJA. SAB 118, provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting under Accounting Standards Codification (“ASC”) Topic 740, Income Taxes. Our accounting for the various elements of the TCJA is incomplete. However, in accordance with SAB 118 guidance, we were able to make what we believe to be reasonable estimates of certain effects and therefore, have recorded a provisional net tax benefit of approximately $18,913 related to the reduction of the U.S. federal corporate income tax rates effect on our deferred tax balances and partially offset by the deemed repatriation transition tax for fiscal year 2018.
The Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21.0%. Additionally, given the significant changes included in the TCJA, the Company re-evaluated the realizability of certain deferred tax assets, including foreign tax credits and interest deferral, and determined that valuation allowances needed to be adjusted. The Company is still analyzing certain aspects of the TCJA, including interpretations by state and local tax authorities, and additional Treasury guidance that may be issued which could potentially affect the measurement of these balances or give rise to new deferred tax amounts. The Company recorded a provisional $36,422 tax benefit for the remeasurement of deferred tax balances and related valuation allowances.

74
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


TCJA includes a one-time transition tax based on post-1986 unremitted earnings and profits ("E&P") of non-U.S. subsidiaries owned directly or indirectly by U.S. subsidiaries of the Company which have been previously deferred from U.S. income taxes. The amount of the transition tax also depends on the amount of E&P held in cash or other specified assets. The Company recorded a provisional tax expense of $17,509 for the transition tax. This amount may change when Treasury issues additional guidance and the Company finalizes the calculation of E&P, including the amounts held in cash or other specified assets, and finalizes the calculation of available foreign tax credits.
Income from continuing operations before income taxes was as follows:
Years Ended March 31,
 
2018
 
2017
 
2016
United States operations
 
$
203,872

 
$
189,429

 
$
105,758

United Kingdom operations
 
3,253

 
(36,420
)
 
(20,553
)
Other locations operations
 
147,857

 
31,637

 
86,679

 
 
$
354,982

 
$
184,646


$
171,884


75
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


The components of the provision for income taxes related to income from continuing operations consisted of the following:
Years Ended March 31,
 
2018
 
2017
 
2016
Current:
 
 
 
 
 
 
United States federal
 
$
47,728

 
$
43,900

 
$
41,653

United States state and local
 
7,727

 
8,171

 
7,943

United Kingdom
 
6,671

 
362

 
2,194

Other locations
 
22,667

 
21,094

 
13,924

 
 
84,793

 
73,527

 
65,714

Deferred:
 
 
 
 
 
 
United States federal
 
(15,728
)
 
10,293

 
1,427

United States state and local
 
2,656

 
2,131

 
299

United Kingdom
 
(2,968
)
 
(2,292
)
 
(6,973
)
Other locations
 
(5,393
)
 
(9,644
)
 
(168
)
 
 
(21,433
)
 
488

 
(5,415
)
Total Provision for Income Taxes
 
$
63,360

 
$
74,015

 
$
60,299

The total provision for income taxes can be reconciled to the tax computed at the United Kingdom federal statutory tax rate for 2018 and 2017 and the United States federal statutory tax rate for 2016 as follows:
Years Ended March 31,
 
2018
 
2017
 
2016
National statutory tax rate
 
19.0
 %
 
20.0
 %
 
35.0
 %
Increase in accruals for uncertain tax positions
 
0.1
 %
 
0.3
 %
 
0.2
 %
U.S. state and local taxes, net of federal income tax benefit
 
2.3
 %
 
3.8
 %
 
3.3
 %
Increase in valuation allowances
 
0.1
 %
 
0.1
 %
 
1.0
 %
U.S. research and development credit
 
(0.5
)%
 
(1.1
)%
 
—
 %
U.S. foreign income tax credit
 
(0.2
)%
 
—
 %
 
(0.6
)%
Difference in non-United States tax rates
 
—
 %
 
—
 %
 
(8.5
)%
Difference in non-United Kingdom tax rates
 
4.1
 %
 
6.0
 %
 
—
 %
Excise tax gross-up
 
—
 %
 
—
 %
 
3.4
 %
U.S. manufacturing deduction
 
(0.8
)%
 
(2.5
)%
 
(2.5
)%
Excess tax benefit for equity compensation
 
(1.8
)%
 
(2.8
)%
 
—
 %
Tax rate changes on deferred tax assets and liabilities
 
(10.3
)%
 
(2.3
)%
 
—
 %
 U.S. transition tax on foreign earnings
 
4.9
 %
 
—
 %
 
—
 %
Acquisitions and divestitures
 
0.5
 %
 
9.0
 %
 
—
 %
Goodwill impairment on divestitures
 
—
 %
 
7.9
 %
 
—
 %
Capitalized acquisition costs
 
—
 %
 
0.2
 %
 
5.3
 %
All other, net
 
0.4
 %
 
1.5
 %
 
(1.5
)%
Total Provision for Income Taxes
 
17.8
 %
 
40.1
 %
 
35.1
 %

76
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


Unrecognized Tax Benefits.  We classify uncertain tax positions and related interest and penalties as long-term liabilities within “Other liabilities” in our accompanying Consolidated Balance Sheets, unless they are expected to be paid within 12 months, in which case, the uncertain tax positions would be classified as current liabilities within “Accrued income taxes.” We recognize interest and penalties related to unrecognized tax benefits within “Income tax expense” in our accompanying Consolidated Statements of Income.
A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits is as follows:
 
 
2018
 
2017
Unrecognized Tax Benefits Balance at April 1
 
$
1,884

 
$
3,527

Increases for tax provisions of current year
 
356

 
510

Balances related to acquired/disposed businesses
 
—

 
(1,502
)
Other, including currency translation
 
260

 
(651
)
Unrecognized Tax Benefits Balance at March 31
 
$
2,500

 
$
1,884

We recognized interest and penalties related to uncertain tax positions in the provision for income taxes. As of March 31, 2018, and 2017 we had $295 and $184 accrued for interest and penalties, respectively. The increase during fiscal 2018 is primarily associated with the addition of current year uncertain tax positions. If all unrecognized tax benefits were recognized, the net impact on the provision for income tax expense would be $2,795. It is reasonably possible that during the next 12 months, there will be no material reductions in unrecognized tax benefits as a result of the expiration of various statutes of limitations or matters related to transfer pricing.
We operate in numerous taxing jurisdictions and are subject to regular examinations by various United States federal, state and local, as well as foreign jurisdictions. We are no longer subject to United States federal examinations for years before fiscal 2015 and, with limited exceptions, we are no longer subject to United States state and local, or non-United States, income tax examinations by tax authorities for years before fiscal 2011. We remain subject to tax authority audits in various jurisdictions wherever we do business. We do not expect the results of these examinations to have a material adverse effect on our consolidated financial statements.
We estimate that the tax benefit from our Costa Rican Tax Holiday is $945 (or $0.01 per fully diluted share), annually. The Tax Holiday runs fully exempt, from income tax, through 2025 and partially exempt through 2029.

77
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


Deferred Taxes.  The significant components of the deferred tax assets and liabilities recorded in our accompanying balance sheets at March 31, 2018 and 2017 were as follows:
March 31,
 
2018
 
2017
Deferred Tax Assets:
 
 
 
 
Post-retirement benefit accrual
 
$
3,505

 
$
6,116

Compensation
 
12,334

 
17,196

Net operating loss carryforwards
 
26,217

 
35,129

Accrued expenses
 
5,795

 
7,807

Insurance
 
3,417

 
4,957

Deferred income
 
4,632

 
8,962

Bad debt
 
1,426

 
1,740

Pension
 
5,247

 
4,647

Other
 
1,668

 
781

Deferred Tax Assets
 
64,241

 
87,335

Less: Valuation allowance
 
13,596

 
16,366

Total Deferred Tax Assets
 
50,645

 
70,969

Deferred Tax Liabilities:
 
 
 
 
Depreciation and depletion
 
61,171

 
74,092

Intangibles
 
140,398

 
156,291

Other
 
2,774

 
3,631

Total Deferred Tax Liabilities
 
204,343

 
234,014

Net Deferred Tax Assets (Liabilities)
 
$
(153,698
)
 
$
(163,045
)
At March 31, 2018, we had U.S. federal operating loss carryforwards of $34,866, which remain subject to a 20 year carryforward period. Additionally, we had non-U.S. operating loss carry forwards of $51,309. Although the majority of the non-U.S. carryforwards have indefinite expiration periods, those carryforwards that have definite expiration periods will expire if unused between fiscal years 2019 and 2027. In addition, we have recorded tax benefits of $3,863 related to state operating loss carryforwards. If unused, these state operating loss carryforwards will expire between fiscal years 2019 and 2038. At March 31, 2018, we had $129 of tax credit carryforwards. These credit carryforwards can be used through fiscal 2027.
We review the need for a valuation allowance against our deferred tax assets. A valuation allowance of $13,596 has been applied to a portion of the net deferred tax assets because we do not believe it is more-likely-than-not that we will receive future benefit. The valuation allowance decreased during fiscal 2018 by $2,770.
Other than the provisional tax expense recorded for the one-time transition tax on unremitted earnings of non-US subsidiaries, no additional provision has been made for income taxes on undistributed earnings of foreign subsidiaries as the amounts continue to be indefinitely reinvested.  The Company is still evaluating whether to change its indefinite reinvestment assertion in light of U.S. Tax Reform and considers this conclusion to be incomplete. If the Company subsequently changes its assertion, it will account for the change in the quarter of fiscal year 2019 when the analysis is complete.  The amount of undistributed earnings of subsidiaries was approximately $1,100,000 at March 31, 2018.  It is not practicable to estimate the additional income taxes and applicable withholding taxes that would be payable on the remittance of such undistributed earnings.
In October 2015, the Organization for Economic Cooperation and Development (OECD), in conjunction with the G20, finalized broad-based international tax policy guidelines that involve transfer pricing and other international tax subjects. While some member jurisdictions automatically adopt the new OECD guidelines, most member countries can adopt the guidelines only by new law or regulations. We are currently adopting processes to comply with the reporting requirements specified by the guidelines and are evaluating the other parts of the guidelines.

78
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


9. BENEFIT PLANS
In the United States, we sponsor an unfunded post-retirement benefits plan for two groups of United States retirees. Benefits under this plan include retiree life insurance and retiree medical insurance, including prescription drug coverage.
During the second quarter of fiscal 2009, we amended our United States post-retirement welfare benefits plan, reducing the benefits to be provided to retirees under the plan and increasing their share of the costs. The amendments resulted in a decrease of $46,001 in the accumulated post-retirement benefit obligation. The impact of this change was recognized in our Consolidated Balance Sheets in fiscal 2009 and is being amortized as a component of the annual net periodic benefit cost over a period of approximately thirteen years.
In July 2014, the Board of Directors of American Sterilizer Company (“AMSCO”) approved the termination of the American Sterilizer Company Retirement Income Plan (“Plan”) effective October 1, 2014. An Application for Determination  was filed with the Internal Revenue Service (IRS) on August 22, 2014, with respect to the Plan termination. A Form 500 Standard Termination Notice was filed with the Pension Benefit Guaranty Corporation ("PBGC") on November 17, 2014. The 60-day PBGC waiting period lapsed without objection by the PBGC. AMSCO received a favorable determination from the IRS regarding the termination. On August 19, 2015, an annuity contract was purchased from Massachusetts Mutual Life Insurance Company to provide Plan benefits. Plan assets were converted to cash to fund the purchase. The purchase price of the annuity contract was $51,805. An additional employer contribution of $4,641 was made to the Plan to fund the annuity purchase obligation on August 26, 2015. As a result of the purchase of the annuity, we recognized a pension settlement of $26,470. In addition, plan benefits and benefit administration became the responsibility of the annuity provider. The assumptions used to measure the benefit obligation as of March 31, 2015 reflected this effort.
As a result of the combination with Synergy, we now participate in five defined benefit pension schemes outside the United States: one in the UK, one in the Netherlands, two in Germany, and one in Switzerland. Unfunded obligations of $23,507 were recorded as of the November 2, 2015 closing date. The Synergy Health plc Retirement Benefit Scheme is a defined benefit (final salary) funded pension scheme. In previous years, Synergy sponsored a funded defined benefit arrangement in the Netherlands. This was a separate fund holding the pension scheme assets to meet long-term pension liabilities for past and present employees. Accrual of benefits ceased under the scheme effective January 1, 2013. The Synergy Radeberg and Synergy Allershausen Schemes are unfunded defined pension schemes and are closed to new entrants. The Synergy Daniken Scheme is a defined benefit funded pension scheme.
As a result of our fiscal 2018 acquisition of Harwell Dosimeters Ltd, we now participate in the Harwell Dosimeters Ltd Retirement Benefits Scheme which is a defined benefit funded pension scheme.
We recognize the funded status of our defined benefit pension and post-retirement benefit plans in our Consolidated Balance Sheets, with a corresponding adjustment to accumulated other comprehensive income, net of tax. The funded status is measured as of March 31 each year and is calculated as the difference between the fair value of plan assets and the benefit obligation (which is the projected benefit obligation for pension plans and the accumulated post-retirement benefit obligation for post-retirement benefit plans). Accumulated comprehensive income (loss) represents the net unrecognized actuarial losses and unrecognized prior service cost. These amounts will be recognized in net periodic benefit cost as they are amortized. We will recognize future changes to the funded status of these plans in the year the change occurs, through other comprehensive income.

79
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


Obligations and Funded Status.  The following table reconciles the funded status of the defined benefit pension plans and the other post-retirement benefits plan to the amounts recorded on our Consolidated Balance Sheets at March 31, 2018 and 2017, respectively. Benefit obligation balances presented in the following table reflect the projected benefit obligations for our defined benefit pension plans and the accumulated other post-retirement benefit obligation for our post-retirement benefits plan. The measurement date of our defined benefit pension plans and other post-retirement benefits plan is March 31, for both periods presented.
 
