UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended December 31, 2021

or

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

For the transition period from _______ to _______            

Commission File Number 001-38848

STERIS plc

(Exact name of registrant as specified in its charter)

Ireland			98-1455064
(State or other jurisdiction of incorporation or organization)			(IRS Employer Identification No.)
70 Sir John Rogerson's Quay,	Dublin 2,	Ireland	D02 R296
(Address of principal executive offices)			(Zip code)

353 1 232 2000

(Registrant’s telephone number, including area code)

_______________________________________________

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

Title of each class	Trading symbol(s)	Name of Exchange on Which Registered
Ordinary Shares, $0.001 par value	STE	New York Stock Exchange
2.700% Senior Notes due 2031	STE/31	New York Stock Exchange
3.750% Senior Notes due 2051	STE/51	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company,” and Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☒	Accelerated Filer	☐
Non-Accelerated Filer	☐	Smaller Reporting Company	☐
		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ☐     No  x

The number of ordinary shares outstanding as of February 4, 2022: 100,127,204

1

STERIS plc and Subsidiaries

Form 10-Q

Index

		Page
Part I—Financial Information
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48
Item 4.	Controls and Procedures	48
Part II—Other Information
Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 6.	Exhibits	52
	Signature	53

2

PART 1—FINANCIAL INFORMATION

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

ITEM 1.    FINANCIAL STATEMENTS

STERIS PLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands)

	December 31, 2021		March 31, 2021
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	359,089	$	220,531
Accounts receivable (net of allowances of $21,120 and $11,355 respectively)	752,132		609,406
Inventories, net	594,599		315,067
Prepaid expenses and other current assets	221,274		66,750
Total current assets	1,927,094		1,211,754
Property, plant, and equipment, net	1,521,587		1,235,400
Lease right-of-use assets, net	194,026		150,142
Goodwill	5,115,323		3,026,049
Intangibles, net	2,876,041		898,406
Other assets	55,895		52,720
Total assets	$	11,689,966	$	6,574,471
Liabilities and equity
Current liabilities:
Accounts payable	$	207,152	$	156,950
Accrued income taxes	23,882		27,561
Accrued payroll and other related liabilities	180,525		150,078
Lease obligations due within one year	36,414		22,774
Short-term indebtedness	127,875		—
Accrued expenses and other	328,459		220,557
Total current liabilities	904,307		577,920
Long-term indebtedness	3,175,316		1,650,540
Deferred income taxes, net	752,459		236,860
Long-term lease obligations	159,452		129,673
Other liabilities	74,763		88,010
Total liabilities	$	5,066,297	$	2,683,003
Commitments and contingencies (see note 8)
Ordinary shares, with $0.001 par value; 500,000 shares authorized; 100,111 and 85,353 ordinary shares issued and outstanding, respectively	4,758,199		2,002,825
Retained earnings	1,989,870		1,939,408
Accumulated other comprehensive loss	(136,878)		(61,243)
Total shareholders’ equity	6,611,191		3,880,990
Noncontrolling interests	12,478		10,478
Total equity	6,623,669		3,891,468
Total liabilities and equity	$	11,689,966	$	6,574,471

    

See notes to consolidated financial statements.

3

STERIS PLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(Unaudited)

	Three Months Ended December 31,				Nine Months Ended December 31,
	2021		2020		2021		2020
Revenues:			(*as adjusted)				(*as adjusted)
Product	$	697,256	$	375,314	$	1,871,773	$	1,015,926
Service	511,715		433,610		1,502,605		1,218,062
Total revenues	1,208,971		808,924		3,374,378		2,233,988
Cost of revenues:
Product	373,793		202,881		1,072,683		533,418
Service	297,064		260,182		856,955		737,288
Total cost of revenues	670,857		463,063		1,929,638		1,270,706
Gross profit	538,114		345,861		1,444,740		963,282
Operating expenses:
Selling, general, and administrative	310,564		182,373		1,049,116		510,250
Research and development	24,824		16,438		61,847		48,812
Restructuring (credit) expenses	(207)		20		17		110
Total operating expenses	335,181		198,831		1,110,980		559,172
Income from operations	202,933		147,030		333,760		404,110
Non-operating expenses, net:
Interest expense	22,971		8,899		67,820		27,056
Fair value adjustment related to convertible debt, premium liability	—		—		27,806		—
Interest (income) and miscellaneous expense	(2,447)		(1,299)		(4,905)		(4,776)
Total non-operating expenses, net	20,524		7,600		90,721		22,280
Income before income tax expense	182,409		139,430		243,039		381,830
Income tax expense	39,315		24,842		52,222		71,703
Net income	143,094		114,588		190,817		310,127
Less: Net income (loss) attributable to noncontrolling interests	(529)		87		(810)		171
Net income attributable to shareholders	$	143,623	$	114,501	$	191,627	$	309,956
Net income per share attributed to shareholders
Basic	$	1.44	$	1.34	$	1.98	$	3.64
Diluted	$	1.42	$	1.33	$	1.97	$	3.61
Cash dividends declared per share ordinary outstanding	$	0.43	$	0.40	$	1.26	$	1.17

