STERIS PLC MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-K)
In the MD&A, we discuss the general financial condition and results of operations of 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", 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.
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 SECrules. 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." 29
INCOME – DEFINITION
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 outsourced reprocessing services and instrument and scope repairs, as well as revenues generated from contract sterilization and laboratory services offered through our Applied Sterilization Technologies segment. •Capital Equipment Revenues - We define capital equipment revenues as revenues generated from sales of capital equipment, which includes: steam and gas sterilizers, low temperature liquid chemical sterilant processing systems, pure steam/water systems, 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 dedicated consumables including V-PRO, SYSTEM 1 and 1E consumables, gastrointestinal endoscopy accessories, sterility assurance products, barrier protection solutions, cleaning consumables, dental and surgical instruments. •Recurring Revenues - We define recurring revenues as revenues generated from sales of consumable products and service revenues.
OVERVIEW AND EXECUTIVE SUMMARY
STERIS is a leading global provider of products and services that support patient care with an emphasis on infection prevention. WE HELP OUR CUSTOMERS CREATE A HEALTHIER AND SAFER WORLD by providing innovative healthcare, life sciences and dental 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, dental instruments and tools, instrument and scope repair, laboratory testing services, outsourced reprocessing, and capital equipment products, such as sterilizers and surgical tables, automated endoscope reprocessors, and connectivity solutions such as operating room ("OR") integration. As a result of the acquisition of Cantel, we have reassessed the organization of our business and have added a new segment called Dental. We now operate and report our financial information in four reportable business segments: Healthcare, Applied Sterilization Technologies, Life Sciences and Dental. Non-allocated operating costs that support the entire Company and items not indicative of operating trends are excluded from segment operating income. We describe our business segments in Note 11 to our consolidated financial statements, titled "Business Segment Information." The bulk of our revenues are derived from the healthcare and pharmaceutical industries. Much of the growth in these industries is driven by the aging of the population throughout the world, as an increasing number of individuals are entering their prime healthcare consumption years, and is dependent upon advancement in healthcare delivery, acceptance of new technologies, government policies, and general economic conditions. The pharmaceutical industry has been impacted by increased regulatory scrutiny of cleaning and validation processes, mandating that manufacturers improve their processes. Within healthcare, there is increased concern regarding the level of hospital acquired infections around the world; increased demand for medical procedures, including preventive screenings such as endoscopies and colonoscopies; and a desire by our Customers to operate more efficiently, all which are driving increased demand for many of our products and services. Acquisitions. On
June 2, 2021, we acquired all outstanding equity interests in Cantel Medical LLC("Cantel") through a U.S.subsidiary. Cantel, formerly headquartered in Little Falls, New Jersey, with approximately 3,700 employees, is a global provider of infection prevention products and services primarily to endoscopy and dental Customers. The total consideration for Cantel Common Stock and stock equivalents was $3.6 billion. We believe that the acquisition will strengthen STERIS's leadership in infection prevention by bringing together two complementary businesses able to offer a broader set of Customers a more diversified selection of infection prevention, endoscopy and sterilization products and services. Cantel's Dental business extends our business into a new Customer segment where there is an increasing focus on infection prevention protocols and processes. This business is reported as the Dental segment. The rest of Cantel was integrated into our existing Healthcare and Life Sciences segments. Additionally, the acquisition is expected to result in cost savings from optimizing global back-office infrastructure, leveraging best-demonstrated practices across locations and eliminating redundant public company costs. 30
The results of Cantel are only reflected in the results of operations and cash flows from
June 2, 2021forward, which will affect results of comparability to the prior period operations and cash flows.
In addition to the acquisition of Cantel, we completed three other add-on acquisitions in fiscal 2022, which continued to expand our product and service offerings in the healthcare industry. The total aggregate consideration for these transactions was approximately
January 4, 2021, we purchased the remaining outstanding shares of an entity in which we had initially made an equity investment in fiscal 2019. Total consideration was approximately $78.0 million, net of cash acquired and subject to any working capital adjustments. Total non-cash consideration for this transaction was $41.8 million, which consisted of the settlement of outstanding principal and interest on a loan receivable, the initial equity investment, and receivables related to capital equipment purchases that existed at the acquisition date. The business has been integrated into our Applied Sterilization Technologies business segment and we funded the transaction through a combination of cash on hand and credit facility borrowings. On November 18, 2020, we acquired all of the outstanding units and equity of Key Surgical, LLC("Key Surgical"). Key Surgical is a global provider of sterile processing, operating room and endoscopy consumable products serving hospitals and surgical facilities. Key Surgical has been integrated into our Healthcare segment. The total purchase price of the acquisition was $853.2 million, net of cash acquired and remains subject to customary working capital adjustments. We also completed two other tuck-in acquisitions during fiscal 2021, which continued to expand our product and service offerings in the Healthcare segment. Total aggregate consideration for these transactions was approximately $20.9 million, net of cash acquired and including deferred consideration of approximately $1.2 million. Divestitures. In December 2021, we entered into an Asset Purchase Agreement to sell our Renal Care business to Evoqua Water Technologies Corp., for cash consideration of approximately $196.0 million, subject to certain potential adjustments, including a customary working capital adjustment and contingent consideration of $12.3 million. We recognized a gain on the sale of $1.0 million. The transaction closed on January 3, 2022. We acquired the Renal Care business as part of the Cantel transaction, which closed on June 2, 2021, and had been integrated into STERIS's Healthcaresegment. The Renal Care business generated annual revenues of approximately $180.0 million. The proceeds from the sale received at closing were used to repay outstanding debt. During fiscal 2021, we sold an Applied Sterilization Technologies laboratory that was located in the Netherlands. We recorded proceeds of $0.5 million, net of cash divested, and recognized a pre-tax loss on the sale of $2.0 millionin the selling, general and administrative expense line of the Consolidated Statements of Income. The business generated annual revenues of approximately $6.0 million.
For more information about our recent acquisitions and divestitures, see note 2 entitled “Business acquisitions and divestitures”.
COVID-19 Pandemic. We do not believe that the COVID-19 pandemic has had a material impact on our operations, as we have been able to continue to operate our manufacturing facilities and meet the demand for essential products and services of our Customers. In response to the COVID-19 pandemic, we implemented several measures that we believe helped us protect the health and safety of our employees, preserve liquidity and enhance our financial flexibility. We have successfully managed our liquidity throughout the COVID-19 pandemic and continue to invest in expansion projects as planned. We obtained additional funding in the second half of fiscal 2021 to continue to advance our growth strategy to supplement organic growth with acquisitions. As a result, we do not believe that the COVID-19 pandemic or the actions we took in response to the pandemic will negatively impact our long-term ability to generate revenues or meet existing and future financial obligations. For additional information on our risk factors related to the COVID-19 pandemic please refer to Item 1A. titled, "Risk Factors." Highlights. Revenues increased
$1,477.5 million, or 47.5%, to $4,585.1 millionfor the year ended March 31, 2022, as compared to $3,107.5 millionfor the year ended March 31, 2021. These increases reflect added volume from Cantel and other recent acquisitions, organic growth in the Healthcare, Applied Sterilization Technologies and Life Sciences segments, and favorable fluctuations in currencies. Our gross profit percentage increased to 44.0% for fiscal 2022 as compared to 43.2% for fiscal 2021. Favorable impact from productivity, pricing, and the decline in COVID-19 incremental costs, were partially offset by unfavorable impact from our recent acquisitions, material costs, inflation, fluctuations in currencies, and mix and other adjustments. Fiscal 2022 operating income decreased 22.4% to $425.6 millionover fiscal 2021 operating income of $548.4 million. This decline was primarily due to additional acquisition and integration expenses and incremental amortization expense primarily related to the acquisition of Cantel. Unplanned supply chain and inflation of approximately $45.0 millionalso contributed to the decline in fiscal 2022. Net cash flows from operations were $684.8 millionand free cash flow was $399.0 millionin fiscal 2022 compared to net cash flows from operations of $689.6 millionand free cash flow of $450.9 millionin fiscal 2021 (see subsection of MD&A 31
titled, "Non-GAAP Financial Measures" for additional information and related reconciliation of non-GAAP financial measures to the most comparable GAAP measures). The fiscal 2022 decrease in free cash flow was anticipated and was primarily due to costs associated with the acquisition and integration of Cantel and higher capital expenditures in fiscal 2022. Our debt-to-total capital ratio was 32.1% at