Other Defined Benefit Pension Plans
 
Other
Post-Retirement
Benefits Plan
 
2018
 
2017
 
2018
 
2017
Change in Benefit Obligations:
 
 
 
 
 
 
 
Benefit Obligations at Beginning of Year
$
128,897

 
$
128,942

 
$
16,008

 
$
18,380

Obligation assumed in business acquisition
3,843

 
—

 
—

 
—

Service cost
2,402

 
1,650

 
—

 
—

Interest cost
3,262

 
3,434

 
519

 
554

Actuarial loss (gain)
(697
)
 
16,633

 
(501
)
 
(531
)
Benefits and expenses
(6,075
)
 
(7,190
)
 
(1,926
)
 
(2,395
)
Employee contributions
765

 
629

 
—

 
—

Impact of foreign currency exchange rate changes
16,451

 
(15,201
)
 
—

 
—

Benefit Obligations at End of Year
148,848

 
128,897

 
14,100

 
16,008

Change in Plan Assets:
 
 
 
 
 
 
 
Fair Value of Plan Assets at Beginning of Year
101,663

 
104,353

 
—

 
—

Assets assumed in business acquisition
4,462

 
—

 
—

 
—

Actual return on plan assets
1,052

 
11,910

 
—

 
—

Employer contributions
5,150

 
4,838

 
1,926

 
2,395

Employee contributions
765

 
629

 
—

 
—

Benefits and expenses paid
(6,078
)
 
(7,190
)
 
(1,926
)
 
(2,395
)
Impact of foreign currency exchange rate changes
12,427

 
(12,877
)
 
—

 
—

Fair Value of Plan Assets at End of Year
119,441

 
101,663

 
—

 
—

Funded Status of the Plans
$
(29,407
)
 
$
(27,234
)
 
$
(14,100
)
 
$
(16,008
)
Amounts recognized in the consolidated balance sheets consist of the following:
 
 
Other Defined Benefit Pension Plans
 
Other Post-Retirement Benefits Plan
  
 
2018
 
2017
 
2018
 
2017
Current liabilities
 
$
—

 
$
—

 
$
(1,906
)
 
$
(2,187
)
Noncurrent liabilities
 
(29,407
)
 
(27,234
)
 
(12,194
)
 
(13,821
)
 
 
$
(29,407
)
 
$
(27,234
)
 
$
(14,100
)
 
$
(16,008
)

80
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


The pre-tax amount of unrecognized actuarial net loss and unamortized prior service cost included in accumulated other comprehensive (loss) income at March 31, 2018, was approximately $23,568 and $13,825, respectively. During fiscal 2019, we will amortize the following pre-tax amounts from accumulated other comprehensive income:
  
 
 Defined Benefit Pension Plans
 
Other Post-Retirement
Benefits Plan
Actuarial loss
 
$
507

 
$
648

Prior Service Cost
 
—

 
(3,263
)
Defined benefit plans with an accumulated benefit obligation and projected benefit obligation exceeding the fair value of plan assets had the following plan assets and obligations at March 31, 2018 and 2017:
 
 
Other Defined Benefit Pension Plans
  
 
2018
 
2017
Aggregate fair value of plan assets
 
$
119,441

 
$
101,663

Aggregate accumulated benefit obligations
 
148,848

 
128,897

Aggregate projected benefit obligations
 
148,848

 
128,897


Components of Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income.  Components of the annual net periodic benefit cost of our defined benefit pension plans and our other post-retirement benefits plan were as follows:
 
 
Other Defined Benefit Pension Plans
 
Other Post-Retirement Benefits Plan
 
AMSCO Plan
  
 
2018
 
2017
 
2016
 
2018
 
2017
 
2016
 
2018
 
2017
2016
Service cost
 
$
2,402

 
$
1,650

 
$
961

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

$
27

Interest cost
 
3,262

 
3,434

 
1,659

 
519

 
554

 
593

 
—

 
—

560

Expected return on plan assets
 
(4,835
)
 
(2,853
)
 
(1,324
)
 
—

 
—

 
—

 
—

 
—

(1,008
)
Prior service cost recognition
 
—

 
—

 
(142
)
 
(3,263
)
 
(3,263
)
 
(3,263
)
 
—

 
—

—

Net amortization and deferral
 
126

 
—

 
—

 
648

 
739

 
828

 
—

 
—

602

Curtailments/settlements
 
—

 
—

 
(326
)
 
—

 
—

 
—

 
—

 
—

26,470

Net periodic benefit cost
 
$
955

 
$
2,231

 
$
828

 
$
(2,096
)
 
$
(1,970
)
 
$
(1,842
)
 
$
—

 
$
—

$
26,651

Recognized in other comprehensive loss (income) before tax:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss (gain) occurring during year
 
$
(697
)
 
$
(7,553
)
 
$
(3,733
)
 
$
501

 
$
531

 
$
673

 
$
—

 
$
—

$
—

Amortization of prior service credit
 
—

 
—

 
—

 
3,263

 
3,263

 
3,263

 
—

 
—

—

Amortization of net loss
 
(126
)
 
—

 
—

 
(648
)
 
(739
)
 
(721
)
 
—

 
—

(602
)
Total recognized in other comprehensive loss (income)
 
(823
)
 
(7,553
)
 
(3,733
)
 
3,116

 
3,055

 
3,215

 
—

 
—

(602
)
Total recognized in total benefits cost and other comprehensive loss (income)
 
$
132

 
$
(5,322
)
 
$
(2,905
)
 
$
1,020

 
$
1,085

 
$
1,373

 
$
—

 
$
—

$
26,049



81
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


Assumptions Used in Calculating Benefit Obligations and Net Periodic Benefit Cost.  The following table presents significant assumptions used to determine the projected benefit obligations at March 31:
  
 
2018
 
2017
Discount Rate:
 
 
 
 
   Synergy Health plc Retirement Benefits Scheme
 
2.50
%
 
2.60
%
   Isotron BV Pension Plan
 
1.60
%
 
1.60
%
   Synergy Health Daniken AG
 
0.95
%
 
0.65
%
   Synergy Health Radeberg
 
1.60
%
 
1.50
%
   Synergy Health Allershausen
 
1.60
%
 
1.50
%
   Harwell Dosimeters Ltd Retirement Benefits Scheme
 
2.55
%
 
n/a

   Other post-retirement plan
 
3.50
%
 
3.50
%
The following table presents significant assumptions used to determine the net periodic benefit costs for the years ended March 31:
  
 
2018
 
2017
 
2016
Discount Rate:
 
 
 
 
 
 
 Defined benefit pension plans
 
 
 
 
 
 
   Synergy Health plc Retirement Benefits Scheme
 
2.60
%
 
3.50
%
 
3.20
%
   Isotron BV Pension Plan
 
1.60
%
 
1.60
%
 
2.10
%
   Synergy Health Daniken AG
 
0.65
%
 
0.65
%
 
0.40
%
   Synergy Health Radeberg
 
1.50
%
 
1.50
%
 
1.60
%
   Synergy Health Allershausen
 
1.50
%
 
1.50
%
 
1.60
%
             Harwell Dosimeters Ltd Retirement Benefits Scheme
 
2.55
%
 
n/a

 
n/a

Other post-retirement plan
 
3.50
%
 
3.50
%
 
3.25
%
Expected Return on Plan Assets:
 
 
 
 
 
 
   Synergy Health plc Retirement Benefits Scheme
 
4.97
%
 
4.87
%
 
5.19
%
   Isotron BV Pension Plan
 
1.60
%
 
1.60
%
 
2.10
%
   Synergy Health Daniken AG
 
1.40
%
 
1.40
%
 
1.40
%
The net periodic benefit cost and the actuarial present value of projected benefit obligations are based upon assumptions that we review on an annual basis. These assumptions may be revised annually based upon an evaluation of long-term trends, as well as market conditions that may have an impact on the cost of providing benefits.
We develop our expected long-term rate of return on plan assets assumptions by evaluating input from third-party professional advisers, taking into consideration the asset allocation of the portfolios and the long-term asset class return expectations.
We develop our discount rate assumptions by evaluating input from third-party professional advisers, taking into consideration the current yield on country specific investment grade long-term bonds which provide for similar cash flow streams as our projected obligations.
We have made assumptions regarding healthcare costs in computing our other post-retirement benefit obligation. The assumed rates of increase generally decline ratably over a five-year period from the assumed current year healthcare cost trend rate to the assumed long-term healthcare cost trend rate noted below.
  
 
2018
 
2017
 
2016
Healthcare cost trend rate – medical
 
7.0
%
 
7.0
%
 
7.0
%
Healthcare cost trend rate – prescription drug
 
7.0
%
 
7.0
%
 
7.0
%
Long-term healthcare cost trend rate
 
4.5
%
 
4.5
%
 
4.5
%

82
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


To determine the healthcare cost trend rates, we evaluate a combination of information, including ongoing claims cost monitoring, annual statistical analyses of claims data, reconciliation of forecasted claims against actual claims, review of trend assumptions of other plan sponsors and national health trends, and adjustments for plan design changes, workforce changes, and changes in plan participant behavior.
A one-percentage-point change in assumed healthcare cost trend rates (including medical, prescription drug, and long-term rates) would have had the following effect on our other post-retirement benefit obligation at March 31, 2018:
 
 
One-Percentage Point
  
 
Increase
 
Decrease
Effect on total service and interest cost components
 
$
1

 
$
(1
)
Effect on other post-retirement benefit obligation
 
21

 
(20
)
Plan Assets. The investment policies for our plans are generally established by the local pension plan trustees and seek to maintain the plans' ability to meet liabilities and to comply with local minimum funding requirements. Plan assets are invested in diversified portfolios that provide adequate levels of return at an acceptable level of risk. The investment policies are reviewed at least annually and revised, as deemed appropriate to ensure that the objectives are being met. At March 31, 2018, the targeted allocation for the plans were approximately 75% equity investments and 25% fixed income investments.
Financial instruments included in pension plan assets are categorized into three tiers. These tiers include a fair value hierarchy of three levels, based on the degree of subjectivity inherent in the valuation methodology as follows:
Level 1 - Quoted prices for identical assets in active markets.
Level 2 - Quoted prices for similar assets in active markets with inputs that are observable, either directly or indirectly.
Level 3 - Unobservable prices or inputs in which little or no market data exists.
The fair value of our pension benefits plan assets at March 31, 2018 and 2017 by asset category is as follows:
 
 
Fair Value Measurements at March 31, 2018
(In thousands)
 
Total
 
Quoted
Prices in
Active Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Other
Unobservable
Inputs
(Level 3)
Cash
 
$
67

 
$
67

 
$
—

 
$
—

Insured annuities
 
15,228

 
—

 
15,228

 
—

Insurance contracts
 
5,484

 
—

 
—

 
5,484

Common and collective trusts valued at net asset value:
 
 
 
 
 
 
 
 
    Equity security trusts
 
74,081

 
 
 
 
 
 
    Debt security trusts
 
24,581

 
 
 
 
 
 
Total Plan Assets
 
$
119,441

 
$
67

 
$
15,228

 
$
5,484


83
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


 
 
Fair Value Measurements at March 31, 2017
(In thousands)
 
Total
 
Quoted
Prices in
Active Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Other
Unobservable
Inputs
(Level 3)
Cash
 
$
182

 
$
182

 
$
—

 
$
—

Insured annuities
 
10,813

 
—

 
10,813

 
—

Insurance contracts
 
3,959

 
—

 
—

 
3,959

Common and collective trusts valued at net asset value:
 
 
 
 
 
 
 
 
    Equity security trusts
 
64,922

 
 
 
 
 
 
    Debt security trusts
 
21,787

 
 
 
 
 
 
Total Plan Assets
 
$
101,663

 
$
182

 
$
10,813

 
$
3,959

Collective investment trusts are measured at fair value using the net asset value per share practical expedient. These trusts have not been categorized in the fair value hierarchy and are being presented in the tables above to permit a reconciliation of the fair value hierarchy to the total plan assets.
The fair value measurement of plan assets using significant unobservable inputs (Level 3) changed during fiscal year 2018 due to the following:
 
 
Insurance contracts
Balance at March 31, 2016
 
$
4,192

    Gains (losses) related to assets still held at year-end
 
116

Purchases, sales, settlements - net
 
(208
)
    Foreign currency
 
(141
)
Balance at March 31, 2017
 
$
3,959

    Gains (losses) related to assets still held at year-end
 
(43
)
    Additions from business acquisition
 
2,231

    Transfers out of Level 3
 
(852
)
    Foreign currency
 
189

Balance at March 31, 2018
 
$
5,484

Cash Flows.  We contribute amounts to our defined benefit pension plans at least equal to the minimum amounts required by applicable employee benefit laws and local tax laws. We expect to make contributions of approximately $5,630, during fiscal year 2019.
Based upon the actuarial assumptions utilized to develop our benefit obligations at March 31, 2018, the following benefit payments are expected to be made to plan participants:
  