*Certain amounts have been adjusted to reflect the change in inventory accounting method, as described in our Annual Report on Form 10-K filed with the SEC on May 28, 2021.

See notes to consolidated financial statements.

4

STERIS PLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(in thousands)

(Unaudited)

	Three Months Ended December 31,				Nine Months Ended December 31,
	2021		2020		2021		2020
			(*as adjusted)				(*as adjusted)
Net income	$	143,094	$	114,588	$	190,817	$	310,127
Less: Net income (loss) attributable to noncontrolling   interests	(529)		87		(810)		171
Net income attributable to shareholders	143,623		114,501		191,627		309,956
Other comprehensive income (loss)
Amortization of pension and postretirement benefit plan costs, (net of taxes of $174, $173, $523 and $520, respectively)	(507)		(510)		(1,521)		(1,530)
Change in cumulative currency translation adjustment	(30,638)		128,737		(74,114)		234,607
Total other comprehensive income (loss)	(31,145)		128,227		(75,635)		233,077
Comprehensive income	$	112,478	$	242,728	$	115,992	$	543,033

*Certain amounts have been adjusted to reflect the change in inventory accounting method, as described in our Annual Report on Form 10-K filed with the SEC on May 28, 2021.

See notes to consolidated financial statements.

5

STERIS PLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Nine Months Ended December 31,
	2021		2020
Operating activities:			(*as adjusted)
Net income	$	190,817	$	310,127
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion, and amortization	319,273		160,193
Deferred income taxes	3,141		(842)
Share-based compensation expense	47,909		19,924
Loss on the disposal of property, plant, equipment, and intangibles, net	863		865
Loss on sale of businesses, net	893		5
Fair value adjustment related to convertible debt, premium liability	27,806		—
Amortization of inventory fair value adjustments	86,665		—
Other items	(1,520)		4,494
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable, net	21,493		60,574
Inventories, net	(92,138)		(9,334)
Other current assets	(63,393)		(8,906)
Accounts payable	(11,053)		(30,974)
Accruals and other, net	(17,676)		(4,341)
Net cash provided by operating activities	513,080		501,785
Investing activities:
Purchases of property, plant, equipment, and intangibles, net	(214,491)		(164,497)
Proceeds from the sale of property, plant, equipment and intangibles	1,709		417
Acquisition of businesses, net of cash acquired	(547,353)		(869,431)
Other	—		(2,392)
Net cash used in investing activities	(760,135)		(1,035,903)
Financing activities:
Proceeds from issuance of senior public notes	1,350,000		—
Proceeds from term loans	650,000		550,000
Payments on term loans	(125,000)		—
Payments on long-term obligations	(721,284)		(35,000)
Payments on convertible debt	(371,361)		—
Proceeds (payments) under credit facilities, net	(203,805)		23,782
Deferred financing fees and debt issuance costs	(17,247)		(3,122)
Acquisition related deferred or contingent consideration	(32,583)		(2,968)
Repurchases of ordinary shares	(27,628)		(14,560)
Cash dividends paid to ordinary shareholders	(120,118)		(99,696)
Distributions to noncontrolling interest	(997)		(627)
Contributions from noncontrolling interest	3,672		2,258
Payment for acquisition of subsidiary's interests in noncontrolling interest	—		(3,552)
Stock option and other equity transactions, net	6,789		26,018
Net cash provided by financing activities	390,438		442,533
Effect of exchange rate changes on cash and cash equivalents	(4,825)		24,506
Increase (decrease) in cash and cash equivalents	138,558		(67,079)
Cash and cash equivalents at beginning of period	220,531		319,581
Cash and cash equivalents at end of period	$	359,089	$	252,502

*Certain amounts have been adjusted to reflect the change in inventory accounting method, as described in our Annual Report on Form 10-K filed with the SEC on May 28, 2021.