March 31, 2022. During the year, we increased our quarterly dividend for the sixteenth consecutive year to $0.43per share per quarter. Outlook. In fiscal 2023 and beyond, we expect to continue to realize incremental cost synergies as a result of the integration of Cantel, manage our costs, grow our business with internal product and service development, invest in greater capacity, and augment these value creating methods with potential acquisitions of additional products and services. We anticipate continued supply chain and inflation pressures in fiscal 2023. Please refer to "Information With Respect to Our Business In General" in Item 1."Business" to this Annual Report on Form 10-K. 32
NON-GAAP FINANCIAL MEASURES
We, at times, refer to financial measures which are considered to be "non-GAAP financial measures" under
SECrules. We, at times, also refer to our results of operations excluding certain transactions or amounts that are non-recurring or are not indicative of future results, in order to provide meaningful comparisons between the periods presented. These non-GAAP financial measures are not intended to be, and should not be, considered separately from or as an alternative to the most directly comparable GAAP financial measures. These non-GAAP financial measures are presented with the intent of providing greater transparency to supplemental financial information used by management and the Board of Directors in their financial analysis and operational decision-making. These amounts are disclosed so that the reader has the same financial data that management uses with the belief that it will assist investors and other readers in making comparisons to our historical operating results and analyzing the underlying performance of our operations for the periods presented. We believe that the presentation of these non-GAAP financial measures, when considered along with our GAAP financial measures and the reconciliation to the corresponding GAAP financial measures, provide the reader with a more complete understanding of the factors and trends affecting our business than could be obtained absent this disclosure. It is important for the reader to note that the non-GAAP financial measure used may be calculated differently from, and therefore may not be comparable to, a similarly titled measure used by other companies. We define free cash flow as net cash provided by operating activities as presented in the Consolidated Statements of Cash Flows less purchases of property, plant, equipment, and intangibles plus proceeds from the sale of property, plant, equipment, and intangibles, which are also presented within investing activities in the Consolidated Statements of Cash Flows. We use this as a measure to gauge our ability to pay cash dividends, fund growth outside of core operations, fund future debt principal repayments, and repurchase shares. The following table summarizes the calculation of our free cash flow for the years ended March 31, 2022and 2021: Years Ended March 31, (dollars in thousands) 2022 2021 Net cash flows provided by operating activities $ 684,811 $ 689,640Purchases of property, plant, equipment and intangibles, net (287,563) (239,262) Proceeds from the sale of property, plant, equipment and intangibles 1,741 569 Free cash flow $ 398,989 $ 450,947
RESULTS OF OPERATIONS
In the following subsections, we discuss our performance and the factors that affect it. We begin with a general overview of our operating results and then discuss separately the earnings of our operating segments.
The discussion of and factors affecting our performance for the year ended
March 31, 2021compared to the fiscal year ended March 31, 2020is included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II of our Annual Report on Form 10-K for the year ended March 31, 2021. 33
FISCAL YEAR 2022 COMPARED TO FISCAL YEAR 2021
Revenues. The following table compares our revenues, in total and by type and geography, for the year ended
March 31, 2022to the year ended March 31, 2021: Years Ended March 31, Percent (dollars in thousands) 2022 2021 Change Change Total revenues $ 4,585,064 $ 3,107,519 $ 1,477,54547.5 % Revenues by type: Service revenues 2,028,783 1,663,979 364,804 21.9 % Consumable revenues 1,607,101 725,951 881,150 121.4 % Capital equipment revenues 949,180 717,589 231,591 32.3 % Revenues by geography: Ireland revenues 82,011 71,905 10,106 14.1 % United States revenues 3,228,864 2,227,038 1,001,826 45.0 % Other foreign revenues 1,274,189 808,576 465,613 57.6 % Revenues increased $1,477.5 million, or 47.5%, to $4,585.1 millionfor the year ended March 31, 2022, as compared to $3,107.5 millionfor the year ended March 31, 2021. The increase reflects added volume of $1,073.1 millionfrom Cantel and other recent acquisitions, organic growth in the Healthcare, Applied Sterilization Technologies and Life Sciences segments and favorable fluctuations in currencies. Service revenues for fiscal 2022 increased $364.8 million, or 21.9% over fiscal 2021, reflecting growth in the Healthcare, Life Sciences and Applied Sterilization Technologies business segments. Consumable revenues for fiscal 2022 increased $881.2 million, or 121.4%, over fiscal 2021, reflecting growth in the Healthcare and Life Sciences segments and added volume from the addition of our new Dental segment. Capital equipment revenues for fiscal 2022 increased by $231.6 million, or 32.3%, over fiscal 2021, reflecting growth in the Healthcare and Life Sciences segments. Irelandrevenues for fiscal 2022 were $82.0 million, representing an increase of $10.1 million, or 14.1%, over fiscal 2021 revenues of $71.9 million, reflecting growth in service and consumable revenues, which were partially offset by a decline in capital equipment revenues. United Statesrevenues for fiscal 2022 were $3,228.9 million, representing an increase of $1,001.8 million, or 45.0%, over fiscal 2021 revenues of $2,227.0 million, reflecting growth in consumable, service and capital equipment revenues. These increases represent both organic growth and the impact of Cantel and our other recent acquisitions. Revenues from other foreign locations for fiscal 2022 were $1,274.2 million, representing an increase of $465.6 million, or 57.6% over the fiscal 2021 revenues of $808.6 million, reflecting strength in Canadaand the Europe, Middle Eastand Africa("EMEA"), Asia Pacificand Latin American regions. These increases represent both organic growth and the impact of Cantel and our other recent acquisitions. 34
Gross profit. The following table compares our gross profit for the year ended
Years Ended March 31, Percent (dollars in thousands) 2022 2021 Change Change Gross profit: Product
$ 1,136,356 $ 678,464 $ 457,89267.5 % Service 880,006 664,636 215,370 32.4 % Total gross profit $ 2,016,362 $ 1,343,100 $ 673,26250.1 % Gross profit percentage: Product 44.5 % 47.0 % Service 43.4 % 39.9 % Total gross profit percentage 44.0 % 43.2 % 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 percentage increased to 44.0% for fiscal 2022 as compared to 43.2% for fiscal 2021. Favorable impact from productivity (170 basis points), pricing (70 basis points), and the decline in COVID-19 incremental costs (60 basis points) were partially offset by unfavorable impact from our recent acquisitions (80 basis points), material costs (70 basis points), inflation (50 basis points), fluctuations in currencies (10 basis points) and mix and other adjustments (10 basis points).
Operating Expenses. The following table compares our operating expenses for the year ended
Years Ended March 31, Percent (dollars in thousands) 2022 2021 Change Change Operating expenses: Selling, general, and administrative
$ 1,502,752 $ 731,320 $ 771,432105.5 % Research and development 87,944 66,326 21,618 32.6 % Restructuring expenses 48 (2,914) 2,962 NM Total operating expenses $ 1,590,744 $ 794,732 $ 796,012100.2 % 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 increased 105.5% in fiscal 2022 over fiscal 2021. During the fiscal 2022 period we had significant increases in acquisition related costs, which included amortization of acquired intangible assets, "step-up" of plant, property and equipment to fair value, and acquisition and integration expenses, which were primarily related to the acquisition of Cantel. The increase also reflects the addition of expenses associated with the operations of Cantel and our other recent acquisitions. Research and Development. Research and development expenses increased $21.6 millionduring fiscal 2022, as compared to fiscal 2021, primarily due to the addition of Cantel and our other recent acquisitions. 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 2022, our investments in research and development continued to be focused on, but were not limited to, enhancing capabilities of sterile processing combination technologies, procedural products and accessories, and devices and support accessories used in gastrointestinal endoscopy procedures. Restructuring Expenses. During the third quarter of fiscal 2019, we adopted and announced a targeted restructuring plan (the "Fiscal 2019 Restructuring Plan"), which included the closure of two manufacturing facilities, one in Braziland one in England, as well as other actions including the rationalization of certain products. Fewer than 200 positions were eliminated. The Company relocated the production of certain impacted products to other existing manufacturing operations during fiscal 2020. These restructuring actions were designed to enhance profitability and improve efficiency. Restructuring expenses incurred in fiscal 2022 and fiscal 2021 were not material. For information on our restructuring efforts, refer to our Annual Report on Form 10-K filed with the SECon May 28, 2021. 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, a fair value adjustment related to convertible debt, and other 35
Miscellaneous expense. The following table compares our non-operating expenses (revenues), net for the year ended
Years Ended March 31, (dollars in thousands) 2022 2021 Change Non-operating expenses, net: Interest expense
$ 89,593 $ 37,180 $ 52,413
Fair value adjustment related to convertible debt, premium liabilities
27,806 - 27,806 Interest income and miscellaneous expense (6,284) (6,345) 61 Non-operating expenses, net
$ 111,115 $ 30,835 $ 80,280Interest expense increased $52.4 millionduring fiscal 2022, as compared to fiscal 2021, primarily due to debt incurred for acquisition financing including term loans and Senior Public Notes (as defined below). During fiscal 2022, we recorded fair value adjustments of $27.8 million, based on appreciation in our share price related to premium liability associated with the convertible debt assumed in the acquisition of Cantel. Interest (income) and miscellaneous expense is not material.
