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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
 
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended September 30, 2022

or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______            
Commission File Number 001-38848
STERIS plc
(Exact name of registrant as specified in its charter)
Ireland 98-1455064
(State or other jurisdiction of
incorporation or organization)
 (IRS Employer
Identification No.)
70 Sir John Rogerson's Quay,Dublin 2,Ireland D02 R296
(Address of principal executive offices) (Zip code)
353 1 232 2000
(Registrant’s telephone number, including area code)
_______________________________________________
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each classTrading symbol(s)Name of Exchange on Which Registered
Ordinary Shares, $0.001 par valueSTENew York Stock Exchange
2.700% Senior Notes due 2031STE/31New York Stock Exchange
3.750% Senior Notes due 2051STE/51New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company,” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer  Accelerated Filer
Non-Accelerated Filer 
  Smaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  x
The number of ordinary shares outstanding as of November 4, 2022: 99,822,953
1

STERIS plc and Subsidiaries
Form 10-Q
Index
 

2

PART 1—FINANCIAL INFORMATION
As used in this Quarterly Report on Form 10-Q, STERIS plc and its consolidated subsidiaries together are called “STERIS,” the “Company,” “we,” “us,” or “our,” unless otherwise noted.
ITEM 1.    FINANCIAL STATEMENTS

STERIS PLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
 September 30,
2022
March 31,
2022
 (Unaudited) 
Assets
Current assets:
Cash and cash equivalents$258,259 $348,320 
Accounts receivable (net of allowances of $22,196 and $24,371 respectively)
780,113 799,041 
Inventories, net644,936 574,999 
Prepaid expenses and other current assets204,991 156,637 
Total current assets1,888,299 1,878,997 
Property, plant, and equipment, net1,572,398 1,552,576 
Lease right-of-use assets, net174,073 188,480 
Goodwill3,705,140 4,404,343 
Intangibles, net3,077,492 3,328,537 
Other assets72,234 70,661 
Total assets$10,489,636 $11,423,594 
Liabilities and equity
Current liabilities:
Accounts payable$233,308 $225,737 
Accrued income taxes16,661 26,873 
Accrued payroll and other related liabilities133,839 183,721 
Short-term lease obligations33,968 36,472 
Short-term indebtedness151,000 142,875 
Accrued expenses and other304,039 306,544 
Total current liabilities872,815 922,222 
Long-term indebtedness2,873,936 2,945,481 
Deferred income taxes, net710,087 780,619 
Long-term lease obligations143,451 155,056 
Other liabilities75,900 75,579 
Total liabilities$4,676,189 $4,878,957 
Commitments and contingencies (see Note 8)
Ordinary shares, with $0.001 par value; 500,000 shares authorized; 99,868 and 100,067 ordinary shares issued and outstanding, respectively
4,705,118 4,742,920 
Retained earnings1,695,087 1,999,244 
Accumulated other comprehensive loss(598,148)(209,808)
Total shareholders’ equity5,802,057 6,532,356 
Noncontrolling interests11,390 12,281 
Total equity5,813,447 6,544,637 
Total liabilities and equity$10,489,636 $11,423,594 

See notes to consolidated financial statements.
3

STERIS PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(Unaudited)
 
 Three Months Ended September 30, Six Months Ended September 30,
 2022202120222021
Revenues:
Product$666,394 $685,238 $1,303,470 $1,174,517 
Service534,123 511,747 1,053,538 990,890 
Total revenues1,200,517 1,196,985 2,357,008 2,165,407 
Cost of revenues:
Product351,079 427,484 683,934 698,890 
Service317,103 289,157 622,941 559,891 
Total cost of revenues668,182 716,641 1,306,875 1,258,781 
Gross profit532,335 480,344 1,050,133 906,626 
Operating expenses:
Selling, general, and administrative323,195 344,799 657,821 738,551 
Goodwill impairment loss490,565  490,565  
Research and development24,928 18,832 49,679 37,024 
Restructuring expenses62 210 88 224 
Total operating expenses838,750 363,841 1,198,153 775,799 
Income (loss) from operations(306,415)116,503 (148,020)130,827 
Non-operating expenses, net:
Interest expense26,123 23,036 48,797 44,848 
Fair value adjustment related to convertible debt, premium liability 4,883  27,806 
Interest (income) and miscellaneous expense524 (1,023)1,294 (2,457)
Total non-operating expenses, net26,647 26,896 50,091 70,197 
Income (loss) before income tax expense(333,062)89,607 (198,111)60,630 
Income tax expense (benefit)(17,831)19,982 6,365 12,907 
Net income (loss)(315,231)69,625 (204,476)47,723 
Less: Net income (loss) attributable to noncontrolling interests54 (186)(453)(281)
Net income (loss) attributable to shareholders$(315,285)$69,811 $(204,023)$48,004 
Net income (loss) per share attributed to shareholders
Basic$(3.15)$0.70 $(2.04)$0.51 
Diluted$(3.15)$0.69 $(2.04)$0.50 
Cash dividends declared per share ordinary outstanding$0.47 $0.43 $0.90 $0.83 