See notes to consolidated financial statements.

6

STERIS PLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands, except per share amounts)

(Unaudited)

	Three Months Ended December 31, 2021
	Ordinary Shares			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Non-controlling Interest		Total Equity
	Number	Amount
Balance at September 30, 2021	99,911	$	4,748,181	$	1,893,196	$	(105,733)	$	9,287	$	6,544,931
Comprehensive income:
Net income (loss)	—	—		143,623		—		(529)		143,094
Other comprehensive income (loss)	—	—		—		(31,145)		—		(31,145)
Repurchases of ordinary shares	(95)	1,061		(3,938)		—		—		(2,877)
Equity compensation programs and other	295	8,957		—		—		—		8,957
Cash dividends – $0.43 per ordinary share	—	—		(43,011)		—		—		(43,011)
Contributions from noncontrolling interest	—	—		—		—		3,672		3,672
Other changes in noncontrolling interest	—	—		—		—		48		48
Balance at December 31, 2021	100,111	$	4,758,199	$	1,989,870	$	(136,878)	$	12,478	$	6,623,669

	Nine Months Ended December 31, 2021
	Ordinary Shares			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Non-controlling Interest		Total Equity
	Number	Amount
Balance at March 31, 2021	85,353	$	2,002,825	$	1,939,408	$	(61,243)	$	10,478	$	3,891,468
Comprehensive income:
Net income (loss)	—	—		191,627		—		(810)		190,817
Other comprehensive income (loss)	—	—		—		(75,635)		—		(75,635)
Repurchases of ordinary shares	(225)	(6,581)		(21,047)		—		—		(27,628)
Equity compensation programs and other	686	54,465		—		—		—		54,465
Cash dividends – $1.26 per ordinary share	—	—		(120,118)		—		—		(120,118)
Issuance of shares for acquisition of Cantel Medical Corp. ("Cantel")	14,297	2,689,317		—		—		—		2,689,317
Consideration related to equity component of Cantel convertible debt	—	175,555		—		—		—		175,555
Consideration related to Cantel equity compensation programs	—	18,173		—		—		—		18,173
Reclassification to Cantel convertible debt, premium liability	—	(175,555)		—		—		—		(175,555)
Contributions from noncontrolling interest	—	—		—		—		3,672		3,672
Distributions to noncontrolling interest	—	—		—		—		(997)		(997)
Other changes in noncontrolling interest	—	—		—		—		135		135
Balance at December 31, 2021	100,111	$	4,758,199	$	1,989,870	$	(136,878)	$	12,478	$	6,623,669

7

STERIS PLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Continued)

(in thousands, except per share amounts)

(Unaudited)

	Three Months Ended December 31, 2020
	Ordinary Shares			Retained Earnings (as adjusted *)		Accumulated Other Comprehensive Income (Loss)		Non-controlling Interest		Total Equity
	Number	Amount
Balance at September 30, 2020	85,251	$	1,990,880	$	1,799,771	$	(130,613)	$	15,310	$	3,675,348
Comprehensive income:
Net income	—	—		114,501		—		87		114,588
Other comprehensive income	—	—		—		128,227		—		128,227
Repurchases of ordinary shares	(9)	(5,417)		5,290		—		—		(127)
Equity compensation programs and other	95	11,380		—		—		—		11,380
Cash dividends $0.40 per ordinary share	—	—		(34,136)		—		—		(34,136)
Distributions to noncontrolling interest	—	—		—		—		(627)		(627)
Payment for acquisition of subsidiary's interests in noncontrolling interest	—	—		—		—		(3,552)		(3,552)
Other changes in noncontrolling interest	—	—		—		—		(16)		(16)
Balance at December 31, 2020	85,337	$	1,996,843	$	1,885,426	$	(2,386)	$	11,202	$	3,891,085

*Certain amounts have been adjusted to reflect the change in inventory accounting method, as described in our Annual Report on Form 10-K filed with the SEC on May 28, 2021.