 
Other Defined Benefit Pension Plans
 
Other Post-Retirement Benefits Plan
2019
 
$
3,899

 
$
1,907

2020
 
3,903

 
1,694

2021
 
4,143

 
1,548

2022
 
4,608

 
1,436

2023
 
5,611

 
1,293

2024-2029
 
27,108

 
4,741


84
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) provides a prescription drug benefit for Medicare beneficiaries, a benefit we provide to Medicare eligible retirees covered by our post-retirement benefits plan. We have concluded that the prescription drug benefit provided in our post-retirement benefit plan is considered to be actuarially equivalent to the benefit provided under the Act and thus qualifies for the subsidy under the Act. Benefits are subject to a per capita per month cost cap and any costs above the cap become the responsibility of the retiree. The subsidy is applied to reduce the retiree responsibility. As a result, the expected future subsidy no longer reduces our accumulated post-retirement benefit obligation and net periodic benefit cost. We collected subsidies totaling approximately $383 and $326, during fiscal 2018 and fiscal 2017, respectively, which reduced the retiree responsibility for costs in excess of the caps established in the post-retirement benefit plan.
Defined Contribution Plans. We maintain a 401(k) defined contribution plan for eligible U.S. employees, a 401(k) defined contribution plan for eligible Puerto Rico employees and similar savings plans for certain employees in Canada, United Kingdom, Ireland, and Finland. We provide a match on a specified portion of an employee’s contribution. The U.S. plan assets are held in trust and invested as directed by the plan participants. The Canadian plan assets are held by insurance companies. The aggregate fair value of the U.S. plan assets was $655,031 at March 31, 2018. At March 31, 2018, the U.S. plan held 645,854 STERIS ordinary shares with a fair value of $60,297. We paid dividends of $781, $734, and $669 to the plan and participants on STERIS shares held by the plan for the years ended March 31, 2018, 2017, and 2016, respectively. We contributed approximately $24,037, $22,676, and $21,897, to the defined contribution plans for the years ended March 31, 2018, 2017, and 2016, respectively.
We also maintain a domestic non-qualified deferred compensation plan covering certain employees, which formerly allowed for the deferral of compensation for an employee-specified term or until retirement or termination. There have been no employee contributions made to this plan since fiscal 2012. The Plan was amended in fiscal 2012 to disallow deferrals of salary payable in 2012 and subsequent calendar years and of commissions and other incentive compensation payable in respect of the 2013 and subsequent fiscal years. We hold investments in mutual funds to satisfy future obligations of the plan. We account for these assets as available-for-sale securities and they are included in “Other assets” on our accompanying Consolidated Balance Sheets, with a corresponding liability for the plan’s obligation recorded in “Accrued expenses and other.” The aggregate value of the assets was $1,583 and $1,604 at March 31, 2018 and March 31, 2017, respectively. Realized gains and losses on these investments are recorded in “Interest and miscellaneous income” within “Non-operating expenses” on our accompanying Consolidated Statements of Income. Changes in the fair value of the assets are recorded in other comprehensive income on our accompanying balance sheets.
10. COMMITMENTS AND CONTINGENCIES
We are, and will likely continue to be, involved in a number of legal proceedings, government investigations, and claims, which we believe generally arise in the course of our business, given our size, history, complexity, and the nature of our business, products, Customers, regulatory environment, and industries in which we participate. These legal proceedings, investigations and claims generally involve a variety of legal theories and allegations, including, without limitation, personal injury (e.g., slip and falls, burns, vehicle accidents), product liability or regulation (e.g., based on product operation or claimed malfunction, failure to warn, failure to meet specification, or failure to comply with regulatory requirements), product exposure (e.g., claimed exposure to chemicals, asbestos, contaminants, radiation), property damage (e.g., claimed damage due to leaking equipment, fire, vehicles, chemicals), commercial claims (e.g., breach of contract, economic loss, warranty, misrepresentation), financial (e.g., taxes, reporting), employment (e.g., wrongful termination, discrimination, benefits matters), and other claims for damage and relief.
We believe we have adequately reserved for our current litigation and claims that are probable and estimable, and further believe that the ultimate outcome of these pending lawsuits and claims will not have a material adverse effect on our consolidated financial position or results of operations taken as a whole. Due to their inherent uncertainty, however, there can be no assurance of the ultimate outcome or effect of current or future litigation, investigations, claims or other proceedings (including without limitation the matters discussed below). For certain types of claims, we presently maintain insurance coverage for personal injury and property damage and other liability coverages in amounts and with deductibles that we believe are prudent, but there can be no assurance that these coverages will be applicable or adequate to cover adverse outcomes of claims or legal proceedings against us.

85
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


On May 31, 2012, our Albert Browne Limited subsidiary received a warning letter from the FDA regarding chemical indicators manufactured in the United Kingdom. These devices are intended for the monitoring of certain sterilization and other processes. The FDA warning letter states that the agency has concerns regarding operational business processes. We do not believe that the FDA's concerns are related to product performance, or that they result from Customer complaints. We have reviewed our processes with the agency and finalized our remediation measures, and are awaiting FDA reinspection. We do not currently believe that the impact of this event will have a material adverse effect on our financial results.
Civil, criminal, regulatory or other proceedings involving our products or services could possibly result in judgments, settlements or administrative or judicial decrees requiring us, among other actions, to pay damages or fines or effect recalls, or be subject to other governmental, Customer or other third party claims or remedies, which could materially effect our business, performance, prospects, value, financial condition, and results of operations.
For additional information regarding these matters, see the risks and uncertainties described under the title "product related regulations and claims" in Item 1A. of this Annual Report on Form 10-K.
From time to time, STERIS is also involved in legal proceedings as a plaintiff involving contract, patent protection, and other claims asserted by us. Gains, if any, from these proceedings are recognized when they are realized.
We are subject to taxation from United States federal, state and local, and foreign jurisdictions. Tax positions are settled primarily through the completion of audits within each individual jurisdiction or the closing of statutes of limitation. Changes in applicable tax law or other events may also require us to revise past estimates. We describe income taxes further in Note 8 to our consolidated financial statements titled, “Income Taxes” in this Annual Report on Form 10-K.
Additional information regarding our contingencies is included in Item 7 of Part II titled, “Management’s Discussion and Analysis of Financial Conditions and Results of Operations under "Contingencies".
As of March 31, 2018 and 2017, our commercial commitments totaled $66,992 and $57,709, respectively. Commercial commitments include standby letters of credit, letters of credit required as security under our self-insured risk retention policies, and other potential cash outflows resulting from an event that requires payment by us. Approximately $7,694 of the March 31, 2018 and 2017 totals relate to letters of credit required as security under our self-insured risk retention policies.
As of March 31, 2018, we had minimum purchase commitments with suppliers for raw material purchases totaling $126,758. As of March 31, 2018, we also had commitments of $1,713 for long term construction contracts.
11. BUSINESS SEGMENT INFORMATION
We operate and report in four reportable business segments: Healthcare Products, Healthcare Specialty Services, Life Sciences, and Applied Sterilization Technologies. Corporate is presented separately and contains the costs that are associated with being a publicly traded company and certain other corporate costs.
Our Healthcare Products segment offers infection prevention and procedural solutions for healthcare providers worldwide, including consumable products, equipment maintenance and installation services, and capital equipment.
Our Healthcare Specialty Services segment provides a range of specialty services for healthcare providers including hospital sterilization services and instrument and scope repairs. Linen Management Services were divested in fiscal 2017.
Our Life Sciences segment offers consumable products, equipment maintenance and specialty services for pharmaceutical manufacturers and research facilities, and capital equipment.
Our Applied Sterilization Technologies segment offers contract sterilization and laboratory services for medical device and pharmaceutical Customers and others.
Certain minor organizational changes were made to better align with our Customers, resulting in several smaller operations shifting among the segments. The prior period measures have been recast for comparability. For the year ended March 31, 2018, revenues from a single Customer did not represent ten percent or more of any reportable segment’s revenues.

86
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


The accounting policies for reportable segments are the same as those for the consolidated Company. Management evaluates performance and allocates resources based on a segment operating income measure. Operating income (loss) for each segment is calculated as the segment’s gross profit less direct expenses and indirect cost allocations, which result in the full allocation of all distribution and research and development expenses, and the partial allocation of corporate costs. These allocations are based upon variables such as segment headcount and revenues. In addition, the Healthcare Products segment is responsible for the management of all but two manufacturing facilities and uses standard cost to sell products to the other segments. Corporate includes certain non-allocated corporate costs related to being a publicly traded company and legacy pension and post-retirement benefits. Segment operating income excludes certain adjustments which include acquisition related costs, amortization of acquired intangibles, restructuring costs and other charges that management believes may or may not recur with similar materiality or impact on operating income in future periods. Management believes that by excluding these items they gain better insight and greater transparency of the operating performance of the segments, thus aiding them in more meaningful financial trend analysis and operational decision making.
Years Ended March 31,
 
2018
 
2017
 
2016
Revenues:
 
 
 
 
 
 
Healthcare Products
 
$
1,276,054

 
$
1,266,517

 
$
1,203,884

Healthcare Specialty Services
 
469,065

 
539,536

 
421,110

Life Sciences
 
361,590

 
328,866

 
297,733

Applied Sterilization Technologies
 
513,287

 
477,837

 
316,037

Total revenues
 
$
2,619,996

 
$
2,612,756

 
$
2,238,764

Operating income (loss):
 
 
 
 
 
 
Healthcare Products
 
221,795

 
227,707

 
181,009

Healthcare Specialty Services
 
28,910

 
10,573

 
24,555

Life Sciences
 
106,737

 
97,180

 
84,564

Applied Sterilization Technologies
 
173,375

 
158,379

 
99,854

Total reportable segments
 
530,817

 
493,839

 
389,982

Corporate
 
(17,439
)
 
(17,307
)
 
(11,320
)
Total operating income before adjustments
 
$
513,378

 
$
476,532

 
$
378,662

Less: Adjustments
 
 
 
 
 
 
Goodwill impairment loss (1)
 
—

 
58,356

 
—

Amortization of inventory and property "step up" to
fair value (2)
 
1,599

 
4,743

 
9,907

Amortization of purchased intangible assets (2)
 
67,793

 
66,398

 
47,704

Acquisition and integration related transaction charges (3)
 
16,211

 
30,082

 
82,891

Loss (gain) on fair value adjustment of acquisition related contingent consideration
 
(593
)
 
2,569

 
(736
)
Net loss on divestiture of businesses (2)
 
14,547

 
86,574

 
—

Settlement of pension obligation (4)
 
—

 
—

 
26,470

Impact of the U.S. Tax Cuts and Jobs Act (5) 
 
10,264

 
—

 
—

Restructuring charges
 
103

 
215

 
(501
)
Total operating income
 
$
403,454

 
$
227,595

 
$
212,927

(1) For more information regarding our goodwill impairment loss see Note 3 titled, "Goodwill and Intangible Assets".
(2) For more information regarding our recent acquisitions and divestitures see Note 2 titled, "Business Acquisitions and Divestitures".
(3) Acquisition and integration related charges include transaction costs and integration expenses associated with acquisitions.
(4) See Note 9 titled, "Benefit Plans" for more information related to the settlement of the pension obligation.
(5) Represents a one-time special employee bonus paid to most U.S. employees and associated professional fees.
Assets include the current and long-lived assets directly attributable to the segment based on the management of the location or on utilization. Certain corporate assets were allocated to the reportable segments based on revenues. Assets attributed to sales and distribution locations are only allocated to the Healthcare Products and Life Sciences segments.

87
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


Individual facilities, equipment, and intellectual properties are utilized for production by both the Healthcare Products and Life Sciences segments at varying levels over time. As a result, an allocation of total assets, capital expenditures, and depreciation and amortization is not meaningful to the individual performance of the Healthcare Products and Life Sciences segments. Therefore, their respective amounts are reported together.
March 31,
 
2018
 
2017
Assets:
 
 
 
 
Healthcare Products and Life Sciences
 
$
1,621,156

 
$
1,576,923

Healthcare Specialty Services
 
813,909

 
809,596

Applied Sterilization Technologies
 
2,765,269

 
2,537,936

Total assets
 
$
5,200,334

 
$
4,924,455

Years Ended March 31,
 
2018
 
2017
 
2016
Capital Expenditures:
 
 
 
 
 
 
Healthcare Products and Life Sciences
 
$
52,767

 
$
39,253

 
$
34,581

Healthcare Specialty Services
 
16,497

 
42,408

 
31,308

Applied Sterilization Technologies
 
96,193

 
91,240

 
60,518

Total Capital Expenditures
 
$
165,457

 
$
172,901

 
$
126,407

Depreciation, Depletion, and Amortization:
 
 
 
 
 
 
Healthcare Products and Life Sciences
 
$
52,025

 
$
46,709

 
$
49,142

Healthcare Specialty Services
 
29,269

 
56,860

 
36,114

Applied Sterilization Technologies
 
97,038

 
84,573

 
58,484

Total Depreciation, Depletion, and Amortization
 
$
178,332

 
$
188,142

 
$
143,740

Financial information for each of our United States and international geographic areas is presented in the following table. Revenues are based on the location of these operations and their Customers. Property, plant and equipment, net are those assets that are identified within the operations in each geographic area.
Years Ended March 31,
 
2018
 
2017
 
2016
Revenues:
 
 
 
 
 
 
United Kingdom
 
$
207,514

 
$
229,603

 
$
144,577

United States
 
1,836,414

 
1,803,457

 
1,662,050

Other locations
 
576,068

 
579,696

 
432,137

Total Revenues
 
$
2,619,996

 
$
2,612,756

 
$
2,238,764

March 31,
 
2018
 
2017
Property, Plant, and Equipment, Net
 
 
 
 
United Kingdom
 
$
97,586

 
$
76,695

United States
 
530,591

 
499,760

Other locations
 
382,347

 
339,453

Property, Plant, and Equipment, Net
 
$
1,010,524

 
$
915,908

12. SHARES AND PREFERRED SHARES
Common and Ordinary Shares
In connection with the Combination, each Old STERIS common shareholder received one ordinary share, par value 10 pence, of the Company for each Old STERIS common share held, and each Synergy ordinary shareholder received 0.4308 ordinary shares, par value 10 pence, of the Company and 439 pence in cash, for each Synergy ordinary share held.
We calculate basic earnings per share based upon the weighted average number of shares outstanding. We calculate diluted earnings per share based upon the weighted average number of shares outstanding plus the dilutive effect of share equivalents

88
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


calculated using the treasury stock method. The following is a summary of shares and share equivalents outstanding used in the calculations of basic and diluted earnings per share:
Years ended March 31,
 
2018

2017

2016
Denominator (shares in thousands):
 
 
 
 
 
 
Weighted average shares outstanding—basic
 
85,028

 
85,473

 
70,698

Dilutive effect of share equivalents
 
685

 
621

 
486

Weighted average shares outstanding and share equivalents—diluted
 
85,713

 
86,094

 
71,184

Options to purchase the following number of shares were outstanding but excluded from the computation of diluted earnings per share because the combined exercise prices, unamortized fair values, and assumed tax benefits upon exercise were greater than the average market price for the shares during the periods, so including these options would be anti-dilutive:
Years ended March 31,
 
2018
 
2017
 
2016
Number of ordinary share options (shares in thousands)
 
393

 
576

 
263

Preferred Shares
Pursuant to an engagement letter dated October 23, 2015, we issued 100,000 preferred shares, par value of £0.10 each, for an aggregate consideration of approximately $15, in satisfaction of debt owed to a service provider. The holders of the preferred shares are entitled to a fixed cumulative preferential annual dividend of 5 percent on the amount paid periodically on the preferred shares respectively held by them. On a return of capital of the Company whether on liquidation or otherwise, the holders of the preferred shares shall be entitled to receive out of the assets of the Company available for distribution to its shareholders the sum of £0.10 per preferred share plus any accrued but unpaid dividend, but will not be entitled to any further participation in the assets of the Company. The holders of the preferred shares will have no right to attend, speak or vote, whether in person or by proxy, at any general meeting of the Company or any meeting of a class of members of the Company in respect of the preferred shares and will not be entitled to receive any notice of meetings.