Additional information regarding our outstanding debt and Cantel’s convertible debt is included in Note 6 to our Consolidated Financial Statements entitled “Debt” and in the subsection of this MD&A entitled “Liquidity and capital “.
Income Tax Expense. The following table compares our income tax expense and effective income tax rates for the years ended
March 31, 2022and March 31, 2021: Years Ended March 31, Percent (dollars in thousands) 2022 2021 Change Change Income tax expense $ 71,633 $ 120,663 $ (49,030)(40.6)% Effective income tax rate 22.8 % 23.3 % The effective income tax rate for fiscal 2022 was 22.8% as compared to 23.3% for fiscal 2021. The fiscal 2022 effective tax rate decreased when compared to fiscal 2021, primarily due to a decrease in percentage of profits earned and taxed in jurisdictions with a higher tax rate. The fiscal 2022 effective tax rate was also unfavorably impacted by certain one-time, non-deductible acquisition related costs.
Business segment operating results.
Following the acquisition of Cantel, we re-evaluated the organization of our activities and added a new segment called Dental. We now operate and report our financial information in four reportable business segments: healthcare, applied sterilization technologies, life sciences and dental care. Unallocated operating costs that support the entire Company and items not indicative of operating trends are excluded from segment operating income.
Our Healthcare segment provides a comprehensive offering for healthcare providers worldwide, focused on sterile processing departments and procedural centers, such as operating rooms and endoscopy suites. Our products and services range from infection prevention consumables and capital equipment, as well as services to maintain that equipment; to the repair of re-usable procedural instruments; to outsourced instrument reprocessing services. In addition, our procedural solutions also include single-use devices and capital equipment infrastructure used primarily in operating rooms, ambulatory surgery centers, endoscopy suites, and other procedural areas.
Our Applied Sterilization Technologies segment is a third-party service provider for contract sterilization, as well as the testing services necessary to validate sterility services for medical device and pharmaceutical manufacturers. Our technologically neutral offer accompanies customers at every stage of the process, from testing to sterilization.
Our Life Sciences segment provides a comprehensive offering of products and services that support pharmaceutical manufacturing, primarily for vaccine and other biopharma Customers focused on aseptic manufacturing. These solutions include a full suite of consumable products, equipment maintenance and specialty services, and capital equipment. Our Dental segment provides a comprehensive offering for dental practitioners and dental schools, offering instruments, infection prevention consumables and instrument management systems.
We disclose a measure of segment revenue that is consistent with how management operates and views the business. The accounting principles of the segments to be presented are the same as those of the consolidated company.
For more information about our segments, please refer to Note 11 to our Consolidated Financial Statements entitled “Segment Information” and Section 1, “Business”.
36 -------------------------------------------------------------------------------- Table of Contents The following table compares business segment and Corporate and other revenues and operating income for the year ended
March 31, 2022to the year ended March 31, 2021. Years ended March 31, Percent (dollars in thousands) 2022 2021 Change Change
$ 2,845,467 $ 1,954,055 $ 891,41245.6 % Applied Sterilization Technologies 852,972 685,912 167,060 24.4 % Life Sciences 524,964 467,552 57,412 12.3 % Dental 361,661 - 361,661 - % Total revenues $ 4,585,064 $ 3,107,519 $ 1,477,54547.5 % Operating income (loss): Healthcare 626,098 427,089 199,009 46.6 % Applied Sterilization Technologies 410,101 310,648 99,453 32.0 % Life Sciences 216,188 180,796 35,392 19.6 % Dental 84,441 - 84,441 - % Corporate (260,059) (219,153) (40,906) 18.7 % Total operating income before adjustments $ 1,076,769 $ 699,380 $ 377,38954.0 % Less: Adjustments Amortization of acquired intangible assets (1) 366,434
Acquisition and integration related charges (2) 205,788
Redomiciliation and tax restructuring costs (3) 301
(Gain) on fair value adjustment of acquisition related contingent consideration (1) (2,350)
Net (gain) loss on divestiture of businesses (1) (874)
Amortization of inventory and property "step up" to fair value (1) 81,804
COVID-19 incremental costs (4) -
Restructuring charges (credit) (5) 48 (3,029) Total operating income
$ 425,618 $ 548,368(1) For more information regarding our recent acquisitions and divestitures refer to Note 2 titled, "Business Acquisitions and Divestitures." (2) Acquisition and integration related charges include transaction costs and integration expenses associated with acquisitions. (3) Costs incurred in connection with the Redomiciliation and subsequent tax restructuring. (4) COVID-19 incremental costs includes the additional costs attributable to COVID-19 such as enhanced cleaning protocols, personal protective equipment for our employees, event cancellation fees, and payroll costs associated with our response to COVID-19, net of any government subsidies available. (5) For more information regarding our restructuring efforts refer to our Annual Report on Form 10-K for the year ended March 31, 2021, dated May 28, 2021. Healthcare revenues increased 45.6% in fiscal 2022, as compared to fiscal 2021, reflecting growth in consumables, capital equipment, and service revenues of 96.6%, 32.9% and 23.9%, respectively. This increase reflects the impact of Cantel and our other recent acquisitions, organic growth and favorable fluctuations in foreign currencies. Excluding Cantel, the Healthcare segment's backlog at March 31, 2022amounted to $423.6 million, increasing 105.4%, as compared to the backlog of $206.3 millionat March 31, 2021. The increase is primarily due to Customer demand but also reflects some delays in shipments due to supply chain disruptions. Applied Sterilization Technologies revenues increased 24.4% in fiscal 2022, as compared to fiscal 2021. The increase was primarily due to organic growth and favorable fluctuations. The impact of a fiscal 2021 acquisition also contributed to the increases. Life Sciences revenues increased 12.3% in fiscal 2022, as compared to fiscal 2021, reflecting growth in service, consumable, and capital equipment revenues of 15.4%, 11.3% and 10.8%, respectively. The increase reflects the impact of the Cantel acquisition, organic growth and favorable fluctuations in foreign currencies. Excluding Cantel, the Life Sciences backlog at March 31, 2022amounted to $104.7 million, increasing 31.1%, as compared to backlog of $79.9 millionat March 31, 2021. The increase is primarily due to Customer demand but also reflects some delays in shipments due to supply chain disruptions.
Dental segment revenues from the date of Cantel’s acquisition of
37 -------------------------------------------------------------------------------- Table of Contents The Healthcare segment's operating income increased
$199.0 millionto $626.1 millionin fiscal year 2022, as compared to $427.1 millionin fiscal year 2021, due to higher volumes primarily from the acquisition of Cantel. The segment's operating margins were 22.0% for fiscal year 2022 and 21.9% for fiscal year 2021. During fiscal 2022, we experienced favorable impact from our recent acquisitions, partially offset by supply chain and inflationary cost increases. In fiscal 2021, we benefited from lower expenditures, including reductions in travel and meeting spend due to the COVID-19 pandemic. The Applied Sterilization Technologies segment's operating income increased $99.5 millionto $410.1 millionin fiscal year 2022, as compared to $310.6 millionin fiscal year 2021. The Applied Sterilization Technologies segment's operating margins were 48.1% for fiscal year 2022 and 45.3% for fiscal year 2021. The segment's operating income and operating margin improvements were primarily due to to higher volumes. Additionally, in the prior year we experienced reduced expenditures, including reductions in travel and meeting spend due to the COVID-19 pandemic. The Life Sciences business segment's operating income increased $35.4 millionto $216.2 millionin fiscal year 2022, as compared to $180.8 millionin fiscal year 2021. The segment's operating margins were 41.2% for fiscal year 2022 and 38.7% for fiscal year 2021. The segment's operating income and operating margin improvements were primarily due to to higher volumes partially due to the acquisition of Cantel and favorable mix.