See notes to consolidated financial statements.

4

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


Three Months Ended September 30, Six Months Ended September 30,
2022202120222021
Net income (loss)$(315,231)$69,625 $(204,476)$47,723 
  Less: Net income (loss) attributable to noncontrolling
  interests
54 (186)(453)(281)
Net income (loss) attributable to shareholders(315,285)69,811 (204,023)48,004 
Other comprehensive income (loss)
Amortization of pension and postretirement benefit plan costs, (net of taxes of $(10), $174, $(16) and $348, respectively)
27 (507)56 (1,014)
Change in cumulative currency translation adjustment(209,802)(68,409)(388,396)(43,476)
Total other comprehensive income (loss)(209,775)(68,916)(388,340)(44,490)
Comprehensive income (loss)$(525,060)$895 $(592,363)$3,514 


See notes to consolidated financial statements.



5

STERIS PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 Six Months Ended September 30,
 20222021
Operating activities:
Net income$(204,476)$47,723 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion, and amortization272,742 201,663 
Deferred income taxes(62,898)3,129 
Share-based compensation expense20,511 37,910 
Loss on the disposal of property, plant, equipment, and intangibles, net(50)537 
Loss on sale of businesses, net4,777 404 
Fair value adjustment related to convertible debt, premium liability 27,806 
Amortization of inventory fair value adjustments2,477 85,154 
Goodwill impairment loss490,565  
Other items8,840 7,986 
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable, net(2,976)15,932 
Inventories, net(97,987)(57,897)
Other current assets1,269 (66,337)
Accounts payable15,675 (260)
Accruals and other, net(112,899)(34,984)
Net cash provided by operating activities335,570 268,766 
Investing activities:
Purchases of property, plant, equipment, and intangibles, net(198,701)(133,369)
Proceeds from the sale of property, plant, equipment and intangibles1,323 387 
Proceeds from the sale of businesses5,228  
Acquisition of businesses, net of cash acquired(15,192)(547,353)
Net cash used in investing activities(207,342)(680,335)
Financing activities:
Proceeds from issuance of senior public notes 1,350,000 
Proceeds from term loan 650,000 
Payments on long-term obligations (721,284)
Payments on convertible debt (371,361)
Payments on term loans(126,875)(125,000)
Proceeds (payments) under credit facilities, net99,111 (65,021)
Deferred financing fees and debt issuance costs (17,343)
Acquisition related deferred or contingent consideration(153)(25,262)
Repurchases of ordinary shares(69,922)(24,751)
Cash dividends paid to ordinary shareholders(89,981)(77,107)
Distributions to noncontrolling interest (997)
Stock option and other equity transactions, net1,458 7,829 
Net cash provided by (used in) financing activities(186,362)579,703 
Effect of exchange rate changes on cash and cash equivalents(31,927)(5,171)
Increase (decrease) in cash and cash equivalents(90,061)162,963 
Cash and cash equivalents at beginning of period348,320 220,531 
Cash and cash equivalents at end of period$258,259 $383,494 

See notes to consolidated financial statements.
6



STERIS PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except per share amounts)
(Unaudited)

Three Months Ended September 30, 2022
Ordinary SharesRetained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Non-controlling
Interest
Total
Equity
  NumberAmount 
Balance at June 30, 2022100,090 $4,738,746 $2,057,175 $(388,373)$11,580 $6,419,128 
Comprehensive income:
Net income (loss)  (315,285) 54 (315,231)
Other comprehensive (loss)   (209,775) (209,775)
Repurchases of ordinary shares(231)(45,413)170   (45,243)
Equity compensation programs and other9 11,785    11,785 
Cash dividends $0.47 per ordinary share
  (46,973)  (46,973)
Other changes in noncontrolling interest    (244)(244)
Balance at September 30, 202299,868 $4,705,118 $1,695,087 $(598,148)$11,390 $5,813,447 


