10-K 1 ste331201410-k.htm 10-K STE 3.31.2014 10-K
United States Securities and Exchange Commission
Washington, D. C. 20549
 ___________________________________________________________________
FORM 10-K
x Annual Report Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
For the fiscal year ended March 31, 2014
OR
o Transition Report Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
For the transition period from                      to                     
Commission file number 1-14643
STERIS Corporation
(Exact name of registrant as specified in its charter)
 
Ohio
 
34-1482024
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer Identification No.)
 
 
 
5960 Heisley Road,
Mentor, Ohio
(Address of principal executive offices)
44060-1834
(Zip Code)
440-354-2600
(Registrant’s telephone number
including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class
Name of Exchange on Which Registered
Common Shares, without par value
New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  x    No   o
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  o   No  x
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x    No   o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x    No   o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer  x
 
Accelerated Filer  o
Non-Accelerated Filer  o
(Do not check if a smaller reporting company)
 
Smaller Reporting Company  o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o    No   x
The aggregate market value of the voting stock held by non-affiliates of the Registrant, computed by reference to the closing price of such stock as of September 30, 2013: 2,507,582,546
The number of Common Shares outstanding as of May 23, 2014: 59,087,612
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2014 Annual Meeting – Part III


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STERIS Corporation and Subsidiaries
 Table of Contents
  
 
  
Page
Part I
Item 1
 
 
 
 
 
 
 
Item 1A
 
Item 1B
 
Item 2
 
Item 3
 
Item 4
 
Part II
Item 5
 
Item 6
 
Item 7
 
 
 
 
 
 
 
 
 
General Overview and Executive Summary
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 7A
 
 
 
 
 
 
 
Item 8
 
Item 9
 
Item 9A
 
Item 9B
 
Part III
Item 10
 
Item 11
 
Item 12
 
Item 13
 
Item 14
 
Part IV
Item 15
 
 
 

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PART I
 
Throughout this Annual Report, STERIS Corporation and its subsidiaries together are called “STERIS,” “the Company,” “we,” “us,” or “our,” unless otherwise noted. References in this Annual Report to a particular “year” or “year-end” mean our fiscal year, which ends on March 31. For example, fiscal year 2014 ended on March 31, 2014.

ITEM 1.
BUSINESS

INTRODUCTION
STERIS Corporation is a leading provider of infection prevention and other procedural products and services, focused primarily on healthcare, pharmaceutical and research. Our mission is to help our Customers create a healthier and safer world by providing innovative healthcare and life science product and service solutions around the globe.We offer our Customers a unique mix of innovative capital equipment products, such as sterilizers and surgical tables, and connectivity solutions such as operating room (“OR”) integration; consumable products, such as detergents and skin care products, gastrointestinal ("GI") endoscopy accessories, and other products; services, including equipment installation and maintenance; and microbial reduction of medical devices, instrument and scope repair solutions, and laboratory testing services.
We were founded as Innovative Medical Technologies in Ohio in 1985, and renamed STERIS Corporation in 1987. However, some of our businesses that have been acquired and integrated into STERIS, notably American Sterilizer Company, have much longer operating histories. With global headquarters in Mentor, Ohio, we have approximately 6,000 employees worldwide and operate in more than 60 countries. We have a direct sales force of approximately 600 and a service organization of approximately 1,500 who work diligently to meet the increasingly complex needs of our Customers.
We operate in three reportable business segments: Healthcare, Life Sciences, and STERIS Isomedix Services. Corporate and other, which is presented separately, contains the Defense and Industrial business unit plus costs that are associated with being a publicly traded company and certain other corporate costs. These costs include executive office costs, Board of Directors compensation, shareholder services and investor relations, external audit fees, and legacy pension and post-retirement benefit costs.
In our largest segment, Healthcare, we make a difference for our Customers and their patients by providing innovative surgical, sterile processing, infection prevention and gastrointestinal solutions. We provide support directly to the operating room, as well as to the sterile processing functions where instruments are reprocessed between surgeries and gastrointestinal procedures. Our integrated offering of equipment, consumables and services used throughout healthcare facilities enables Customers to reduce costs and improve outcomes.
Our second largest segment, Life Sciences, primarily serves pharmaceutical manufacturers and research organizations by providing decontamination and sterilization technologies, products and services that help support the safety and effectiveness of the products they produce.
Our Isomedix segment (“Isomedix”) provides ethylene oxide and gamma irradiation services on a contract basis through a network of facilities in North America, where we process medical devices and other products as designated by our Customers' specifications prior to their delivery to the end user.
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 FDA 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 preventative 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. 

INFORMATION RELATED TO BUSINESS SEGMENTS
Our chief operating decision maker is our President and Chief Executive Officer (“CEO”). The CEO is responsible for performance assessment and resource allocation. The CEO regularly receives discrete financial information about each reportable segment, and uses this information to assess performance and allocate resources. The accounting policies of the reportable segments are the same as those described in note 1 to the Consolidated Financial Statements titled, “Nature of Operations and Summary of Significant Accounting Policies,” of this Annual Report. Segment performance information for

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fiscal years 2014, 2013, and 2012 is presented in note 12 to our Consolidated Financial Statements titled, “Business Segment Information” and in Item 7 titled, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”), of this Annual Report.

HEALTHCARE SEGMENT
Description of Business. Our Healthcare segment manufactures and sells capital equipment, accessory, consumables, information support and service solutions to healthcare providers, including acute care hospitals and surgery and gastrointestinal ("GI") centers. These solutions aid our Customers in improving the safety, quality, productivity, and utility consumption of their surgical, sterile processing, gastrointestinal, and emergency environments.
Products Offered. These perioperative solutions include:
Steam, vaporized hydrogen peroxide and ethylene oxide (“EO”) sterilizers, as well as liquid chemical sterilant processing systems, that allow Customers to meet rigorous standards and regulations and assist in the safe and effective re-use of medical equipment and devices.
Automated washer/disinfector systems that clean and disinfect a wide range of items from rolling instrument carts and other large healthcare equipment to small surgical instruments.
General and specialty surgical tables, surgical and examination lights, equipment management systems, operating room storage cabinets, warming cabinets, scrub sinks, and other complementary products and accessories for use in hospitals and other ambulatory surgery sites.
Gastrointestinal endoscopy accessories for a variety of GI procedure areas including bleed management and procedure irrigation, foreign body retrieval, polypectomy, and tissue acquisition.
Connectivity solutions such as operating room (“OR”) integration, OR and sterile processing department ("SPD") workflow, patient tracking and instrument management that allow for high quality transfer of information and images throughout the hospital and between hospitals throughout the world. These solutions aid in improving the productivity and quality of Customers' inpatient and outpatient surgical departments and sterile processing functions.
Cleaning chemistries and sterility assurance products used in instrument cleaning and decontamination systems.
Cleansing products, including hard surface disinfectants and skin care and hand hygiene solutions, for use by care-givers and patients throughout healthcare institutions.

Significant brand names for these products include SYSTEM 1E®, Amsco®, Hamo®, Reliance®, Cmax®, Harmony®, Kindest Kare®, Alcare®, Verify®, Cal Stat®, Roth Net®, Little Sister ®, and T-Series®.
Services Offered. Our Healthcare segment provides various preventive maintenance programs and repair services to support the effective operation of capital equipment over its lifetime. We offer these corrective and preventive service solutions to Customers who have internal clinical/biomedical engineering departments and Customers who rely on us to provide those services. Field service personnel install, maintain, upgrade, repair, and troubleshoot equipment throughout the world. We also offer comprehensive sterilization and surgical management consulting services allowing healthcare facilities to achieve safety, quality, and productivity improvements in the perioperative loop that flows between and among surgical suites and the SPD. We offer remote equipment monitoring technology to anticipate potential failure modes and take corrective action thereby improving Customers' equipment uptime.
In addition, we offer comprehensive instrument and endoscope repair solutions to Customers, either on site or at one of our dedicated repair facilities. These solutions extend instrument and endoscope life and reduce Customer's replacement costs. Finally, our Healthcare segment provides other support services such as construction and facility planning, engineering support, device testing, Customer education, hand hygiene process excellence, asset management/planning, and the sale of replacement parts. These solutions also include information management and decision support solutions to operating room and central sterilization managers to help in managing these environments and identifying opportunities to improve performance.
Customer Concentration. Our Healthcare segment sells capital equipment, consumables, and services to Customers in the United States and many other countries throughout the world. For the year ended March 31, 2014, no Customer represented more than 10% of the Healthcare segment's total revenues and the loss of any single Customer is not expected to have a material impact on the segment's results of operations or cash flows.
Competition. We compete with a number of large companies that have significant product portfolios and global reach, as well as a number of small companies with very limited product offerings and operations in one or a limited number of countries. On a product basis, competitors include 3M, Belimed, Cantel Medical, Ecolab, Getinge, Go Jo, Johnson & Johnson, Kimberly-Clark, Skytron, and Stryker.


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LIFE SCIENCES SEGMENT
Description of Business.  Our Life Sciences segment manufactures and sells a broad range of capital equipment, formulated cleaning chemistries, and service solutions to pharmaceutical companies and private and public research facilities around the globe.
Products Offered.  These capital equipment and formulated cleaning chemistries include:
 
Formulated cleaning chemistries that are used to prevent biological and chemical contamination and to monitor sterilization and decontamination processes, including products used to clean components used in manufacturing, decontaminate systems, and disinfect or sterilize hard surfaces.
Vaporized Hydrogen Peroxide (“VHP”®) generators used to decontaminate many high value spaces, from small isolators to large pharmaceutical processing and laboratory animal rooms.
High-purity water equipment, which generates water for injection and pure steam.
Sterilizers used in the manufacture of pharmaceuticals and biopharmaceuticals as well as sterilizers for equipment and instruments used in research studies, mitigating the risk of contamination.
Washer/disinfectors that decontaminate various large and small components in pharmaceutical and industrial manufacturing processes and in research labs, such as glassware, vessels, equipment parts, drums, hoses, and animal cages.
Significant brand names for these products include Amsco®, Reliance®, Finn-Aqua®, VHP®, and the CIP® Products.
Services Offered.  Our Life Sciences segment offers various preventive maintenance programs and repair services to support the effective operation of capital equipment over its lifetime. Field service personnel install, maintain, upgrade, repair, and troubleshoot equipment throughout the world. We utilize remote equipment monitoring technology to improve Customers’ equipment uptime. We also offer consulting services and technical support to architecture and engineering firms and laboratory planners. Our services deliver expertise in decontamination and infection control technologies and processes to end users. Our service personnel also provide higher-end validation services in support of our pharmaceutical Customers.
Customer Concentration.  Our Life Sciences segment sells capital equipment, consumables, and services to Customers in the United States and many other countries throughout the world. For the year ended March 31, 2014, no Customer represented more than 10% of the Life Sciences segment’s total revenues and the loss of any single Customer is not expected to have a material impact on the segment’s results of operations or cash flows.
Competition.  Our Life Sciences segment operates in highly regulated environments where the most intense competition results from technological innovations, product performance, convenience and ease of use, and overall cost-effectiveness. In recent years, our pharmaceutical Customer base has also undergone consolidation and reduced capital spending, resulting in fewer project opportunities. We compete for pharmaceutical, research and industrial Customers with a number of large companies that have significant product portfolios and global reach, as well as a number of small companies with very limited product offerings and operations in one or a limited number of countries. Competitors include Belimed, Ecolab, Fedegari, Getinge, MECO, Stilmas, and Techniplast.
ISOMEDIX SERVICES SEGMENT
Description of Business.  Our Isomedix segment operates through a network of 19 facilities located in North America. We sell a comprehensive array of contract processing services using gamma irradiation (“Gamma”) and ethylene oxide (“EO”) technologies as well as an array of laboratory testing services. We offer microbial reduction services based on Customer specifications to companies that supply products to the healthcare, industrial, and consumer product industries.
Services Offered. We use Gamma and EO technologies to provide a wide range of processing services at our facilities. Gamma is an irradiation process which utilizes cobalt-60. EO is a gaseous process. In addition, we offer an array of laboratory testing services that complements the manufacturing of terminally sterilized products. Our locations are in major population centers and core distribution corridors throughout North America, primarily in the Northeast, Midwest, Southwest, and southern California. We adapt to increasing imports and changes in manufacturing points-of-origin by monitoring trends in supply chain management. Demographics partially drive this segment's growth. The aging population and rising life expectancy increase the demand for surgical procedures, which increases the consumption of medical devices and surgical kits. Our technical services group supports Customers in all phases of product development, materials testing, and process validation.
Customer Concentration.  Our Isomedix segment’s services are offered to Customers throughout the footprint of its North American network. For the year ended March 31, 2014, no Customer represented more than 10% of the segment’s revenues.

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Because of a largely fixed cost structure, the loss of a single Customer could have a material impact on the segment’s results of operations or cash flows but would not be expected to have a material impact on STERIS.
Competition.  Isomedix operates in a highly regulated industry and competes in North America with Sterigenics International, Inc., and other smaller contract sterilization companies and manufacturers that sterilize products in-house.
INFORMATION WITH RESPECT TO OUR BUSINESS IN GENERAL
Sources and Availability of Raw Materials.  We purchase raw materials, sub-assemblies, components, and other supplies needed in our operations from numerous suppliers in the United States and internationally. The principal raw materials and supplies used in our operations include stainless steel, organic and inorganic chemicals, fuel, and plastic components. These raw materials and supplies are generally available from several suppliers and in sufficient quantities that we do not currently expect any significant sourcing problems in fiscal 2015. We have longer-term supply contracts for certain materials for which there are few suppliers. There is currently only a single supplier for ethylene oxide and radioisotope (cobalt-60) used by the Isomedix segment, although we do have a longer-term supply contract for the latter.
Intellectual Property.  We protect our technology and products by, among other means, obtaining United States and foreign patents. There can be no assurance, however, that any patent will provide adequate protection for the technology, system, product, service, or process it covers. In addition, the process of obtaining and protecting patents can be long and expensive. We also rely upon trade secrets, technical know-how, and continuing technological innovation to develop and maintain our competitive position.
As of March 31, 2014, we held 340 United States patents and 847 foreign patents and had 66 United States patent applications and 304 foreign patent applications pending. Patents for individual products extend for varying periods according to the date of filing or grant and legal term of patents in various countries where a patent is obtained. The actual protection a patent provides, which can vary from country to country, depends upon the type of patent, the scope of its coverage, and the availability of legal remedies in each country.
Our products are sold around the world under various brand names and trademarks. We consider our brand names and trademarks to be valuable in the marketing of our products. As of March 31, 2014, we had a total of 1,081 trademark registrations in the United States and in various foreign countries.
Research and Development.  Research and development is an important factor in our long-term strategy. For the years ended March 31, 2014, 2013, and 2012, research and development expenses were $48.6 million, $41.3 million, and $36.0 million, respectively. We incurred these expenses primarily for the research and development of commercial products.
We are focused on introducing products that increase efficiencies for our Customers, and in fact recently launched several new products. Those include our AMSCO 3052 and 5052 washers, Prolystica HP and the OT 1000 series orthopedic surgical table, and several gastrointestinal endoscopy accessories supporting a variety of procedural categories.
Quality Assurance.  We manufacture, assemble, and package products in the United States and other countries. Each of our production facilities are dedicated to particular processes and products. Our success depends upon Customer confidence in the quality of our production process and the integrity of the data that supports our product safety and effectiveness. We have implemented quality assurance procedures to support the quality and integrity of scientific information and production processes. All of our manufacturing and contract sterilization facilities throughout the world are ISO9001 or ISO13485 certified.
Government Regulation.  Our business is subject to various degrees of governmental regulation in the countries in which we operate. In the United States, the United States Food and Drug Administration (“FDA”), the United States Environmental Protection Agency (“EPA”), the United States Nuclear Regulatory Commission (“NRC”), and other governmental authorities regulate the development, manufacture, sale, and distribution of our products and services. Our international operations also are subject to a significant amount of government regulation, including country-specific rules and regulations and U.S. regulations applicable to our international operations. Government regulations include detailed inspection of, and controls over, research and development, clinical investigations, product approvals and manufacturing, marketing and promotion, sampling, distribution, record-keeping, storage, and disposal practices.
Compliance with applicable regulations is a significant expense for us. Past, current or future regulations, their interpretation, or their application could have a material adverse impact on our operations. Also, additional governmental regulation may be passed that could prevent, delay, revoke, or result in the rejection of regulatory clearance of our products. We cannot predict the effect on our operations resulting from current or future governmental regulation or the interpretation or application of these regulations.

