Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

		Page
	Report of Independent Registered Public Accounting Firm	51
	Consolidated Financial Statements:
	Consolidated Balance Sheets	52
	Consolidated Statements of Income	53
	Consolidated Statements of Comprehensive Income	54
	Consolidated Statements of Cash Flows	55
	Consolidated Statements of Shareholders’ Equity	56
	Notes to Consolidated Financial Statements	57
	Financial Statement Schedule:
	Schedule II – Valuation and Qualifying Accounts	100

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of

STERIS plc

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of STERIS plc and subsidiaries (the Company) as of March 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended March 31, 2019, and the related notes and the financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at March 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2019, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of March 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated May 30, 2019 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditor since 1989.

/s/ Ernst & Young LLP

Cleveland, Ohio

May 30, 2019

STERIS PLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands)

March 31,		2019				2018
Assets
Current assets:
Cash and cash equivalents		$	220,633			$	201,534
Accounts receivable (net of allowances of $9,645 and $12,472, respectively)		564,830				528,066
Inventories, net		208,243				205,731
Prepaid expenses and other current assets		60,029				54,326
Total current assets		1,053,735				989,657
Property, plant, and equipment, net		1,031,582				1,010,524
Goodwill		2,322,928				2,433,784
Intangibles, net		604,614				726,980
Other assets		60,212				39,389
Total assets		$	5,073,071			$	5,200,334
Liabilities and equity
Current liabilities:
Accounts payable		$	152,913			$	135,866
Accrued income taxes		15,460				379
Accrued payroll and other related liabilities		109,058				94,000
Accrued expenses and other		187,765				168,217
Total current liabilities		465,196				398,462
Long-term indebtedness		1,183,227				1,316,001
Deferred income taxes, net		151,038				159,971
Other liabilities		87,812				108,600
Total liabilities		$	1,887,273			$	1,983,034
Commitments and contingencies (see Note 10)
Preferred shares, with $0.001 and £0.10 par value, respectively; 50,000 and 100 shares authorized, respectively; 0 and 100 issued and outstanding, respectively		—				15
Ordinary shares, with $75.00 and £0.10 par value, respectively; 500,000 shares and £17,006 shares aggregate par value authorized, respectively; 84,517 and 84,747 ordinary shares issued and outstanding, respectively		1,998,564				2,048,037
Retained earnings		1,339,024				1,146,223
Accumulated other comprehensive income (loss)		(159,778		)		11,685
Total shareholders’ equity		3,177,810				3,205,960
Noncontrolling interests		7,988				11,340
Total equity		3,185,798				3,217,300
Total liabilities and equity		$	5,073,071			$	5,200,334

See notes to consolidated financial statements.

STERIS PLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

Years Ended March 31,		2019				2018				2017
Revenues:
Product		$	1,296,025			$	1,220,633			$	1,198,319
Service		1,486,145				1,399,363				1,414,437
Total revenues		2,782,170				2,619,996				2,612,756
Cost of revenues:
Product		702,295				646,177				624,020
Service		904,448				881,073				962,523
Total cost of revenues		1,606,743				1,527,250				1,586,543
Gross profit		1,175,427				1,092,746				1,026,213
Operating expenses:
Selling, general, and administrative		669,937				631,978				682,039
Goodwill impairment loss		—				—				58,356
Research and development		63,038				60,782				59,397
Restructuring expenses		30,987				103				215
Total operating expenses		763,962				692,863				800,007
Income from operations		411,465				399,883				226,206
Non-operating expenses, net:
Interest expense		45,015				50,629				44,520
Interest income and miscellaneous expense		(3,020		)		(5,728		)		(2,960		)
Total non-operating expenses, net		41,995				44,901				41,560
Income before income tax expense		369,470				354,982				184,646
Income tax expense		64,394				63,360				74,015
Net income		305,076				291,622				110,631
Less: Net income attributable to noncontrolling interests		1,025				707				666
Net income attributable to shareholders		$	304,051			$	290,915			$	109,965
Net income per share attributable to shareholders:
Basic		$	3.59			$	3.42			$	1.29
Diluted		$	3.56			$	3.39			$	1.28
Cash dividends declared per ordinary share outstanding		$	1.33			$	1.21			$	1.09

See notes to consolidated financial statements.