Dental segment operating profit and operating margin for fiscal 2022 were
CASH AND CAPITAL RESOURCES
The following table summarizes the main components of our cash flows for the years ended
Years Ended March 31, (dollars in thousands) 2022 2021
Net cash flow generated by operating activities
Net cash used in investing activities
Net provided by financing activities 115,830 345,620 Debt-to-total capital ratio 32.1 % 29.8 % Free cash flow
$ 398,989 $ 450,947Net Cash Provided By Operating Activities - The net cash provided by our operating activities was $684.8 millionfor the year ended March 31, 2022, compared to $689.6 millionfor the year ended March 31, 2021. Net cash provided by operating activities decreased in fiscal 2022 by 0.7%, as compared to fiscal 2021, largely due to the acquisition and integration expenditures related to our acquisition of Cantel. Net Cash UsedIn Investing Activities - The net cash used in our investing activities was $666.6 millionfor the year ended March 31, 2022, compared to $1,154.2 millionfor the year ended March 31, 2021. The following discussion summarizes the significant changes in our investing cash flows for the years ended March 31, 2022and 2021:
• Purchases of property, plant and equipment and intangible assets, net – Capital expenditures totaled
•Proceeds from the sale of property, plant, equipment and intangibles - During fiscal 2022 and 2021 we received
$1.7 millionand $0.6 million, respectively, for proceeds from the sale of property, plant, equipment and intangibles. •Proceeds from the sale of business - During fiscal 2022 and 2021, we received $169.7 millionand $0.5 million, respectively, for 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."
• Investment purchases – In fiscal 2021, we purchased an equity investment to
•Acquisition of businesses, net of cash acquired - During fiscal 2022 and 2021, we used
$550.4 millionand $909.2 million, respectively, for acquisitions. For more information on these acquisitions refer to Note 2 to our consolidated financial statements titled, "Business Acquisitions and Divestitures." •Other - During fiscal 2021, we provided approximately $2.4 millionunder borrowing agreements. For more information on these agreements refer to our Note 2 to our consolidated financial statements, titled "Business Acquisitions and Divestitures." 38
Net Cash Provided By Financing Activities - Net cash provided by financing activities was
$115.8 millionfor the year ended March 31, 2022, compared to $345.6 millionfor the year ended March 31, 2021. The following discussion summarizes the significant changes in our financing cash flows for the years ended March 31, 2022and 2021: •Proceeds from issuance of senior notes - During fiscal 2022, we received $1,350.0 millionin proceeds from the issuance of our Senior Public Notes. For more information on our Senior Public Notes, refer to Note 6 of our Consolidated Financial Statements titled, "Debt." •Proceeds from term loan - During fiscal 2022, we received proceeds of $650.0 millionunder our Delayed Draw Term Loan. During fiscal 2021, we received proceeds of $550.0 millionunder a prior Term Loan, which was subsequently replaced by another Term Loan of a like amount. For more information on our term loans, refer to Note 6 of our Consolidated Financial Statements titled, "Debt."
• Term Loan Payments – In fiscal 2022, we repaid
•Payments on long-term obligations - During fiscal 2022, we repaid
$721.3 millionof Cantel's outstanding debt in connection with the acquisition. For more information on Cantel's debt refer to Note 2 of our Consolidated Financial Statements titled, "Business Acquisitions and Divestitures." During fiscal 2021, we repaid $35.0 millionof principal for private placement senior notes that matured in August 2020. For more information on our debt, refer to Note 6 of our Consolidated Financial Statements titled, "Debt." •Payments on convertible debt obligations - During fiscal 2022, we paid $371.4 millionto settle obligations associated with Cantel's convertible debt assumed at the time of acquisition. For more information on Cantel's debt refer to Note 6 of our Consolidated Financial Statements titled, "Debt." •Payments under credit facilities, net - Net payments under credit facilities totaled $190.2 millionfor fiscal 2022, compared to $30.5 millionfor fiscal 2021. At the end of fiscal 2022, $58.9 millionof debt was outstanding under our bank credit facility, compared to $247.4 millionof debt outstanding under this facility at the end of fiscal 2021. We provide additional information about our bank credit facility in Note 6 to our consolidated financial statements titled, "Debt." •Deferred financing fees and debt issuance costs - During fiscal 2022 and fiscal 2021, we paid $17.5 millionand $12.8 million, respectively for financing fees and debt issuance costs primarily related to our Senior Public Notes and Delayed Draw Term Loan. For more information on our debt refer to Note 6 to our consolidated financial statements titled, "Debt." •Repurchases of shares - Due to the uncertainty surrounding the COVID-19 pandemic, share repurchases were suspended on April 9, 2020. The suspension was lifted effective February 10, 2022, enabling the Company to resume stock repurchases pursuant to the prior authorizations. From February 14, 2022, through March 31, 2022, we repurchased 108,368 of our ordinary shares for the aggregate amount of $25.0 millionpursuant to the authorizations. We also obtained 244,395 of our ordinary shares in the aggregate amount of $30.8 millionin connection with share based compensation award programs. From the start of fiscal 2021 through April 9, 2020, we purchased 35,000 of our ordinary shares in the aggregate amount of $5.0 million. We also obtained 91,567 of our ordinary shares in connection with our stock-based compensation award programs in the amount $9.6 million. We provide additional information about our share repurchases in Note 13 to our consolidated financial statements titled, "Repurchases of Ordinary Shares." •Acquisition related deferred or contingent consideration - During fiscal 2022, we paid $32.7 millionin acquisition related deferred or contingent consideration, the majority of which was associated with a pre-acquisition arrangement related to an acquisition made by Cantel prior to our purchase of Cantel. During fiscal 2021, we paid $2.4 millionin deferred and contingent consideration related to our recent acquisitions. For more information, refer to our Note 2 to our consolidated financial statements, titled "Business Acquisitions and Divestitures." •Cash dividends paid to ordinary shareholders - During fiscal 2022, we paid cash dividends totaling $163.2 millionor $1.69per outstanding share. During fiscal 2021, we paid cash dividends totaling $133.8 millionor $1.57per outstanding share. •Transactions with noncontrolling interest holders - During fiscal 2022, we received contributions from noncontrolling interest holders of $3.7 millionand paid $1.0 millionin distributions to noncontrolling interest holders. During fiscal 2021, we received $2.3 millionof contributions from noncontrolling interest holders and paid $4.1 millionin distributions to noncontrolling interest holders. •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 2022 and fiscal 2021, we received cash proceeds totaling $10.1 millionand $26.7 million, respectively, under these programs. 39
Cash Flow Measures. Free cash flow was
$399.0 millionin fiscal 2022, compared to $450.9 millionin fiscal 2021. The fiscal 2022 decrease in free cash flow was anticipated and primarily due to costs associated with the acquisition and integration of Cantel and higher capital expenditures in fiscal 2022.