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If we fail to comply with any applicable regulatory requirements, sanctions could be imposed on us. For more information about the risks we face regarding regulatory requirements, see Part I, Item 1A of this Annual Report titled, “Risk Factors, We are subject to extensive regulatory requirements.”
We have received warning letters, paid civil penalties, conducted product recalls and field corrections, and been subject to other regulatory sanctions. At the beginning of fiscal 2011 a consent decree, the terms of which had been previously agreed to by the FDA and us, was approved by the Federal District Court for the Northern District of Ohio concerning our SYSTEM 1 processing system. See Part I, Item 1A of this Annual Report titled, “Risk Factors, We may be adversely affected by product liability claims or other legal actions or regulatory or compliance matters, including the Consent Decree,” and “Risk Factors, Compliance with the Consent Decree may be more costly and burdensome than anticipated.” and see also Part I, Item 3, “Legal Proceedings”, for further information on SYSTEM 1 and other regulatory issues and their potential impact. We believe that we are currently compliant in all material respects with applicable regulatory requirements. However, there can be no assurance that future or current regulatory, governmental, or private action will not have a material adverse affect on us or on our performance, results, or financial condition.
Environmental Matters.  We are subject to various laws and governmental regulations concerning environmental matters and employee safety and health in the United States and in other countries. We have made, and continue to make, significant investments to comply with these laws and regulations. We cannot predict the future capital expenditures or operating costs required to comply with environmental laws and regulations. We believe that we are currently compliant with applicable environmental, health, and safety requirements in all material respects. However, we cannot assure you that future or current regulatory, governmental, or private action will not have a material adverse affect on our performance, results, or financial condition. Please refer to Part I, Item 3, “Legal Proceedings” for further information.
In the future, if a loss contingency related to environmental matters, employee safety, health or conditional asset retirement obligations is significantly greater than the current estimated amount, we would record a liability for the obligation and it may result in a material impact on net income for the annual or interim period during which the liability is recorded. The investigation and remediation of environmental obligations generally occur over an extended period of time, and therefore we do not know if these events would have a material adverse affect on our financial condition, liquidity, or cash flow, nor can we assure you that such liabilities would not have a material adverse affect on our performance, results, or financial condition.

Competition.  The markets in which we operate are highly competitive and generally highly regulated. Competition is intense in all of our business segments and includes many large and small competitors. Brand, design, quality, safety, ease of use, serviceability, price, product features, warranty, delivery, service, and technical support are important competitive factors to us. We expect to face continued competition in the future as new infection prevention, sterile processing, contamination control, gastrointestinal and surgical support products and services enter the market. We believe many organizations are working with a variety of technologies and sterilizing agents. Also, a number of companies have developed disposable medical instruments and other devices designed to address the risk of contamination.
We believe that our long-term competitive position depends on our success in discovering, developing, and marketing innovative, cost-effective products and services. We devote significant resources to research and development efforts and we believe STERIS is positioned as a global competitor in the search for technological innovations. In addition to research and development, we invest in quality control, Customer programs, distribution systems, technical services, and other information services.
We cannot assure you that we will develop significant new products or services, or that new products or services we provide or develop in the future will be more commercially successful than those provided or developed by our competitors. In addition, some of our existing or potential competitors may have greater resources than us. Therefore, a competitor may succeed in developing and commercializing products more rapidly than we do. Competition, as it relates to our business segments and product categories, is discussed in more detail in the section above titled, “Information Related to Business Segments.”
Employees.  As of March 31, 2014, we had approximately 6,000 employees throughout the world. We believe we have good relations with our employees.
Methods of Distribution.  As of March 31, 2014, we employed approximately 1,700 direct field sales and service representatives within the United States and approximately 400 in international locations. Sales and service activities are supported by a staff of regionally based clinical specialists, system planners, corporate account managers, and in-house Customer service and field support departments. We also contract with distributors and dealers in select markets.
Customer training is important to our business. We provide a variety of courses at Customer locations, at our training and education centers, and over the internet. Our training programs help Customers understand the science, technology, and operation of our products. Many of our operator training programs are approved by professional certifying organizations and offer continuing education credits to eligible course participants.

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Seasonality.  Our financial results have been, from time to time, subject to seasonal patterns. We cannot assure you that these patterns will continue.
International Operations.  We believe we have opportunity to expand internationally, as we currently serve a small portion of the world that could benefit from our products. Through our subsidiaries, we operate in various international locations within the same business segments as in the United States. International revenues have recently represented approximately one-fourth of our total revenues. Revenues from Europe, Middle East and Africa ("EMEA"), Canada, and the Asia Pacific and Latin American regions were 47%, 19%, 21%, and 13%, respectively, of our total international revenues for the year ended March 31, 2014.
Also see note 12 to our Consolidated Financial Statements titled, “Business Segment Information,” and Item 7, “MD&A”, for a geographic presentation of our revenues for the three years ended March 31, 2014, 2013 and 2012.
We conduct manufacturing in the United States, Canada, Mexico, Brazil, China and various European countries. International cost of revenues have represented approximately one-fourth of our total cost of revenues. There are, in varying degrees, a number of inherent risks to our international operations. We describe some of these risks in Part I, Item 1A of this Annual Report titled, “Risk Factors". We conduct manufacturing, sales, and distribution operations on a worldwide basis.
Fluctuations in the exchange rate of the U.S. dollar relative to the currencies of foreign countries in which we operate can also increase or decrease our reported net assets and results of operations. During fiscal 2014, revenues were unfavorably impacted by $2.1 million, or 0.1%, and income before taxes was favorably impacted by $0.3 million, or 0.2%, as a result of foreign currency movements relative to the U.S. dollar. We cannot predict future changes in foreign currency exchange rates or the effect they will have on our operations.
Backlog.  We define backlog as the amount of unfilled capital equipment purchase orders at a point in time. At March 31, 2014, we had a backlog of $154.7 million. Of this amount, $110.3 million and $44.4 million related to our Healthcare and Life Sciences segments, respectively. At March 31, 2013, we had backlog orders of $153.6 million. Of this amount $105.2 million and $48.4 million related to our Healthcare and Life Sciences segments, respectively. A significant portion of the backlog orders at March 31, 2014, is expected to ship in the next fiscal year.
Availability of Securities and Exchange Commission Filings.  We make available free of charge on or through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we electronically file such material with, or furnish such material to the Securities and Exchange Commission (“SEC”). You may access these documents, as well as other SEC filings related to the Company, on the Investor Relations page of our website at http://www.steris-ir.com. You may also obtain copies of these documents by visiting the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549 or by accessing the SEC’s website at http://www.sec.gov. You may obtain information on the Public Reference Room by calling the SEC at 1-800-SEC-0330. The content on any website referred to in this Annual Report on Form 10-K is not incorporated by reference into this Form 10-K unless expressly noted.
We also make available free of charge on our website our Corporate Governance Guidelines, our Director Code of Ethics, and our Code of Business Conduct, as well as the Charters of the Audit Committee, the Compensation Committee, the Nominating and Governance Committee, and the Compliance Committee of the Company’s Board of Directors.

Executive Officers of the Registrant. The following table presents certain information regarding our executive officers at March 31, 2014. All executive officers serve at the pleasure of the Board of Directors.
 
Name
 
Age
 
Position
Kathleen L. Bardwell
 
58
 
Senior Vice President and Chief Compliance Officer
Timothy L. Chapman
 
52
 
Senior Vice President and Group President Healthcare
Suzanne V. Forsythe
 
60
 
Vice President, Human Resources
David A. Johnson
 
52
 
Senior Vice President, Global Surgical Solutions
Robert E. Moss
 
69
 
Senior Vice President and Group President, STERIS Isomedix Services and Life Sciences
Sudhir K. Pahwa
 
61
 
Senior Vice President, Infection Prevention Technologies
Walter M Rosebrough, Jr.
 
60
 
President and Chief Executive Officer
Michael J. Tokich
 
45
 
Senior Vice President, Chief Financial Officer and Treasurer
J. Adam Zangerle
 
47
 
Vice President, General Counsel & Secretary
The following discussion provides a summary of each executive officer’s recent business experience:

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Kathleen L. Bardwell serves as Senior Vice President and Chief Compliance Officer. She assumed this role in February 2014. From March 2008 to February 2014 she served as Vice President, Chief Compliance Officer.
Timothy L. Chapman serves as Senior Vice President and Group President, Healthcare. He assumed this role in February 2008.
Suzanne V. Forsythe serves as Vice President, Human Resources. She assumed this role in August 2011. She served as Senior Director, Human Resources from April 2008 through August 2011.
David A. Johnson serves as Senior Vice President, Global Surgical Solutions. He assumed this role in February 2014. From July 2012 to February 2014 he served as Senior Vice President, Global Operations and Quality. From April 2010 to July 2012 he served as Vice President, Global Operations and Continuous Improvement. From 2007 to April 2010 he served as Vice President Global Operations and Supply Chain at ConMed Corp., a global medical technology company specializing in the development and sale of surgical and patient monitoring products and services.
Robert E. Moss serves as Senior Vice President and Group President, STERIS Isomedix Services and Life Sciences. He assumed this role in October 2009. He served as Senior Vice President and Group President, STERIS Isomedix Services, from April 2005 until October 2009.
Sudhir K. Pahwa serves as Senior Vice President, Infection Prevention Technologies. He assumed this role in February 2014. From December 2008 to February 2014 he served as Vice President and General Manager, Infection Prevention Technologies.
Walter M Rosebrough, Jr. serves as President and Chief Executive Officer. He assumed this role when he joined STERIS in October 2007. Mr. Rosebrough also joined our Board of Directors in October 2007. Prior to his employment with STERIS, Mr. Rosebrough served from February 2005 to September 2007 as President and Chief Executive Officer of Coastal Hydraulics, Inc., a hydraulic and pneumatic systems company that he purchased in 2005 and he continues to serve as non-executive Chairman. Previously, Mr. Rosebrough spent nearly 20 years in the healthcare industry in various roles as a senior executive with Hill-Rom Holdings, Inc. (at the time, Hillenbrand Industries, Inc.), a worldwide provider of medical equipment and related services, including President and CEO of Support Systems International and President and CEO of Hill-Rom.
Michael J. Tokich serves as Senior Vice President, Chief Financial Officer and Treasurer. He assumed this role in February 2014. He served as Senior Vice President and Chief Financial Officer from March 2008 to February 2014.
J. Adam Zangerle serves as Vice President, General Counsel & Secretary. He assumed this role in July 2013. From May 2007 to July 2013 he served as Associate General Counsel and Group General Counsel, Healthcare.

ITEM 1A.
RISK FACTORS
This item describes certain risk factors that could affect our business, financial condition and results of operations. You should consider these risk factors when evaluating the forward-looking statements contained in this Annual Report on Form 10-K, because our actual results and financial condition might differ materially from those projected in the forward-looking statements should these risks occur. We face other risks besides those highlighted below. These other risks include additional uncertainties not presently known to us or that we currently believe are immaterial, but may ultimately have a significant impact. Should any of these risks, described below or otherwise, actually occur, our business, financial condition, performance, prospects, value, or results of operations could be negatively affected.
The economic climate may adversely affect us.
Adverse economic cycles or conditions and Customer, regulatory or government response to those cycles or conditions, could affect our results of operations. There can be no assurance when these cycles or conditions will occur or when they will begin to improve after they occur. There also can be no assurance as to the strength or length of any recovery from a business downturn or recession. United States and worldwide financial and business conditions are uncertain, and recovery has been slow from the recent severe recession, which had a significant adverse effect on U.S. and global economies.
Credit and liquidity problems may make it difficult for some businesses to access credit markets and obtain financing and may cause some businesses to curtail spending to conserve cash in anticipation of persistent business slowdowns and liquidity needs. If our Customers have difficulty financing their purchases due to tight credit markets or related factors or because of other operational or utilization problems they may be experiencing or otherwise decide to curtail their purchases, our business could be adversely affected. Our exposure to bad debt losses could also increase if Customers are unable to pay for products previously ordered and delivered.
Global economic conditions, in Europe in particular, may have adverse effects on our business and financial condition. Many of our global Customers are governmental entities or other entities that rely on government healthcare systems or government funding. If government funding for healthcare becomes limited or restricted in countries in which we operate, our Customers may be unable to pay their obligations on a timely basis or to make payment in full and it may become necessary to