	Nine Months Ended December 31, 2020
	Ordinary Shares			Retained Earnings (as adjusted *)		Accumulated Other Comprehensive Income (Loss)		Non-controlling Interest		Total Equity
	Number	Amount
Balance at March 31, 2020	84,924	$	1,982,164	$	1,658,661	$	(235,463)	$	12,848	$	3,418,210
Comprehensive income:
Net income	—	—		309,956		—		171		310,127
Other comprehensive income	—	—		—		233,077		—		233,077
Repurchases of ordinary shares	(121)	(31,065)		16,505		—		—		(14,560)
Equity compensation programs and other	534	45,744		—		—		—		45,744
Cash dividends – $1.17 per ordinary share	—	—		(99,696)		—		—		(99,696)
Contributions from noncontrolling interest	—	—		—		—		2,258		2,258
Distributions to noncontrolling interest	—	—		—		—		(627)		(627)
Payment for acquisition of subsidiary's interests in noncontrolling interest	—	—		—		—		(3,552)		(3,552)
Other changes in noncontrolling interest	—	—		—		—		104		104
Balance at December 31, 2020	85,337	$	1,996,843	$	1,885,426	$	(2,386)	$	11,202	$	3,891,085

*Certain amounts have been adjusted to reflect the change in inventory accounting method, as described in our Annual Report on Form 10-K filed with the SEC on May 28, 2021.

8

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the Three and Nine Months Ended December 31, 2021 and 2020

(dollars in thousands, except as noted)

1. Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations

STERIS is a leading global provider of products and services that support patient care with an emphasis on infection prevention. WE HELP OUR CUSTOMERS CREATE A HEALTHIER AND SAFER WORLD by providing innovative healthcare, life sciences and dental products and services. We offer our Customers a unique mix of innovative consumable products, such as detergents, gastrointestinal (“GI”) endoscopy accessories, barrier product solutions, and other products and services, including: equipment installation and maintenance, microbial reduction of medical devices, dental instruments and tools, instrument and scope repair, laboratory testing services, outsourced reprocessing, and capital equipment products, such as sterilizers and surgical tables, automated endoscope reprocessors, and connectivity solutions such as operating room (“OR”) integration.

Our fiscal year ends on March 31. References in this Quarterly Report to a particular “year” or “year-end” mean our fiscal year. The significant accounting policies applied in preparing the accompanying consolidated financial statements of the Company are summarized below:

Interim Financial Statements

We prepared the accompanying unaudited consolidated financial statements of the Company according to accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and the instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. This means that they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Our unaudited interim consolidated financial statements contain all material adjustments (including normal recurring accruals and adjustments) management believes are necessary to fairly state our financial condition, results of operations, and cash flows for the periods presented.

These interim consolidated financial statements should be read together with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended March 31, 2021 dated May 28, 2021. The Consolidated Balance Sheet at March 31, 2021 was derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

Principles of Consolidation

We use the consolidation method to report our investment in our subsidiaries. Therefore, the accompanying consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. We eliminate inter-company accounts and transactions when we consolidate these accounts. Investments in equity of unconsolidated affiliates, over which the Company has significant influence, but not control, over the financial and operating polices, are accounted for primarily using the equity method. These investments are immaterial to the Company's Consolidated Financial Statements.

Use of Estimates

We make certain estimates and assumptions when preparing financial statements according to U.S. GAAP that affect the reported amounts of assets and liabilities at the financial statement dates and the reported amounts of revenues and expenses during the periods presented. These estimates and assumptions involve judgments with respect to many factors that are difficult to predict and are beyond our control. Actual results could be materially different from these estimates. We revise the estimates and assumptions as new information becomes available. This means that operating results for the three and nine month periods ended December 31, 2021 are not necessarily indicative of results that may be expected for future quarters or for the full fiscal year ending March 31, 2022.

Revenue Recognition and Associated Liabilities

Revenue is recognized when obligations under the terms of the contract are satisfied and control of the promised products or services have transferred to the Customer. Revenues are measured at the amount of consideration that we expect to be paid in exchange for the products or services. Product revenue is recognized when control passes to the Customer, which is generally based on contract or shipping terms. Service revenue is recognized when the Customer benefits from the service, which occurs either upon completion of the service or as it is provided to the Customer. Our Customers include end users as well as dealers and distributors who market and sell our products. Our revenue is not contingent upon resale by the dealer or distributor, and we have no further obligations related to bringing about resale. Our standard return and restocking fee policies are applied to

9

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)

For the Three and Nine Months Ended December 31, 2021 and 2020

(dollars in thousands, except as noted)

sales of products. Shipping and handling costs charged to Customers are included in Product revenues. The associated expenses are treated as fulfillment costs and are included in Cost of revenues. Revenues are reported net of sales and value-added taxes collected from Customers.