89

STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


13. REPURCHASE OF ORDINARY SHARES
On August 9, 2016, the Company announced that its Board of Directors had authorized the purchase of up to $300 million of our ordinary shares. We may enter into share repurchase contracts until August 2, 2021 to effect these purchases. Shares may be repurchased from time to time through open market transactions, including 10b5-1 plans. The repurchase program may be suspended or discontinued at any time. We repurchased 664,963 of our ordinary shares during fiscal 2018 for the aggregate amount of $59,234. We repurchased 1,286,183 of our ordinary shares during fiscal 2017 for the aggregate amount of $90,475.
Prior to the Combination, the Company’s Board of Directors provided authorization to repurchase up to $300 million of STERIS common shares. Under this authorization, we were able to purchase shares from time to time through open market purchases, including transactions pursuant to Rule 10b5-1 plans, or privately negotiated transactions. The authorization was no longer applicable after the Combination with Synergy. We did not make any purchases during fiscal year 2016 under the prior stock repurchase authorization.
We obtained 127,903 of our shares during fiscal 2018 in the aggregate amount of $7,014 in connection with stock based compensation award programs. We obtained 168,906 of our shares during fiscal 2017 in the aggregate amount of $7,034 in connection with these programs. We obtained 267,696 of our shares during fiscal 2016 in the aggregate amount of $14,369 in connection with these programs.
14. SHARE-BASED COMPENSATION
We maintain a long-term incentive plan which we assumed from Old STERIS, that makes available shares for grants, at the discretion of the Compensation Committee of the Board of Directors, to officers, directors, and key employees in the form of stock options, restricted shares, restricted share units, stock appreciation rights and share grants. Prior to the Combination, awards were made in respect of common shares of Old STERIS. In conjunction with the Combination all outstanding common share denominated awards were converted into an equivalent number of Company ordinary share denominated awards, with the same terms and conditions as applied to the replaced awards. We satisfy share award incentives through the issuance of new ordinary shares.
Stock options provide the right to purchase our ordinary shares at the market price on the date of grant, subject to the terms of the option plans and agreements. Generally, one-fourth of the stock options granted become exercisable for each year of employment following the grant date. Stock options granted generally expire 10 years after the grant date, or earlier if the option holder is no longer employed by us (subject to an extended exercise period in some cases for optionees who are age 55 and have at least five years of service). Restricted shares and restricted share units generally cliff vest after a four year period or vest in tranches of one-fourth of the number granted for each year of employment after the grant date. As of March 31, 2018, 4,985,756 shares remained available for grant under the long-term incentive plan.
The fair value of share-based stock option compensation awards was estimated at their grant date using the Black-Scholes-Merton option pricing model. This model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable, characteristics that are not present in our option grants. If the model permitted consideration of the unique characteristics of employee stock options, the resulting estimate of the fair value of the stock options could be different. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our Consolidated Statements of Income. The expense is classified as cost of goods sold or selling, general and administrative expenses in a manner consistent with the employee’s compensation and benefits.
The following weighted-average assumptions were used for options granted during fiscal 2018, fiscal 2017 and fiscal 2016:
 
 
Fiscal 2018
 
Fiscal 2017
 
Fiscal 2016
Risk-free interest rate
 
2.01
%
 
1.29
%
 
1.51
%
Expected life of options
 
5.7 years

 
5.7 years

 
5.7 years

Expected dividend yield of stock
 
1.58
%
 
1.54
%
 
1.40
%
Expected volatility of stock
 
22.08
%
 
22.92
%
 
25.06
%

90
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


The risk-free interest rate is based upon the U.S. Treasury yield curve. The expected life of options is reflective of historical experience, vesting schedules and contractual terms. The expected dividend yield of stock represents our best estimate of the expected future dividend yield. The expected volatility of stock is derived by referring to our historical stock prices over a time frame similar to that of the expected life of the grant. An estimated forfeiture rate of 2.25%, 1.85% and 1.55% was applied in fiscal 2018, 2017 and 2016, respectively. This rate is calculated based upon historical activity and represents an estimate of the granted options not expected to vest. If actual forfeitures differ from this calculated rate, we may be required to make additional adjustments to compensation expense in future periods. The assumptions used above are reviewed at the time of each significant option grant, or at least annually.
A summary of share option activity is as follows:
 
 
Number of
Options
 
Weighted
Average
Exercise
Price
 
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value
Outstanding at March 31, 2017
 
1,945,274

 
$
50.28

 
 
 
 
Granted
 
429,360

 
77.75

 
 
 
 
Exercised
 
(329,733
)
 
34.01

 
 
 
 
Forfeited
 
(23,239
)
 
68.29

 
 
 
 
Outstanding at March 31, 2018
 
2,021,662

 
$
58.56

 
6.6 years
 
$
70,350

Exercisable at March 31, 2018
 
1,139,722

 
$
48.81

 
5.3 years
 
$
50,772

We estimate that 867,996 of the non-vested stock options outstanding at March 31, 2018 will ultimately vest.
The aggregate intrinsic value in the table above represents the total pre-tax difference between the $93.36 closing price of our ordinary shares on March 29, 2018 over the exercise prices of the stock options, multiplied by the number of options outstanding or outstanding and exercisable, as applicable. The aggregate intrinsic value is not recorded for financial accounting purposes and the value changes daily based on the daily changes in the fair market value of our ordinary shares.
The total intrinsic value of stock options exercised during the years ended March 31, 2018, 2017 and 2016 was $16,096, $6,454 and $13,000, respectively. Net cash proceeds from the exercise of stock options were $11,093, $4,955 and $11,240 for the years ended March 31, 2018, 2017 and 2016, respectively. The tax benefit from stock option exercises was $6,581, $5,058 and $6,281 for the years ended March 31, 2018, 2017 and 2016, respectively.
The weighted average grant date fair value of stock option grants was $15.51, $13.42 and $14.66 for the years ended March 31, 2018, 2017 and 2016, respectively.
Stock appreciation rights (“SARS”) carry generally the same terms and vesting requirements as stock options except that they are settled in cash upon exercise and therefore, are classified as liabilities. The fair value of the outstanding SARS as of March 31, 2018, 2017 and 2016 was $1,437, $1,622, $2,165, respectively. The fair value of outstanding SARS is revalued at each reporting date and the related liability and expense are adjusted appropriately.
A summary of the non-vested restricted share activity is presented below:
 
 
Number of
Restricted
Shares
 
Number of Restricted Share Units
 
Weighted-Average
Grant Date
Fair Value
Non-vested at March 31, 2017
 
780,526

 
34,013

 
$
60.87

Granted
 
251,300

 
23,259

 
78.60

Vested
 
(231,107
)
 
(21,181
)
 
54.41

Forfeited
 
(37,518
)
 
(660
)
 
68.57

Non-vested at March 31, 2018
 
763,201

 
35,431

 
$
68.65

Restricted shares granted are valued based on the closing stock price at the grant date. The value of restricted shares and units that vested during fiscal 2018 was $13,727.
As of March 31, 2018, there was a total of $36,514 in unrecognized compensation cost related to non-vested share-based compensation granted under our share-based compensation plans. We expect to recognize the cost over a weighted average period of 2.14 years.

91
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


15. FINANCIAL AND OTHER GUARANTEES
We generally offer a limited parts and labor warranty on capital equipment. The specific terms and conditions of those warranties vary depending on the product sold and the countries where we conduct business. We record a liability for the estimated cost of product warranties at the time product revenues are recognized. The amounts we expect to incur on behalf of our Customers for the future estimated cost of these warranties are recorded as a current liability on the accompanying Consolidated Balance Sheets. Factors that affect the amount of our warranty liability include the number and type of installed units, historical and anticipated rates of product failures, and material and service costs per claim. We periodically assess the adequacy of our recorded warranty liabilities and adjust the amounts as necessary.
Changes in our warranty liability during the periods presented are as follows:
Years Ended March 31,
 
2018
 
2017
 
2016
Balance, Beginning of Year
 
$
6,861

 
$
5,909

 
$
5,579

Warranties issued during the period
 
12,305

 
11,823

 
11,194

Settlements made during the period
 
(12,294
)
 
(10,871
)
 
(10,864
)
Balance, End of Year
 
$
6,872

 
$
6,861

 
$
5,909

We also sell product maintenance contracts to our Customers. These contracts range in terms from one to five years and require us to maintain and repair the product over the maintenance contract term. We initially record amounts due from Customers under these contracts as a liability for deferred service contract revenue on the accompanying Consolidated Balance Sheets within “Accrued expenses and other.” The liability recorded for such deferred service revenue was $35,204, $34,264 and $33,416 as of March 31, 2018, 2017 and 2016, respectively. Such deferred revenue is then amortized on a straight-line basis over the contract term and recognized as service revenue on our accompanying Consolidated Statements of Income. The activity related to the liability for deferred service contract revenues is excluded from the table presented above.

92
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


16. DERIVATIVES AND HEDGING
From time to time, we enter into forward contracts to hedge potential foreign currency gains and losses that arise from transactions denominated in foreign currencies, including inter-company transactions. We may also enter into commodity swap contracts to hedge price changes in nickel that impact raw materials included in our cost of revenues. We do not use derivative financial instruments for speculative purposes. These contracts are not designated as hedging instruments and do not receive hedge accounting treatment; therefore, changes in their fair value are not deferred but are recognized immediately in the Consolidated Statements of Income. At March 31, 2018, we held foreign currency forward contracts to buy 13.0 million Canadian dollars. At March 31, 2018, we held commodity swap contracts to buy 592.5 thousand pounds of nickel.
 
 
Asset Derivatives
 
Liability Derivatives
 
 
Fair Value at
 
Fair Value at
 
Fair Value at
 
Fair Value at
Balance Sheet Location
 
March 31, 2018
 
March 31, 2017
 
March 31, 2018
 
March 31, 2017
Prepaid & Other
 
$
187

 
$
160

 
$
—

 
$
—

Accrued expenses and other
 
$
—

 
$
—

 
$
—

 
$
35

The following table presents the impact of derivative instruments and their location within the Consolidated Statements of Income:
 
 
Location of (loss) gain recognized in income
 
Amount of (loss) gain recognized in income
Years Ended March 31,
2018
 
2017
 
2016
Foreign currency forward contracts
 
Selling, general and administrative
 
$
(1,357
)
 
$
(1,886
)
 
$
(683
)
Commodity swap contracts
 
Cost of revenues
 
$
373

 
$
376

 
$
(461
)
Additionally, we hold our debt in multiple currencies to fund our operations and investments in certain subsidiaries. We designate portions of non-functional currency denominated intercompany loans as hedges of portions of net investments in foreign operations. Net debt designated as non-derivative net investment hedging instruments totaled $57,161 at March 31, 2018. These hedges are designed to be fully effective and any associated gain or loss is recognized in Accumulated Other Comprehensive Income and will be reclassified to income in the same period when a gain or loss related to the net investment in the foreign operation is included in income.

93
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


17. FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. We estimate the fair value of financial assets and liabilities using available market information and generally accepted valuation methodologies. The inputs used to measure fair value are classified into three tiers. These tiers include Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring the entity to develop its own assumptions. The following table shows the fair value of our financial assets and liabilities at March 31, 2018 and March 31, 2017:
 
 
 
 
 
Fair Value Measurements
 At March 31,
 
Carrying Value
 
Quoted Prices
in Active Markets
for Identical Assets
 
Significant Other
Observable Inputs
 
Significant
Unobservable
Inputs
 
 
 
Level 1
 
Level 2
 
Level 3
 
2018
2017
 
2018
2017
 
2018
2017
 
2018
2017
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents (1)
 
$
201,534

$
282,918

 
$
201,534

$
282,918

 
$
—

$
—

 
$
—

$
—

Forward and swap contracts (2)
 
187

160

 
—

—

 
187

160

 
—

—

Investments (3)
 
16,382

12,552

 
16,382

12,552

 
—

—

 
—

—

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Forward and swap contracts (2)
 
$
—

$
35

 
$
—

$
—

 
$
—

$
35

 
$
—

$
—

Deferred compensation plans (3)
 
1,694

1,677

 
1,694

1,677

 
—

—

 
—

—

Long term debt (4)
 
1,316,001

1,478,361

 
—

—

 
1,305,181

1,496,966

 
—

—

Contingent consideration obligations (5)
 
8,068

4,451

 
—

—

 
—

—

 
8,068

4,451

(1) Money market fund holdings are valued at fair value using the net asset value per share practical expedient and are not included within the fair value hierarchy. These money market funds are being presented in the table above to permit a reconciliation of the fair value hierarchy to total cash and cash equivalents.
(2) The fair values of forward and swap contracts are based on period-end forward rates and reflect the value of the amount that we would pay or receive for the contracts involving the same notional amounts and maturity dates.
(3) We maintain a frozen domestic non-qualified deferred compensation plan covering certain employees, which allows for the deferral of payment of previously earned compensation for an employee-specified term or until retirement or termination. Amounts deferred can be allocated to various hypothetical investment options (compensation deferrals have been frozen under the plan). We hold investments to satisfy the future obligations of the plan. Changes in the value of the investment accounts are recognized each period based on the fair value of the underlying investments. Employees who made deferrals are entitled to receive distributions of their hypothetical account balances (amounts deferred, together with earnings (losses)). We also hold an investment in the common stock of Servizi Italia, S.p.A, a leading provider of integrated linen washing and outsourced sterile processing services to hospital Customers. Changes in the value of the investment are recognized each period based on the fair value of the investment.
(4) We estimate the fair value of our long-term debt using discounted cash flow analyses, based on our current incremental borrowing rates for similar types of borrowing arrangements.
(5) Contingent consideration obligations arise from prior business acquisitions. The fair values are based on discounted cash flow analyses reflecting the possible achievement of specified performance measures or events and captures the contractual nature of the contingencies, commercial risk, and the time value of money. Contingent consideration obligations are classified in the consolidated balance sheets as accrued expense (short-term) and other liabilities (long-term), as appropriate based on the contractual payment dates.