9


increase reserves. In addition, there can be no assurance that there will not be an increase in collection difficulties. Prospectively, additional adverse effects resulting from these conditions may include decreased healthcare utilization, further pricing pressure on our products, and/or weaker overall demand for our products and services, particularly capital products. Should the current economic conditions continue or worsen, our business, performance, prospects, value, financial condition, bad debt expense or results of operations may be adversely affected.
In addition, economic conditions and market volatility impact the investment portfolio of our legacy defined benefit pension plan. Because the values of the pension plan investments have and will fluctuate in response to changing market conditions and the values of liabilities are determined on the basis of interest rates, the amount of gains or losses that will be recognized in subsequent periods and the impact on the funded status of the plan and future minimum required contributions, if any, might have a material adverse effect on our liquidity, value, financial conditions or result of operations.
Our businesses are highly competitive, and if we fail to compete successfully, our revenues and results of operations may be hurt.
We operate in a highly competitive global environment. Our businesses compete with other broad line manufacturers, as well as many smaller businesses specializing in particular products or services, primarily on the basis of brand, design, quality, safety, ease of use, serviceability, price, product features, warranty, delivery, service, and technical support. We face increased competition from new infection prevention, sterile processing, contamination control, surgical support, cleaning consumables, gastrointestinal endoscopy accessories, contract sterilization, and other products and services entering the market. Competitors and potential competitors also are attempting to develop alternate technologies and sterilizing agents, as well as disposable medical instruments and other devices designed to address the risk of contamination. If our products, services, support, distribution and/or cost structure do not enable us to compete successfully, our business, performance, prospects, value, financial condition, and results of operations may be adversely affected.
Our success depends, in part, on our ability to design, manufacture, distribute, and achieve market acceptance of, new products with higher functionality and lower costs.
Many of our Customers operate businesses characterized by technological change, product innovation and evolving industry standards. Price is a key consideration in their purchasing decisions. To successfully compete, we must continue to design, develop, and improve innovative products. We also must achieve market acceptance of and effectively distribute those products, and reduce production costs. Our business, performance, prospects, value, financial condition, and results of operations might be adversely effected if our competitors' product development capabilities become more effective, if they introduce new or improved products that displace our products or gain market acceptance, or if they produce and sell products at lower prices.
Decreased availability or increased costs of raw materials or energy supplies or other supplies might increase our production costs or limit our production capabilities or curtail our operations.
We purchase raw materials, fabricated and other components, and energy supplies from a variety of suppliers. Key materials include stainless steel, organic and inorganic chemicals, fuel, cobalt-60, ethylene oxide, and plastic components. The availability and prices of raw materials and energy supplies are subject to volatility and are influenced by worldwide economic conditions, speculative action, world supply and demand balances, inventory levels, availability of substitute materials, currency exchange rates, anticipated or perceived shortages, and other factors. In some situations, we may be able to temporarily limit price increases or support availability through supply agreements. Otherwise, raw material prices and availability are subject to numerous factors outside of our control, including those described above. Increases in prices or decreases in availability of raw materials and oil and gas might impair our procurement of necessary materials or our product production, or might increase production costs. In addition, energy costs impact our transportation and distribution and other supply and sales costs. Also, a number of our key materials and components have a limited number of suppliers. Some are single-sourced, such as cobalt-60 and ethylene oxide, which are necessary to our Isomedix operations; the unavailability or short supply of these products might disrupt or cause shutdowns of portions of our Isomedix operations or have other adverse consequences. Shortages in supply, regulatory or security requirements, or increases in the price of raw materials, components and energy supplies may adversely impact our business, performance, prospects, value, financial condition, or results of operations.
Our operations, and those of our suppliers, are subject to a variety of business continuity hazards and risks, any of which could interrupt production or operations or otherwise adversely affect our performance, results, or value.
Business continuity hazards and other risks include:
explosions, fires, earthquakes, inclement weather, and other disasters;
utility or other mechanical failures;
unscheduled downtime;
labor difficulties;

10


inability to obtain or maintain any required licenses or permits;
disruption of communications;
data security, preservation and redundancy disruptions;
inability to hire or retain key management or employees;
disruption of supply or distribution; and
regulation of the safety, security or other aspects of our operations.
The occurrence of any of these or other events might disrupt or shut down operations, or otherwise adversely impact the production or profitability of a particular facility, or our operations as a whole. Certain casualties also might cause personal injury and loss of life, or severe damage to or destruction of property and equipment, and for casualties occurring at our facilities, result in liability claims against us. Although we maintain property and casualty insurance and liability and similar insurance of the types and in the amounts that we believe are customary for our industries, our insurance coverages have limits and we are not fully insured against all potential hazards and risks incident to our business. Should any of the hazards or risks occur, or should our insurance coverage be inadequate or unavailable, our business, performance, prospects, value, financial condition, and results of operations might be adversely affected, both during and after the event.
 We conduct manufacturing, sales and distribution operations on a worldwide basis and are subject to a variety of risks associated with doing business outside the United States.
We maintain significant international operations, including operations in Canada, Mexico, Europe, Asia Pacific and Latin America. As a result, we are subject to a number of risks and complications associated with international manufacturing, sales, services, and other operations. These include:
risks associated with foreign currency exchange rate fluctuations;
difficulties in enforcing agreements and collecting receivables through some foreign legal systems;
enhanced credit risks in certain European countries as well as emerging market regions;
foreign Customers with longer payment cycles than Customers in the United States;
tax rates in certain foreign countries that exceed those in the United States, and foreign earnings subject to withholding tax requirements;
tax laws that restrict our ability to use tax credits, offset gains, or repatriate funds;
tariffs, exchange controls or other trade restrictions including transfer pricing restrictions when products produced in one country are sold to an affiliated entity in another country;
general economic and political conditions in countries where we operate or where end users of our products are situated;
difficulties associated with managing a large organization spread throughout various countries;
difficulties in enforcing intellectual property rights or weaker intellectual property right protections in some countries; and
difficulties associated with compliance with a variety of laws and regulations governing international trade, including the Foreign Corrupt Practices Act.
Implementation and achievement of international growth objectives also may be impeded by political, social, and economic uncertainties or unrest in countries in which we conduct operations or market or distribute our products. In addition, compliance with multiple, and potentially conflicting, international laws and regulations, import and export limitations, anti-corruption laws, and exchange controls may be difficult, burdensome or expensive.
For example, we are subject to compliance with various laws and regulations, including the Foreign Corrupt Practices Act and similar anti-bribery laws, which generally prohibit companies and their intermediaries from making improper payments to officials for the purpose of obtaining or retaining business. While our employees and agents are required to comply with these laws, we cannot assure you that our internal policies and procedures will always protect us from violations of these laws, despite our commitment to legal compliance and corporate ethics. The occurrence or allegation of these types of events may adversely affect our business, performance, prospects, value, financial condition, and results of operations.
Consolidations among our healthcare and pharmaceutical Customers may result in a loss of Customers or more significant pricing pressures.
A number of our Customers have consolidated. These consolidations are due in part to healthcare cost reduction measures initiated by competitive pressures as well as legislators, regulators and third-party payors. In an effort to attract Customers, some of our competitors have also reduced production costs and lowered prices. This has resulted in greater pricing pressures on us and in some cases loss of Customers. Additional consolidations could result in a loss of Customers or more significant pricing pressures. Additional consolidations and pricing pressures also may occur as a result of recent healthcare legislation and economic conditions. A loss of Customers or more significant pricing pressure also could have an adverse effect on our business, performance, prospects, value, financial conditions or results of operations.

11


Changes in healthcare laws or government and other third-party payor reimbursement levels to healthcare providers, or failure to meet healthcare reimbursement or other requirements might negatively impact our business.
We sell many of our products to hospitals and other healthcare providers and pharmaceutical manufacturers. Many of these Customers are subject to or supported by government programs or receive reimbursement for services from third-party payors, such as government programs, including Medicare and Medicaid, private insurance plans, and managed care programs. In the United States, many of these programs set maximum reimbursement levels for these healthcare services and can have complex reimbursement requirements. Outside the United States, reimbursement systems vary significantly by country. However, government-managed healthcare systems control reimbursement for healthcare services in many foreign countries. In these countries, as well as in the United States, public budgetary constraints may significantly impact the ability of hospitals, pharmaceutical manufacturers, and other Customers supported by such systems to purchase our products. If government or other third-party payors deny or change coverage, reduce their current levels of reimbursement for healthcare services, or otherwise implement measures to regulate pricing or contain costs or if our costs increase more rapidly than reimbursement level or permissible pricing increases or we do not satisfy the standards or requirements for reimbursement, our revenues or profitability may suffer and our business, performance, value, prospects, financial condition or results of operations may be adversely affected.
In addition, the U.S. Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, contains provisions that could have a material impact on our business. Among other provisions, this legislation imposes an excise tax on medical devices manufactured or offered for sale in the United States. We incurred $7.4 million in medical device excise taxes for fiscal 2014. In addition, we have been required to commit significant resources to “Sunshine Act” compliance. Various health care reform proposals have also emerged at the state level, and we are unable to predict which, if any, of those proposals will be enacted. However, the ultimate effect of health care reform legislation or any future legislation or regulation could have a material adverse affect on our business, performance, value, prospects, financial condition or results of operation.
We are subject to extensive regulatory requirements and must receive and maintain regulatory clearance or approval for many products and operations. Failure to receive or maintain, or delays in receiving, clearance or approvals may hurt our revenues, profitability, financial condition, or value.
Our operations are subject to extensive regulation in both the United States and in other countries where we do business. In the U.S, our products and services are regulated by the FDA and other regulatory authorities. In many foreign countries, sales of our products are subject to extensive regulations that may or may not be comparable to those of the FDA. In Europe, our products are regulated primarily by country and community regulations of those countries within the European Economic Area and must conform to the requirements of those authorities.
Government regulation applies to nearly all aspects of testing, manufacturing, safety, labeling, storing, recordkeeping, reporting, promoting, distributing, and importing or exporting of medical devices, products, and services. In general, unless an exemption applies, a sterilization, decontamination or medical device or product or service must receive regulatory approval or clearance before it can be marketed or sold. Modifications to existing products or the marketing of new uses for existing products also may require regulatory approvals, approval supplements or clearances. If we are unable to obtain any required approvals, approval supplements or clearances for any modification to a previously cleared or approved device, we may be required to cease manufacturing and sale, or recall or restrict the use of such modified device, pay fines, or take other action until such time as appropriate clearance or approval is obtained.
Regulatory agencies may refuse to grant approval or clearance, or review and disagree with our interpretation of approvals or clearances, or with our decision that regulatory approval is not required or has been maintained. Regulatory submissions may require the provision of additional data and may be time consuming and costly, and their outcome is uncertain. Regulatory agencies may also change policies, adopt additional regulations, or revise existing regulations, each of which could prevent or delay approval or clearance of devices, or could impact our ability to market a previously cleared, approved, or unregulated device. Our failure to comply with the regulatory requirements of the FDA or other applicable regulatory requirements in the United States or elsewhere might subject us to administratively or judicially imposed sanctions. These sanctions include, among others, warning letters, fines, civil penalties, criminal penalties, injunctions, debarment, product seizure or detention, product recalls and total or partial suspension of production, sale and/or promotion. The failure to receive or maintain, or delays in the receipt of, relevant United States or international qualifications could have a material adverse affect on our business, performance, prospects, value, financial condition or results of operations.
Refer also for further information to the “Risk Factor” below titled, “We may be adversely affected by product liability claims or other legal actions or regulatory or compliance matters, including the Consent Decree” and the “Risk Factor” below titled “Compliance with the Consent Decree may be more costly and burdensome than anticipated.” and to Part I, Item 3, “Legal Proceedings”.

12


Our products are subject to recalls and restrictions, even after receiving United States or foreign regulatory clearance or approval.
Ongoing medical device reporting regulations require that we report to appropriate governmental authorities in the United States and/or other countries when our products cause or contribute to a death or serious injury or malfunction in a way that would be reasonably likely to contribute to a death or serious injury if the malfunction were to recur. Governmental authorities can require product recalls or impose restrictions for product design, manufacturing, labeling, clearance, or other issues. For the same reasons, we may voluntarily elect to recall or restrict the use of a product. Any recall or restriction could divert managerial and financial resources and might harm our reputation among our Customers and other healthcare professionals who use or recommend the products. Product recalls, restrictions, suspensions, re-labeling, or other change might have a material adverse affect on our business, performance, prospects, value, financial condition, or results of operations.
We may be adversely affected by product liability claims or other legal actions or regulatory or compliance matters, including the Consent Decree.
We face an inherent business risk of exposure to product liability claims and other legal and regulatory actions. A significant increase in the number, severity, amount, or scope of these claims and actions may result in substantial costs and harm our reputation or otherwise adversely affect product sales and our business. Product liability claims and other legal and regulatory actions may also distract management from other business responsibilities.
We are also subject to a variety of other types of claims, proceedings, investigations, and litigation initiated by government agencies or third parties and other potential risks and liabilities. These include compliance matters, product regulation or safety, taxes, employee benefit plans, employment discrimination, health and safety, environmental, antitrust, customs, import/export, government contract compliance, financial controls or reporting, intellectual property, allegations of misrepresentation, false claims or false statements, commercial claims, claims regarding promotion of our products and services, or other similar or different matters. Any such claims, proceedings, investigations or litigation, regardless of the merits, might result in substantial costs, restrictions on product use or sales, or otherwise injure our business.
Administratively or judicially imposed or agreed sanctions might include warning letters, fines, civil penalties, criminal penalties, loss of tax benefits, injunctions, product seizure, recalls, suspensions or restrictions, re-labeling, detention, and/or debarment. We also might be required to take actions such as payment of substantial amounts, or revision of financial statements, or to take the following types of actions with respect to our products, services, or business:
redesign, re-label, restrict, or recall products;
cease manufacturing and selling products;
seizure of product inventory;
comply with a court injunction restricting or prohibiting further marketing and sale of products or services;
comply with a consent decree, which could result in further regulatory constraints;
dedication of significant internal and external resources and costs to respond to and comply with legal and regulatory issues and constraints;
respond to claims, litigation, and other proceedings brought by Customers, users, governmental agencies, and others;
disruption of product improvements and product launches;
discontinuation of certain product lines or services; or
other restrictions or limitations on product sales, use or operation, or other activities or business practices.
Some product replacements or substitutions may not be possible or may be prohibitively costly or time consuming.
Examples of the types of matters described above are the warning letter we received from the FDA on May 16, 2008 regarding our SYSTEM 1 sterile processing system, and the Consent Decree entered into on April 20, 2010. In summary, the warning letter outlined the FDA's assertion that significant changes or modifications had been made in the design, components, method of manufacture or intended use of the device, beyond the FDA's 1988 clearance of the device, such that the FDA asserted a new premarket notification submission was required. After extensive discussion, negotiation and interaction between FDA and us, a consent decree was agreed upon and approved by the Federal District Court for the Northern District of Ohio on April 20, 2010 (the “Consent Decree”). As a consequence of these interactions and the Consent Decree, there are numerous restrictions on us with respect to SYSTEM 1 and other liquid chemical sterilizing and disinfecting devices, components and accessories. For example, we have discontinued all sales of our SYSTEM 1 processor and the provision of service, parts, accessories and sterilant for the processor to U.S. Customers. As a result of these current and future restrictions and commitments, our revenues, earnings, business, performance, prospects or value may be negatively impacted. The Consent Decree also prohibits the sale of liquid chemical sterilizing or disinfecting products that do not have FDA clearance, describes various process and compliance issues, and defines penalties for non-compliance. (For more information regarding this warning letter and the Consent Decree, see the “Risk Factor” titled “Compliance with the Consent Decree may be more costly and burdensome than anticipated” and “Legal Proceedings” in Item 3 of Part I.) The Consent Decree, claims by Customers and