Our debt to total capital ratio was 32.1% at
Sources of Credit. Our sources of credit as of
March 31, 2022are summarized in the following table: Reductions in Maximum Available Credit March 31, 2022 March 31, 2022 Amounts Facility for Other Amounts Amounts (dollars in thousands) Available Financial Instruments Outstanding Available Sources of Credit Private Placement Senior Notes $ 849,726$ - $ 849,726$ - Term Loan 205,000 - 205,000 - Delayed Draw Term Loan 650,000 - 650,000 - Revolving Credit Agreement (1) 1,250,000 15,371 58,908 1,175,721 Senior Public Notes 1,350,000 - 1,350,000 - Total Sources of Credit $ 4,304,726$ 15,371 $ 3,113,634 $ 1,175,721
Our sources of financing on credit
March 19, 2021, STERIS plc("the Company"), STERIS Corporation, STERIS Limited("Limited"), and STERIS Irish FinCo Unlimited Company("FinCo", "STERIS Irish FinCo"), each as a borrower and guarantor, entered into a credit agreement with various financial institutions as lenders, and JPMorgan Chase Bank, N.A., as administrative agent (the "Revolving Credit Agreement") providing for a $1,250.0 millionrevolving credit facility (the "Revolver"), which replaced a prior revolving credit agreement. •The Revolver provides for revolving credit borrowings, swing line borrowings and letters of credit, with sublimits for swing line borrowings and letters of credit. The Revolver may be increased in specified circumstances by up to $625.0 millionin the discretion of the lenders. The Revolver matures on the date that is five years after March 19, 2021, and all unpaid borrowings, together with accrued and unpaid interest thereon, are repayable on that date. The Revolver bears interest from time to time, at either the Base Rate, Eurocurrency Rate, or the Adjusted Daily Simple RFR, as defined in and calculated under and as in effect from time to time under the Revolving Credit Agreement, plus the Applicable Margin, as defined in the Revolving Credit Agreement. The Applicable Margin is determined based on the Debt Rating of STERIS, as 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, and interest on RFR Advances is payable monthly after the date of borrowing. Swingline borrowings bear interest at a rate to be agreed by the applicable swingline lender and the applicable borrower, subject to a cap in the case of swingline borrowings denominated in U.S.Dollars equal to the Base Rate plus the Applicable Margin for Base Rate Advances plus the Facility Fee. Advances may be extended in U.S.Dollars or in specified alternative currencies. In connection with the cessation of British Pound Sterling LIBOR and Swiss Franc LIBOR as of December 31, 2021, JPMorgan Chase Bank, N.A. as administrative agent, pursuant to authority contained in the Revolver, amended the Revolver on January 1, 2022to make Benchmark Replacement Conforming Changes (as defined in the Revolver). The amendment concerns technical, administrative or operational changes related to borrowings in British Pounds Sterling and Swiss Francs. •On March 19, 2021, the Company, STERIS Corporation, Limited, and FinCo, each as a borrower and guarantor, entered into a term loan agreement with various financial institutions as lenders, and JPMorgan Chase Bank, N.A., as Administrative agent (the "Term Loan Agreement") providing for a $550.0 millionterm loan facility (the "Term Loan"), which replaced an existing term loan agreement, dated as of November 18, 2020(the "Existing Term Loan Agreement"). The proceeds of the Term Loan were used to refinance the Existing Term Loan Agreement. •The Term Loan matures on the date that is five years after March 19, 2021(the "Term Loan Closing Date"). No principal payments are due on the Term Loan for the period beginning from the first full fiscal quarter ended after the Term Loan Closing Date to and including the fourth full fiscal quarter ended after the Term Loan Closing Date. For the period beginning from the fifth full fiscal quarter ended after the Term Loan Closing Date to and including the twelfth full fiscal quarter ended after the Term Loan Closing Date, quarterly principal payments, each in the amount of 1.25% of the original principal amount of the Term Loan, are due on the last business day of each fiscal quarter. For the period beginning from the thirteenth full fiscal quarter ended after the Term Loan Closing Date through the maturity of the loan, quarterly 40
Table of Contents Principal repayments, each in an amount of 1.875% of the original term loan principal amount, are due on the last business day of each fiscal quarter. The remaining unpaid principal is due and payable on the due date.
•The Term Loan bears interest from time to time, at either the Base Rate or the Eurocurrency Rate, as defined in and calculated under and as in effect from time to time under the Term Loan Agreement, plus the Applicable Margin, as defined in the Term Loan Agreement. The Applicable Margin is determined based on the Debt Rating of STERIS, as defined in the Term Loan Agreement. Base Rate Advances are payable quarterly in arrears and Eurocurrency Rate Advances are payable at the end of the relevant interest period therefore, but in no event less frequently than every three months. •Also on
March 19, 2021, the Company, STERIS Corporation, Limited, and FinCo, each as a borrower and guarantor, entered into a delayed draw term loan agreement with various financial institutions as lenders, and JPMorgan Chase Bank, N.A., as administrative agent (the "Delayed Draw Term Loan Agreement") providing for a delayed draw term loan facility of up to $750.0 million(the "Delayed Draw Term Loan") in connection with STERIS's acquisition of Cantel. During the first quarter of fiscal 2022, we borrowed $650.0 millionunder our Delayed Draw Term Loan Agreement. The Delayed Draw Term Loan was funded by the lenders upon consummation of the Cantel acquisition (the "Acquisition Closing Date"). The proceeds of the Delayed Draw Term Loan were used, together with the proceeds from other new indebtedness, to fund the cash consideration for the acquisition, as well as for various other items. •The Delayed Draw Term Loan matures on the date that is five years after the Acquisition Closing Date. No principal payments are due on the Delayed Draw Term Loan for the period beginning from the first full fiscal quarter ended after the Acquisition Closing Date to and including the fourth full fiscal quarter ended after the Acquisition Closing Date. For the period beginning from the fifth full fiscal quarter ended after the Acquisition Closing Date to and including the twelfth full fiscal quarter ended after the Acquisition Closing Date, quarterly principal payments, each in the amount of 1.25% of the original principal amount of the Delayed Draw Term Loan, are due on the last business day of each fiscal quarter. For the period beginning from the thirteenth full fiscal quarter ended after the Acquisition Closing Date through the maturity of the loan, quarterly principal payments, each in the amount of 1.875% of the original principal amount of the Delayed Draw Term Loan, are due on the last business day of each fiscal quarter. The remaining unpaid principal is due and payable on the maturity date. •The Delayed Draw Term Loan bears interest from time to time, at either the Base Rate or the Eurocurrency Rate, as defined in and calculated under and as in effect from time to time under the Delayed Draw Term Loan Agreement, plus the Applicable Margin, as defined in the Delayed Draw Term Loan Agreement. The Applicable Margin is determined based on the Debt Rating of STERIS, as defined in the Delayed Draw Term Loan Agreement. Interest on borrowings made at the Base Rate ("Base Rate Advances") is payable quarterly in arrears and interest on borrowings made at the Eurocurrency Rate ("Eurocurrency Rate Advances") is payable at the end of the relevant interest period therefor, but in no event less frequently than every three months. There is no premium or penalty for prepayment of Base Rate Advances, but prepayments of Eurocurrency Rate Advances are subject to a breakage fee. •On April 1, 2021, STERIS Irish FinCo Unlimited Company("FinCo," "STERIS Irish FinCo," the "Issuer") completed an offering of $1,350.0 millionin aggregate principal amount, of its senior notes in two separate tranches: (i) $675.0 millionaggregate principal amount of the Issuer's 2.70% Senior Notes due 2031 (the "2031 Notes") and (ii) $675.0 millionaggregate principal amount of the Issuer's 3.750% Senior Notes due 2051 (the "2051 Notes" and, together with the 2031 Notes, the "Senior Public Notes"). The Senior Public Notes were issued pursuant to an Indenture, dated as of April 1, 2021(the "Base Indenture"), among FinCo, and STERIS plc, STERIS Corporationand STERIS Limited(the "Guarantors") and U.S. Bank National Association, as trustee (the "Trustee"), as supplemented by the First Supplemental Indenture, dated as of April 1, 2021, among FinCo, the Guarantors and the Trustee (the "Supplemental Indenture" and, together with the Base Indenture, the "Indenture"). Each of the Guarantors guaranteed the Senior Public Notes jointly and severally on a senior unsecured basis (the "Guarantees"). The 2031 Notes will mature on March 15, 2031and the 2051 Notes will mature on March 15, 2051. The Senior Public Notes will bear interest at the rates set forth above. Interest on the Senior Public Notes is payable on March 15and September 15of each year, beginning on September 15, 2021, until their respective maturities. •As of March 31, 2022, a total of $58.9 millionwas outstanding under the Revolving Credit Agreement, based on currency exchange rates as of March 31, 2022. At March 31, 2022, we had $1,175.7 millionof unused funding available under the Revolving Credit Agreement. The Revolving Credit Agreement includes a sub-limit that reduces the maximum amount available to us by letters of credit outstanding. At March 31, 2022, there was $15.4 millionin letters of credit outstanding under the Credit Agreement. As of March 31, 2022, $205.0 millionand $650.0 millionwere outstanding under the Term Loan and Delayed Draw Term Loan, respectively. 41
Our outstanding Private Placement Senior Notes at
March 31, 2022were as follows: U.S. Dollar Applicable Note Purchase Value at March (dollars in thousands) Agreement Maturity Date 31, 2022 $91,000Senior notes at 3.20% 2012 Private Placement December 2022 91,000 $80,000Senior notes at 3.35% 2012 Private Placement December 2024 80,000 $25,000Senior notes at 3.55% 2012 Private Placement December 2027 25,000 $125,000Senior notes at 3.45% 2015 Private Placement May 2025 125,000 $125,000Senior notes at 3.55% 2015 Private Placement May 2027 125,000 $100,000Senior notes at 3.70% 2015 Private Placement May 2030 100,000 $50,000Senior notes at 3.93% 2017 Private Placement February 2027 50,000 €60,000 Senior notes at 1.86% 2017 Private Placement February 2027 66,815 $45,000Senior notes at 4.03% 2017 Private Placement February 2029 45,000 €20,000 Senior notes at 2.04% 2017 Private Placement February 2029 22,271 £45,000 Senior notes at 3.04% 2017 Private Placement February 2029 59,089 €19,000 Senior notes at 2.30% 2017 Private Placement February 2032 21,158 £30,000 Senior notes at 3.17% 2017 Private Placement February 2032 39,393 Total Senior Notes $ 849,726