94
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


The changes in Level 3 assets and liabilities measured at fair value on a recurring basis at March 31, 2018 are summarized as follows:
 
 
Contingent Consideration
Balance at March 31, 2016
 
$
5,886

Additions
 
3,592

Payments
 
(5,416
)
Foreign currency translation adjustments
 
389

Balance at March 31, 2017
 
$
4,451

Additions
 
5,774

Payments
 
(1,735
)
Reductions
 
(593
)
Foreign currency translation adjustments
 
171

Balance at March 31, 2018
 
$
8,068

Additions and payments of contingent consideration obligations during fiscal year 2018 were primarily related to our fiscal year 2018 and 2017 acquisitions. Additions and payments for contingent consideration obligations during fiscal year 2017 were primarily related to Black Diamond Video, Inc. and Sercon. Refer to Note 2, Business Acquisitions and Divestitures for more information.
Information regarding our investments is as follows:
 
 
 
 
 
 
Investments
At March 31,
 
Cost
 
Unrealized Gains (1)
 
Unrealized Losses (1)
 
Fair Value
2018
 
2017
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Marketable equity securities and other(1)
 
$
11,037

 
$
11,037

 
$
3,762

 
$
—

 
$
—

 
$
(72
)
 
$
14,799

 
$
10,965

Mutual funds
 
1,000

 
1,091

 
583

 
496

 
—

 
—

 
1,583

 
1,587

Total available-for-sale securities
 
$
12,037

 
$
12,128

 
$
4,345

 
$
496

 
$
—

 
$
(72
)
 
$
16,382

 
$
12,552

(1) Amounts reported include the impact of foreign currency movements relative to the U.S. dollar.

18. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) shown in our Consolidated Statements of Shareholders' Equity consists of the following:
Years Ended March 31,
 
2018
2017
2016
Cumulative foreign currency translation adjustment
 
$
16,457

$
(238,525
)
$
(72,594
)
Amortization of pension and postretirement benefit plans costs,
net of taxes
 
(6,742
)
(2,355
)
5,108

Unrealized gain (loss) on available for sale securities
 
1,970

178

(673
)
Total
 
$
11,685

$
(240,702
)
$
(68,159
)

95
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)


19. RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Amounts in Accumulated Other Comprehensive Income (Loss) are presented net of the related tax. Foreign Currency Translation is not adjusted for income taxes. Changes in our Accumulated Other Comprehensive Income (Loss) balances, net of tax, for the years ended March 31, 2018 and March 31, 2017 were as follows:
 
 
Gain (Loss) on Available for Sale Securities (1)
 
Defined Benefit
Plans (2)
 
Foreign Currency Translation (3)
 
Total Accumulated Other Comprehensive Income (Loss)
 
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
Beginning Balance
 
$
178

 
$
(673
)
 
$
(2,355
)
 
$
5,108

 
$
(238,525
)
 
$
(72,594
)
 
$
(240,702
)
 
$
(68,159
)
Other Comprehensive Income (Loss) before reclassifications
 
1,703

 
745

 
(2,291
)
 
(5,491
)
 
254,982

 
(165,931
)
 
254,394

 
(170,677
)
Amounts reclassified from Accumulated Other Comprehensive Income (Loss)
 
89

 
106

 
(2,096
)
 
(1,972
)
 
—

 
—

 
(2,007
)
 
(1,866
)
Net current-period Other Comprehensive Income (Loss)
 
1,792

 
851

 
(4,387
)
 
(7,463
)
 
254,982

 
(165,931
)
 
252,387

 
(172,543
)
Ending Balance
 
$
1,970

 
$
178

 
$
(6,742
)
 
$
(2,355
)
 
$
16,457

 
$
(238,525
)
 
$
11,685

 
$
(240,702
)
(1) Realized gain (loss) on available for sale securities is reported in the Interest income and miscellaneous expense line of the Consolidated
Statements of Income.
(2) Amortization (gain) of defined benefit pension items is reported in the Selling, general, and administrative expense line of the Consolidated
Statements of Income.
(3) The effective portion of gain or loss on net debt designated as non-derivative net investment hedging instruments is recognized in Accumulated other comprehensive income and is reclassified to income in the same period when a gain or loss related to the net investment in the foreign operation is included in income.


96
STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts and as noted)



20. QUARTERLY RESULTS (UNAUDITED)
 
Quarters Ended
March 31,
 
December 31,
 
September 30,
 
June 30,
Fiscal 2018
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
Product
$
351,010

 
$
309,461

 
$
286,557

 
$
273,605

Service
364,963

 
352,439

 
347,602

 
334,359

Total Revenues
715,973

 
661,900

 
634,159

 
607,964

Cost of Revenues:
 
 
 
 
 
 
 
Product
187,710

 
162,611

 
152,611

 
143,245

Service
235,510

 
220,701

 
214,787

 
208,598

Total Cost of Revenues
423,220

 
383,312

 
367,398

 
351,843

Gross Profit
292,753

 
278,588

 
266,761

 
256,121

Percentage of Revenues
40.9
%
 
42.1
%
 
42.1
%
 
42.1
%
Restructuring Expenses
(53
)
 
78

 
27

 
51

Net Income Attributable to Shareholders
$
73,598

 
$
94,781

 
$
64,459

 
$
58,077

Basic Income Per Ordinary Share Attributable to Shareholders:
 
 
 
 
 
 
 
Net income
$
0.87

 
$
1.12

 
$
0.76

 
$
0.68

Diluted Income Per Ordinary Share Attributable to Shareholders:
 
 
 
 
 
 
 
Net income
$
0.86

 
$
1.11

 
$
0.75

 
$
0.68

 
 
 
 
 
 
 
 
Fiscal 2017
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
Product
$
332,093

 
$
302,260

 
$
292,216

 
$
271,750

Service
349,096

 
344,514

 
354,199

 
366,628

Total Revenues
681,189

 
646,774

 
646,415

 
638,378

Cost of Revenues:
 
 
 
 
 
 
 
Product
173,333

 
152,879

 
155,110

 
142,698

Service
227,731

 
236,286

 
243,397

 
255,690

Total Cost of Revenues
401,064

 
389,165

 
398,507

 
398,388

Gross Profit
280,125

 
257,609

 
247,908

 
239,990

Percentage of Revenues
41.1
%
 
39.8
%
 
38.4
%
 
37.6
%
Restructuring Expenses
(5
)
 
18

 
48

 
154

Net Income Attributable to Shareholders
$
26,143

 
$
(4,996
)
 
$
40,416

 
$
48,401

Basic Income Per Ordinary Share Attributable to Shareholders:
 
 
 
 
 
 
 
Net income
$
0.31

 
$
(0.06
)
 
$
0.47

 
$
0.56

Diluted Income Per Ordinary Share Attributable to Shareholders:
 
 
 
 
 
 
 
Net income
$
0.31

 
$
(0.06
)
 
$
0.47

 
$
0.56


 

97

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
 
Balance at
Beginning
of Period
 
Charges
to Costs
and
Expenses
 
 
Charges
to Other
Accounts
 
 
Deductions
 
 
Balance at
End of
Period
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Year ended March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Deducted from asset accounts:
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for trade accounts receivable (1)
 
$
10,357

 
$
2,183

 
 
$
1,925

(3) 
 
$
(1,993
)
(4) 
 
$
12,472

Inventory valuation reserve
 
17,854

 
2,446

(2) 
 
(661
)
(3) 
 
—

 
 
19,639

Deferred tax asset valuation allowance
 
16,366

 
3,535

 
 
209

(3) 
 
(6,514
)
 
 
13,596

Recorded within liabilities:
 
 
 
 
 
 
 
 
 
 
 
 


Casualty loss reserves
 
$
22,718

 
$
5,713

 
 
$
(2,563
)
 
 
$
(4,919
)
 
 
$
20,949

Year ended March 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 


Deducted from asset accounts:
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for trade accounts receivable (1)
 
$
11,185

 
$
1,248

 
 
$
11

(3) 
 
$
(2,087
)
(4) 
 
$
10,357

Inventory valuation reserve
 
18,707

 
(171
)
(2) 
 
(682
)
(3) 
 
—

 
 
17,854

Deferred tax asset valuation allowance
 
16,435

 
4,014

 
 
(214
)
(3) 
 
(3,869
)
 
 
16,366

Recorded within liabilities:
 
 
 
 
 
 
 
 
 
 
 
 


Casualty loss reserves
 
$
20,222

 
$
5,000

 
 
$
768

 
 
$
(3,272
)
 
 
$
22,718

Year ended March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Deducted from asset accounts:
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for trade accounts receivable (1)
 
$
9,415

 
$
3,362

  
 
$
(100
)
(3) 
 
$
(1,492
)
(4) 
 
$
11,185

Inventory valuation reserve
 
17,597

 
1,146

(2) 
 
(36
)
(3) 
 
—

   
 
18,707

Deferred tax asset valuation allowance
 
14,380

 
2,151

  
 
4,439

(3) 
 
(4,535
)
 
 
16,435

Recorded within liabilities:
 
 
 
 
 
 
 
 
 
 
 
 


Casualty loss reserves
 
$
18,078

 
$
4,141

  
 
$
1,187

  
 
$
(3,184
)
 
 
$
20,222

Accrued SYSTEM 1 Rebate Program and class action settlement
 
16

 
—

 
 
—

 
 
(16
)
 
 
—

(1) Net allowance for doubtful accounts and allowance for sales and returns.
(2) Provision for excess and obsolete inventory, net of inventory written off.
(3) Change in foreign currency exchange rates and acquired reserves.
(4) Uncollectible accounts written off, net of recoveries.

ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

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Table of Contents

ITEM 9A.
CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our management, including the Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”), has evaluated the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), as of the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation, the PEO and PFO have determined that, as of the end of the period covered by this Annual Report on Form 10-K, our disclosure controls and procedures were effective.
CHANGES IN INTERNAL CONTROLS
During the quarter ended March 31, 2018, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Exchange Act Rules 13a-15(f). Under the supervision and with the participation of management, including the PEO and PFO, we conducted an evaluation of the effectiveness of internal control over financial reporting as of March 31, 2018 based on the framework in 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our evaluation of internal control over financial reporting did not include the internal controls of entities that were acquired during fiscal 2018. Total assets of the acquired businesses (inclusive of acquired intangible assets and goodwill) represented approximately 1.2 percent of our total assets as of March 31, 2018 and approximately 0.2 percent of our total revenues for the year ended March 31, 2018. Based on this evaluation under this framework, management concluded that the internal control over financial reporting was effective as of March 31, 2018.
The independent registered public accounting firm that audited the financial statements has issued an attestation report on internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
STERIS plc
Opinion on Internal Control over Financial Reporting
We have audited STERIS plc and subsidiaries’ internal control over financial reporting as of March 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, STERIS plc and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of March 31, 2018, based on the COSO criteria.
As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of entities that were acquired during the year ended March 31, 2018, which are included in the fiscal 2018 consolidated financial statements of the Company and constituted approximately 1.2% of total assets as of March 31, 2018 and approximately 0.2% of total revenues for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of entities that were acquired during the year ended March 31, 2018.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of March 31, 2018 and 2017, the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended March 31, 2018, and the related notes and the financial statement schedule listed in the Index at Item 15(a) and our report dated May 30, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

99
Table of Contents

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Cleveland, Ohio
May 30, 2018


100
Table of Contents


ITEM 9B.
OTHER INFORMATION
None.
PART III

ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
This Annual Report on Form 10-K incorporates by reference the information appearing under the caption "Nominees for Election as Directors," "Section 16(a) Beneficial Ownership Reporting Compliance," "Board Meetings and Committees" and "Shareholder Nominations of Directors and Nominee Criteria" of our definitive proxy statement to be filed with the SEC in connection with our 2018 Annual Meeting of Shareholders (the "Proxy Statement").
Our executive officers serve for a term of one year from the date of election to the next organizational meeting of the Board of Directors and until their respective successors are elected and qualified, except in the case of death, resignation, or removal. Information concerning our executive officers is contained in Item 1 of Part 1 of this Annual Report. We have adopted a code of ethics, our Code of Business Conduct for Employees, that applies to our CEO and CFO and Principal Accounting Officer as well as all of our other employees. We have also adopted a code of ethics, our Director Code of Ethics, which applies to the members of the Company's Board of Directors, including our CEO. Our Code of Business Conduct for Employees and the Director Code of Ethics can be found on our Investor Relations website at www.steris-ir.com. Any amendments or waivers of either of these codes will be made available on this website.
ITEM 11.
EXECUTIVE COMPENSATION
This Annual Report on Form 10-K incorporates by reference the information appearing beginning under the captions "Executive Compensation," "Non-Employee Director Compensation" and "Miscellaneous Matters" of the Proxy Statement.

ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
This Annual Report on Form 10-K incorporates by reference the information appearing under the captions "Ownership of Voting Securities" of the Proxy Statement.
The table below presents information concerning all equity compensation plans and individual equity compensation arrangements in effect as of our fiscal year ended March 31, 2018.
Plan Category
 
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
 
Weighted-average
exercise price of
outstanding options,
warrants and rights
($)
 
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
 
 
(a)
 
(b)
 
(c)
Equity compensation plans approved by security holders
 
2,021,662
 
$58.56
 
4,985,756
Equity compensation plans not approved by security holders
 
—
 
—
 
—
Total
 
2,021,662
 
$58.56
 
4,985,756

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Table of Contents

ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
RELATED PERSON TRANSACTIONS
This Annual Report on Form 10-K incorporates by reference the information beginning under the captions "Governance Generally", "Board Meetings and Committees" and "Miscellaneous Matters" of the Proxy Statement.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
This Annual Report on Form 10-K incorporates by reference the information relating to principal accountant fees and services appearing under the caption "Independent Registered Public Accounting Firm" of the Proxy Statement.
PART IV
ITEM 15.     EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
LIST OF CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
(a) (1) The following consolidated financial statements of STERIS plc and subsidiaries are included in Item 8:
Consolidated Balance Sheets – March 31, 2018 and 2017.
Consolidated Statements of Income – Years ended March 31, 2018, 2017, and 2016.
Consolidated Statements of Comprehensive Income –Years ended March 31, 2018, 2017, and 2016.
Consolidated Statements of Cash Flows – Years ended March 31, 2018, 2017, and 2016.
Consolidated Statements of Shareholders’ Equity – Years ended March 31, 2018, 2017, and 2016.
Notes to Consolidated Financial Statements.
(a) (2) The following consolidated financial statement schedule of STERIS plc and subsidiaries is included in Item 8:
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulation of the SEC are not required under the related instructions or are inapplicable and, therefore, have been omitted.
(a) (3) Exhibits
Exhibit
Number
Exhibit Description
3.1
 
 
3.2
 
 
4.1
 
 
10.1
 
 
10.2
 
 
10.3
 
 

102
Table of Contents

10.4
 
 
10.5
 
 
10.6
 
 
10.7
 
 
10.8
 
 
10.9
 
 
10.10
 
 
10.11
 
 
10.12
 
 
10.13
 
 
10.14
 
 
10.15
 
 
10.16
 
 
10.17
 
 
10.18
 
 
10.19
 
 
10.20
 
 
10.21

 
 

103
Table of Contents

10.22
 
 
10.23
 
 
10.24
 
 
10.25
 
 
10.26
 
 
10.27
 
 
10.28
 
 
10.29
 
 
10.30
 
 
10.31
10.32
 
 
10.33
 
 
10.34
 
 
10.35
 
 
10.36
 
 
10.37
 
 
10.38
 
 

104
Table of Contents

10.39
 
 
10.40
 
 
10.41
 
 
10.42
 
 
10.43
 
 
10.44
 
 
10.45
 
 
10.46
 
 
10.47

 
 
10.48
 
 
10.49
 
 

105
Table of Contents

10.50
 
 
10.51
 
 
10.52
 
 
10.53

 
 
10.54
 
 
10.55
 
 
10.56
 
 
10.57
 
 
10.58
 
 
10.59

 
 
10.60
 
 

106
Table of Contents

10.61
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).
 