STERIS PLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

Years Ended March 31,		2019				2018				2017
Net income		$	305,076			$	291,622			$	110,631
Less: Net income attributable to noncontrolling interests		1,025				707				666
Net income attributable to shareholders		$	304,051			$	290,915			$	109,965
Other comprehensive (loss) income
Unrealized gain on available for sale securities, (net of taxes of $0, $516 and $402, respectively)		—				1,792				851
Pension and postretirement benefit plan changes (net of taxes of ($423), $1,860, and $963, respectively)		2,538				(4,387		)		(7,463		)
Change in cumulative foreign currency translation adjustment		(172,031		)		254,982				(165,931		)
Total other comprehensive (loss) income attributable to shareholders		(169,493		)		252,387				(172,543		)
Comprehensive income (loss) attributable to shareholders		$	134,558			$	543,302			$	(62,578	)

See notes to consolidated financial statements.

STERIS PLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Years Ended March 31,		2019				2018				2017
Operating activities:
Net income		$	305,076			$	291,622			$	110,631
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion, and amortization		225,921				178,332				188,142
Deferred income taxes		(6,511		)		(24,722		)		31,274
Share-based compensation expense		23,965				22,187				18,794
Loss on the disposal of property, plant, equipment, and intangibles, net		924				2,582				760
(Gain) loss on sale of businesses		(1,370		)		14,547				86,574
Goodwill impairment loss		—				—				58,356
Other items		(18,397		)		32,229				(13,242		)
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable, net		(48,486		)		(37,731		)		(48,140		)
Inventories, net		(14,617		)		(5,178		)		(12,829		)
Other current assets		(7,371		)		(1,244		)		2,324
Accounts payable		21,244				563				6,884
Accruals and other, net		59,127				(15,555		)		(5,442		)
Net cash provided by operating activities		539,505				457,632				424,086
Investing activities:
Purchases of property, plant, equipment, and intangibles, net		(189,715		)		(165,457		)		(172,901		)
Proceeds from the sale of property, plant, equipment, and intangibles		5,567				2,094				4,846
Proceeds from the sale of businesses		2,478				8,888				135,713
Purchases of investments		(4,955		)		—				(6,356		)
Acquisition of business, net of cash acquired		(13,313		)		(46,271		)		(65,557		)
Other		(13,286		)		(3,083		)		—
Net cash used in investing activities		(213,224		)		(203,829		)		(104,255		)
Financing activities:
Proceeds from the issuance of long-term obligations		—				—				293,730
Payments on long-term obligations		(85,000		)		(222,500		)		(172,500		)
(Payments) proceeds under credit facilities, net		(27,087		)		29,065				(196,613		)
Deferred financing fees and debt issuance costs		(488		)		(2,029		)		(1,073		)
Acquisition related deferred or contingent consideration		(1,327		)		(2,064		)		(9,918		)
Repurchases of shares		(81,494		)		(65,485		)		(97,509		)
Cash dividends paid to common shareholders		(112,503		)		(102,929		)		(93,193		)
Proceeds from issuance of equity to minority shareholders		—				—				5,022
Stock option and other equity transactions, net		13,107				9,758				4,955
Net cash used in financing activities		(294,792		)		(356,184		)		(267,099		)
Effect of exchange rate changes on cash and cash equivalents		(12,390		)		20,997				(18,655		)
Increase (decrease) in cash and cash equivalents		19,099				(81,384		)		34,077
Cash and cash equivalents at beginning of period		201,534				282,918				248,841
Cash and cash equivalents at end of period		$	220,633			$	201,534			$	282,918

See notes to consolidated financial statements.