13


other parties, and other events or impact associated with these matters could materially affect our business, performance, prospects, value, financial condition, or results of operations.
The ongoing impact of the Consent Decree, or the impact of any legal, regulatory, or compliance claims, proceeding, investigation, or litigation, is difficult to predict. The occurrence of any new legal, regulatory or compliance claim or problem respecting any of our significant products, particularly should such events occur in the near term, could adversely affect our reputation with current and prospective Customers and could otherwise materially and adversely affect our business, performance, prospects, value, financial condition, or results of operations.
We maintain product liability and other insurance with coverages believed to be adequate. However, product liability or other claims may exceed insurance coverage limits, fines, penalties and regulatory sanctions may not be covered by insurance, or insurance may not continue to be available or available on commercially reasonable terms. Additionally, our insurers might deny claim coverage for valid or other reasons or may become insolvent.
Compliance with the Consent Decree may be more costly and burdensome than anticipated.
The Consent Decree contains numerous requirements that could create significant costs and compliance risks. The Consent Decree, which is expected to remain in force at a minimum through April, 2015, includes provisions permitting the government to take corrective actions against us if it determines we have violated the Consent Decree, including the right to issue an order requiring cessation of production or take other corrective action, and in some cases we may be required to implement the order before bringing the matter before a court. Failures to comply with the Consent Decree or FDA regulations respecting liquid chemical sterilizing or disinfecting devices also may result in liquidated damages specified in the Consent Decree of up to ten million dollars per calendar year. If costs associated with compliance with the Consent Decree significantly exceed the amounts anticipated, or if we violate the terms of the Consent Decree, our business, performance, value, financial condition, prospects or results of operations may be adversely affected.
We engage in acquisitions and affiliations, divestitures, and other business arrangements. Our growth may be adversely affected if we are unable to successfully identify, price, and integrate strategic business candidates or otherwise optimize our business portfolio.
Our success depends, in part, on strategic acquisitions and joint ventures, which are intended to complement or expand our businesses, divestiture of non-strategic businesses, and other actions to optimize our portfolio of businesses. This strategy depends upon our ability to identify, appropriately price, and complete these types of business development transactions or arrangements and to obtain any necessary financing. In fiscal 2013 we consummated three such acquisitions: United States Endoscopy Group, Inc., Spectrum Surgical Instruments Corp., and Total Repair Express, as well as buying out the interest of our joint venture partner in VTS Medical Systems, LLC. In fiscal 2014 we acquired the assets of Florida Surgical Repair, Inc., and Life Systems, Inc., and purchased the shares of Eschmann Holdings Ltd., and entered into an agreement to acquire the shares of Integrated Medical Systems International, Inc. Our success will also depend on our ability to integrate the businesses acquired, retain key personnel and otherwise execute our strategies. Our success will also depend on our ability to develop satisfactory working arrangements with our strategic partners in joint ventures or other affiliations, or to divest or realign businesses. Competition for strategic business candidates may result in increases in costs and price for acquisition candidates and market valuation issues may reduce the value available for divestiture of non-strategic businesses. These types of transactions are also subject to a number of other risks and uncertainties, including:
delays in realizing or failure to realize anticipated benefits of the transactions;
diversion of management's time and attention from other business concerns;
difficulties in retaining key employees, Customers, or suppliers of the acquired or divested businesses;
difficulties in maintaining uniform standards, controls, procedures and policies, or other integration or divestiture difficulties;
adverse effects on existing business relationships with suppliers or Customers;
other events contributing to difficulties in generating future cash flows;
risks associated with the assumption of contingent or other liabilities of acquisition targets or retention of liabilities for divested businesses; and
difficulties in obtaining financing.
If we are unable to realize the anticipated operating efficiencies and synergies or other expected transaction benefits, our business, prospects, performance, value, financial condition or results of operation may be adversely impacted.
Our acquisition activity and ability to grow organically may be adversely affected if we are unable to continue to access the financial markets.
The Company’s recent acquisitions have been financed largely through borrowings under the Company’s bank credit facilities and private placements. Additional acquisitions or other capital requirements will necessitate additional cash. To the extent our existing sources of cash are insufficient to fund these or other future activities, we may need to raise additional funds

14


through new or expanded borrowing arrangements or the sale of equity securities. There can be no assurance that we will be able to obtain additional funds beyond existing bank credit facilities on terms favorable to us, or at all.
If our cost reduction and restructuring efforts are ineffective, our profitability may be hurt or our business otherwise might be adversely affected.
We have undertaken various cost reduction and restructuring activities, including the targeted restructuring activities announced in March 2014. This latter restructuring involves primarily the closure of our Hopkins Production Facility in Mentor, Ohio and the transfer of the System 1E manufacturing operations conducted there to other North American manufacturing facilities. The Company has recorded a $20 million charge for the restructuring. The restructuring actions are anticipated to result in annual savings of approximately $10 million with savings occurring equally in fiscal year 2015 and fiscal year 2016. These efforts may not produce the full efficiencies and cost reduction benefits we expect or efficiencies and benefits might be delayed. Implementation costs also might exceed expectations and further cost reduction measures might become necessary, resulting in additional future charges. If these cost reduction and restructuring efforts are not properly implemented or are unsuccessful, we might experience business disruptions or our business otherwise might be adversely affected.
If our continuing efforts to create a Lean business and in-source production to reduce costs are not successful, our profitability may be hurt or our business otherwise might be adversely affected.
We have undertaken various activities to create a Lean business. One of those activities is in-sourcing. We have major projects underway to in-source production that is currently provided by third parties. We have made investments during fiscal 2013 and 2014 on these projects, and anticipate additional investments in fiscal 2015. There have been delays in the in-sourcing projects and, as a result, we have not realized the expected savings due to a variety of reasons. These activities may not produce the full efficiencies and cost reduction benefits that we expect or efficiencies and benefits might be further delayed. Implementation costs also might exceed expectations. If these in-sourcing or other Lean activities are not properly implemented or are unsuccessful, we might experience business disruptions, unanticipated additional expense or our business otherwise might be adversely affected.
Our business and results of operations may be adversely affected if we are unable to recruit and retain qualified management and other personnel, or if the Consent Decree or other compliance matters adversely impact our personnel.
Our continued success depends, in large part, on our ability to hire and retain highly qualified people and if we are unable to do so, our business and operations may be impaired or disrupted. Competition for highly qualified people is intense and there is no assurance that we will be successful in attracting or retaining replacements to fill vacant positions, successors to fill retirements or employees moving to new positions, or other highly qualified personnel. Our CEO is a party to the Consent Decree, and other officers and directors are also subject to its terms. If the Consent Decree or other legal, regulatory or compliance matters create significant distraction or diversion of significant or unanticipated resources or attention, that could have a material adverse effect on the responsibilities and retention of these persons, and on our business, performance, prospects, value, financial condition or results of operation.
Our business and financial condition could be adversely affected by difficulties in acquiring or maintaining a proprietary intellectual ownership position.
To maintain our competitive position, we need to obtain patent or other proprietary rights for new and improved products and to maintain and enforce our existing patents and other proprietary rights. We typically apply for patents in the United States and in strategic foreign countries. We may also acquire patents through acquisitions. A 2007 United States Supreme Court decision increases the difficulty of obtaining patent protection in the United States.
We rely on a combination of patents, trade secrets, know-how, and confidentiality agreements to protect the proprietary aspects of our technology. These measures afford only limited protection, and competitors may gain access to our intellectual property and proprietary information. Litigation may be necessary to enforce or defend our intellectual property rights, to protect our trade secrets, and to determine the validity and scope of our proprietary rights. Litigation may also be brought against us claiming that we have violated the intellectual property rights of others. Litigation may be costly and may divert management's attention from other matters. Additionally, in some foreign countries with weaker intellectual property rights, it may be difficult to maintain and enforce patents and other proprietary rights or defend against claims of infringement. If we are unable to obtain necessary patents, our patents and other proprietary rights are successfully challenged, or competitors independently develop substantially equivalent information and technology or otherwise gain access to our proprietary technology, our business, performance, value, financial condition, or results of operations may be adversely affected.

ITEM 1B.UNRESOLVED STAFF COMMENTS
None.

15



ITEM 2. PROPERTIES
The following table sets forth the principal plants and other materially important properties of the Company and its subsidiaries as of March 31, 2014. The Company believes that its facilities are adequate for operations and are maintained in good condition. The Company is confident that, if needed, it will be able to acquire additional facilities at commercially reasonable rates.
In the table below, “Contract Sterilization” refers to locations of the Isomedix segment. “Manufacturing,” “Warehousing,” “Operations,” or “Sales Offices” refer to locations serving both the Healthcare and Life Sciences segments.
 
United States (U.S.) Locations (including Puerto Rico) and International Locations (INTL)
Location
  
U.S./INTL
  
Use
  
Owned/Leased
Montgomery, AL
  
U.S.
  
Manufacturing
  
Owned
Ontario, CA
  
U.S.
  
Contract Sterilization
  
Owned
San Diego, CA
  
U.S.
  
Contract Sterilization
  
Owned
Temecula, CA
  
U.S.
  
Contract Sterilization
  
Owned
Libertyville, IL (2 locations)
  
U.S.
  
Contract Sterilization
  
Owned
Northborough, MA
  
U.S.
  
Contract Sterilization
  
Owned
Brooklyn Park, MN
 
U.S.
 
Contract Sterilization
 
Owned
St. Louis, MO
  
U.S.
  
Manufacturing
  
Owned
South Plainfield, NJ
  
U.S.
  
Contract Sterilization
  
Owned
Whippany, NJ
  
U.S.
  
Contract Sterilization
  
Owned
Chester, NY
  
U.S.
  
Contract Sterilization
  
Owned
Groveport, OH
  
U.S.
  
Contract Sterilization
  
Owned
Mentor, OH (13 locations)
  
U.S.
  
Corporate Headquarters
  
Owned
 
  
U.S.
  
Sales/Marketing Offices
  
Owned
 
  
U.S.
  
Administrative Offices
  
Owned
 
  
U.S.
  
Manufacturing/Warehousing
  
Owned
 
 
U.S.
 
Manufacturing/Operations
 
Owned
 
  
U.S.
  
Research and Development
  
Owned
 
 
U.S.
  
Lobby, Showroom and Customer Service
  
Owned
 
 
U.S.
  
Education Center
  
Owned
Spartanburg, SC
  
U.S.
  
Contract Sterilization
  
Owned
El Paso, TX (2 locations)
  
U.S.
  
Contract Sterilization
  
Owned
Grand Prairie, TX
  
U.S.
  
Contract Sterilization
  
Owned
Sandy, UT
  
U.S.
  
Contract Sterilization
  
Owned
Minneapolis, MN (2 locations)
  
U.S.
  
Contract Sterilization
  
Owned
Vega Alta, PR
  
INTL
  
Contract Sterilization
  
Owned
Bordeaux, France
 
INTL
 
Manufacturing/Sales Office/Showroom
 
Owned
Quebec City, Canada
  
INTL
  
Manufacturing
  
Owned
Whitby, Canada
  
INTL
  
Contract Sterilization
  
Owned
Leicester, England
  
INTL
  
Manufacturing
  
Owned
Mogi das Cruzes, Brazil
 
INTL
 
Manufacturing/Sales Office
 
Owned
Tuusula, Finland
  
INTL
  
Manufacturing/Sales Office
  
Owned
Lancing, England
 
INTL
 
Manufacturing/Administration Offices
 
Owned
West Sussex, England
 
INTL
 
Offices, Warehousing, Manufacturing
 
Owned
St. Louis, MO
  
U.S.
  
Warehousing/Distribution
  
Leased
Reno, NV
  
U.S.
  
Warehousing
  
Leased

16


United States (U.S.) Locations (including Puerto Rico) and International Locations (INTL)
Location
  
U.S./INTL
  
Use
  
Owned/Leased
Mentor, OH (2 locations)
  
U.S.
  
Administrative Offices
  
Leased
Stow, OH (2 locations)
 
U.S.
 
Sales/Administration Offices
 
Leased
Hillsborough, NJ
 
U.S.
 
Sales/Administration Offices
 
Leased
Lake Orion, MI
 
U.S.
 
Sales/Administration Offices
 
Leased
Keller, TX
 
U.S.
 
Sales/Administration Offices
 
Leased
Haywood, CA
 
U.S.
 
Sales/Administration Offices
 
Leased
Houston, TX
 
U.S.
 
Sales/Administration Offices
 
Leased
Costa Mesa, CA
 
U.S.
 
Sales/Administration Offices
 
Leased
Timonium, MD
 
U.S.
 
Sales/Administration Offices
 
Leased
Montgomery Village, MD
 
U.S.
 
Sales/Administration Offices
 
Leased
Melville, NY
 
U.S.
 
Sales/Administration Offices
 
Leased
Santa Clara, CA
 
U.S.
 
Sales Office
 
Leased
Chesterfield, MO
 
U.S.
 
Sales/Administration Offices
 
Leased
Longwood, FL
 
U.S.
 