 
10.62

 
 
10.63
 
 
10.64
 
 
10.65
 
 
10.66
 
 
21.1
 
 
23.1
 
 
24.1
 
 
24.2
 
 
31.1
 
 
31.2
 
 
32.1
 
 
EX-101
Instance Document.
 
 
EX-101
Schema Document.
 
 
EX-101
Calculation Linkbase Document.
 
 
EX-101
Definition Linkbase Document.
 
 
EX-101
Labels Linkbase Document.
 
 
EX-101
Presentation Linkbase Document.
 
 
*
A management contract or compensatory plan or arrangement required to be filed as an exhibit hereto.

107
Table of Contents

ITEM 16.     FORM 10-K SUMMARY
None.

108
Table of Contents

SIGNATURES
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.
 
 
STERIS plc
(Registrant)
 
 
 
 
Date: 
May 30, 2018
By:
/S/    KAREN L. BURTON  
 
 
Karen L. Burton
 
 
Vice President, Controller, and Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
SIGNATURE
  
TITLE
 
DATE
 
 
 
 
 
/S/    WALTER M ROSEBROUGH, JR.        
  
President, Chief Executive Officer and Director
 
May 30, 2018
Walter M Rosebrough, Jr.
 
 
 
 
/S/    MICHAEL J. TOKICH        
  
Senior Vice President and Chief Financial Officer (Principal Financial Officer)
 
May 30, 2018
Michael J. Tokich
 
 
 
 
/S/    KAREN L. BURTON        
  
Vice President, Controller and Chief Accounting Officer
 
May 30, 2018
Karen L. Burton
 
 
 
 
*
  
Chairman and Director
 
May 30, 2018
John P. Wareham
 
 
 
 
*
  
Director
 
May 30, 2018
Richard C. Breeden
 
 
 
 
*
  
Director
 
May 30, 2018
Cynthia L. Feldmann
 
 
 
 
*
  
Director
 
May 30, 2018
David B. Lewis
 
 
 
 
*
 
Director
 
May 30, 2018
Jacqueline B. Kosecoff
 
 
 
 
*
  
Director
 
May 30, 2018
Sir Duncan K. Nichol
 
 
 
 
*
 
Director
 
May 30, 2018
Nirav R. Shah
  
 
 
 
*
  
Director
 
May 30, 2018
Mohsen M. Sohi
 
 
 
 
*
  
Director
 
May 30, 2018
Richard M. Steeves
 
 
 
 
*
  
Director
 
May 30, 2018
Loyal W. Wilson
 
 
 
 
*
  
Director
 
May 30, 2018
Michael B. Wood
 
 
 
 
*
The undersigned, by signing his name hereto, does sign and execute this Annual Report on Form 10-K pursuant to the Powers of Attorney executed by the above-named directors of the Registrant and filed with the Securities and Exchange Commission on behalf of such directors.
Date:
May 30, 2018
By:
/S/    J. ADAM ZANGERLE     
 
 
J. Adam Zangerle,
Attorney-in-Fact for Directors

109
Exhibit

EXHIBIT 10.16

FORM OF STERIS PLC RESTRICTED STOCK
AGREEMENT FOR EMPLOYEES


STERIS plc
RESTRICTED STOCK AGREEMENT FOR EMPLOYEES - <award_date>

This Agreement (“Agreement”) is between STERIS plc (“STERIS”) and < first_name> <middle_name> < last_name> (“Grantee”), with respect to the grant of shares of STERIS restricted stock to Grantee pursuant to the STERIS plc 2006 Long-Term Equity Incentive Plan, as Amended and Restated Effective August 2, 2016, and as further amended from time to time (the “Plan”). All terms used herein with initial capital letters and not otherwise defined herein that are defined in the Plan shall have the meanings assigned to them in the Plan.
1.     Grant of Restricted Shares. STERIS hereby grants to Grantee, as of the date (“Date of Grant”) set forth above and in the Acknowledgment and Acceptance Form accompanying this Agreement (“Acknowledgment”),<shares_awarded> Ordinary Shares of STERIS restricted stock, par value ten pence per share, as previously disclosed to Grantee and as reflected in the records of STERIS as granted as of the Date of Grant (“Restricted Shares”), upon and subject to the terms of this Agreement and the Plan. The Restricted Shares covered by this Agreement shall be issued to the Grantee effective upon the Date of Grant. The Ordinary Shares subject to this grant of Restricted Shares shall be registered in the Grantee’s name in STERIS’s stock registry as fully paid and nonassessable. Any certificate or other evidence of ownership or the book entry representing the Restricted Shares shall bear an appropriate legend referring to the restrictions hereinafter set forth.
2.     Documents Delivered with Agreement. STERIS has delivered or made available to the Grantee, along with this Agreement, the following documents: (a) STERIS’s Insider Trading Policy (the “Policy”); (b) the Plan and its related Prospectus; (c) the Nondisclosure and Noncompetition Agreement to be entered into between STERIS and Grantee (the “Nondisclosure Agreement”); (d) the Acknowledgment; and (e) STERIS or  STERIS Corporation’s most recent Annual Report to Shareholders and Form 10-K filed with the US Securities and Exchange Commission. Acceptance and compliance with these documents is a condition to the effectiveness of this grant of Restricted Shares. By accepting this Agreement or executing the Acknowledgment, the Grantee acknowledges receipt, review and acceptance of these documents and compliance with their terms. Furthermore, as a condition of this grant of Restricted Shares, STERIS in its discretion, may require Grantee to return an executed copy of the Acknowledgement in such format as STERIS may require.
3.    Restrictions on Transfer of Shares. The Ordinary Shares subject to this grant of Restricted Shares may not be sold, exchanged, assigned, transferred, pledged, encumbered or otherwise disposed of by the Grantee, except to STERIS, unless, and only to the extent, the Restricted Shares have vested and become nonforfeitable as provided in Section 4 hereof or as otherwise provided in the Plan; provided, however, that the Grantee’s rights with respect to such Ordinary Shares may be transferred by will or pursuant to the laws of descent and distribution. Any purported transfer or encumbrance in violation of the provisions of this Section 3 shall be void, and the other party to any such purported transaction shall not obtain any rights to or interest in such Ordinary Shares. STERIS in its sole discretion, when and as permitted by the Plan, may waive the restrictions on transferability with respect to all or a portion of the Ordinary Shares subject to this grant of Restricted Shares.


4.    Vesting of Restricted Shares. Subject to the terms of this Agreement and the Plan, other than Section 23 of the Plan, the provisions of which shall not apply, this grant of Restricted Shares is subject to the following limitations:
[55/5 Vesting]
[(a)    If at the Date of Grant, Grantee has attained age 55 and has been in the service of STERIS and/or a Subsidiary for at least five consecutive years (“Qualifying Retirement Eligible”), the Restricted Shares shall vest and become nonforfeitable in four equal annual installments, on ____________________ and on each of the three immediately succeeding anniversaries thereof (each such ________________, an “Anniversary Date”).
(b)    If at the Date of Grant the Grantee is not Qualifying Retirement Eligible, the Restricted Shares shall vest and become nonforfeitable on _______________; provided, however, that if before the Restricted Shares have otherwise become vested and nonforfeitable pursuant to the foregoing provision, the Grantee becomes Qualifying Retirement Eligible, then on the Anniversary Date that coincides with or immediately succeeds the date the Grantee becomes Qualifying Retirement Eligible and provided the Grantee has remained in the employ of STERIS or a Subsidiary through such Anniversary Date, the Restricted Shares will become vested and nonforfeitable to the same extent as they would have been on such date under paragraph (a) had the Grantee been Qualifying Retirement Eligible at the Date of Grant, and if such Anniversary Date is not the fourth Anniversary Date subsequent to the Date of Grant, the Restricted Shares will thereafter continue to vest in the same manner and to the same extent as would have been the case under paragraph (a) had the Grantee been Qualifying Retirement Eligible at the Date of Grant.
(c)    Notwithstanding the foregoing, if any Anniversary Date or other date on which the Restricted Shares or a portion thereof would otherwise vest is not a trading day on the New York Stock Exchange, such vesting shall be deferred until the first trading day thereafter.
(d)    Notwithstanding anything herein to the contrary, the provisions of Section 11 of the Plan, other than Section 11(d)(iii), shall not apply to the Restricted Shares, and if the Grantee terminates service with STERIS and all Subsidiaries prior to the date on which the Grantee’s Restricted Shares have become fully vested and nonforfeitable, subject to the provisions of Section 11(d)(iii) of the Plan, those portions of the Restricted Shares that are not vested at the time of such termination shall be forfeited.
(e)    Also notwithstanding the foregoing, if on any Anniversary Date any portion of the Restricted Shares that would otherwise vest on such Anniversary Date represents a fractional share, that portion shall be aggregated with any portions of the Restricted Shares that represent fractional shares and would otherwise vest on succeeding Anniversary Dates and all portions so aggregated shall vest on the first of the aforesaid Anniversary Dates.]
[25 Year Service Vesting]
[(a)    If at the Date of Grant, Grantee has been in the service of STERIS and/or a Subsidiary for at least twenty-five consecutive years (“Qualifying Service Eligible”), the Restricted Shares shall vest and become nonforfeitable in four equal annual installments, on ____________________ and on each of the three immediately succeeding anniversaries thereof (each such ________________, an “Anniversary Date”).


(b)    If at the Date of Grant the Grantee is not Qualifying Service Eligible, the Restricted Shares shall vest and become nonforfeitable on _______________; provided, however, that if before the Restricted Shares have otherwise become vested and nonforfeitable pursuant to the foregoing provision, the Grantee becomes Qualifying Service Eligible, then on the Anniversary Date that coincides with or immediately succeeds the date the Grantee becomes Qualifying Service Eligible and provided the Grantee has remained in the employ of STERIS or a Subsidiary through such Anniversary Date, the Restricted Shares will become vested and nonforfeitable to the same extent as they would have been on such date under paragraph (a) had the Grantee been Qualifying Service Eligible at the Date of Grant, and if such Anniversary Date is not the fourth Anniversary Date subsequent to the Date of Grant, the Restricted Shares will thereafter continue to vest in the same manner and to the same extent as would have been the case under paragraph (a) had the Grantee been Qualifying Service Eligible at the Date of Grant.
(c)    Notwithstanding the foregoing, if any Anniversary Date or other date on which the Restricted Shares or a portion thereof would otherwise vest is not a trading day on the New York Stock Exchange, such vesting shall be deferred until the first trading day thereafter.
(d)    Notwithstanding anything herein to the contrary, the provisions of Section 11 of the Plan, other than Section 11(d)(iii), shall not apply to the Restricted Shares, and if the Grantee terminates service with STERIS and all Subsidiaries prior to the date on which the Grantee’s Restricted Shares have become fully vested and nonforfeitable, subject to the provisions of Section 11(d)(iii) of the Plan, those portions of the Restricted Shares that are not vested at the time of such termination shall be forfeited.
(e)    Also notwithstanding the foregoing, if on any Anniversary Date any portion of the Restricted Shares that would otherwise vest on such Anniversary Date represents a fractional share, that portion shall be aggregated with any portions of the Restricted Shares that represent fractional shares and would otherwise vest on succeeding Anniversary Dates and all portions so aggregated shall vest on the first of the aforesaid Anniversary Dates.]
[Combined 55/5 Vesting and 25 Year Service Vesting]
[(a)    If at the Date of Grant Grantee has attained age 55 and been in the service of STERIS and/or a Subsidiary for at least five consecutive years (“Qualifying Retirement Eligible”) or if at the Date of Grant Grantee has been in the service of STERIS and/or a Subsidiary for at least twenty-five consecutive years (“Qualifying Service Eligible”), then in either case the Restricted Shares shall vest and become nonforfeitable in four equal annual installments, on ____________________ and on each of the three immediately succeeding anniversaries thereof (each such ________________, an “Anniversary Date”).
(b)    If at the Date of Grant the Grantee is not Qualifying Retirement Eligible or Qualifying Service Eligible, the Restricted Shares shall vest and become nonforfeitable on _______________.
(c) Notwithstanding the foregoing (i) if before the Restricted Shares have otherwise become vested and nonforfeitable pursuant to paragraph (b) above the Grantee becomes Qualifying Retirement Eligible, then on the Anniversary Date that coincides with or immediately succeeds the date the Grantee becomes Qualifying Retirement Eligible and provided the Grantee has remained in the employ of STERIS or a Subsidiary through such Anniversary Date, the Restricted Shares will become vested and nonforfeitable to the same extent as they would have been on such date under paragraph (a) had the Grantee been Qualifying Retirement Eligible at the Date of Grant, and if such Anniversary Date is not the fourth Anniversary Date subsequent to the Date of Grant, the Restricted Shares will thereafter continue to vest in the same manner and to the same extent as would have been the case under paragraph (a) had the