Six Months Ended September 30, 2022
Ordinary SharesRetained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Non-controlling
Interest
Total
Equity
  NumberAmount 
Balance at March 31, 2022100,067 $4,742,920 $1,999,244 $(209,808)$12,281 $6,544,637 
Comprehensive income:
Net (loss)  (204,023) (453)(204,476)
Other comprehensive (loss)   (388,340) (388,340)
Repurchases of ordinary shares(357)(59,769)(10,153)  (69,922)
Equity compensation programs and other158 21,967    21,967 
Cash dividends – $0.90 per ordinary share
  (89,981)  (89,981)
Other changes in noncontrolling interest    (438)(438)
Balance at September 30, 202299,868 $4,705,118 $1,695,087 $(598,148)$11,390 $5,813,447 















7


STERIS PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except per share amounts)
(Unaudited)

Three Months Ended September 30, 2021
Ordinary SharesRetained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Non-controlling
Interest
Total
Equity
  NumberAmount 
Balance at June 30, 202199,746 $4,736,838 $1,874,559 $(36,817)$10,435 $6,585,015 
Comprehensive income:
Net income (loss)— — 69,811 — (186)69,625 
Other comprehensive (loss)— — — (68,916)— (68,916)
Repurchases of ordinary shares(71)(5,866)(8,215)— — (14,081)
Equity compensation programs and other236 17,209 — — — 17,209 
Cash dividends – $0.43 per ordinary share
— — (42,959)— — (42,959)
Distributions to noncontrolling interest— — — — (997)(997)
Other changes in noncontrolling interest— — — — 35 35 
Balance at September 30, 202199,911 $4,748,181 $1,893,196 $(105,733)$9,287 $6,544,931 

Six Months Ended September 30, 2021
Ordinary SharesRetained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Non-controlling
Interest
Total
Equity
  NumberAmount 
Balance at March 31, 202185,353 $2,002,825 $1,939,408 $(61,243)$10,478 $3,891,468 
Comprehensive income:
Net income (loss)— — 48,004 — (281)47,723 
Other comprehensive (loss)— — — (44,490)— (44,490)
Repurchases of ordinary shares(131)(7,642)(17,109)— — (24,751)
Equity compensation programs and other392 45,508 — — — 45,508 
Cash dividends – $0.83 per ordinary share
— — (77,107)— — (77,107)
Issuance of shares for acquisition of Cantel Medical LLC ("Cantel")14,297 2,689,317 — — — 2,689,317 
Consideration related to equity component of Cantel convertible debt — 175,555 — — — 175,555 
Consideration related to Cantel equity compensation programs — 18,173 — — — 18,173 
Reclassification to Cantel convertible debt, premium liability — (175,555)— — — (175,555)
Distributions to noncontrolling interest — — — — (997)(997)
Other changes in noncontrolling interest— — — — 87 87 
Balance at September 30, 202199,911 $4,748,181 $1,893,196 $(105,733)$9,287 $6,544,931 