The private placement senior notes were issued as follows:
February 27, 2017, Limited 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 years and 15 years from the issue date. The agreement governing these notes contains leverage and interest coverage covenants. •On May 15, 2015, STERIS Corporationissued and sold $350.0 millionof senior notes, in a private placement to certain institutional investors in an offering that was exempt from the registration requirements of the Securities Act of 1933. These notes have maturities of 10 years to 15 years from the issue date. The agreement governing these notes contains leverage and interest coverage covenants. •In December 2012, and in February 2013 STERIS Corporationissued and sold $200.0 millionof senior notes, in a private placement to certain institutional investors in offerings that were exempt from the registration requirements of the Securities Act of 1933. The agreement governing the notes contains leverage and interest coverage covenants. •The private placement note purchase agreements specify increases to the coupon interest rates while the ratio of Consolidated Total Debt to Consolidated EBITDA, as defined in the note purchase agreements, exceeds certain thresholds. Beginning September 1, 2021and through March 31, 2022the coupon rates on the 2012 private placement notes were increased by 0.50%. •On March 19, 2021, STERIS Corporationas issuer, and the Company, Limitedand FinCo, as guarantors, entered into (1) a First Amendment to Amended and Restated Note Purchase Agreement dated March 5, 2019(which had amended and restated certain note purchase agreements originally dated December 4, 2012) per the 2012 and 2013 senior notes (the "2012 Amendment"), and (2) a First Amendment to Amended and Restated Note Purchase Agreement dated March 5, 2019(which had amended and restated certain note purchase agreements originally dated March 31, 2015) for the 2015 senior notes (the "2015 Amendment"). Also on March 19, 2021, Limited, as Issuer, and the Company, STERIS Corporationand FinCo, as guarantors, entered into a First Amendment to Amended and Restated Note Purchase Agreement dated March 5, 2019(which had amended and restated a certain note purchase agreement originally dated January 23, 2017) for the 2017 senior notes (together with the 2012 Amendment and the 2015 Amendment, the "NPA Amendments"). The NPA Amendments provided, among other things, for the waiver of certain repurchase rights of the note holders and increased the size of certain baskets to more closely align with other current credit agreement baskets. At March 31, 2022, 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." 42
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 2022, our capital expenditures amounted to
$287.6 million. We use cash provided by operating activities and our cash and cash equivalent balances to fund capital expenditures. In fiscal 2023, we plan to continue to invest in facility expansions, particularly within the Healthcare and Applied Sterilization Technologies segments and in ongoing maintenance for existing facilities.
MATERIAL CASH OBLIGATIONS AND FUTURE BUSINESS COMMITMENTS
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.
Our material future cash obligations and business commitments to
Payments due by March 31, 2027 and (dollars in thousands) 2023 2024 2025 2026 thereafter Total Material Future Cash Obligations: Debt
$ 142,875 $ 60,000 $ 165,937 $ 341,408 $ 2,403,414 $ 3,113,634Operating leases 42,099 34,669 26,914 21,419 104,769 229,870 Purchase obligations 214,344 33,884 8,339 569 1,897 259,033 Benefit payments under defined benefit plans 5,560 5,542 5,721 5,882 39,310
Trust assets available for benefit payments under defined benefit plans (5,560) (5,542) (5,721) (5,882) (39,310)
Benefit payments under other post-retirement benefits plans 1,190 1,067 966 880 3,659
Expected contributions to defined benefit plans 4,103 4,227 2,129 - -
Total future material cash obligations
The table above includes only the principal amounts of our material future cash obligations. We provide information about the interest component of our long-term debt in the subsection of the MD&A titled “Liquidity and Capital Resources” and in Note 6 to our Consolidated Financial Statements titled “Debt”.
The purchase obligations shown in the table above relate to minimum purchase commitments with suppliers for material 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."
Commitment amount expiring
2027 and (dollars in thousands) 2023 2024 2025 2026 thereafter Totals Commercial Commitments: Letters of credit and surety bonds
$ 77,496 $ 4,273 $ 1,851 $ 353 $ 802 $ 84,775Letters of credit as security for self-insured risk retention policies 13,900 - - - - 13,900 Total Commercial Commitments $ 91,396 $ 4,273 $ 1,851 $ 353 $ 802 $ 98,675
ADDITIONAL FINANCIAL INFORMATION OF THE GUARANTOR
STERIS plc("Parent") and its wholly-owned subsidiaries, STERIS Limitedand STERIS Corporation(collectively "Guarantors" and each a "Guarantor"), each have provided guarantees of the obligations of STERIS Irish FinCo Unlimited Company("FinCo", "STERIS Irish FinCo"), a wholly-owned subsidiary issuer, under Senior Public Notes issued by STERIS Irish FinCo on April 1, 2021and of certain other obligations relating to the Senior Public Notes. The Senior Public Notes are guaranteed, jointly and severally, on a senior unsecured basis. The Senior Public Notes and the related guarantees are senior unsecured obligations of STERIS Irish FinCo and the Guarantors, respectively, and are equal in priority with all other unsecured and unsubordinated indebtedness of the Issuer and the Guarantors, respectively, from time to time outstanding, including, as applicable, under the Private Placement Senior Notes, borrowings under the Revolving Credit Facility, the Term Loan and the Delayed Draw Term Loan. All of the liabilities of non-guarantor direct and indirect subsidiaries of STERIS, other than STERIS Irish FinCo, STERIS Limitedand STERIS Corporation, including any claims of trade creditors, are effectively senior to the Senior Public Notes. STERIS Irish FinCo's main objective and source of revenues and cash flows is the provision of short- and long-term financing for the activities of STERIS plcand its subsidiaries. The ability of our subsidiaries to pay dividends, interest and other fees to the Issuer and ability of the Issuer and Guarantors to service the Senior Public Notes may be restricted by, among other things, applicable corporate and other laws and regulations as well as agreements to which our subsidiaries are or may become a party.
Here is a summary of these guarantees:
Senior Bond Guarantees
• Guarantor of the parent company –
• Subsidiary issuer –
• Subsidiary Guarantor –
• Subsidiary Guarantor –
A Guarantor’s guarantee will be released and discharged automatically and unconditionally:
• in the case of a Subsidiary Guarantor, upon the sale, transfer or other disposition (including by way of consolidation or merger) of such Subsidiary Guarantor, other than to the Parent Company or to a subsidiary of the Parent Company and as authorized by the deed;
•in the case of a Subsidiary Guarantor, upon the sale, transfer or other disposition of all or substantially all the assets of such Subsidiary Guarantor, other than to the Parent or a subsidiary of the Parent and as permitted by the indenture;
• in the case of a Subsidiary Guarantor, at the time such Subsidiary Guarantor is no longer a borrower or no longer guarantees any material credit facility (subject to restatement in specified circumstances);
•upon the legal defeasance or covenant defeasance of the notes or the discharge of the Issuer's obligations under the indenture in accordance with the terms of the indenture;
•as described in accordance with the terms of the indenture; Where
•in the case of the Parent, if the Issuer ceases for any reason to be a subsidiary of the Parent; provided that all guarantees and other obligations of the Parent in respect of all other indebtedness under any Material Credit Facility of the Issuer terminate upon the Issuer ceasing to be a subsidiary of the Parent; and •upon such Guarantor delivering to the trustee an officer's certificate and an opinion of counsel, each stating that all conditions precedent provided for in the indenture relating to such transaction or release have been complied with. The obligations of each Guarantor under its guarantee are expressly limited to the maximum amount that such Guarantor could guarantee without such guarantee constituting a fraudulent conveyance. Each Guarantor that makes a payment under its guarantee will be entitled upon payment in full of all guaranteed obligations under the indenture to a contribution from each 44
Guarantor in an amount equal to such other Guarantor's pro rata portion of such payment based on the respective net assets of all the Guarantors at the time of such payment determined in accordance with GAAP. The following tables present summarized results of operations for the twelve months ended
March 31, 2022and summarized balance sheet information at March 31, 2022and 2021 for the obligor group of the Senior Public Notes. The obligor group consists of the Parent Company Guarantor, Subsidiary Issuer, and Subsidiary Guarantors for the Senior Public Notes. The summarized financial information is presented after elimination of (i) intercompany transactions and balances among the guarantors and issuer and (ii) equity in earnings from and investments in any subsidiary that is a non-guarantor or issuer. Transactions with non-issuer and non-guarantor subsidiaries have been presented separately. Summarized Results of Operations (in thousands) Twelve Months Ended March 31, 2022 Revenues $ 1,756,862 Gross profit 1,054,389
Operating expenses related to transactions with non-issuers and non-guarantors – net
411,423 Income from operations 532,288
Non-operating income (expenses) arising from transactions with non-issuing and non-guarantor subsidiaries – net
436,179 Net income $ 432,149 Summarized Balance Sheet Information ( in thousands) March 31, March 31, 2022 2021
Receivables from non-issuing and non-guarantor subsidiaries
Other current assets
400,776 348,937 Total current assets $
Non-current receivables from non-issuing and non-guarantor subsidiaries
$ 2,001,742 $ 1,091,809Goodwill 95,688 94,979 Other non-current assets 142,711 207,240 Total non-current assets $
Payables to non-issuing and non-guarantor subsidiaries
Other current liabilities
231,043 128,665 Total current liabilities $
Non-current payables to non-issuers and non-guarantor subsidiaries
$ 1,102,873 $ 1,203,274Other non-current liabilities 3,134,777 1,695,772 Total non-current liabilities $
Intercompany balances and transactions between the debtor group have been eliminated and amounts due, amounts due to and transactions with non-issuing and non-guarantor subsidiaries have been shown separately. Intercompany transactions arise from internal financing and trade activities.