STERIS PLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands, except per share amounts)

	Ordinary Shares					Preferred Shares					Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Non-controlling Interest			Total Equity
	Number		Amount			Number		Amount
Balance at March 31, 2016	85,920		$	2,151,719		100		$	15		$	939,459		$	(68,159	)	$	15,858		$	3,038,892
Comprehensive income:
Net income	—		—			—		—			109,965			—			666			110,631
Other comprehensive loss	—		—			—		—			—			(172,543		)	—			(172,543		)
Repurchases of ordinary shares	(1,455	)	(95,433		)	—		—			(2,076		)	—			—			(97,509		)
Equity compensation programs	416		23,826			—		—			—			—			—			23,826
Purchase of subsidiary shares from noncontrolling interest	67		5,022			—		—			—			—			(5,374		)	(352		)
Issuance of subsidiary shares to noncontrolling interest	—		—			—		—			—			—			530			530
Cash dividends – $1.09 per ordinary share	—		—			—		—			(93,193		)	—			—			(93,193		)
Change in noncontrolling interest	—		—			—		—			—			—			(249		)	(249		)
Balance at March 31, 2017	84,948		$	2,085,134		100		$	15		$	954,155		$	(240,702	)	$	11,431		$	2,810,033
Comprehensive income:
Net income	—		—			—					290,915			—			707			291,622
Other comprehensive loss	—		—			—		—			—			252,387			—			252,387
Repurchases of ordinary shares	(793	)	(69,567		)	—		—			4,082			—			—			(65,485		)
Equity compensation programs and other	592		32,470			—		—			—			—			—			32,470
Cash dividends – $1.21 per ordinary share	—		—			—		—			(102,929		)	—			—			(102,929		)
Other changes in noncontrolling interest	—		—			—		—			—			—			(798		)	(798		)
Balance at March 31, 2018	84,747		$	2,048,037		100		$	15		$	1,146,223		$	11,685		$	11,340		$	3,217,300
Comprehensive income:
Net income	—		—			—		—			304,051			—			1,025			305,076
Other comprehensive income	—		—			—		—			—			(169,493		)	—			(169,493		)
Repurchases of ordinary shares	(763	)	(86,414		)	—		—			4,920			—			—			(81,494		)
Equity compensation programs and other	533		36,941			—		—			—			—			—			36,941
Retirement of shares resulting from Redomiciliation	(84,514	)	(10,592,117		)	(100	)	(15		)	—			—			—			(10,592,132		)
Issuance of shares resulting from Redomiciliation	84,514		10,592,117			—		—			—			—			—			10,592,117
Adoption of Accounting Standards (note 1)	—		—			—		—			(3,667		)	(1,970		)	—			(5,637		)
Cash dividends – $1.33 per ordinary share	—		—			—		—			(112,503		)	—			—			(112,503		)
Other changes in noncontrolling interest	—		—			—		—			—			—			(4,377		)	(4,377		)
Balance at March 31, 2019	84,517		$	1,998,564		—		$	—		$	1,339,024		$	(159,778	)	$	7,988		$	3,185,798

See notes to consolidated financial statements.

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations. On March 28, 2019, STERIS plc, a public limited company organized under the laws of England and Wales (“STERIS UK”), completed a redomiciliation from the United Kingdom to Ireland (the “Redomiciliation”). The Redomiciliation was achieved through the insertion of a new Irish public limited holding company (“STERIS Ireland”) on top of STERIS UK pursuant to a court-approved scheme of arrangement under English law (the “Scheme”). Following the Scheme effectiveness, STERIS UK was re-registered as a private limited company with the name STERIS Limited, and STERIS Emerald IE Limited, a company established in Ireland and a wholly-owned direct subsidiary of STERIS Ireland, was interposed as the direct parent company of STERIS UK.