Grantee been Qualifying Retirement Eligible at the Date of Grant, or (ii) if before the Restricted Shares have otherwise become vested and nonforfeitable pursuant to paragraph (b) above the Grantee becomes Qualifying Service Eligible, then on the Anniversary Date that coincides with or immediately succeeds the date the Grantee becomes Qualifying Service Eligible and provided the Grantee has remained in the employ of STERIS or a Subsidiary through such Anniversary Date, the Restricted Shares will become vested and nonforfeitable to the same extent as they would have been on such date under paragraph (a) had the Grantee been Qualifying Service Eligible at the Date of Grant, and if such Anniversary Date is not the fourth Anniversary Date subsequent to the Date of Grant, the Restricted Shares will thereafter continue to vest in the same manner and to the same extent as would have been the case under paragraph (a) had the Grantee been Qualifying Service Eligible at the Date of Grant. If the Grantee would be entitled to vesting pursuant to either or both clause (i) or clause (ii) above prior to the date specified in paragraph (b) above, then whichever clause results in the more rapid vesting shall be applicable to the Grantee.
(d)    Notwithstanding the foregoing, if any Anniversary Date or other date on which the Restricted Shares or a portion thereof would otherwise vest is not a trading day on the New York Stock Exchange, such vesting shall be deferred until the first trading day thereafter.
(e)    Notwithstanding anything herein to the contrary, the provisions of Section 11 of the Plan, other than Section 11(d)(iii), shall not apply to the Restricted Shares, and if the Grantee terminates service with STERIS and all Subsidiaries prior to the date on which the Grantee’s Restricted Shares have become fully vested and nonforfeitable, subject to the provisions of Section 11(d)(iii) of the Plan, those portions of the Restricted Shares that are not vested at the time of such termination shall be forfeited.
(f)    Also notwithstanding the foregoing, if on any Anniversary Date any portion of the Restricted Shares that would otherwise vest on such Anniversary Date represents a fractional share, that portion shall be aggregated with any portions of the Restricted Shares that represent fractional shares and would otherwise vest on succeeding Anniversary Dates and all portions so aggregated shall vest on the first of the aforesaid Anniversary Dates.]
[Cliff Vesting]
[(a)   Notwithstanding anything contained in Section 23 of the Plan to the contrary, the Restricted Shares shall fully vest and become nonforfeitable on ___________________.
(b)    Notwithstanding the foregoing, if the date on which the Restricted Shares would otherwise vest is not a trading day on the New York Stock Exchange, such vesting shall be deferred until the first trading day thereafter.
(c)    Notwithstanding anything herein to the contrary, the provisions of Section 11 of the Plan, other than Section 11(d)(iii), shall not apply to the Restricted Shares, and if the Grantee terminates service with STERIS and all Subsidiaries prior to the date on which the Grantee’s Restricted Shares have become vested and nonforfeitable, subject to the provisions of Section 11(d)(iii) of the Plan, the Restricted Shares shall be forfeited.]
[Installment Vesting]
[(a)    Notwithstanding anything contained in Section 23 of the Plan to the contrary, the Restricted Shares shall vest and become nonforfeitable in _______ (___) equal installments on ____________________ and ____________________________.


(b)    Notwithstanding the foregoing, if any date on which the Restricted Shares or a portion thereof would otherwise vest is not a trading day on the New York Stock Exchange, such vesting shall be deferred until the first trading day thereafter.
(c)    Notwithstanding anything herein to the contrary, the provisions of Section 11 of the Plan, other than Section 11(d)(iii), shall not apply to the Restricted Shares, and if the Grantee terminates service with STERIS and all Subsidiaries prior to the date on which the Grantee’s Restricted Shares have become fully vested and nonforfeitable, subject to the provisions of Section 11(d)(iii) of the Plan, those portions of the Restricted Shares that are not vested at the time of such termination shall be forfeited.
(d)    Notwithstanding the foregoing, if the portion of the Restricted Shares that would otherwise vest on the first referenced vesting date includes a fractional share, such fractional share shall be aggregated with the fractional shares included in that portion of the Restricted Shares that would otherwise vest on succeeding vesting dates and the aggregated fractional shares shall vest on the first referenced vesting date.]
5.    Forfeiture of Shares. Subject to the terms of this Agreement and the Plan, if the Grantee violates the Policy, this Agreement, or the Nondisclosure Agreement or ceases to be employed by STERIS or a Subsidiary prior to the time all of the Restricted Shares have become vested and nonforfeitable, the Restricted Shares shall be forfeited, to the extent not then vested, subject to the provisions of Section 11(d)(iii) of the Plan. In the event of a forfeiture under this Section 5, any forfeited Restricted Shares shall be returned by the Grantee to STERIS for no consideration.
6.    Dividend, Voting and Other Rights. Except as otherwise provided herein, from and after the Date of Grant, the Grantee shall have all of the rights of a shareholder with respect to the Restricted Shares covered by this Agreement, including the right to vote such Restricted Shares and receive any dividends that may be paid thereon; provided, however, that any additional Ordinary Shares or other securities that the Grantee may become entitled to receive pursuant to a stock dividend, issuance of rights or warrants, stock split, combination of shares, recapitalization, merger, consolidation, separation, or reorganization or any other change in the capital structure of STERIS shall be subject to the same or similar restrictions as the Restricted Shares covered by this Agreement as determined by STERIS.
7.     Stock Certificate(s). The Ordinary Shares subject to this grant of Restricted Shares shall not be represented by certificates unless otherwise provided by resolution of the Board of STERIS or required by law, and if such Ordinary Shares should be represented by certificates, the certificates will be held in custody by STERIS until those shares shall vest in accordance with the provisions hereof or as otherwise provided in the Plan. STERIS shall cause the Restricted Shares to be registered in the name of Grantee in STERIS’s stock registry, with the foregoing restrictions noted thereon. STERIS may require as a condition to the effectiveness of this grant of Restricted Shares that Grantee deliver to STERIS a stock power endorsed in blank by the Grantee with respect to the Restricted Shares and Grantee agrees to deliver the same.
8.    Compliance with Law. Notwithstanding any other provision of this Agreement, STERIS shall not be obligated to issue any Ordinary Shares pursuant to this Agreement if the issuance thereof would result in a violation of any applicable law.
9.    Employment. For purposes of this Agreement, the continuous employment of the Grantee with STERIS or a Subsidiary shall not be deemed to have been interrupted, and Grantee shall not be deemed to cease being an employee of STERIS or Subsidiary, by reason of (i) the transfer of his or her employment


among STERIS and its Subsidiaries or (ii) a leave of absence not to exceed 12 months approved in writing by a duly elected officer of STERIS.
10.    Certain Determinations. The application, violation, or other interpretation of the terms of this Agreement, the Plan, the Nondisclosure Agreement, the Policy, or any other STERIS policy shall be determined by the Board or the Chief Executive Officer or his delegatee or delegatees, if applicable, in their sole discretion, and such determination shall be final and binding on the Grantee.
11.    Termination of the Plan; No Right to Future Grants; No Right of Employment; Extraordinary Item of Compensation. By entering into this Agreement, the Grantee acknowledges: (a) that the Plan is discretionary in nature and may be suspended or terminated by STERIS at any time; (b) that the grant of Restricted Shares is a one-time benefit which does not create any contractual or other right to receive future grants of restricted shares, or benefits in lieu of restricted shares; (c) that all determinations with respect to any such future grants, including, but not limited to, the times when the restricted shares shall be granted, the number of shares subject to each grant of restricted shares, and the time or times when the restricted shares shall become nonforfeitable, will be at the sole discretion of STERIS; (d) that the Grantee’s participation in the Plan shall not create a right to further employment with the Grantee’s employer and shall not interfere with the ability of the Grantee’s employer to terminate the Grantee’s employment relationship at any time with or without cause; (e) that the Grantee’s participation in the Plan is voluntary; (f) that the value of the Restricted Shares is an extraordinary item of compensation which is outside the scope of the Grantee’s employment contract, if any; (g) that the Restricted Shares are not part of normal and expected compensation for purposes of any other employee benefit plan or program of STERIS, including for purposes of calculating any severance, resignation, redundancy, end of service, bonus, long-service, pension or retirement benefits or similar payments; (h) that the right to vesting of the Restricted Shares ceases upon termination of employment for any reason except as may otherwise be explicitly provided in the Plan or this Agreement; (i) that the future value, if any, of the Restricted Shares is unknown and cannot be predicted with certainty; and (j) that, where the Grantee’s employer is a Subsidiary of STERIS, the Restricted Shares have been granted to the Grantee in the Grantee’s status as an employee of such Subsidiary and the terms of this Agreement can be modified by STERIS to facilitate the issuance and administration of the award and can in no event be understood or interpreted to mean that STERIS is the Grantee’s employer or that the Grantee has an employment relationship with STERIS.
12.    Employee Data Privacy. By entering into the Agreement, and as a condition of this award of Restricted Shares, the Grantee consents to the collection, use and transfer of personal data as described in this Section 12. The Grantee understands that STERIS and its Subsidiaries hold certain personal information about the Grantee, including, but not limited to, the Grantee’s name, home address and telephone number, date of birth, social insurance number, salary, nationality, job title, any shares of stock or directorships held in STERIS, details of all Restricted Shares or other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in the Grantee’s favor, for the purpose of managing and administering the Plan (“Data”). The Grantee further understands that STERIS and/or its Subsidiaries will transfer Data among themselves as necessary for the purposes of implementation, administration and management of the Grantee’s participation in the Plan, and that STERIS and/or its Subsidiaries may each further transfer Data to any third parties assisting STERIS in the implementation, administration and management of the Plan (“Data Recipients”). The Grantee understands that these Data Recipients may be located in the Grantee’s country of residence, the European Economic Area, and in countries outside the European Economic Area, including the United States. The Grantee authorizes the Data Recipients to receive, possess, use, retain and transfer Data in electronic or other form, for the purposes of implementing, administering and managing the Plan, including any transfer of such Data, as may be necessary or appropriate for the administration of the Plan and/or the subsequent holding of shares


of stock on the Grantee’s behalf, to a broker or third party with whom the shares acquired on exercise may be deposited. The Grantee understands that he or she may, at any time, review the Data, require any necessary amendments to it or withdraw the consent herein by notifying STERIS in writing. The Grantee further understands that withdrawing consent may affect the Grantee’s ability to participate in the Plan, at the sole discretion of the Board or the Chief Executive Officer or its delegatee or delegatees.
13.    Relation to Plan. This Agreement is subject to the terms and conditions of the Plan. In the event of any inconsistency between the provisions of this Agreement and the Plan, the Plan shall govern.
14.    Amendments. Any amendment to the Plan shall be deemed to be an amendment to this Agreement to the extent that the amendment is applicable hereto; provided, however, that no amendment shall have a material adverse effect on the rights of the Grantee under this Agreement without the Grantee’s consent.
15.    Severability. If any provision of this Agreement or the application of any provision hereof to any person or circumstances is held invalid or unenforceable, the remainder of this Agreement and the application of such provision to any other person or circumstances shall not be affected, and the provisions so held to be invalid or unenforceable shall be reformed to the extent (and only to the extent) necessary to make it enforceable and valid while accomplishing the most similar purpose.
16.    Governing Law. This Agreement shall be governed by and construed in accordance with the internal substantive laws of the State of Ohio, without giving effect to any principle of law that would result in the application of the law of any other jurisdiction. Any unresolved dispute shall be submitted exclusively to the jurisdiction of the courts of Lake County, Ohio.
17.    Payment of Par Value. By entering into this Agreement, the Grantee undertakes and agrees to pay the par value of £0.10 for each Restricted Share granted pursuant to this Agreement (the “Par Value Consideration”) on or before the date (“Payment Date”) that is six weeks after the Date of Grant as such date may be extended by STERIS in its sole discretion. Such payment of the Par Value Consideration shall be made, at the option of Grantee’s employer, on or before the Payment Date through withholding of the Par Value Consideration by the Grantee’s employer from the Grantee’s compensation as soon as reasonably practicable after the Grant Date or by other means of payment by the Grantee as determined by STERIS or such employer. If such payment is not received by the Payment Date, the Restricted Shares shall be forfeited for non-payment pursuant to the Articles of Association of STERIS.
[18.    Taxes.  Unless Grantee has made an election under Section 83(b) of the Code with respect to the Restricted Shares, each time any of the Restricted Shares become vested and nonforfeitable STERIS shall withhold or cause to be withheld from such Restricted Shares at the time such vesting occurs a number of Ordinary Shares having a value equal to the amount of federal, state, local, foreign or other taxes required to be withheld pursuant to applicable employment or tax laws, as determined by STERIS. Likewise, with respect to previous Plan grants of restricted shares and in respect of which the Grantee has not made an election under Section 83(b) of the Code, STERIS shall withhold or cause to be withheld from such restricted shares at the time such vesting occurs a number of Common Shares having a value equal to the amount of federal, state, local, foreign or other taxes required to be withheld pursuant to applicable employment or tax laws, as determined by STERIS.  For purposes of the foregoing withholding, the Ordinary Shares used for tax withholding will be valued at an amount equal to the Market Value per Share of such Ordinary Shares on the date the benefit is to be included in the Grantee’s income. The foregoing provisions shall apply notwithstanding any alternate methods for the payment of withholding of taxes contained in the Plan.]



[18.    Withholding Taxes. STERIS, or the Subsidiary that employs Grantee, shall withhold an amount equal to STERIS’s or such Subsidiary’s required statutory withholding taxes in the relevant tax jurisdiction on any payment made or benefit realized by Grantee. Taxes for purposes of the foregoing shall include, without limitation, any United Kingdom primary Class 1 (employee’s) national insurance contributions. In connection with the foregoing each time any of the Restricted Shares become vested and nonforfeitable STERIS or the Subsidiary that employs Grantee shall withhold from such Restricted Shares at the time such vesting occurs a number of Ordinary Shares having a value equal to the amount of federal, state, local, foreign or other taxes required to be withheld pursuant to applicable employment or tax laws, as determined by STERIS. Likewise, with respect to previous Plan grants of restricted shares, STERIS or the Subsidiary that employs Grantee shall withhold from such restricted shares at the time such vesting occurs a number of Ordinary Shares having a value equal to the amount of federal, state, local, foreign or other taxes required to be withheld pursuant to applicable employment or tax laws, as determined by STERIS. For purposes of the foregoing withholding the Ordinary Shares used for tax withholding will be valued at an amount equal to the Market Value per Share of such Ordinary Shares on the date the benefit is to be included in the Grantee’s income. The foregoing provisions shall apply notwithstanding any alternate methods for the payment of withholding of taxes contained in the Plan.]