We have individual Customer contracts that offer discounted pricing. Dealers and distributors may be offered sales incentives in the form of rebates. We reduce revenue for discounts and estimated returns, rebates, and other similar allowances in the same period the related revenues are recorded. The reduction in revenue for these items is estimated based on historical experience and trend analysis to the extent that it is probable that a significant reversal of revenue will not occur. Estimated returns are recorded gross on the Consolidated Balance Sheets.

In transactions that contain multiple performance obligations, such as when products, maintenance services, and other services are combined, we recognize revenue as each product is delivered or service is provided to the Customer. We allocate the total arrangement consideration to each performance obligation based on its relative standalone selling price, which is the price for the product or service when it is sold separately.

Payment terms vary by the type and location of the Customer and the products or services offered. Generally, the time between when revenue is recognized and when payment is due is not significant. We do not evaluate whether the selling price contains a financing component for contracts that have a duration of less than one year.

We do not capitalize sales commissions as substantially all of our sales commission programs have an amortization period of one year or less.

Certain costs to fulfill a contract are capitalized and amortized over the term of the contract if they are recoverable, directly related to a contract and generate resources that we will use to fulfill the contract in the future. At December 31, 2021, assets related to costs to fulfill a contract were not material to our Consolidated Financial Statements.

Refer to Note 9, titled "Business Segment Information" for disaggregation of revenue.

Product Revenue

Product revenues consist of revenues generated from sales of consumables and capital equipment. These contracts are primarily based on a Customer’s purchase order and may include a Distributor, Dealer or Group Purchasing Organization ("GPO") agreement. We recognize revenue for sales of product when control passes to the Customer, which generally occurs either when the products are shipped or when they are received by the Customer. Revenue related to capital equipment products is deferred until installation is complete if the capital equipment and installation are highly integrated and form a single performance obligation.

Service Revenue

Within our Healthcare and Life Sciences segments, service revenues include revenue generated from parts and labor associated with the maintenance, repair and installation of capital equipment. These contracts are primarily based on a Customer’s purchase order and may include a Distributor, Dealer, or Group Purchasing Organization ("GPO") agreement. For maintenance, repair and installation of capital equipment, revenue is recognized upon completion of the service. Healthcare service revenues also include outsourced reprocessing services and instrument repairs. Contracts for outsourced reprocessing services are primarily based on an agreement with a Customer, ranging in length from several months to 15 years. Outsourced reprocessing services revenue is recognized ratably over the contract term using a time-based input measure, adjusted for volume and other performance metrics, to the extent that it is probable that a significant reversal of revenue will not occur. Contracts for instrument repairs are primarily based on a Customer’s purchase order, and the associated revenue is recognized upon completion of the repair.

We also offer preventive maintenance and separately priced extended warranty agreements to our Customers, which require us to maintain and repair our products over the duration of the contract. Generally, these contract terms are cancellable without penalty and range from one to five years. Amounts received under these Customer contracts are initially recorded as a service liability and are recognized as service revenue ratably over the contract term using a time-based input measure.

Within our Applied Sterilization Technologies segment, service revenues include contract sterilization and laboratory services. Sales contracts for contract sterilization and laboratory services are primarily based on a Customer’s purchase order and associated Customer agreement and revenues are generally recognized upon completion of the service.

10

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)

For the Three and Nine Months Ended December 31, 2021 and 2020

(dollars in thousands, except as noted)

Contract Liabilities

Payments received from Customers are based on invoices or billing schedules as established in contracts with Customers. Deferred revenue is recorded when payment is received in advance of performance under the contract. Deferred revenue is recognized as revenue upon completion of the performance obligation, which generally occurs within one year. During the first nine months of fiscal 2022, $42,942 of the March 31, 2021 deferred revenue balance was recorded as revenue. During the first nine months of fiscal 2021, $38,181 of the March 31, 2020 deferred revenue balance was recorded as revenue.

Refer to Note 6, titled "Additional Consolidated Balance Sheet Information" for Deferred revenue balances.

Service Liabilities

Payments received in advance of performance for cancellable preventive maintenance and separately priced extended warranty contracts are recorded as service liabilities. Service liabilities are recognized as revenue as performance is rendered under the contract.

Refer to Note 6, titled "Additional Consolidated Balance Sheet Information" for Service liability balances.