STERIS's Senior Public Notes have been assigned the following credit ratings: Standard & Poor's Moody's Fitch Credit Ratings BBB- Baa2 BBB 45
-------------------------------------------------------------------------------- Table of Contents Each of the credit rating agencies reviews its rating periodically and there is no guarantee our current credit ratings will remain the same. If our credit ratings were lowered, our ability to access the debt markets, our cost of funds, and other terms for new debt issuances could be adversely impacted.
CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
The following subsections describe our most critical accounting estimates, and assumptions. Our accounting policies and recently issued accounting pronouncements 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 Statesgenerally accepted accounting principles. We make certain estimates and assumptions that we believe to be reasonable when preparing these financial statements. These estimates and assumptions involve judgments with respect to numerous factors that are difficult to predict and are beyond management's control. As a result, actual amounts could be materially different from these estimates. We periodically review these critical accounting policies, estimates, assumptions, and the related disclosures with the Audit Committee of the Company's Board of Directors. Revenue Recognition. Revenue is recognized when obligations under the terms of the contract are satisfied and control of the promised products or services has transferred to the Customer. Revenues are measured at the amount of consideration that we expect to be paid in exchange for the products or services. Product revenue is recognized when control passes to the Customer, which is generally based on contract or shipping terms. Service revenue is recognized when the Customer benefits from the service, which occurs either upon completion of the service or as it is provided to the Customer. Our Customers include end users as well as dealers and distributors who market and sell our products. Our revenue is not contingent upon resale by the dealer or distributor, and we have no further obligations related to bringing about resale. Our standard return and restocking fee policies are applied to sales of products. Shipping and handling costs charged to Customers are included in Product revenues. The associated expenses are treated as fulfillment costs and are included in Cost of revenues. Revenues are reported net of sales and value-added taxes collected from Customers. We have individual Customer contracts that offer discounted pricing. Dealers and distributors may be offered sales incentives in the form of rebates. We reduce revenue for discounts and estimated returns, rebates, and other similar allowances in the same period the related revenues are recorded. The reduction in revenue for these items is estimated based on historical experience and trend analysis to the extent that it is probable that a significant reversal of revenue will not occur. Estimated returns are recorded gross on the Consolidated Balance Sheets. In transactions that contain multiple performance obligations, such as when products, maintenance services, and other services are combined, we recognize revenue as each product is delivered or service is provided to the Customer. We allocate the total arrangement consideration to each performance obligation based on its relative standalone selling price, which is the price for the product or service when it is sold separately. Payment terms vary by the type and location of the Customer and the products or services offered. Generally, the time between when revenue is recognized and when payment is due is not significant. We do not evaluate whether the selling price contains a financing component for contracts that have a duration of less than one year.
We do not capitalize sales commissions since substantially all of our sales commission programs have an amortization period of one year or less.
Certain costs to fulfill a contract are capitalized and amortized over the term of the contract if they are recoverable, directly related to a contract and generate resources that we will use to fulfill the contract in the future. At
March 31, 2022assets related to costs to fulfill a contract were not material to our Consolidated Financial Statements. Allowance for Doubtful Accounts Receivable. We maintain an allowance for uncollectible accounts receivable for estimated losses in the collection of amounts owed by Customers. We estimate the allowance based on analyzing a number of factors, including amounts written off historically, Customer payment practices, and general economic conditions. We also analyze significant Customer accounts on a regular basis and record a specific allowance when we become aware of a specific Customer's inability to pay. As a result, the related accounts receivable are reduced to an amount that we reasonably believe is collectible. These analyses require 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. Inventories and Reserves. Inventories are stated at the lower of their cost and net realizable value determined by the first-in, first-out ("FIFO") cost method. Inventory costs include material, labor, and overhead. 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 46
market conditions differ from those expected and our estimates prove inaccurate, we may be required to write down the value of inventory and record an adjustment to the cost of goods.
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 assess assets for impairment, we make certain judgments and estimates, including interpreting current economic indicators and market valuations, evaluating our strategic plans with respect to operations, historical and expected performance of operations and other factors. If we incorrectly anticipate these factors or if unforeseen events occur, our results of operations could be materially adversely affected.
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. Management's 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 2022 no indicators of impairment were identified. We evaluate indefinite lived intangible assets annually, or when evidence of potential impairment exists. We evaluate several qualitative indicators and assumptions, and trends that influence the valuation of the assets to determine if any evidence of potential impairment exists. Income Taxes. Our provision for income taxes is based on our current period income, changes in deferred income tax assets and liabilities, income tax rates, changes in uncertain tax benefits, and tax planning opportunities available to us in the various jurisdictions in which we operate. Tax laws are complex and subject to different interpretations by the taxpayer and the respective governmental taxing authorities. We use judgment in determining our annual effective income tax rate and evaluating our tax positions. We prepare and file tax returns based on our interpretation of tax laws and regulations, and we record estimates based on these judgments and interpretations. We cannot be sure that the tax authorities will agree with all of the tax positions taken by us. The actual income tax liability for each jurisdiction in any year can, in some instances, ultimately be determined be several years after the tax return is filed and the financial statements are published. We evaluate our tax positions using the recognition threshold and measurement attribute in accordance with current accounting guidance. We determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, we presume that the position will be examined by the appropriate taxing authority and that the taxing authority will have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The appropriate unit of account for determining what constitutes an individual tax position, and whether the more-likely-than-not recognition threshold is met for a tax position, is a matter of judgment based on the individual facts and circumstances of that position evaluated in light of all available evidence. We review and adjust our tax estimates periodically because of ongoing examinations by and settlements with the various taxing authorities, as well as changes in tax laws, regulations and precedent. 47
We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. We regularly review our deferred tax assets for recoverability and establish a valuation allowance based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences, and the implementation of tax planning strategies. If we are unable to generate sufficient future taxable income in certain tax jurisdictions, or if there is a material change in the effective income tax rates or time period within which the underlying temporary differences become taxable or deductible, we could be required to increase our valuation allowance, which would increase our effective income tax rate and could result in an adverse impact on our consolidated financial position, results of operations, or cash flows. We believe that adequate accruals have been made for income taxes. Differences between the estimated and actual amounts determined upon ultimate resolution, individually or in the aggregate, are not expected to have a material adverse effect on our consolidated financial position, but could possibly be material to our consolidated results of operations or cash flows for any one period.
Additional information regarding income taxes is included in Note 8 to our Consolidated Financial Statements titled “Income Taxes”.