8

STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
For the Three and Six Months Ended September 30, 2022 and 2021
(dollars in thousands, except as noted)
1. Nature of Operations and Summary of Significant Accounting Policies
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.
We operate and report in four reportable business segments: Healthcare, Applied Sterilization Technologies, Life Sciences, and Dental. We describe our business segments in Note 9 titled "Business Segment Information."
Our fiscal year ends on March 31. References in this Quarterly Report to a particular “year” or “year-end” mean our fiscal year. The significant accounting policies applied in preparing the accompanying consolidated financial statements of the Company are summarized below:
Interim Financial Statements
We prepared the accompanying unaudited consolidated financial statements of the Company according to accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and the instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. This means that they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Our unaudited interim consolidated financial statements contain all material adjustments (including normal recurring accruals and adjustments) management believes are necessary to fairly state our financial condition, results of operations, and cash flows for the periods presented.
These interim consolidated financial statements should be read together with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended March 31, 2022, which was filed with the Securities and Exchange Commission ("SEC") on May 31, 2022. The Consolidated Balance Sheet at March 31, 2022 was derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.
Principles of Consolidation
We use the consolidation method to report our investment in our subsidiaries. Therefore, the accompanying consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. We eliminate inter-company accounts and transactions when we consolidate these accounts. Investments in equity of unconsolidated affiliates, over which the Company has significant influence, but not control, over the financial and operating polices, are accounted for primarily using the equity method. These investments are immaterial to the Company's consolidated financial statements.
Use of Estimates
We make certain estimates and assumptions when preparing financial statements according to U.S. GAAP that affect the reported amounts of assets and liabilities at the financial statement dates and the reported amounts of revenues and expenses during the periods presented. These estimates and assumptions involve judgments with respect to many factors that are difficult to predict and are beyond our control. Actual results could be materially different from these estimates. We revise the estimates and assumptions as new information becomes available. This means that operating results for the three and six month periods ended September 30, 2022 are not necessarily indicative of results that may be expected for future quarters or for the full fiscal year ending March 31, 2023.
Revenue Recognition and Associated Liabilities
Revenue is recognized when obligations under the terms of the contract are satisfied and control of the promised products or services have transferred to the Customer. Revenues are measured at the amount of consideration that we expect to be paid in exchange for the products or services. Product revenue is recognized when control passes to the Customer, which is generally based on contract or shipping terms. Service revenue is recognized when the Customer benefits from the service, which occurs either upon completion of the service or as it is provided to the Customer. Our Customers include end users as well as dealers and distributors who market and sell our products. Our revenue is not contingent upon resale by the dealer or distributor, and
9

STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)
For the Three and Six Months Ended September 30, 2022 and 2021
(dollars in thousands, except as noted)


we have no further obligations related to bringing about resale. Our standard return and restocking fee policies are applied to sales of products. Shipping and handling costs charged to Customers are included in Product revenues. The associated expenses are treated as fulfillment costs and are included in Cost of revenues. Revenues are reported net of sales and value-added taxes collected from Customers.
We have individual Customer contracts that offer discounted pricing. Dealers and distributors may be offered sales incentives in the form of rebates. We reduce revenue for discounts and estimated returns, rebates, and other similar allowances in the same period the related revenues are recorded. The reduction in revenue for these items is estimated based on historical experience and trend analysis to the extent that it is probable that a significant reversal of revenue will not occur. Estimated returns are recorded gross on the Consolidated Balance Sheets.
In transactions that contain multiple performance obligations, such as when products, maintenance services, and other services are combined, we recognize revenue as each product is delivered or service is provided to the Customer. We allocate the total arrangement consideration to each performance obligation based on its relative standalone selling price, which is the price for the product or service when it is sold separately.
Payment terms vary by the type and location of the Customer and the products or services offered. Generally, the time between when revenue is recognized and when payment is due is not significant. We do not evaluate whether the selling price contains a financing component for contracts that have a duration of less than one year.
We do not capitalize sales commissions as substantially all of our sales commission programs have an amortization period of one year or less.
Certain costs to fulfill a contract are capitalized and amortized over the term of the contract if they are recoverable, directly related to a contract and generate resources that we will use to fulfill the contract in the future. At September 30, 2022, assets related to costs to fulfill a contract were not material to our consolidated financial statements.
Refer to Note 9, titled "Business Segment Information" for disaggregation of revenue.
Product Revenue
Product revenues consist of revenues generated from sales of consumables and capital equipment. These contracts are primarily based on a Customer’s purchase order and may include a Distributor, Dealer or Group Purchasing Organization ("GPO") agreement. We recognize revenue for sales of product when control passes to the Customer, which generally occurs either when the products are shipped or when they are received by the Customer. Revenue related to capital equipment products is deferred until installation is complete if the capital equipment and installation are highly integrated and form a single performance obligation.
Service Revenue
Within our Healthcare and Life Sciences segments, service revenues include revenue generated from parts and labor associated with the maintenance, repair and installation of capital equipment. These contracts are primarily based on a Customer’s purchase order and may include a Distributor, Dealer, or Group Purchasing Organization ("GPO") agreement. For maintenance, repair and installation of capital equipment, revenue is recognized upon completion of the service. Healthcare service revenues also include outsourced reprocessing services and instrument repairs. Contracts for outsourced reprocessing services are primarily based on an agreement with a Customer, ranging in length from several months to 15 years. Outsourced reprocessing services revenue is recognized ratably over the contract term using a time-based input measure, adjusted for volume and other performance metrics, to the extent that it is probable that a significant reversal of revenue will not occur. Contracts for instrument repairs are primarily based on a Customer’s purchase order, and the associated revenue is recognized upon completion of the repair.
We also offer preventive maintenance and separately priced extended warranty agreements to our Customers, which require us to maintain and repair our products over the duration of the contract. Generally, these contract terms are cancellable without penalty and range from one to five years. Amounts received under these Customer contracts are initially recorded as a service liability and are recognized as service revenue ratably over the contract term using a time-based input measure.
Within our Applied Sterilization Technologies segment, service revenues include contract sterilization and laboratory services. Sales contracts for contract sterilization and laboratory services are primarily based on a Customer’s purchase order and associated Customer agreement and revenues are generally recognized upon completion of the service.
10

STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)
For the Three and Six Months Ended September 30, 2022 and 2021
(dollars in thousands, except as noted)


Contract Liabilities
Payments received from Customers are based on invoices or billing schedules as established in contracts with Customers. Deferred revenue is recorded when payment is received in advance of performance under the contract. Deferred revenue is recognized as revenue upon completion of the performance obligation, which generally occurs within one year. During the first six months of fiscal 2023, $67,218 of the March 31, 2022 deferred revenue balance was recorded as revenue. During the first six months of fiscal 2022, $40,360 of the March 31, 2021 deferred revenue balance was recorded as revenue.
Refer to Note 6, titled "Additional Consolidated Balance Sheet Information" for deferred revenue balances.
Service Liabilities
Payments received in advance of performance for cancellable preventive maintenance and separately priced extended warranty contracts are recorded as service liabilities. Service liabilities are recognized as revenue as performance is rendered under the contract.
Refer to Note 6, titled "Additional Consolidated Balance Sheet Information" for service liability balances.
Remaining Performance Obligations
Remaining performance obligations reflect only the performance obligations related to agreements for which we have a firm commitment from a Customer to purchase and exclude variable consideration related to unsatisfied performance obligations. With regard to products, these remaining performance obligations include capital equipment and consumable orders which have not shipped. With regard to service, these remaining performance obligations primarily include installation, certification, and outsourced reprocessing services. As of September 30, 2022, the transaction price allocated to remaining performance obligations was approximately $1,561,000. We expect to recognize approximately 62% of the transaction price within one year and approximately 29% beyond one year. The remainder has yet to be scheduled for delivery.
Recently Issued Accounting Standards Impacting the Company

Recently Issued Accounting Standards Impacting the Company are presented in the following table:
StandardDate of IssuanceDescriptionDate of AdoptionEffect on the financial statements or other significant matters
Standards that have been adopted in fiscal 2023
ASU 2021-08 "Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.October 2021The standard provides guidance to improve the accounting for acquired revenue contracts with Customers in a business combination by addressing diversity in practice and inconsistency related to the recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer. First Quarter Fiscal 2023We adopted this standard effective April 1, 2022 with no material impact to our consolidated financial statements.
A detailed description of our significant and critical accounting policies, estimates, and assumptions is included in our consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2022, which was filed with the SEC on May 31, 2022. Our significant and critical accounting policies, estimates, and assumptions have not changed materially from March 31, 2022.








11

STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)
For the Three and Six Months Ended September 30, 2022 and 2021
(dollars in thousands, except as noted)