Remaining Performance Obligations

Remaining performance obligations reflect only the performance obligations related to agreements for which we have a firm commitment from a Customer to purchase and exclude variable consideration related to unsatisfied performance obligations. With regard to products, these remaining performance obligations include capital equipment and consumable orders which have not shipped. With regard to service, these remaining performance obligations primarily include installation, certification, and outsourced reprocessing services. As of December 31, 2021, the transaction price allocated to remaining performance obligations was approximately $1,570,000. We expect to recognize approximately 54% of the transaction price within one year and approximately 36% beyond one year. The remainder has yet to be scheduled for delivery.

11

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)

For the Three and Nine Months Ended December 31, 2021 and 2020

(dollars in thousands, except as noted)

Recently Issued Accounting Standards Impacting the Company

Recently Issued Accounting Standards Impacting the Company are presented in the following table:

Standard	Date of Issuance	Description	Date of Adoption	Effect on the financial statements or other significant matters
Standards that have been adopted in fiscal 2022
ASU 2019-12 "Income Taxes (Topic 740)"	December 2019	The standard provides final guidance that simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The guidance simplifies accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill.	First Quarter Fiscal 2022	We adopted this standard effective April 1, 2021 with no material impact to our consolidated financial statements.
ASU 2020-06 "Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)"	August 2020	This standard simplifies the accounting for convertible instruments and its application of the derivatives scope exception for contracts in an entity’s own equity. The standard reduces the number of accounting models that require separating embedded conversion features from convertible instruments. As a result, only conversion features accounted for under the substantial premium model and those that require bifurcation will be accounted for separately. For contracts in an entity’s own equity, the new standard eliminates some of the current requirements for equity classification. The standard also addresses how convertible instruments are accounted for in the diluted earnings per share calculation and requires enhanced disclosures about the terms of convertible instruments and contracts in an entity’s own equity.	First Quarter Fiscal 2022	We adopted this standard effective April 1, 2021 and applied it to our accounting for the convertible debt assumed in the acquisition of Cantel Medical Corp. ("Cantel").
Standards that have not yet been adopted.
ASU 2021-08 "Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.	October 2021	The standard provides guidance to improve the accounting for acquired revenue contracts with Customers in a business combination by addressing diversity in practice and inconsistency related to the recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer. The standard is effective for annual periods beginning after December 15, 2022 including interim periods within that year and early adoption is permitted.	NA	We are in the process of evaluating the impact that the standard will have on our consolidated financial statements.

A detailed description of our significant and critical accounting policies, estimates, and assumptions is included in our consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2021 dated May 28, 2021. Our significant and critical accounting policies, estimates, and assumptions have not changed materially from March 31, 2021.

2. Business Acquisitions And Divestitures

12

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)

For the Three and Nine Months Ended December 31, 2021 and 2020

(dollars in thousands, except as noted)

On June 2, 2021, we acquired all outstanding equity interests in Cantel Medical LLC. ("Cantel") through a U.S. subsidiary. Cantel, formerly headquartered in Little Falls, New Jersey, with approximately 3,700 employees, is a global provider of infection prevention products and services primarily to endoscopy and dental Customers.

We believe that the acquisition will strengthen STERIS’s leadership in infection prevention by bringing together two complementary businesses able to offer a broader set of Customers a more diversified selection of infection prevention, endoscopy and sterilization products and services. Cantel was integrated into our existing Healthcare and Life Sciences segments. Cantel’s Dental business extends our business into a new Customer segment where there is an increasing focus on infection prevention protocols and processes. This business is reported as the Dental segment. Additionally, the acquisition is expected to result in cost savings from optimizing global back-office infrastructure, leveraging best-demonstrated practices across locations and eliminating redundant public company costs.

Acquisition and integration expenses which were primarily related to the Cantel acquisition totaled $9,026 and $167,426 for the third quarter and first nine months of fiscal 2022, respectively, and are reported in the selling, general and administrative expenses line of our Consolidated Statements of Income. Acquisition and integration expenses include but are not limited to investment banker, advisory, legal, other professional fees, and certain employee-related expenses.

Total Purchase Consideration

The total consideration for Cantel Common Stock and stock equivalents was $3,599,471. The consideration was comprised of the following:

(shares in thousands)
Cash consideration $16.93 per Cantel share (42,816 shares)	$	716,412
Cash consideration for fractional shares	14
STERIS plc ordinary shares (14,297 shares at 188.07 per share)	2,689,317
Consideration related to Cantel equity compensation programs	18,173
Consideration related to equity component of Cantel convertible debt	175,555
Total purchase consideration	$	3,599,471

In addition to the total purchase consideration, STERIS assumed and repaid $721,284 of existing Cantel debt obligations and assumed Cantel's obligations associated with convertible senior notes issued on May 15, 2020, which is described in Note 5 titled, "Debt."