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, 2022and 2021 was $26.1 millionand $23.3 million, respectively. We are also self-insured for employee medical claims. We estimate a liability for incurred but not reported claims based upon recent claims experience. Our self-insured liabilities contain uncertainties because management must make assumptions and apply judgments to estimate the ultimate cost to settle reported claims and claims incurred but not reported as of the balance sheet date. If actual results are not consistent with these assumptions and judgments, we could be exposed to additional costs in subsequent periods. Contingencies. We are, and will likely continue to be, involved in a number of legal proceedings, government investigations, and claims, which we believe generally arise in the course of our business, given our size, history, complexity, and the nature of our business, products, Customers, regulatory environment, and industries in which we participate. These legal proceedings, investigations and claims generally involve a variety of legal theories and allegations, including, without limitation, personal injury (e.g., slip and falls, burns, vehicle accidents), product liability or regulation (e.g., based on product operation or claimed malfunction, failure to warn, failure to meet specification, or failure to comply with regulatory requirements), product exposure (e.g., claimed exposure to chemicals, asbestos, contaminants, radiation), property damage (e.g., claimed damage due to leaking equipment, fire, vehicles, chemicals), commercial claims (e.g., breach of contract, economic loss, warranty, misrepresentation), financial (e.g., taxes, reporting), employment (e.g., wrongful termination, discrimination, benefits matters), and other claims for damage and relief. We record a liability for such contingencies to the extent we conclude that their occurrence is both probable and estimable. We consider many factors in making these assessments, including the professional judgment of experienced members of management and our legal counsel. We have made estimates as to the likelihood of unfavorable outcomes and the amounts of such potential losses. In our opinion, the ultimate outcome of these proceedings and claims is not anticipated to have a material adverse affect on our consolidated financial position, results of operations, or cash flows. However, the ultimate outcome of proceedings, government investigations, and claims is unpredictable and actual results could be materially different from our estimates. We record expected recoveries under applicable insurance contracts when we are assured of recovery. Refer to Note 10 of our consolidated financial statements titled, "Commitments and Contingencies" for additional information. We are subject to taxation from federal, state and local, and foreign jurisdictions. Tax positions are settled primarily through the completion of audits within each individual tax jurisdiction or the closing of a statute of limitation. Changes in applicable tax law or other events may also require us to revise past estimates. The IRSof the United Statesroutinely 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." 48
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 Statesretirees. 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, 2022projected benefit obligations and the fiscal 2022 net periodic benefit costs is as follows: U.S. Post- Synergy Health Synergy Health Synergy Health Synergy Health Harwell Dosimeters Retirement plc Isotron BV Daniken AG Radeberg Allershausen Ltd Benefits Plan Funding Status Funded Funded Unfunded Unfunded Unfunded Funded Unfunded Assumptions used to determine March 31, 2022 Benefit obligations: Discount rate 2.80 % 1.80 % 0.90 % 1.60 % 1.50 % 2.85 % 3.25 % Assumptions used to determine fiscal 2022 Net periodic benefit costs: Discount rate 2.10 % 0.90 % 1.00 % 1.50 % 2.00 % 2.85 % 2.50 % Expected return on plan assets 3.60 % 0.90 % 1.00 % n/a n/a n/a n/a NA - Not applicable. We develop our expected long-term rate of return on plan assets a ssumptions 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 2022 benefit costs by less than $0.1 million. We develop our discount rate assumptions by evaluating input from third-party professional advisers, taking into consideration the current yield on country specific investment grade long-term bonds which provide for similar cash flow streams as our projected benefit obligations. Generally, the projected benefit obligations and the net periodic benefit costs both increase as the discount rate assumption decreases. Holding all other assumptions constant, lowering the discount rate assumption for our defined benefit pension plans and for the other post-retirement benefits plan by 50 basis points would have decreased the fiscal 2022 net periodic benefit costs by less than $0.1 millionand would have increased the projected benefit obligations by approximately $11.2 millionat March 31, 2022. 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, 2022: 100 Basis Point (dollars in thousands) Increase Decrease Effect on total service and interest cost components $ - $ - Effect on postretirement benefit obligation 2 (2) 49
-------------------------------------------------------------------------------- Table of Contents 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
$57.7 millionin fiscal 2022, $26.0 millionin fiscal 2021 and $23.8 millionin fiscal 2020. Note 14 to our consolidated financial statements titled, "Share-Based Compensation," contains additional information about our share-based compensation plans. 50
This Form 10-K may contain statements concerning certain trends, expectations, forecasts, estimates, or other forward-looking information affecting or relating to STERIS or its industry, products or activities that are intended to qualify for the protections afforded "forward-looking statements" under the Private Securities Litigation Reform Act of 1995 and other laws and regulations. Forward-looking statements speak only as to the date the statement is made and may be identified by the use of forward-looking terms such as "may," "will," "expects," "believes," "anticipates," "plans," "estimates," "projects," "targets," "forecasts," "outlook," "impact," "potential," "confidence," "improve," "optimistic," "deliver," "orders," "backlog," "comfortable," "trend", and "seeks," or the negative of such terms or other variations on such terms or comparable terminology. Many important factors could cause actual results to differ materially from those in the forward-looking statements including, without limitation, disruption of production or supplies, changes in market conditions, political events, pending or future claims or litigation, competitive factors, technology advances, actions of regulatory agencies, and changes in laws, government regulations, labeling or product approvals or the application or interpretation thereof. Many of these important factors are outside of STERIS's control. No assurances can be provided as to any result or the timing of any outcome regarding matters described in STERIS's securities filings or otherwise with respect to any regulatory action, administrative proceedings, government investigations, litigation, warning letters, cost reductions, business strategies, earnings or revenue trends or future financial results. References to products are summaries only and should not be considered the specific terms of the product clearance or literature. Unless legally required, STERIS does not undertake to update or revise any forward-looking statements even if events make clear that any projected results, express or implied, will not be realized. Other potential risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements include, without limitation, (a) the impact of the COVID-19 pandemic or similar public health crises on STERIS's operations, supply chain, material and labor costs, performance, results, prospects, or value, (b) STERIS's ability to achieve the expected benefits regarding the accounting and tax treatments of the redomiciliation to
Ireland("Redomiciliation"), (c) operating costs, Customer loss and business disruption (including, without limitation, difficulties in maintaining relationships with employees, Customers, clients or suppliers) being greater than expected, (d) STERIS's ability to successfully integrate the businesses of Cantel Medical into our existing businesses, including unknown or inestimable liabilities, or increases in expected integration costs or difficulties in connection with the integration of Cantel Medical (e) 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, (f) changes in tax laws or interpretations that could increase our consolidated tax liabilities, including changes in tax laws that would result in STERIS being treated as a domestic corporation for United Statesfederal tax purposes, (g) the potential for increased pressure on pricing or costs that leads to erosion of profit margins, (h) the possibility that market demand will not develop for new technologies, products or applications or services, or business initiatives will take longer, cost more or produce lower benefits than anticipated, (i) the possibility that application of or compliance with laws, court rulings, certifications, regulations, regulatory actions, including without limitation any of the same relating to FDA, EPAor other regulatory authorities, government investigations, the outcome of any pending or threatened FDA, EPAor other regulatory warning notices, actions, requests, inspections or submissions, or other requirements or standards may delay, limit or prevent new product or service introductions, affect the production, supply and/or marketing of existing products or services or otherwise affect STERIS's performance, results, prospects or value, (j) the potential of international unrest, including the Russia- Ukrainemilitary conflict, economic downturn or effects of currencies, tax assessments, tariffs and/or other trade barriers, adjustments or anticipated rates, raw material costs or availability, benefit or retirement plan costs, or other regulatory compliance costs, (k) the possibility of reduced demand, or reductions in the rate of growth in demand, for STERIS's products and services, (l) the possibility of delays in receipt of orders, order cancellations, or delays in the manufacture or shipment of ordered products, due to supply chain issues or otherwise,or in the provision of services, (m) 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 may adversely impact STERIS's performance, results, prospects or value, (n) the impact on STERIS and its operations, or tax liabilities, of Brexit or the exit of other member countries from the EU, and the Company's ability to respond to such impacts, (o) the impact on STERIS and its operations of any legislation, regulations or orders, including but not limited to any new trade or tax legislation, regulations or orders, that may be implemented by the U.S.administration or Congress, or of any responses thereto, (p) the possibility that anticipated financial results or benefits of recent acquisitions, including the acquisition of Cantel Medical and Key Surgical, or of STERIS's restructuring efforts, or of recent divestitures, including anticipated revenue, productivity improvement, cost savings, growth synergies and other anticipated benefits, will not be realized or will be other than anticipated, (q) the increased level of STERIS's indebtedness incurred in connection with the acquisition of Cantel Medical limiting financial flexibility or increasing future borrowing costs, (r) rating agency actions or other occurrences that could affect STERIS's existing debt or future ability to borrow funds at rates favorable to STERIS or at all, (s) the potential impact of the acquisition of Cantel Medical on relationships, including with suppliers, Customers, employees and regulators, and credit availability, as well as the ability of STERIS's Customers and suppliers to adequately access the credit markets when needed. 51
© Edgar Online, source