Sales/Administration Offices
 
Leased
Berchem, Belgium
  
INTL
  
Sales Office
  
Leased
Brussels, Belgium
 
INTL
 
Sales/Administration Offices
 
Leased
Sao Paulo, Brazil
  
INTL
  
Sales Office
  
Leased
Mississauga, Canada
  
INTL
  
Sales Office/Warehousing
  
Leased
Beijing, China
  
INTL
  
Sales Office
  
Leased
Guangzhou, China
 
INTL
 
Sales/Administration Offices/ Assembly
 
Leased
Shanghai, China
  
INTL
  
Sales Office/ Manufacturing
  
Leased
Basingstoke, England
  
INTL
  
Sales Office
  
Leased
Leicester, England
 
INTL
 
Warehousing
 
Leased
La Chapelle St. Mesmin, France
  
INTL
  
Sales Office
  
Leased
Orleans, France
 
INTL
 
Showroom
 
Leased
Saint Jean d'illac, France
 
INTL
 
Warehousing
 
Leased
Paris, France
 
INTL
 
Sales Office
 
Leased
Toussieu, France
 
INTL
 
Warehousing
 
Leased
Cologne, Germany
  
INTL
  
Sales Office
  
Leased
Calcutta, India
  
INTL
  
Sales Office
  
Leased
Segrate, Italy
  
INTL
  
Sales Office
  
Leased
Tokyo, Japan
  
INTL
  
Sales Office
  
Leased
Petaling Jaya, Malaysia
  
INTL
  
Sales Office
  
Leased
Guadalupe, Mexico
  
INTL
  
Manufacturing
  
Leased
Moscow, Russia
  
INTL
  
Sales Office
  
Leased
Singapore (3 locations)
  
INTL
  
Sales Office, Warehousing
  
Leased
Madrid, Spain
  
INTL
  
Sales Office
  
Leased
United Arab Emirates
  
INTL
  
Sales Office
  
Leased

ITEM 3.
LEGAL PROCEEDINGS

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

17


malfunction, failure to warn, failure to meet specification, or failure to comply with regulatory requirements), product exposure (e.g., claimed exposure to chemicals, asbestos, contaminants, radiation), property damage (e.g., claimed damage due to leaking equipment, fire, vehicles, chemicals), commercial claims (e.g., breach of contract, economic loss, warranty, misrepresentation), financial (e.g., taxes, reporting), employment (e.g., wrongful termination, discrimination, benefits matters), and other claims for damage and relief. 
We believe we have adequately reserved for our current litigation and claims that are probable and estimable, and further believe that the ultimate outcome of these pending lawsuits and claims will not have a material adverse affect 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 FDA-related 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.  
As previously disclosed, we received a warning letter (the “warning letter”) from the FDA on May 16, 2008 regarding our SYSTEM 1 sterile processor and the STERIS® 20 sterilant used with the processor (sometimes referred to collectively in the FDA letter and in this Item 3 as the “device”). Among other matters, the warning letter included the FDA's assertion that significant changes or modifications had been made in the design, components, method of manufacture, or intended use of the device beyond the FDA's 1988 clearance, such that the FDA believed a new premarket notification submission (known within FDA regulations as a 510(k) submission) should have been made, and the assertion that our failure to make such a submission resulted in violations of applicable law.
After ongoing discussions with the FDA, in April 2010 we reached agreement with the FDA on the terms of a consent decree (“Consent Decree”). On April 19, 2010, a Complaint and Consent Decree were filed in the U.S. District Court for the Northern District of Ohio, and on April 20, 2010, the Court approved the Consent Decree. In general, the Consent Decree addresses regulatory matters regarding SYSTEM 1, restricts further sales of SYSTEM 1 processors in the U.S., defines certain documentation and other requirements for continued service and support of SYSTEM 1 in the U.S., prohibits the sale of liquid chemical sterilization or disinfection products in the U.S. that do not have FDA clearance, describes various process and compliance matters, and defines penalties in the event of violation of the Consent Decree. The Consent Decree also provided the terms under which we temporarily continued to support our Customers' use of SYSTEM 1 in the U.S., including the sale of consumables, parts and accessories and service for a transition period (the “Transition Plan”), which included the “SYSTEM 1 Rebate Program”.
The Consent Decree has defined the resolution of a number of issues regarding SYSTEM 1, and we believe our actions with respect to SYSTEM 1, including the Transition Plan, were and are not recalls, corrections or removals under FDA regulations. However, there is no assurance that these or other claims will not be brought or that judicial, regulatory, administrative or other legal or enforcement actions, notices or remedies will not be pursued, or that action will not be taken in respect of the Consent Decree, the Transition Plan, SYSTEM 1, or otherwise with respect to regulatory or compliance matters, as described in this Item 3 and in various portions of Item 1A of Part I of this Annual Report on Form 10-K.
On May 31, 2012, our Albert Browne Limited subsidiary received a warning letter from the FDA regarding chemical indicators manufactured in the United Kingdom. These devices are intended for the monitoring of certain sterilization and other processes. The FDA warning letter states that the agency has concerns regarding operational business processes. We do not believe that the FDA's concerns are related to product performance, or that they result from Customer complaints. We have reviewed our processes with the agency and finalized our remediation measures, and are awaiting FDA reinspection. We do not currently believe that the impact of this event will have a material adverse effect on our financial results.
Other civil, criminal, regulatory or other proceedings involving our products or services also 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 affect our business, performance, prospects, value, financial condition, and results of operations.  
For additional information regarding these matters, see the following portions of this Annual Report on Form 10-K: “Business - Information with respect to our Business in General - Government Regulation”, and the “Risk Factor” titled: “We may be adversely affected by product liability claims or other legal actions or regulatory or compliance matters, including the Consent Decree” and the “Risk Factor” titled “Compliance with the Consent Decree may be more costly and burdensome than anticipated.” 
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. 

18


Additional information regarding our commitments and contingencies is included in Item 7, "MD&A", and in note 11 to our consolidated financial statements titled, "Commitments and Contingencies".

ITEM 4.    MINE SAFETY DISCLOSURES

None.

19



PART II

ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information. Our common shares are traded on the New York Stock Exchange under the symbol “STE.” The following table presents, for the quarters indicated, the high and low sales prices for our common shares.
 
Quarters Ended
March 31
 
December 31
 
September 30
 
June 30
Fiscal 2014
 
 
 
 
 
 
 
High
$
49.92

 
$
48.50

 
$
46.10

 
$
46.59

Low
39.90

 
42.74

 
40.46

 
38.85

Fiscal 2013
 
 
 
 
 
 
 
High
$
41.76

 
$
37.18

 
$
36.33

 
$
31.83

Low
34.80

 
32.23

 
29.91

 
28.77


Holders.  As of March 31, 2014, there were approximately 1,295 holders of record of our common shares. However, we believe that we have a significantly larger number of beneficial holders of common shares.
Dividend Policy.  The Company’s Board of Directors decides the timing and amount of any dividends we may pay. During fiscal 2014, we paid cash dividends totaling $0.82 per outstanding common share ($0.19 per outstanding common share to common shareholders of record on June 4, 2013, and $0.21 per outstanding common share to common shareholders of record on the following dates: August 28, 2013, November 20, 2013 and February 26, 2014). During fiscal 2013, we paid cash dividends totaling $0.74 per outstanding common share ($0.17 per outstanding common share to common shareholders of record on June 5, 2012, and $0.19 per outstanding common share to common shareholders of record on the following dates: August 23, 2012, November 21, 2012 and February 27, 2013).
Recent Sales of Unregistered Securities.  None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers.  The following table presents information with respect to purchases STERIS made of its shares of common stock during the fourth quarter of the 2014 fiscal year:
 
 
 
(a)
Total Number  of
Shares Purchased
 
(b)
Average Price Paid
Per Share
 
(c)
Total Number  of
Shares Purchased as
Part of Publicly
Announced Plans (2)
 
(d)
Maximum Dollar Value  of
Shares that May Yet Be
Purchased Under the
Plans at Period End
January 1-31
 

  
$

  

 
$
89,172

February 1-28
 
50,507

  
44.21

  
50,507

 
86,939

March 1-31
 

  

  

 
86,939

Total
 
50,507

(1) 
$
44.21

(1) 
50,507

 
$
86,939


(1)
Does not include 77 shares purchased during the quarter at an average price of $46.84 per share by the STERIS Corporation 401(k) Plan on behalf of certain executive officers of the Company who may be deemed to be affiliated purchasers.
(2)
On March 14, 2008 we announced that, the Board of Directors had authorized the repurchase of up to $300.0 million of our common shares. As of March 31, 2014, $86.9 million remained authorized for repurchase of our common shares under the current share repurchase authorization. This authorization does not have a stated maturity date. We provide information about our full year fiscal 2014 share repurchase activity in note 14 to our consolidated financial statements titled, “Repurchases of Common Shares.”


20



ITEM 6.    SELECTED FINANCIAL DATA

 
Years Ended March 31,
(in thousands, except per share data)
2014 (1)
 
2013(1)(2)
 
2012(1)(2)
 
2011(2)
 
2010
Statements of Income Data:
 
 
 
 
 
 
 
 
 
Revenues
$
1,622,252

 
$
1,501,902

 
$
1,406,810

 
$
1,207,448

 
$
1,257,733

Gross profit
649,622

 
621,263

 
568,465

 
446,162

 
539,181

Restructuring expenses
13,204

 
(565
)
 
644

 
1,202

 
4,848

Income from continuing operations
206,807

 
242,829

 
222,316

 
85,212

 
203,712

Income taxes
58,934

 
67,121

 
74,993

 
22,554

 
63,349

Net income
$
129,442

 
$
159,977

 
$
136,115

 
$
51,265

 
$
128,467

Basic income per common share:
 
 
 
 
 
 
 
 
 
Net income
$
2.20

 
$
2.74

 
$
2.33

 
$
0.86

 
$
2.18

Shares used in computing net income per common share – basic
58,966

 
58,305

 
58,367

 
59,306

 
58,826

Diluted income per common share:
 
 
 
 
 
 
 
 
 
Net income
$
2.17

 
$
2.72

 
$
2.31

 
$
0.85

 
$
2.16

Shares used in computing net income per common share – diluted
59,745

 
58,884

 
58,963

 
60,148

 
59,423

Dividends per common share
$
0.82

 
$
0.74

 
$
0.66

 
$
0.56

 
$
2.44

Balance Sheets Data:
 
 
 
 
 
 
 
 
 
Working capital
$
420,239

 
$
395,103

 
$
373,488

 
$
361,060

 
$
379,328

Total assets
1,887,162

 
1,761,109

 
1,405,696

 
1,426,685

 
1,238,402

Long-term indebtedness
493,480

 
492,290

 
210,000

 
210,000

 
210,000

Total liabilities
845,916

 
814,129

 
583,032

 
638,020

 
483,908

Total shareholders’ equity
1,038,705

 
944,942

 
821,401

 
787,569

 
753,714


(1)
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
(2)
Presented amounts include the impact of the SYSTEM 1 Rebate Program and the SYSTEM 1 class action settlement.

21



ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION
In Management’s Discussion and Analysis (“MD&A”), we explain the general financial condition and the results of operations for STERIS and its subsidiaries including:
 
what factors affect our business;
what our earnings and costs were;
why those earnings and costs were different from the year before;
where our earnings came from;
how this affects our overall financial condition;
what our expenditures for capital projects were; and
where cash will come from to fund future debt principal repayments, growth outside of core operations, repurchase common shares, pay cash dividends and fund future working capital needs.
The MD&A also analyzes and explains the annual changes in the specific line items in the Consolidated Statements of Income. As you read the MD&A, it may be helpful to refer to information in Item 1, “Business,” Item 6, “Selected Financial Data,” and our consolidated financial statements, which present the results of our operations for fiscal 2014, 2013 and 2012, as well as Part I, Item 1A, “Risk Factors” and Part I, Item 3, “Legal Proceedings”, for a discussion of some of the matters that can adversely affect our business and results of operations. This information, discussion, and disclosure may be important to you in making decisions about your investments in STERIS.

FINANCIAL MEASURES

In the following sections of the MD&A, we may, at times, refer to financial measures that are not required to be presented in the consolidated financial statements under U.S. GAAP. We sometimes use the following financial measures in the context of this report: backlog; debt-to-total capital; net 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.
Net debt-to-total capital – We define net debt-to-total capital as total debt less cash (“net debt”) divided by the sum of net debt and shareholders’ equity. We also use this figure as a financial liquidity measure to gauge our ability to borrow and fund growth.
Days sales outstanding (“DSO”) – We define DSO as the average collection period for accounts receivable. It is calculated as net accounts receivable divided by the trailing four quarters’ revenues, multiplied by 365 days. We use this figure to help gauge the quality of accounts receivable and expected time to collect.

We, at times, may also refer to financial measures which are considered to be “non-GAAP financial measures” under SEC rules. We have presented these financial measures because we believe that meaningful analysis of our financial performance is enhanced by an understanding of certain additional factors underlying that performance. These financial measures should not be considered an alternative to measures required by accounting principles generally accepted in the United States. Our calculations of these measures may differ from calculations of similar measures used by other companies and you should be careful when comparing these financial measures to those of other companies. Additional information regarding these financial measures, including reconciliations of each non- GAAP financial measure, is available in the subsection of MD&A titled, "Non-GAAP Financial Measures."

REVENUES– DEFINED

As required by Regulation S-X, we separately present revenues generated as either product revenues or service revenues on our Consolidated Statements of Income for each period presented. When we discuss revenues, we may, at times, refer to revenues summarized differently than the Regulation S-X requirements. The terminology, definitions, and applications of terms

22


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, instrument and endoscope repair services, and revenues generated from contract sterilization offered through our Isomedix segment.
Capital Revenues – We define capital revenues as revenues generated from sales of capital equipment, which includes steam sterilizers, low temperature liquid chemical sterilant processing systems, including SYSTEM 1 and 1E, washing systems, VHP® technology, water stills, and pure steam generators; surgical lights and tables; and integrated OR.
Consumable Revenues – We define consumable revenues as revenues generated from sales of the consumable family of products, which includes SYSTEM 1 and 1E consumables, V-Pro consumables, gastrointestinal endoscopy accessories, sterility assurance products, skin care products, cleaning consumables, and surgical instruments.
Recurring Revenues – We define recurring revenues as revenues generated from sales of consumable products and service revenues.