We funded the cash portion of the transaction consideration and repayment of a significant amount of Cantel’s existing debt obligations with a portion of the proceeds from new debt, which is described in Note 5 titled, "Debt" and in our Annual Report on Form 10-K for the year ended March 31, 2021, filed with the SEC on May 28, 2021.

Fair Value of Assets Acquired and Liabilities Assumed

The acquisition of Cantel has been accounted for using the acquisition method of accounting which requires, among other things, the assets acquired and liabilities assumed be recognized at their respective fair values as of the acquisition date. Acquisition accounting is dependent upon certain valuations and other studies that have yet to progress to a stage where there is sufficient information for a definitive measurement. The process for estimating the fair values of identifiable intangible assets and certain tangible assets and assumed liabilities requires the use of judgment in determining the appropriate assumptions and estimates.

The entire purchase price allocation for Cantel is preliminary. As we finalize the fair value of assets acquired and liabilities assumed, additional purchase price adjustments will be recorded during the measurement period. Fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions. The judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact our results of operations. The finalization of the purchase accounting assessment will result in changes in the valuation of assets acquired and liabilities assumed and may have a material impact on the our results of operations and financial position. Goodwill will be allocated to the Healthcare, Life Sciences and Dental segments. Goodwill is the excess of the consideration transferred over the net assets recognized and represents the expected revenue and cost synergies of the combined company and assembled workforce. Goodwill recognized as a result of the acquisition is not deductible for tax purposes.

13

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)

For the Three and Nine Months Ended December 31, 2021 and 2020

(dollars in thousands, except as noted)

The table below presents the preliminary estimated fair values of assets acquired and liabilities assumed on the acquisition date. These preliminary estimates will be revised during the measurement period as third-party valuations are finalized, additional information becomes available and as additional analyzes are performed, and these differences could have a material impact on our results of operations and financial position.

	Cantel (1)
Cash	$	169,073
Accounts receivable	172,226
Inventory	271,132
Property, plant and equipment	227,783
Lease right-of-use assets, net	48,504
Other assets	65,837
Intangible assets	2,190,000
Goodwill	2,149,827
Total assets acquired	5,294,382
Convertible debt, par value	168,000
Other current liabilities	243,331
Long-term lease obligations	40,768
Deferred income taxes, net	521,528
Long-term indebtedness	721,284
Total liabilities assumed	1,694,911
Net assets acquired	$	3,599,471

(1) Purchase price allocation is preliminary as of December 31, 2021, as valuations have not been finalized.

Other Intangible Assets

The estimated fair values of identifiable intangible assets were prepared using an income valuation approach, which requires a forecast of expected future cash flows either through the use of the relief-from-royalty method or the multi-period excess earnings method. The estimated useful lives are based on the historical experience of STERIS, available similar industry data and assumptions made by management. Preliminary values and useful lives are presented in the table below.

	Total (1)		Useful Life
Customer relationships	$	2,060,000	10 years
Trade name	130,000		10 years
Total intangible assets acquired	$	2,190,000

(1) Amounts are preliminary as of December 31, 2021, as valuations have not been finalized.

Contingent liabilities assumed totaled $25,000 and were related to contingent consideration associated with a prior acquisition completed by Cantel. Payment was made in June 2021.

Actual and Pro Forma Impact

Our consolidated financial statements include Cantel's results of operations from the date of acquisition on June 2, 2021 through December 31, 2021. Net sales and operating income (loss) attributable to Cantel and included in our consolidated financial statements for the three-month period ended December 31, 2021 total $306,522 and $15,958, respectively. Net sales and operating income (loss) attributable to Cantel from the date of acquisition and included in our consolidated financial statements for the nine-month period ended December 31, 2021 total $721,183 and $(175,178), respectively.

The following unaudited pro forma information gives effect to our acquisition of Cantel as if the acquisition had occurred on April 1, 2020 and Cantel had been included in our consolidated results of operations for the three-month and nine-month periods ended December 31, 2021 and 2020.