2. Business Acquisitions
During the second quarter of fiscal 2023, we completed a tuck-in acquisition, which continued to expand our product and service offerings in the Healthcare segment. Total aggregate consideration was approximately $21,892, including contingent deferred consideration of $6,700. Acquisition related costs are reported in the selling, general, and administrative expense line of the Consolidated Statements of Income and such amounts are not material. Purchase price allocation will be finalized within a measurement period not to exceed one year from closing.
On June 2, 2021, we acquired all outstanding equity interests in Cantel Medical LLC ("Cantel") through a U.S. subsidiary.The total consideration for Cantel common stock and stock equivalents was $3,599,471. We funded the cash portion of the transaction consideration and repayment of a significant amount of Cantel’s existing debt obligations with a portion of the proceeds from new debt, which is described in our Annual Report on Form 10-K for the year ended March 31, 2022, which was filed with the SEC on May 31, 2022.
In addition to the total purchase consideration, STERIS assumed and repaid $721,284 of existing Cantel debt obligations and assumed Cantel's obligations associated with convertible senior notes issued on May 15, 2020, which is described in our Annual Report on Form 10-K for the year ended March 31, 2022, which was filed with the SEC on May 31, 2022.
Fair Value of Assets Acquired and Liabilities Assumed
The table below presents the allocation of fair values of assets acquired and liabilities assumed on the acquisition date.
March 31, 2022
(As previously reported)AdjustmentsFinal
Cash$169,073 $ $169,073 
Accounts receivable172,226  172,226 
Inventory249,221  249,221 
Property, plant and equipment267,360 (1,282)266,078 
Lease right-of-use assets, net59,720  59,720 
Other assets72,864  72,864 
Intangible assets2,942,000  2,942,000 
Goodwill1,522,381 22,088 1,544,469 
Total assets acquired5,454,845 20,806 5,475,651 
Convertible debt, par value168,000  168,000 
Other current liabilities247,549 5,595 253,144 
Long-term lease obligations47,856  47,856 
Deferred income taxes, net670,685 15,211 685,896 
Long-term indebtedness 721,284  721,284 
Total liabilities assumed1,855,374 20,806 1,876,180 
Net assets acquired $3,599,471 $ $3,599,471 
Acquisition and integration expenses totaled $3,844 and $13,676 for the three and six months ended September 30, 2022, respectively. Acquisition and integration expenses totaled $17,404 and $158,400 for the three and six months ended September 30, 2021, respectively. These costs were primarily related to the acquisition and integration of Cantel. Acquisition and integration expenses are reported in the selling, general and administrative expenses line of our Consolidated Statements of Income and include but are not limited to investment banker, advisory, legal, other professional fees, and certain employee-related expenses.
During the second quarter of fiscal 2023, in connection with the preparation of our quarterly consolidated financial statements, we identified and recognized a goodwill impairment loss of $490,565 related to goodwill that arose with respect to assets acquired in the Cantel acquisition. For more information on the impairment loss, see Note 17 to our consolidated financial statements, titled "Goodwill."
For more information on the acquisition of Cantel, refer to our Annual Report on Form 10-K for the year ended March 31, 2022, which was filed with the SEC on May 31, 2022.
12

STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)
For the Three and Six Months Ended September 30, 2022 and 2021
(dollars in thousands, except as noted)


3. Inventories, Net
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. Inventories, net consisted of the following:
 September 30,
2022
March 31,
2022
Raw materials$224,186 $195,035 
Work in process103,072 76,021 
Finished goods357,854 334,880 
Reserve for excess and obsolete inventory(40,176)(30,937)
Inventories, net$644,936 $574,999 

4. Property, Plant and Equipment
Information related to the major categories of our depreciable assets is as follows:
 September 30,
2022
March 31,
2022
Land and land improvements (1)
$81,046 $84,015 
Buildings and leasehold improvements645,364 654,851 
Machinery and equipment909,916 903,649 
Information systems230,571 222,620 
Radioisotope599,197 597,641 
Construction in progress (1)
429,675 356,013 
Total property, plant, and equipment2,895,769 2,818,789 
Less: accumulated depreciation and depletion(1,323,371)(1,266,213)
Property, plant, and equipment, net$1,572,398 $1,552,576 
(1)Land is not depreciated. Construction in progress is not depreciated until placed in service.

13

STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)
For the Three and Six Months Ended September 30, 2022 and 2021
(dollars in thousands, except as noted)


5. Debt
Indebtedness was as follows:
 September 30,
2022
March 31,
2022
Short-term debt
Term Loan, current portion$27,500 $27,500 
Delayed Draw Term Loan, current portion32,500 24,375 
Private Placement Senior Notes 91,000 91,000 
Total short-term debt$151,000 $142,875 
Long-term debt
Private Placement Senior Notes$728,312 $758,726 
Revolving Credit Facility150,932 58,908 
Deferred financing costs(23,433)(25,278)
Term Loan58,750 177,500 
Delayed Draw Term Loan609,375 625,625 
Senior Public Notes 1,350,000 1,350,000 
Total long-term debt$2,873,936 $2,945,481 
Total debt$3,024,936 $3,088,356 
Additional information regarding our indebtedness is included in the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2022, which was filed with the SEC on May 31, 2022.