GENERAL OVERVIEW AND EXECUTIVE SUMMARY

Our Business. Our mission is to help our Customers create a healthier and safer world by providing innovative healthcare and life science product and service solutions around the globe. Our dedicated employees around the world work together to supply a broad range of solutions by offering a combination of capital equipment, consumables, and services to healthcare, pharmaceutical, industrial, and governmental Customers.
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 FDA 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 preventative screenings such as endoscopies and colonoscopies; and a desire by our Customers to operate more efficiently, all which are driving increased demand for many of our products and services. 
We are also investing in several manufacturing in-sourcing projects for the purpose of improving quality, cost and delivery of our products to our Customers.
Highlights.  During fiscal year 2014, we continued to invest in new products and in quality processes to defend and grow our core business. Simultaneously, we continued the execution of our strategy to expand into adjacent markets with acquisitions in the Healthcare segment. In December 2013, we purchased the assets of Florida Surgical Repair ("FSR"), a provider of surgical instrument and surgical equipment repair services. In February 2014, we purchased the assets of Life Systems, Inc. ("LSI"), a provider of sales and service in the endoscopy repair and certified pre-owned equipment markets. In February 2014, we also purchased the stock of Eschmann Holdings Ltd. ("Eschmann"), a provider of surgical and infection prevention solutions and services used primarily in hospitals, surgery centers and dental offices in the United Kingdom.
In the fourth quarter of fiscal 2014, we adopted and announced a targeted restructuring plan primarily focused on the closure of our Hopkins manufacturing facility located in Mentor, Ohio (the “Fiscal 2014 Restructuring Plan”). As a result of this plan we will transfer operations located at Hopkins to other North American locations. The plan also includes the rationalization of certain products and the elimination of certain positions across our operations impacting approximately 150 employees. These actions resulted in the impairment of related assets and inventory and severance and outplacement costs. We expect that these actions, combined with additional actions taken in prior years, will allow us to make substantial progress in reducing our cost base.
Revenues increased $120.4 million, or 8.0%, to $1,622.3 million for the year ended March 31, 2014, as compared to $1,501.9 million for the year ended March 31, 2013. The fiscal 2013 period was positively impacted by the SYSTEM 1 Rebate Program adjustment of $22.4 million. Fiscal 2014 revenues increased $142.8 million, or 9.7%, over adjusted revenues of $1,479.5 million for fiscal 2013, which exclude the impact of the SYSTEM 1 Rebate Program, reflecting growth in all three business segments (see subsection of MD&A titled "Non-GAAP Financial Measures" for additional information and related reconciliation of non-GAAP financial measures to the most comparable GAAP measures).
Fiscal 2014 operating income was $206.8 million, a decrease of 14.8% over the fiscal 2013 operating income of $242.8 million. The primary drivers of the lower operating income was the positive impact of the $23.6 million SYSTEM 1 Rebate

23


Program adjustments recorded during fiscal 2013 and the $16.8 million SYSTEM 1 class action settlement adjustments recorded during fiscal 2013. Fiscal 2014 operating income increased $4.4 million, or 2.2%, over adjusted fiscal 2013 operating income of $202.4 million (see subsection of MD&A titled "Non-GAAP Financial Measures" for additional information and related reconciliation of non-GAAP financial measures to the most comparable GAAP measures). The slight increase from last year was due primarily to the increased revenues within all three business segments, mainly attributable to the contributions of the fiscal 2013 and 2014 acquisitions, which was partially offset by the charges associated with the Fiscal 2014 Restructuring Plan, the Medical Device Excise tax, increased spending for research and development, and investments in in-sourcing.
Cash flows from operations were $209.6 million and free cash flow was $128.0 million (see subsection of MD&A titled, "Non-GAAP Financial Measures" for additional information and related reconciliation of non-GAAP financial measures to the most comparable GAAP measures). As a result of the acquisition activity, we increased our leverage by borrowing under our revolving credit facility. With this additional leverage, we maintained a debt-to-total capital ratio of 32.2% at March 31, 2014. We increased our dividend double digits for the eighth consecutive year to $0.21 per share per quarter.
Outlook. Since our fiscal 2014 acquisitions did not close until the third and fourth quarters of fiscal 2014, we expect to have stronger top-line revenues from these acquisitions in fiscal 2015. Fluctuations in foreign currency rates can impact revenues and costs outside of the United States, creating variability in our results for fiscal 2015 and beyond.
In fiscal 2015 and beyond, we expect to continue to manage our costs, grow our business with internal product development, invest in greater capacity, and augment these value creating methods with acquisitions of adjacent products and services. We plan to continue our efforts to in-source some of the production that we have traditionally out-sourced. Because we continue to take advantage of our Lean business model, we expect to utilize the capacity we have created to shorten the supply chain and produce certain components in-house.

MATTERS AFFECTING COMPARABILITY

SYSTEM 1 Rebate Program and proposed class action settlement. In April 2010, we introduced the SYSTEM 1 Rebate Program ("Rebate Program") to Customers as a component of our Transition Plan for SYSTEM 1. Generally, U.S. Customers that purchased SYSTEM 1 processors directly from us or who were current users of SYSTEM 1 and who returned their units had the option of either a pro-rated cash value or rebate toward the future purchase of new STERIS capital equipment or consumable products. In addition, we provided credits for SYSTEM 1 service contracts and consumables in unbroken packaging.
During the first quarter of fiscal 2011, we recorded a pre-tax liability related to the SYSTEM 1 Rebate Program. Of the $110.0 million recorded, $102.3 million was attributable to the Customer Rebate portion of the Program and was recorded as a reduction to revenue, and $7.7 million was attributable to the disposal liability of the SYSTEM 1 units to be returned and was recorded in cost of revenues.
During fiscal 2012 and fiscal 2013, based on the actual experience at the time, we adjusted a portion of the original estimated liability related to the Rebate Program. The total fiscal 2012 pre-tax adjustment was $17.4 million, of which $15.3 million was recorded as an increase to revenue for the Customer rebate portion, and $2.1 million was recorded as a reduction in cost of revenues related to the disposal liability. The total fiscal 2013 pre-tax adjustments amounted to $23.7 million, of which $22.4 million was recorded as increases to revenue for the Customer rebate portion, and $1.3 million was recorded as reductions to cost of revenues related to the disposal portion of the liability. These adjustments resulted primarily from a lower number of eligible Customers electing to participate in the Rebate Program than previously estimated.
In fiscal 2011 we recorded a pre-tax charge of $19.8 million related to the initial recognition of the settlement of SYSTEM 1 class action litigation. The impact of the charge was a reduction in net income of $13.1 million (after tax of $6.7 million). As a result of the passage of the claim submission deadline during fiscal 2013, we adjusted the liability related to the SYSTEM 1 class action settlement by $16.8 million based on actual claims submitted.
International Operations. Since we conduct operations outside of the United States using various foreign currencies, our operating results are impacted by foreign currency movements relative to the U.S. dollar. During fiscal 2014, our revenues were unfavorably impacted by $2.1 million, or 0.1%, and income before taxes was favorably impacted by $0.3 million, or 0.2%, as a result of foreign currency movements relative to the U.S. dollar.

NON-GAAP FINANCIAL MEASURES

We, at times, refer to financial measures which are considered to be “non-GAAP financial measures” under SEC rules. We, at times, also refer to our results of operations excluding certain transactions or amounts that are non-recurring or are not indicative of future results, in order to provide meaningful comparisons between the periods presented.

24


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 in the Consolidated Statements of Cash Flows. We use this as a measure to gauge our ability to fund future debt principal repayments and growth outside of core operations, repurchase common shares, and pay cash dividends. The following table summarizes the calculation of our free cash flow for the years ended March 31, 2014, 2013 and 2012:
 
Years Ended March 31,
(dollars in thousands)
2014
 
2013
 
2012
Net cash flows provided by operating activities
$
209,631

 
$
227,815

 
$
149,372

Purchases of property, plant, equipment and intangibles, net
(86,367
)
 
(87,412
)
 
(66,682
)
Proceeds from the sale of property, plant, equipment and intangibles
4,774

 
34

 
42

Free cash flow
$
128,038

 
$
140,437

 
$
82,732


To supplement our financial results presented in accordance with U.S. GAAP, we have sometimes referred to certain measures of revenues, gross profit, gross profit percentage, and the Healthcare segment results of operations in the section of MD&A titled, "Results of Operations" excluding the impact of adjustments recorded in connection with the SYSTEM 1 Rebate Program and the SYSTEM 1 class action settlement. These items had a significant impact on the fiscal 2013 and fiscal 2012 measures and the corresponding trend in each of these measures. We provide adjusted measures to give the reader a more complete understanding of the factors and trends affecting our business than could be obtained absent this disclosure. These measures are used by management and the Board of Directors in making comparisons to our historical operating results and analyzing the underlying performance of our operations. The tables below provide a reconciliation of each of these measures to its most directly comparable GAAP financial measure.
 
Years Ended March 31,
(dollars in thousands)
2014
2013
2012
Reported revenues
$
1,622,252

$
1,501,902

$
1,406,810

Impact of the SYSTEM 1 Rebate Program

(22,367
)
(15,306
)
Adjusted revenues
$
1,622,252

$
1,479,535

$
1,391,504

 
 
 
 
Reported capital equipment revenues
$
603,579

$
613,378

$
626,959

Impact of the SYSTEM 1 Rebate Program

(22,367
)
(15,306
)
Adjusted capital equipment revenues
$
603,579

$
591,011

$
611,653

 
 
 
 
Reported United States revenues
$
1,244,730

$
1,141,633

$
1,057,460

Impact of the SYSTEM 1 Rebate Program

(22,367
)
(15,306
)
Adjusted United States Revenues
$
1,244,730

$
1,119,266

$
1,042,154

 
 
 
 

25


Reported Healthcare revenues
$
1,180,051

$
1,074,790

$
1,013,102

Impact of the SYSTEM 1 Rebate Program

(22,367
)
(15,306
)
Adjusted Healthcare revenues
$
1,180,051

$
1,052,423

$
997,796

 
 
 
 
Healthcare capital revenues
$
515,380

$
521,806

$
545,596

Impact of SYSTEM 1 Rebate Program

(22,367
)
(15,306
)
Adjusted Healthcare capital revenues
$
515,380

$
499,439

$
530,290

 
 
 
 
Reported gross profit
$
649,622

$
621,263

$
568,465

Impact of the SYSTEM 1 Rebate Program

(23,640
)
(17,403
)
Adjusted gross profit
$
649,622

$
597,623

$
551,062

 
 
 
 
Reported gross profit percentage
40.0
%
41.4
 %
40.4
 %
Impact of the SYSTEM 1 Rebate Program
%
(1.0
)%
(0.8
)%
Adjusted gross profit percentage
40.0
%
40.4
 %
39.6
 %
 
 
 
 
Reported operating income
$
206,807

$
242,829

$
222,316

Impact of the SYSTEM 1 Rebate Program and class action settlement

(40,422
)
(17,403
)
Adjusted operating income
$
206,807

$
202,407

$
204,913

 
 
 
 
Reported Healthcare operating income
$
109,714

$
153,343

$
141,742

Impact of the SYSTEM 1 Rebate Program and class action settlement

(40,422
)
(17,403
)
Adjusted Healthcare operating income
$
109,714

$
112,921

$
124,339

 
 
 
 
Reported income tax expense
$
58,934

$
67,121

$
74,993

Impact of the SYSTEM 1 Rebate Program and class action settlement

(15,765
)
(6,780
)
Adjusted income tax expense
$
58,934

$
51,356

$
68,213

 
 
 
 
Reported selling, general and administrative
$
380,970

$
337,694

$
309,552

Impact of the SYSTEM 1 class action settlement

16,782


Adjusted selling, general and administrative
$
380,970

$
354,476

$
309,552

 
 
 
 
Reported effective income tax rate
31.3
%
29.6
 %
35.5
 %
Impact of the SYSTEM 1 Rebate Program and class action settlement
%
(2.1
)%
(0.3
)%
Adjusted effective income tax rate
31.3
%
27.5
 %
35.2
 %

RESULTS OF OPERATIONS

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

26



FISCAL 2014 AS COMPARED TO FISCAL 2013

Revenues. The following table compares our revenues, in total and by type and geography, for the year ended March 31, 2014 to the year ended March 31, 2013:

 
Years Ended March 31,
 
 
 
Percent
(dollars in thousands)
2014
 
2013
 
Change
 
Change
Total revenues
$
1,622,252

 
$
1,501,902

 
$
120,350

 
8.0
 %
 
 
 
 
 
 
 
 
Revenues by type:
 
 
 
 
 
 
 
Capital equipment revenues
603,579

 
613,378

 
(9,799
)
 
(1.6
)%
Consumable revenues
407,883

 
353,984

 
53,899

 
15.2
 %
Service revenues
610,790

 
534,540

 
76,250

 
14.3
 %
 
 
 
 
 
 
 
 
Revenues by geography:
 
 
 
 
 
 
 
United States revenues
1,244,730

 
1,141,633

 
103,097

 
9.0
 %
International revenues
377,522

 
360,269

 
17,253

 
4.8
 %

Revenues increased $120.4 million, or 8.0%, to $1,622.3 million for the year ended March 31, 2014, as compared to $1,501.9 million for the year ended March 31, 2013. Fiscal 2014 revenues increased $142.8 million, or 9.7%, over adjusted revenues for fiscal 2013, which exclude the impact of the $22.4 million SYSTEM 1 Rebate Program adjustments (see subsection of MD&A titled, "Non-GAAP Financial Measures" for additional information and related reconciliation of non-GAAP financial measures to the most comparable GAAP measures). The increase reflects growth in all three business segments.
Capital equipment revenues decreased by $9.8 million, or 1.6%, to $603.6 million, during fiscal 2014 as compared to fiscal 2013. Capital equipment revenues for the fiscal year ended 2013 were favorably impacted by adjustments related to the SYSTEM 1 Rebate Program of $22.4 million (see subsection of MD&A titled, "Non-GAAP Financial Measures" for additional information and related reconciliation of non-GAAP financial measures to the most comparable GAAP measures). Fiscal 2014 capital equipment revenues increased $12.6 million, or 2.1% over fiscal 2013 adjusted capital equipment revenues of $591.0 million (see subsection of MD&A titled, "Non-GAAP Financial Measures" for additional information and related reconciliation of non-GAAP financial measures to the most comparable GAAP measures). This increase was primarily driven by growth in the U.S. and the EMEA region, offset by declines in other international regions. Consumable revenues increased $53.9 million, or 15.2%, during fiscal 2014 from fiscal 2013. This increase was driven by growth within the Healthcare segment due in large part to our recent acquisitions, and growth within the Life Sciences business segment and reflects growth in all regions. Service revenues for fiscal 2014 increased $76.3 million, or 14.3%, over fiscal 2013 primarily driven by the recent acquisitions of the instrument repair businesses, other service offerings, and growth of $14.6 million, or 8.1%, within the Isomedix segment in fiscal 2014 over fiscal 2013. Isomedix revenues were favorably impacted by increased demand from our medical device Customers and the filling of recently added capacity.
United States revenues for fiscal 2014 were $1,244.7 million, an increase of $103.1 million, or 9.0%, over fiscal 2013 revenues of $1,141.6 million. The fiscal 2013 period was favorably impacted by the SYSTEM 1 Rebate Program adjustments of $22.4 million. United States revenues for fiscal 2014 increased $125.5 million, or 11.2%, over the adjusted United States revenues for fiscal 2013 of $1,119.3 million (see subsection of MD&A titled, "Non-GAAP Financial Measures" for additional information and related reconciliation of non-GAAP financial measures to the most comparable GAAP measures). The increase is driven by higher consumable and service revenues attributable, in part, to our recent acquisitions but also attributable to increased revenues from other products. These results reflect growth in all three business segments.
International revenues for fiscal 2014 were $377.5 million, an increase of 4.8% over the fiscal 2013 revenues of $360.3 million. This increase reflects revenue growth in the Latin American and EMEA regions, partially offset by declines in Canada and the Asia Pacific regions.

Gross Profit. The following table compares our gross profit for the year ended March 31, 2014 to the year ended March 31, 2013:
 

27


 
Years Ended March 31,
 
Change
 
Percent
Change
(dollars in thousands)
2014
 
2013
 
Gross profit:
 
 
 
 
 
 
 
Product
$
425,286

 
$
416,463

 
$
8,823

 
2.1
%
Service
224,336

 
204,800

 
19,536

 
9.5
%
Total gross profit
$
649,622

 
$
621,263

 
$
28,359

 
4.6
%
Gross profit percentage:
 
 
 
 
 
 
 
Product
42.0
%
 
43.1
%
 
 
 
 
Service
36.7
%
 
38.3
%
 
 
 
 
Total gross profit percentage
40.0
%
 
41.4
%
 
 
 
 

Our gross profit is affected by the volume, pricing and mix of sales of our products and services, as well as the costs associated with the products and services that are sold. Our gross profit increased $28.4 million and gross profit percentage decreased to 40.0% for fiscal 2014 as compared to 41.4% for fiscal 2013. Our gross profit increased $52.0 million, or 8.7% over our adjusted fiscal 2013 gross margin, which excludes the $23.6 million impact of the SYSTEM 1 Rebate Program (see subsection of MD&A titled "Non-GAAP Financial Measures" for additional information and related reconciliation of non-GAAP financial measures to the most comparable GAAP measures). Other key factors impacting gross margin and the gross margin percentage for fiscal 2014 include the negative impact of restructuring (50 basis points), inflation (80 basis points), and the Medical Device Excise Tax (40 basis points), and the positive impact of the following: pricing (40 basis points), volume (40 basis points) and our recent acquisitions.