14

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)

For the Three and Nine Months Ended December 31, 2021 and 2020

(dollars in thousands, except as noted)

	Three Months Ended December 31,				Nine Months Ended December 31
	(unaudited)				(unaudited)
	2021		2020		2021		2020
Net revenues	$	1,208,971	$	1,106,542	$	3,579,475	$	3,011,681
Net income (loss) from continuing operations	152,176		92,903		383,193		30,797

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

3. Inventories, Net

Inventories are stated at the lower of their cost and net realizable value determined by the first-in, first-out (“FIFO”) cost method. Inventory costs include material, labor, and overhead. Inventories, net consisted of the following:

	December 31, 2021		March 31, 2021
			(*as adjusted)
Raw materials	$	210,358	$	103,939
Work in process	77,339		54,283
Finished goods	334,531		176,623
Reserve for excess and obsolete inventory	(27,629)		(19,778)
Inventories, net	$	594,599	$	315,067

*Certain amounts have been adjusted to reflect the change in inventory accounting method, as described in our Annual report on Form 10-K filed with the SEC on May 28, 2021.

Inventory has increased since March 31, 2021 primarily due to the acquisition of Cantel.

4. Property, Plant and Equipment

Information related to the major categories of our depreciable assets is as follows:

	December 31, 2021		March 31, 2021
Land and land improvements (1)	$	80,783	$	69,477
Buildings and leasehold improvements	639,928		567,132
Machinery and equipment	885,656		779,044
Information systems	223,722		193,222
Radioisotope	589,273		565,681
Construction in progress (1)	341,042		211,381
Total property, plant, and equipment	2,760,404		2,385,937
Less: accumulated depreciation and depletion	(1,238,817)		(1,150,537)
Property, plant, and equipment, net	$	1,521,587	$	1,235,400

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

15

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)

For the Three and Nine Months Ended December 31, 2021 and 2020

(dollars in thousands, except as noted)

5. Debt

Indebtedness was as follows:

	December 31, 2021		March 31, 2021
Short-term debt
Term loan, current portion	$	20,625	$	—
Delayed draw term loan, current portion	16,250		—
Private Placement	91,000		—
Total short-term debt	$	127,875	$	—
Long-term debt
Private Placement	$	763,278	$	860,308
Revolving Credit Facility	46,538		247,423
Deferred financing costs	(26,307)		(7,191)
Term loan	404,375		550,000
Delayed draw term loan	633,750		—
Senior public notes	1,350,000		—
Financing leases	3,682		—
Total long-term debt	$	3,175,316	$	1,650,540
Total debt	$	3,303,191	$	1,650,540

During the first quarter of fiscal 2022, we borrowed $650,000 under our Delayed draw term loan agreement and used the proceeds to partially fund the Cantel acquisition.

Additional information regarding our indebtedness is included in the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2021 dated May 28, 2021.

Senior Public Notes

On April 1, 2021, STERIS Irish FinCo Unlimited Company ("FinCo," "STERIS Irish FinCo," the "Issuer") completed an offering of $1,350,000 in aggregate principal amount, of its senior notes in two separate tranches: (i) $675,000 aggregate principal amount of the Issuer’s 2.70% Senior Notes due 2031 (the “2031 Notes”) and (ii) $675,000 aggregate principal amount of the Issuer’s 3.750% Senior Notes due 2051 (the “2051 Notes” and, together with the 2031 Notes, the “Senior Public Notes”). The Senior Public Notes were issued pursuant to an Indenture, dated as of April 1, 2021 (the “Base Indenture”), among FinCo, and STERIS plc, STERIS Corporation and STERIS Limited (the “Guarantors”) and U.S. Bank National Association, as trustee (the “Trustee”), as supplemented by the First Supplemental Indenture, dated as of April 1, 2021, among FinCo, the Guarantors and the Trustee (the “Supplemental Indenture” and, together with the Base Indenture, the “Indenture”). Each of the Guarantors guaranteed the Senior Public Notes jointly and severally on a senior unsecured basis (the “Guarantees”). The 2031 Notes will mature on March 15, 2031 and the 2051 Notes will mature on March 15, 2051. The Senior Public Notes will bear interest at the rates set forth above. Interest on the Senior Public Notes is payable on March 15 and September 15 of each year, beginning on September 15, 2021, until their respective maturities.

Cantel's Convertible Debt

On May 15, 2020, Cantel issued $168,000 aggregate principal amount of 3.25% convertible senior notes due 2025 (the “Notes”) in a private placement. The initial conversion price was $