14

STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)
For the Three and Six Months Ended September 30, 2022 and 2021
(dollars in thousands, except as noted)


6. Additional Consolidated Balance Sheet Information
Additional information related to our Consolidated Balance Sheets is as follows:
 September 30,
2022
March 31,
2022
Accrued payroll and other related liabilities:
Compensation and related items$67,723 $71,878 
Accrued vacation/paid time off12,796 13,669 
Accrued bonuses32,111 64,702 
Accrued employee commissions18,243 30,171 
Other postretirement benefit obligations-current portion1,190 1,190 
Other employee benefit plans obligations-current portion1,776 2,111 
Total accrued payroll and other related liabilities$133,839 $183,721 
Accrued expenses and other:
Deferred revenues$98,224 $110,791 
Service liabilities60,468 51,365 
Self-insured risk reserves-current portion11,913 8,995 
Accrued dealer commissions36,410 31,700 
Accrued warranty13,790 14,108 
Asset retirement obligation-current portion493 1,181 
Accrued interest10,090 10,014 
Other72,651 78,390 
Total accrued expenses and other$304,039 $306,544 
Other liabilities:
Self-insured risk reserves-long-term portion$19,213 $19,213 
Other postretirement benefit obligations-long-term portion6,906 7,335 
Defined benefit pension plans obligations-long-term portion3,523 1,772 
Other employee benefit plans obligations-long-term portion1,168 1,360 
Accrued long-term income taxes10,034 12,225 
Asset retirement obligation-long-term portion11,351 12,362 
Other23,705 21,312 
Total other liabilities$75,900 $75,579 
7. Income Tax Expense
The effective income tax rates for the three month period ended September 30, 2022 and 2021 were 5.4% and 22.3%, respectively. The effective income tax rates for the six month period ended September 30, 2022 and 2021 were (3.2)% and 21.3%, respectively. The fiscal 2023 effective tax rate for the six month period ended September 30, 2022 decreased when compared to the prior year period, primarily due to the tax impact of the goodwill impairment loss recognized on the Dental segment during the second quarter of fiscal 2023.
Income tax expense (benefit) is provided on an interim basis based upon our estimate of the annual effective income tax rate, adjusted each quarter for discrete items. In determining the estimated annual effective income tax rate, we analyze various factors, including projections of our annual earnings and taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes, our ability to use tax credits and net operating loss carry forwards, and available tax planning alternatives.
We operate in numerous taxing jurisdictions and are subject to regular examinations by various United States federal, state and local, as well as foreign jurisdictions. We are no longer subject to United States federal examinations for years before fiscal 2018 and, with limited exceptions, we are no longer subject to United States state and local, or non-United States, income tax
15

STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)
For the Three and Six Months Ended September 30, 2022 and 2021
(dollars in thousands, except as noted)