Operating Expenses. The following table compares our operating expenses for the year ended March 31, 2014 to the year ended March 31, 2013:
  
 
Years Ended March 31,
 
Change
 
Percent
Change
(dollars in thousands)
 
2014
 
2013
 
Operating expenses:
 
 
 
 
 
 
 
 
Selling, general, and administrative
 
$
380,970

 
$
337,694

 
$
43,276

 
12.8
%
Research and development
 
48,641

 
41,305

 
7,336

 
17.8
%
Restructuring expenses
 
13,204

 
(565
)
 
13,769

 
NM

Total operating expenses
 
$
442,815

 
$
378,434

 
$
64,381

 
17.0
%
NM - Not meaningful
  
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, and other general and administrative expenses. SG&A increased 12.8% during fiscal 2014 over fiscal 2013. During fiscal 2013, we adjusted the liability related to the SYSTEM 1 class action settlement. The pre-tax adjustment of $16.8 million was recorded as a reduction to operating expenses. Adjusted SG&A expenses, excluding the impact of the SYSTEM 1 class action settlement for fiscal 2013 were $354.5 million (see subsection of MD&A titled, "Non-GAAP Financial Measures" for additional information and related reconciliation of non-GAAP financial measures to the most comparable GAAP measures). The impact of the class action settlement aside, the increase in SG&A in fiscal 2014 over fiscal 2013 is primarily attributable to the addition of operating expenses incurred with our acquired businesses. In addition, we recorded a fair value adjustment of $1.0 million related to a deferred payment of purchase price for the 2012 purchase of Sercon Industria E Comercio De Aparelhos Medicos Hospitalares LTDA (“Sercon”).
Research and development expenses increased $7.3 million during fiscal 2014, as compared to fiscal 2013. The majority of the increase is attributable to expenses for research and development incurred within the operations of the businesses acquired in fiscal 2013 and fiscal 2014. 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. During fiscal 2014, our investments in research and development continued to be focused on, but were not limited to, enhancing capabilities of sterile processing combination technologies, surgical products and accessories, and devices and support accessories used in gastrointestinal endoscopy procedures.
Restructuring Expenses. We recognize restructuring expenses as they are incurred. We also evaluate the inventory and property, plant and equipment associated with our restructuring actions for impairment. Asset impairment and accelerated depreciation expenses primarily relate to inventory write-downs for rationalized products and adjustments in the carrying value of the closed facilities to their estimated fair value. In addition, the remaining useful lives of other property, plant and

28


equipment associated with the related operations were re-evaluated based on the respective plan, resulting in the acceleration of depreciation and amortization of certain assets.
Fiscal 2014 Restructuring Plan. During the fourth quarter of fiscal 2014, we adopted and announced a targeted restructuring plan primarily focused on the closure of the Hopkins manufacturing facility located in Mentor, Ohio (the “Fiscal 2014 Restructuring Plan”). As a result of this plan we will transfer operations located at Hopkins to other North American locations. We believe that by closing the operations at Hopkins we will be able to more effectively utilize our existing North American manufacturing network while reducing operating costs. The plan also includes the rationalization of certain products and the elimination of certain positions across our operations impacting approximately 150 employees. These actions resulted in the impairment of related assets and inventory and severance and outplacement costs. We anticipate that these restructuring actions will result in annual savings of approximately $10.0 million. We expect to incur restructuring charges of approximately $1.0 million in fiscal 2015, as additional costs associated with the plan are incurred.
Fiscal 2010 Restructuring Plan. During the fourth quarter of fiscal 2010 we adopted a restructuring plan primarily related to the transfer of the remaining operations in our Erie, Pennsylvania facility to the U.S. headquarters in Mentor, Ohio and the consolidation of our European Healthcare manufacturing operations into two central locations within Europe (the “Fiscal 2010 Restructuring Plan”). In addition, we rationalized certain products and eliminated certain positions.

The following tables summarize our total pre-tax restructuring expenses for fiscal 2014 and fiscal 2013:
 
Year Ended March 31, 2014
(dollars in thousands)
Fiscal 2014
Restructuring
Plan (1)
Fiscal 2010
Restructuring
Plan
Total
Severance and other compensation related costs
$
7,363

$
127

$
7,490

Asset impairment and accelerated depreciation
3,621

990

4,611

Lease termination obligation and other
1,103


1,103

Product rationalization
8,144


8,144

Total restructuring charges
$
20,231

$
1,117

$
21,348


(1)
Includes $8.1 million in charges recorded in cost of revenues on Consolidated Statements of Income.

 
Year Ended March 31, 2013
(dollars in thousands)
Fiscal 2010
Restructuring
Plan
Severance and other compensation related costs
$
(918
)
Lease termination obligation and other
353

Total restructuring charges
$
(565
)
 
Liabilities related to restructuring activities are recorded as current liabilities on the accompanying Consolidated Balance Sheets within “Accrued payroll and other related liabilities” and “Accrued expenses and other.” The following tables summarizes our restructuring liability balances and activity:
 
 
Fiscal 2014 Restructuring Plan
 
 
 
 
Fiscal 2014
 
 
(dollars in thousands)
 
March 31,
2013
 
Provision
 
Payments/
Impairments (1)
 
March 31,
2014
Severance and termination benefits
 
$

 
$
6,429

 
$
(40
)
 
$
6,389

Lease termination obligations and other
 

 
1,589

 

 
1,589

Total
 
$

 
$
8,018

 
$
(40
)
 
$
7,978

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

29


 
 
Fiscal 2010 Restructuring Plan
 
 
 
 
Fiscal 2013
 
 
(dollars in thousands)
 
March 31,
2012
 
Provision (1)
 
Payments/
Impairments (2)
 
March 31,
2013
Severance and termination benefits
 
$
659

 
$
(918
)
 
$
730

 
$
471

Lease termination obligations
 
947

 

 
(791
)
 
156

Other
 
76

 
353

 
(429
)
 

Total
 
$
1,682

 
$
(565
)
 
$
(490
)
 
$
627

(1) Includes curtailment benefit of $0.9 million related to International defined benefit plan. Additional information is included in note 10, "Benefit Plans."
(2) Certain amounts reported include the impact of foreign currency movements relative to the U.S. dollar.

Non-Operating Expenses, Net. Non-operating expense (income), net consists of interest expense on debt, offset by interest earned on cash, cash equivalents, short-term investment balances, and other miscellaneous expense. The following table compares our non-operating expense (income), net for the year ended March 31, 2014 to the year ended March 31, 2013:

 
 
Years Ended March 31,
 
 
(dollars in thousands)
 
2014
 
2013
 
Change
Non-operating expenses, net:
 
 
 
 
 
 
Interest expense
 
$
18,770

 
$
15,675

 
$
3,095

Interest income and miscellaneous expense
 
(339
)
 
56

 
(395
)
Non-operating expenses, net
 
$
18,431

 
$
15,731

 
$
2,700


Interest expense during fiscal 2014 increased due to higher outstanding borrowings due to acquisitions. Interest income and miscellaneous expense are immaterial.
Additional information regarding our outstanding debt is included in note 7 to our consolidated financial statements titled, “Debt,” and in the subsection of MD&A titled, “Liquidity and Capital Resources.”

Income Tax Expense. The following table compares our income tax expense and effective income tax rates for the years ended March 31, 2014 and March 31, 2013:
 
 
Years Ended March 31,
 
Change
 
Percent
Change
(dollars in thousands)
 
2014
 
2013
 
Income tax expense
 
$
58,934

 
$
67,121

 
$
(8,187
)
 
(12.2)%
Effective income tax rate
 
31.3
%
 
29.6
%
 
 
 
 

The effective income tax rate for fiscal 2014 was 31.3% as compared to 29.6% for fiscal 2013. The effective tax rate in fiscal 2013 was impacted by a U.S. tax benefit resulting from European restructuring. Specifically, a U.S. tax deduction was taken relating to the rationalization of operations in Switzerland. The effective tax rate in 2014 includes the benefit from the recognition of previously unrecognized tax benefits due to the settlement of a federal tax examination. Additional information regarding our income tax expense is included in note 9 to our consolidated financial statements titled, “Income Taxes.”

Business Segment Results of Operations. We operate in three reportable business segments: Healthcare, Life Sciences, and Isomedix. Corporate and other, which is presented separately, contains the Defense and Industrial business unit plus costs that are associated with being a publicly traded company and certain other corporate costs. These costs include executive office costs, Board of Directors compensation, shareholder services and investor relations, external audit fees, and legacy pension and post-retirement benefit costs. Note 12 to our consolidated financial statements titled “Business Segment Information,” and Item 1, “Business,” provide detailed information regarding each business segment. The following table compares business segment and Corporate and other revenues for the year ended March 31, 2014 to the year ended March 31, 2013:

30


(dollars in thousands)
 
Years Ended March 31,
 
Change
 
Percent
Change
2014
 
2013
 
Revenues:
 
 
 
 
 
 
 
 
Healthcare
 
$
1,180,051

 
$
1,074,790

 
$
105,261

 
9.8
 %
Life Sciences
 
246,122

 
244,421

 
1,701

 
0.7
 %
Isomedix
 
194,183

 
179,550

 
14,633

 
8.1
 %
Total reportable segments
 
1,620,356

 
1,498,761

 
121,595

 
8.1
 %
Corporate and other
 
1,896

 
3,141

 
(1,245
)
 
(39.6
)%
Total Revenues
 
$
1,622,252

 
$
1,501,902

 
$
120,350

 
8.0
 %

Healthcare segment revenues increased $105.3 million, or 9.8% to $1,180.1 million for the year ended March 31, 2014, as compared to $1,074.8 million for the prior fiscal year. Healthcare revenues for fiscal 2014 increased $127.7 million, or 12.1%, compared to adjusted Healthcare revenues for fiscal 2013, which exclude the impact of the $22.4 million adjustment related to the SYSTEM 1 Rebate Program (see subsection of MD&A titled, "Non-GAAP Financial Measures" for additional information and related reconciliation of non-GAAP financial measures to the most comparable GAAP measures). The addition of consumable and service revenues from our recent acquisitions combined with growth in other product and service offerings drove total growth in capital equipment, consumable and service revenues of 3.2%, 17.1% and 23.3%, respectively. At March 31, 2014, the Healthcare segment’s backlog amounted to $110.3 million, increasing $5.1 million, or 4.9%, compared to the backlog of $105.2 million at March 31, 2013.
Life Science segment revenues increased $1.7 million or 0.7% to $246.1 million for the year ended March 31, 2014, as compared to the prior fiscal year, driven by growth in consumable revenues of 8.4%, which was offset by declines in capital equipment and service revenues of 3.7% and 1.7%, respectively. At March 31, 2014, the Life Sciences segment’s backlog amounted to $44.4 million, decreasing $4.0 million, or 8.3%, compared to the backlog of $48.4 million at March 31, 2013. The March 31, 2014 backlog is consistent with historic levels.
Isomedix segment revenues increased $14.6 million or 8.1% to $194.2 million for the year ended March 31, 2014, as compared to the prior fiscal year. Revenues were favorably impacted by increased demand from our medical device Customers and positive churn.
The following tables compare our business segment and Corporate and other operating results for the year ended March 31, 2014 to the year ended March 31, 2013:

 
 
Years Ended March 31,
 
Change
 
Percent
Change
(dollars in thousands)
 
2014
 
2013
 
Operating income (loss):
 
 
 
 
 
 
 
 
Healthcare
 
$
109,714

 
$
153,343

 
$
(43,629
)
 
(28.5
)%
Life Sciences
 
50,049

 
47,453

 
2,596

 
5.5
 %
Isomedix
 
55,186

 
51,455

 
3,731

 
7.3
 %
Total reportable segments
 
214,949

 
252,251

 
(37,302
)
 
(14.8
)%
Corporate and other
 
(8,142
)
 
(9,422
)
 
1,280

 
(13.6
)%
Total operating income (loss)
 
$
206,807

 
$
242,829

 
$
(36,022
)
 
(14.8
)%
Segment operating income is calculated as the segment’s gross profit less direct expenses and indirect cost allocations, which results in the full allocation of all distribution and research and development expenses, and the partial allocation of corporate costs. Corporate cost allocations are based on each segment’s percentage of revenues, headcount, or other variables in relation to those of the total Company. In addition, the Healthcare segment is responsible for the management of all but one manufacturing facility and uses standard cost to sell products to the Life Sciences segment. Corporate and other includes the revenues, gross profit and direct expenses of the Defense and Industrial business unit, as well as certain unallocated corporate costs related to being a publicly traded company and legacy pension and post-retirement benefits, as previously discussed.
The Healthcare segment's operating income decreased $43.6 million, or 28.5% to $109.7 million for the year ended March 31, 2014, as compared to $153.3 million for the prior fiscal year. The Healthcare segment’s operating income for fiscal 2014 decreased $3.2 million, or 2.8%, compared to adjusted fiscal 2013 Healthcare operating income of $112.9 million, which excludes the $40.4 million impact of the adjustment related to the SYSTEM 1 Rebate Program and class action settlement (see subsection of MD&A titled, "Non-GAAP Financial Measures" for additional information and related reconciliation of non-

31


GAAP financial measures to the most comparable GAAP measures). The decline in adjusted Healthcare operating income reflects the negative impact of the Fiscal 2014 Restructuring Plan, the Medical Device Excise Tax and investments in in-sourcing. Healthcare operating income was favorably impacted by increased revenues driven largely by our recent acquisitions and a reduction in warranty costs.
The Life Science segment's operating income increased $2.6 million, or 5.5% to $50.0 million for the year ended March 31, 2014, as compared to $47.5 million for the prior fiscal year. The segment's operating margins were 20.3% and 19.4%, respectively, for the years ended March 31, 2014 and March 31, 2013. The improvement was primarily attributable to higher revenues and favorable product mix.
The Isomedix segment's operating income increased $3.7 million or 7.3% to $55.2 million for the year ended March 31, 2014, as compared to $51.5 million for the prior fiscal year, reflecting the benefits of increased revenues. The segment's operating margins were 28.4% and 28.7%, respectively, for the years ended March 31, 2014 and March 31, 2013.