19.    Miscellaneous. Nothing contained in this Agreement shall be understood as conferring on Grantee any right to continue as an employee of STERIS or any Subsidiary or affiliate.  STERIS reserves the right to correct any clerical, typographical, or other error in this Agreement or otherwise with respect to this grant. This Agreement shall inure to the benefit of and be binding upon its parties and their respective heirs, executors, administrators, successors, and assigns, but the Restricted Shares shall not be transferable by Grantee other than as provided in Section 17 of the Plan. 
20.    Authority. Any director or authorised signatory of STERIS is authorised to execute any document and do any act necessary or desirable to effect the forfeiture of any Restricted Shares which are subject to forfeiture and their return to STERIS for no consideration in accordance with the Plan and/or this Agreement.

STERIS has caused this Agreement to be executed on its behalf by its duly authorized officer, and Grantee has entered into this Agreement and accepted all terms and conditions thereof by electronic acceptance and/or by the signed Acknowledgment, either of which has the same force and binding effect as if this Agreement were physically signed by Grantee, all as of the Date of Grant.

 
 
 
STERIS plc

By:
   
         Secretary
Grantee
Signature by electronic acceptance and/or execution of the Acknowledgment and Acceptance form.



Exhibit


EXHIBIT 21.1
SUBSIDIARIES OF STERIS PLC
STERIS plc has no parent company. As of March 31, 2018, its direct and indirect subsidiaries(1) were as follows:
Albert Browne Limited
England & Wales
American Sterilizer Company
Pennsylvania
Bioster Mottahedoon Egypt SAE
Egypt
Bizworth Gammarad Sdn Bhd
Malaysia
Black Diamond Video, Inc.
California
CLBV Limited
England & Wales
Controlled Environment Certification Services, Inc.
Ohio
Dover UK I Limited
England & Wales
Dover UK II Limited
England & Wales
Dover UK III Limited
England & Wales
Eschmann Holdings Limited
England & Wales
Eschmann Holdings Pte Limited
Singapore
Gammaster Sweden AB
Sweden
Genii, Inc.
Minnesota
Harwell Dosimeters Limited
Dosimeters Limited
England & Wales
Hausted, Inc.
Delaware
Herotron E-Beam Service GmbH
Germany
HSTD LLC
Delaware
HTD Holding Corp.
Delaware
Isomedix Inc.
Delaware
Isomedix Operations Inc.
Delaware
Isotron Limited
England & Wales
Medisafe America, L.L.C.
Florida
Medisafe Holdings Limited
England & Wales
Medisafe UK Limited
England & Wales
PeriOptimum, Inc.
Delaware
Phoenix Surgical Holdings Limited
England & Wales
Phoenix Optics Limited
England & Wales
ReNOVA Surgical Limited
England & Wales
SATYAtek S.A.
Switzerland

Sercon Indústria E Comércio De Aparelhos Médicos E Hospitalares Ltda.
Brazil
Shiloh Limited
England & Wales
Shiloh Properties Limited
England & Wales
Solar New US Holding Co, LLC
Delaware
Solar New US Parent Co, LLC
Delaware
Solar US Acquisition Co, LLC
Delaware
STE UK HoldCo Limited
England & Wales
STE UK Sub HoldCo Limited
England & Wales
Sterile Supplies Limited
England & Wales




SterilTek Holdings, Inc.
Delaware
SterilTek, Inc.
Nevada
STERIS AB
Sweden
STERIS Applied Sterilization Technologies ULC
Canada
STERIS Asia Pacific, Inc.
Delaware
STERIS AST CZ s.r.o.
Czech Republic
STERIS AST d.o.o.
Slovenia
STERIS AST SK s.r.o.
Slovakia
STERIS Barrier Products Solutions, Inc.
Pennsylvania
STERIS Brazil Holdings, LLC
Delaware
STERIS (BVI) I Limited
British Virgin Islands
STERIS Canada ULC
Canada
STERIS Canada Sales ULC
Canada
STERIS CH Limited
England & Wales
STERIS China Holdings Limited
Hong Kong
STERIS Corporation
Ohio
STERIS Corporation de Costa Rica, S.A.
Costa Rica
STERIS Deutschland GmbH
Germany
STERIS Dover Limited
England & Wales
STERIS Enterprises LLC
Russia
STERIS Europe, Inc.
Delaware
STERIS FinCo S.à r.l.
Luxembourg
STERIS FinCo II S.à r.l.
Luxembourg
STERIS GmbH
Switzerland
STERIS Holdings B.V.
Netherlands
STERIS Iberia, S.A.
Spain
STERIS IMS Canada Inc.
Canada
STERIS IMS Limited
England & Wales
STERIS Ireland Limited
Ireland
STERIS Inc.
Delaware
STERIS (India) Private Limited
India
STERIS Instrument Management Services, Inc.
Delaware
STERIS Irish FinCo Unlimited Company
Republic of Ireland
STERIS Irish FinCo II Unlimited Company
Republic of Ireland
STERIS Isomedix Puerto Rico, LLC.
Puerto Rico
STERIS Japan Inc.
Japan
STERIS Laboratories, Inc.
Minnesota
STERIS Latin America, Inc.
Delaware
STERIS Luxembourg Finance S.à r.l.
Luxembourg
STERIS Luxembourg Holding S.à r.l.
Luxembourg
STERIS Mauritius Limited
Republic of Mauritius
STERIS Mexico, S. de R.L. de C.V.
Mexico
STERIS NV
Belgium




STERIS Personnel Services Mexico, S. de R.L. de C.V.
Mexico
STERIS Personnel Services, Inc.
Delaware
STERIS S.r.l.
Italy
STERIS SAS.
France
STERIS SEA Sdn. Bhd.
Malaysia
STERIS (Shanghai) Trading Co., Ltd.
China
STERIS Singapore Pte Ltd
Singapore
STERIS Solutions Limited
England & Wales
STERIS S.p.A.
Italy
STERIS UK Holding Limited
England & Wales
STERIS–Austar Pharmaceutical Systems Hong Kong Limited
Hong Kong
STERIS–Austar Pharmaceutical Systems (Shanghai) Limited
China
Strategic Technology Enterprises, Inc.
Delaware
Synergy Health Allershausen GmbH
Germany
Synergy Health Amsterdam B.V.
The Netherlands
Synergy Health AST, LLC
Delaware
Synergy Health AST S.r.l.
Costa Rica
Synergy Health Däniken AG
Switzerland
Synergy Health Ede B.V.
The Netherlands
Synergy Health France SAS
France
Synergy Health Holding B.V.
The Netherlands
Synergy Health Holdings Limited
England & Wales
Synergy Health Investments Limited
England & Wales
Synergy Health Ireland Limited
Republic of Ireland
Synergy Health Limited
England & Wales
Synergy Health Logistics B.V.
The Netherlands
Synergy Health Marseille SAS
France
Synergy Health Nederland B.V.
The Netherlands
Synergy Health New York, LLC
Delaware
Synergy Health Outsourcing Solutions, Inc.
Florida
Synergy Health Radeberg GmbH
Germany
Synergy Health Sterilisation UK Limited
England & Wales
Synergy Health (Suzhou) Limited
China
Synergy Health (Suzhou) Sterilization Technologies Limited
China
Synergy Health Systems Limited
England & Wales
Synergy Health (Thailand) Limited
Thailand
Synergy Health True North, LLC
New York
Synergy Health (UK) Limited
England & Wales
Synergy Health US Holdings, Inc.
Delaware
Synergy Health US Holdings Limited
England & Wales
Synergy Health Utrecht B.V.
The Netherlands
Synergy Health Westport Limited
Republic of Ireland
Synergy Sterilisation KL (M) Sdn Bhd
Malaysia




Synergy Sterilisation Kulim (M) Sdn Bhd
Malaysia
Synergy Sterilisation (M) Sdn Bhd
Malaysia
Synergy Sterilisation Rawang (M) Sdn Bhd
Malaysia
Synergy Sterilisation South Africa (Proprietary) Limited
South Africa
United States Endoscopy Group, Inc.
Ohio
Vernon and Co. Limited
England & Wales
Vernon Carus (Malta) Limited
Malta
Vernon-Carus Limited
England & Wales

(1) 
The names of one or more subsidiaries which, considered in the aggregate as a single subsidiary, would not constitute at the end of fiscal 2018 a “significant subsidiary” within the meaning of Rule 1-02(w) of Regulation S-X have been excluded.



Exhibit


Exhibit 23.1



Consent of Independent Registered Public Accounting Firm


We consent to the incorporation by reference in the following Registration Statements:

(1)
Registration Statement (Form S-8, No. 333-207721) of Steris plc and subsidiaries pertaining to the STERIS plc 2006 Long-Term Equity Incentive Plan, Assumed as Amended and Restated,
(2)
Registration Statement (Form S-8, No. 333-207722) of Steris plc and subsidiaries pertaining to the STERIS Corporation 401(k) Plan,
(3)
Registration Statement (Form S-8, No. 333-214491) of Steris plc and subsidiaries pertaining to the STERIS plc 2006 Long-Term Equity Incentive Plan;

of our reports dated May 30, 2018, with respect to the consolidated financial statements and schedule of STERIS plc and subsidiaries (STERIS) and the effectiveness of internal control over financial reporting of STERIS included in this Annual Report (Form 10-K) of STERIS for the year ended March 31, 2018.
 
/s/ Ernst & Young LLP

Cleveland, Ohio
May 30, 2018
















 

 


Exhibit


Exhibit 24.1


STERIS PLC
POWER OF ATTORNEY
FORM 10-K

Each of the undersigned hereby makes, constitutes, and appoints Walter M Rosebrough, Jr., Michael J. Tokich, Karen L. Burton, J. Adam Zangerle, Ronald E. Snyder, Julia Kipnis, and each of them, his or her true and lawful attorney, with full power of substitution, for and in his or her name, place, and stead, to affix, as attorney-in-fact, his or her signature in any and all capacities, to the Annual Report on Form 10-K of STERIS plc for its fiscal year ended March 31, 2018, and any and all amendments thereto to be filed with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, with power to file said Form 10-K and such amendments, and any and all other documents that may be required in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts and things requisite or appropriate in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or any of them may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney as of the 4h 
day of May, 2018.


 /s/    RICHARD C. BREEDEN
 
/s/    CYNTHIA L. FELDMANN
Richard C. Breeden, Director
 
Cynthia L. Feldmann, Director
 
 
 
/s/    JACQUELINE B. KOSECOFF
 
/s/    DAVID B. LEWIS
Jacqueline B. Kosecoff, Director
 
David B. Lewis, Director
 
 
 
/s/    SIR DUNCAN K. NICHOL
 
/s/    MOHSEN M. SOHI
Sir Duncan K. Nichol, Director
 
Mohsen M. Sohi, Director
 
 
 
/s/    RICHARD M. STEEVES
 
/s/    JOHN P. WAREHAM
Richard M. Steeves, Director
 
John P. Wareham, Chairman of the Board
 
 
 
/s/    LOYAL W. WILSON
 
/s/    MICHAEL B. WOOD
Loyal W. Wilson, Director
 
Michael B. Wood, Director
 
 
 
/s/    WALTER M ROSEBROUGH, JR
 
/s/    MICHAEL J. TOKICH
Walter M Rosebrough, Jr.
 
Michael J. Tokich
President and Chief Executive Officer
 
Senior Vice President and Chief Financial Officer
(Principal Executive Officer), Director
 
(Principal Financial Officer)
 
 
 
 
 
/s/    KAREN L. BURTON
 
 
Karen L. Burton
 
 
Vice President, Controller and Chief Accounting Officer
 
 
(Principal Accounting Officer)



Exhibit
Exhibit 24.2

STERIS PLC
POWER OF ATTORNEY

FORM 10-K

Each of the undersigned hereby makes, constitutes, and appoints Walter M Rosebrough, Jr., Michael J. Tokich, Karen L. Burton, J. Adam Zangerle, Ronald E. Snyder, Julia Kipnis, and each of them, his or her true and lawful attorney, with full power of substitution, for and in his or her name, place, and stead, to affix, as attorney-in-fact, his or her signature in any and all capacities, to the Annual Report on Form 10-K of STERIS plc for its fiscal year ended March 31, 2018, and any and all amendments thereto to be filed with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, with power to file said Form 10-K and such amendments, and any and all other documents that may be required in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts and things requisite or appropriate in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or any of them may lawfully do or cause to be done by virtue hereof.


IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney as of the 7th day of May, 2018.


 
 
 
Richard C. Breeden, Director

   
 
Cynthia L. Feldmann, Director
 
 
 
Jacqueline B. Kosecoff, Director

   
 
David B. Lewis, Director
 
 
/s/   Nirav R. Shah
Sir Duncan K. Nichol, Director


 
Nirav R. Shah, Director
 
 
 
Dr. Mohsen M. Sohi, Director


 
Dr. Richard M. Steeves, Director
 
 
 
John P. Wareham, Chairman of the Board

   
 
Loyal W. Wilson, Director
 
 
 
Dr. Michael B. Wood, Director
 
Walter M Rosebrough, Jr.
President and Chief Executive Officer
(Principal Executive Officer), Director


 
 
 
Michael J. Tokich
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
 
Karen L. Burton
Vice President, Controller and
Chief Accounting Officer
(Principal Accounting Officer)



Exhibit


 
Exhibit 31.1
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;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
Date:
May 30, 2018
 
 
/S/    WALTER M ROSEBROUGH, JR.        
Walter M Rosebrough, Jr.
President and Chief Executive Officer




Exhibit


 
Exhibit 31.2
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;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
Date:
May 30, 2018
 
 
/S/    MICHAEL J. TOKICH        
Michael J. Tokich
Senior Vice President and Chief Financial Officer




Exhibit


 
Exhibit 32.1
Certification Pursuant to § 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, in connection with the filing of the Form 10-K of STERIS plc (the “Company”) for the fiscal year ended March 31, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company certifies, that, to such officer's knowledge:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report. 
 
 
/S/    WALTER M ROSEBROUGH, JR.        
Name: 
 
Walter M Rosebrough, Jr.
Title:
 
President and Chief Executive Officer
 
 
 
 
 
/S/    MICHAEL J. TOKICH        
Name: 
 
Michael J. Tokich
Title:
 
Senior Vice President and Chief Financial Officer
Dated: May 30, 2018