examinations by tax authorities for years before fiscal 2016. We remain subject to tax authority audits in various jurisdictions wherever we do business.
In the fourth quarter of fiscal 2021, we completed an appeals process with the U.S. Internal Revenue Service (the “IRS”) regarding proposed audit adjustments related to deductibility of interest paid on intercompany debt for fiscal years 2016 and 2017. An agreement was reached on final interest rates, which also impacts subsequent years through 2020. We estimate the total federal, state, and local tax impact of the settlement to be approximately $12,000 for the fiscal years 2016 through 2020, of which approximately $7,500 has been paid through September 30, 2022.
In May 2021, we received two notices of proposed tax adjustment from the IRS regarding deemed dividend inclusions and associated withholding tax. The notices relate to the fiscal and calendar year 2018. The IRS adjustments would result in a cumulative tax liability of approximately $50,000. We are contesting the IRS’s assertions, and intend to pursue available remedies such as appeals and litigation, if necessary. We have not established reserves related to these notices. An unfavorable outcome is not expected to have a material adverse impact on our consolidated financial position but could be material to our consolidated results of operations and cash flows for any one period.
8. Commitments and Contingencies
We are, and will likely continue to be, involved in a number of legal proceedings, government investigations, and claims, which we believe generally arise in the course of our business, given our size, history, complexity, and the nature of our business, products, Customers, regulatory environment, and industries in which we participate. These legal proceedings, investigations and claims generally involve a variety of legal theories and allegations, including, without limitation, personal injury (e.g., slip and falls, burns, vehicle accidents), product liability or regulation (e.g., based on product operation or claimed malfunction, failure to warn, failure to meet specification, or failure to comply with regulatory requirements), product exposure (e.g., claimed exposure to chemicals, gases, asbestos, contaminants, radiation), property damage (e.g., claimed damage due to leaking equipment, fire, vehicles, chemicals), commercial claims (e.g., breach of contract, economic loss, warranty, misrepresentation), financial (e.g., taxes, reporting), employment (e.g., wrongful termination, discrimination, benefits matters), and other claims for damage and relief.
We believe we have adequately reserved for our current litigation and claims that are probable and estimable, and further believe that the ultimate outcome of these pending lawsuits and claims will not have a material adverse effect on our consolidated financial position or results of operations taken as a whole. Due to their inherent uncertainty, however, there can be no assurance of the ultimate outcome or effect of current or future litigation, investigations, claims or other proceedings (including without limitation the matters discussed below). For certain types of claims, we presently maintain insurance coverage for personal injury and property damage and other liability coverages in amounts and with deductibles that we believe are prudent, but there can be no assurance that these coverages will be applicable or adequate to cover adverse outcomes of claims or legal proceedings against us.
Civil, criminal, regulatory or other proceedings involving our products or services could possibly result in judgments, settlements or administrative or judicial decrees requiring us, among other actions, to pay damages or fines or effect recalls, or be subject to other governmental, Customer or other third party claims or remedies, which could materially effect our business, performance, prospects, value, financial condition, and results of operations.
For additional information regarding these matters, see the following portions of our Annual Report on Form 10-K for the year ended March 31, 2022, which was filed with the SEC on May 31, 2022, Item 1 titled "Business - Information with respect to our Business in General - Government Regulation" and the "Risk Factors" in Item 1A titled "Product and service related regulations and claims."
From time to time, STERIS is also involved in legal proceedings as a plaintiff involving contract, patent protection, and other claims asserted by us. Gains, if any, from these proceedings are recognized when they are realized.
We are subject to taxation from United States federal, state and local, and non-U.S. jurisdictions. Tax positions are settled primarily through the completion of audits within each individual jurisdiction or the closing of statutes of limitation. Changes in applicable tax law or other events may also require us to revise past estimates. We describe income taxes further in Note 7 to our consolidated financial statements titled, “Income Tax Expense” in this Quarterly Report on Form 10-Q.



16

STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)
For the Three and Six Months Ended September 30, 2022 and 2021
(dollars in thousands, except as noted)


9. Business Segment Information
We 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.
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 ("AST") segment is a third-party service provider for contract sterilization, as well as testing services needed to validate sterility services for medical device and pharmaceutical manufacturers. Our technology-neutral offering supports Customers every step of the way, from testing through 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 income that is consistent with the way management operates and views the business. The accounting policies for reportable segments are the same as those for the consolidated Company. Certain prior period costs were reallocated from the Healthcare segment to Corporate to conform with current year presentation. The prior period segment operating income measure has been recast for comparability.
For the three and six months ended September 30, 2022, revenues from a single Customer did not represent ten percent or more of the Healthcare, Applied Sterilization Technologies or Life Sciences segment revenues. Three Customers collectively and consistently account for approximately 40.0% of our Dental segment revenue. The percentage associated with these three Customers collectively in any one period may vary due to the buying patterns of these three Customers as well as other Dental Customers. These three Customers collectively accounted for approximately 40.1% and 42.1% of our Dental segment revenues for the three and six months ended September 30, 2022, respectively. These three Customers collectively accounted for approximately 40.6% and 39.5% of our Dental segment revenues for the three and six months ended September 30, 2021, respectively.
Additional information regarding our segments is included in our consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2022, which was filed with the SEC on May 31, 2022.


17

STERIS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)
For the Three and Six Months Ended September 30, 2022 and 2021
(dollars in thousands, except as noted)


Financial information for each of our segments is presented in the following table:
 Three Months Ended September 30, Six Months Ended September 30,
 2022202120222021