FISCAL 2013 AS COMPARED TO FISCAL 2012

Revenues. The following table compares our revenues, in total and by type and geography, for the year ended March 31, 2013 to the year ended March 31, 2012:

 
Years Ended March 31,
 
 
 
Percent
(dollars in thousands)
2013
 
2012
 
Change
 
Change
Total revenues
$
1,501,902

 
$
1,406,810

 
$
95,092

 
6.8
 %
 
 
 
 
 
 
 
 
Revenues by type:
 
 
 
 
 
 
 
Capital equipment revenues
613,378

 
626,959

 
(13,581
)
 
(2.2
)%
Consumable revenues
353,984

 
301,171

 
52,813

 
17.5
 %
Service revenues
534,540

 
478,680

 
55,860

 
11.7
 %
 
 
 
 
 
 
 
 
Revenues by geography:
 
 
 
 
 
 
 
United States revenues
1,141,633

 
1,057,460

 
84,173

 
8.0
 %
International revenues
360,269

 
349,350

 
10,919

 
3.1
 %

Revenues increased $95.1 million, or 6.8%, to $1,501.9 million for the year ended March 31, 2013, as compared to $1,406.8 million for the year ended March 31, 2012. The fiscal 2013 and fiscal 2012 periods were impacted by the SYSTEM 1 Rebate Program adjustments of $22.4 million and $15.3 million, respectively. Adjusted revenues for the year ended March 31, 2013, excluding the impact of the adjustment related to the SYSTEM 1 Rebate Program, were $1,479.5 million, a 6.3% increase over adjusted revenues for fiscal 2012 (see subsection of MD&A titled, "Non-GAAP Financial Measures" for additional information and related reconciliation of non-GAAP financial measures to the most comparable GAAP measures). The increase reflects growth in all three business segments.
Capital equipment revenues decreased by $13.6 million, or 2.2%, to $613.4 million, during fiscal 2013 as compared to fiscal 2012. Capital equipment revenues for the fiscal years ended 2013 and 2012 were favorably impacted by adjustments related to the SYSTEM 1 Rebate Program of $22.4 million and $15.3 million, respectively. Adjusted capital equipment revenues for fiscal 2013 were $591.0 million, a 3.4% decrease over adjusted capital equipment revenues for fiscal 2012. This decrease was primarily driven by the expected post-transition decline in SYSTEM 1E unit sales (see subsection of MD&A titled, "Non-GAAP Financial Measures" for additional information and related reconciliation of non-GAAP financial measures to the most comparable GAAP measures). Consumable revenues increased $52.8 million, or 17.5%, during 2013 from fiscal 2012, as increases within the Healthcare segment, driven largely by recent acquisitions, and the Life Sciences business segment more than offset the anticipated decline in SYSTEM 1 consumable volume. Service revenues for fiscal 2013 increased $55.9 million, or 11.7%, over fiscal 2012 primarily driven by the recent acquisition of the instrument repair businesses and other service offerings.
United States revenues for fiscal 2013 were $1,141.6 million, an increase of $84.2 million, or 8.0%, over fiscal 2012 revenues of $1,057.5 million. The fiscal 2013 and 2012 periods were impacted by the SYSTEM 1 Rebate Program adjustments of $22.4 million and $15.3 million, respectively. Adjusted United States revenues for fiscal 2013 were $1,119.3 million, an increase of $77.1 million, or 7.4%, over adjusted United States revenues for fiscal 2012 (see subsection of MD&A titled, "Non-

32


GAAP Financial Measures" for additional information and related reconciliation of non-GAAP financial measures to the most comparable GAAP measures). The increase is driven by higher consumable and service revenues attributable, in part, to our recent acquisitions but also attributable to increased revenues from other products. These increases were partially offset by the decline in capital equipment revenues driven primarily by the expected post-transition decline in SYSTEM 1E unit sales.
International revenues for fiscal 2013 were $360.3 million, an increase of 3.1% over the fiscal 2012 revenues of $349.4 million. This increase reflects revenue growth in the Asia Pacific and Latin American regions and Canada, partially offset by declines in the EMEA region.

Gross Profit. The following table compares our gross profit for the year ended March 31, 2013 to the year ended March 31, 2012:
 
 
Years Ended March 31,
 
Change
 
Percent
Change
(dollars in thousands)
2013
 
2012
 
Gross profit:
 
 
 
 
 
 
 
Product
$
416,463

 
$
376,134

 
$
40,329

 
10.7
%
Service
204,800

 
192,331

 
12,469

 
6.5
%
Total gross profit
$
621,263

 
$
568,465

 
$
52,798

 
9.3
%
Gross profit percentage:
 
 
 
 
 
 
 
Product
43.1
%
 
40.5
%
 
 
 
 
Service
38.3
%
 
40.2
%
 
 
 
 
Total gross profit percentage
41.4
%
 
40.4
%
 
 
 
 

Our gross profit is affected by the volume, pricing and mix of sales of our products and services, as well as the costs associated with the products and services that are sold. Our gross profit increased $52.8 million and gross profit percentage increased to 41.4% for fiscal 2013 as compared to 40.4% for fiscal 2012. The most significant driver of this increase results from the change brought about by SYSTEM 1 Rebate Program which had a $23.6 million positive impact in fiscal 2013 as compared to a $17.4 million positive impact in fiscal 2012. Excluding the impact of the SYSTEM 1 Rebate Program, fiscal 2013 adjusted gross profit and gross profit percentage were $597.6 million and 40.4%, respectively, while fiscal 2012 adjusted gross profit and gross profit percentage were $551.1 million and 39.6%, respectively (see subsection of MD&A titled "Non-GAAP Financial Measures" for additional information and related reconciliation of non-GAAP financial measures to the most comparable GAAP measures). Other key factors impacting gross margin and the gross margin percentage of fiscal 2013 include the negative impact of the loss of sterliant and capital equipment revenues due to the SYSTEM 1 and SYSTEM 1E transition (70 basis points) and the Medical Device Excise Tax (20 basis points) and the positive impact of the following; acquisitions (80 basis points), pricing (60 basis points), volume from other products (30 basis points) and foreign currency fluctuations (30 basis points).

Operating Expenses. The following table compares our operating expenses for the year ended March 31, 2013 to the year ended March 31, 2012:
  
 
Years Ended March 31,
 
Change
 
Percent
Change
(dollars in thousands)
 
2013
 
2012
 
Operating expenses:
 
 
 
 
 
 
 
 
Selling, general, and administrative
 
$
337,694

 
$
309,552

 
$
28,142

 
9.1
%
Research and development
 
41,305

 
35,953

 
5,352

 
14.9
%
Restructuring expenses
 
(565
)
 
644

 
(1,209
)
 
NM

Total operating expenses
 
$
378,434

 
$
346,149

 
$
32,285

 
9.3
%
NM - Not meaningful
  
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, and other general and administrative expenses. SG&A increased 9.1% during fiscal 2013 over fiscal 2012. During fiscal 2013, we adjusted the liability related to the SYSTEM 1 class action settlement. The pre-tax adjustment of $16.8 million was recorded as a reduction to operating expenses. Adjusted SG&A expenses, excluding the impact of the SYSTEM 1 class action settlement for fiscal 2013 were $354.5 million (see subsection of MD&A titled, "Non-GAAP Financial Measures" for additional information and related reconciliation of non-GAAP financial

33


measures to the most comparable GAAP measures). Fiscal 2012 operating expenses reflect lower costs for our annual incentive compensation plan since fiscal 2012 bonuses were not paid as performance targets for fiscal 2012 were not met. Fiscal 2013 SG&A includes transaction costs and incremental amortization of acquired intangible assets associated with the recent acquisitions. SG&A also increased due to the operating expenses incurred within the operations of recently acquired businesses.
Research and development expenses increased $5.4 million during fiscal 2013, as compared to fiscal 2012. The majority of the increase is attributable to expenses for research and development incurred by the recently acquired US Endoscopy. 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 2013, our investments in research and development continued to be focused on, but were not limited to, enhancing capabilities of sterile processing combination technologies, surgical products and accessories, and the areas of emerging infectious agents such as Prions and Nanobacteria.
Restructuring Expenses. We recognize restructuring expenses as they are incurred. We also evaluate the inventory and property, plant and equipment associated with our restructuring actions for impairment. Asset impairment and accelerated depreciation expenses primarily relate to inventory write-downs for rationalized products and adjustments in the carrying value of the closed facilities to their estimated fair value. In addition, the remaining useful lives of other property, plant and equipment associated with the related operations were re-evaluated based on the respective plan, resulting in the acceleration of depreciation and amortization of certain assets.
During the fourth quarter of fiscal 2010, we adopted a restructuring plan primarily related to the transfer of the remaining operations in our Erie, Pennsylvania facility to the U.S. headquarters in Mentor, Ohio and the consolidation of our European Healthcare manufacturing operations into two central locations within Europe (the “Fiscal 2010 Restructuring Plan”). In addition, we rationalized certain products and eliminated certain positions. We do not expect to incur any significant additional restructuring expenses related to this plan.
During the fourth quarter of fiscal 2008, we adopted a restructuring plan primarily focused on our North American operations (the “Fiscal 2008 Restructuring Plan”). As part of this plan, we announced the closure of two sales offices, reduced the workforce in certain support functions, and rationalized certain products. These actions are intended to enhance profitability and improve efficiency by reducing ongoing operating costs. Across all of our reporting segments, approximately 90 employees, primarily located in North America, were directly impacted. We do not expect to incur any significant additional restructuring expenses related to this plan.
We are continuing to evaluate all of our operations for additional opportunities to improve performance, but we have not committed to any additional specific actions.
Further information regarding our restructuring actions is included in note 2 to our consolidated financial statements titled, “Restructuring.”
The following tables summarize our total restructuring charges for fiscal 2013, and 2012:
   
 
Year Ended March 31, 2013
(dollars in thousands)
Fiscal 2010
Restructuring
Plan
Severance and other compensation related costs
$
(918
)
Lease termination obligation and other
353

Total restructuring charges
$
(565
)


34


 
Year Ended March 31, 2012
(dollars in thousands)
Fiscal 2010
Restructuring
Plan
Fiscal 2008
Restructuring
Plan
Total
Severance and other compensation related costs
$
(776
)
$

$
(776
)
Product rationalization
335


335

Asset impairment and accelerated depreciation
1,103


1,103

Lease termination obligation and other
143

(152
)
(9
)
Total restructuring charges
$
805

$
(152
)
$
653


 
Liabilities related to restructuring activities are recorded as current liabilities on the accompanying Consolidated Balance Sheets within “Accrued payroll and other related liabilities” and “Accrued expenses and other.” The following table summarizes our liabilities related to these restructuring activities:
 
 
Fiscal 2010 Restructuring Plan
 
 
 
 
Fiscal 2013
 
 
(dollars in thousands)
 
March 31,
2012
 
Provision (1)
 
Payments/
Impairments (2)
 
March 31,
2013
Severance and termination benefits
 
$
659

 
$
(918
)
 
$
730

 
$
471

Lease termination obligations
 
947

 

 
(791
)
 
156

Other
 
76

 
353

 
(429
)
 

Total
 
$
1,682

 
$
(565
)
 
$
(490
)
 
$
627

(1) Includes curtailment benefit of $0.9 million related to International defined benefit plan. Additional information is included in note 10, "Benefit Plans."
(2) Certain amounts reported include the impact of foreign currency movements relative to the U.S. dollar.
 
 
Fiscal 2010 Restructuring Plan
 
 
 
 
Fiscal 2012
 
 
(dollars in thousands)
 
March 31,
2011
 
Provision (1)
 
Payments/
Impairments (2)
 
March 31,
2012
Severance and termination benefits
 
$
1,993

 
$
(776
)
 
$
(558
)
 
$
659

Product rationalization
 

 
335

 
(335
)
 

Asset impairments and accelerated depreciation
 

 
1,103

 
(1,103
)
 

Lease termination obligations
 
1,790

 
139

 
(982
)
 
947

Other
 
193

 
4

 
(121
)
 
76

Total
 
$
3,976

 
$
805

 
$
(3,099
)
 
$
1,682

(1) Includes curtailment benefit of $1.3 million related to International defined benefit plan. Additional information is included in note 10, "Benefit Plans."
(2) Certain amounts reported include the impact of foreign currency movements relative to the U.S. dollar.

Non-Operating Expenses, Net. Non-operating expense (income), net consists of interest expense on debt, offset by interest earned on cash, cash equivalents, short-term investment balances, and other miscellaneous expense. The following table compares our non-operating expense (income), net for the year ended March 31, 2013 to the year ended March 31, 2012:

 
 
Years Ended March 31,
 
 
(dollars in thousands)
 
2013
 
2012
 
Change
Non-operating expenses, net:
 
 
 
 
 
 
Interest expense
 
$
15,675

 
$
12,065

 
$
3,610

Interest income and miscellaneous expense
 
56

 
(857
)
 
913

Non-operating expenses, net
 
$
15,731

 
$
11,208

 
$
4,523


35



Interest expense during fiscal 2013 periods increased due to higher outstanding borrowings due to acquisitions. Interest income and miscellaneous expense is immaterial.
Additional information regarding our outstanding debt is included in note 7 to our consolidated financial statements titled, “Debt,” and in the subsection of MD&A titled, “Liquidity and Capital Resources.”

Income Tax Expense. The following table compares our income tax expense and effective income tax rates for the years ended March 31, 2013 and March 31, 2012:
 
 
Years Ended March 31,
 
Change
 
Percent
Change
(dollars in thousands)
 
2013
 
2012
 
Income tax expense
 
$
67,121

 
$
74,993

 
$
(7,872
)
 
(10.5)%
Effective income tax rate
 
29.6
%
 
35.5
%
 
 
 
 

The effective income tax rate for fiscal 2013 was 29.6% as compared to 35.5% for fiscal 2012. The effective tax rate in fiscal 2013 was impacted by a U.S. tax benefit resulting from European restructuring. Specifically, a U.S. tax deduction was taken relating to the rationalization of operations in Switzerland. Additional information regarding our income tax expense is included in note 9 to our consolidated financial statements titled, “Income Taxes.”

Business Segment Results of Operations. We operate in three reportable business segments: Healthcare, Life Sciences, and Isomedix. Corporate and other, which is presented separately, contains the Defense and Industrial business unit plus costs that are associated with being a publicly traded company and certain other corporate costs. These costs include executive office costs, Board of Directors compensation, shareholder services and investor relations, external audit fees, and legacy pension and post-retirement benefit costs. Note 12 to our consolidated financial statements titled “Business Segment Information,” and Item 1, “Business,” provide detailed information regarding each business segment. The following table compares business segment and Corporate and other revenues for the year ended March 31, 2013 to the year ended March 31, 2012:
(dollars in thousands)
 
Years Ended March 31,