STERIS plc is a leading provider of infection prevention and other procedural products and services. We offer our Customers a unique mix of innovative consumable products, such as detergents, gastrointestinal ("GI") endoscopy accessories, barrier product solutions, and other products and services, including: equipment installation and maintenance, microbial reduction of medical devices, instrument and scope repair solutions, laboratory testing services, on-site and off-site reprocessing, and capital equipment products, such as sterilizers and surgical tables, and connectivity solutions such as operating room (“OR”) integration.

We operate and report in four reportable business segments: Healthcare Products, Healthcare Specialty Services, Life Sciences, and Applied Sterilization Technologies. We describe our business segments in Note 11 to our consolidated financial statements titled, "Business Segment Information."

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

Principles of Consolidation. We use the consolidation method to report our investment in our subsidiaries. Therefore, the accompanying consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. We eliminate inter-company accounts and transactions when we consolidate these accounts. Investments in equity of unconsolidated affiliates, over which the Company has significant influence, but not control, over the financial and operating polices, are accounted for primarily using the equity method. These investments are immaterial to the Company's Consolidated Financial Statements. In prior periods, we presented income attributable to noncontrolling interests in the "Interest income and miscellaneous expense" line of our Consolidated Statements of Income and the amounts were not material.

Use of Estimates. We make certain estimates and assumptions when preparing financial statements according to U.S. GAAP that affect the reported amounts of assets and liabilities at the financial statement dates and the reported amounts of revenues and expenses during the periods presented. These estimates and assumptions involve judgments with respect to many factors that are difficult to predict and are beyond our control. Actual results could be materially different from these estimates. We revise the estimates and assumptions as new information becomes available.

Cash Equivalents and Supplemental Cash Flow Information. Cash equivalents are all highly liquid investments with a maturity of three months or less when purchased. We invest our excess cash in short-term instruments including money market funds and time deposits with major banks and financial institutions. We select investments in accordance with the criteria established in our investment policy. Our investment policy specifies, among other things, maturity, credit quality and concentration restrictions with the objective of preserving capital and maintaining adequate liquidity.

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

Information supplementing our Consolidated Statements of Cash Flows is as follows:

Years Ended March 31,		2019				2018				2017
Cash paid during the year for:
Interest		$	44,118			$	48,663			$	42,797
Income taxes		64,668				85,629				78,009
Cash received during the year for income tax refunds		2,189				7,747				2,002

Revenue Recognition and Associated Liabilities. We adopted Accounting Standards Update ("ASU") 2014-09 “Revenue from Contracts with Customers” and the subsequently issued amendments on April 1, 2018 using the modified retrospective approach to contracts that were not completed as of April 1, 2018. Under this standard, certain capital equipment contracts are comprised of a single performance obligation, resulting in the deferral of the corresponding capital equipment revenue and cost of revenues until installation is complete. Previously, these capital equipment revenues and cost of revenues were recognized based upon shipping terms. We recorded a cumulative effect adjustment in the beginning of fiscal 2019 to Retained earnings of $5,638, based on the current terms and conditions for certain open capital equipment contracts as of March 31, 2018. The impact of the adoption of this standard on our Consolidated Balance Sheets at March 31, 2019 is reflected in the table below. The adoption of this standard did not have a material impact on our Consolidated Statements of Income for the year-to-date period ending March 31, 2019. Comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

	As Reported March 31,			Total			ASC 605 March 31,
Balance Sheet	2019			Adjustments			2019
Total assets	$	5,073,071		$	(8,429	)	$	5,064,642
Total liabilities	1,887,273			(14,448		)	1,872,825
Total equity	3,185,798			6,019			3,191,817

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 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.

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

Certain costs to fulfill a contract are capitalized and amortized over the term of the contract if they are recoverable, directly related to a contract and generate resources that we will use to fulfill the contract in the future. At March 31, 2019 assets related to costs to fulfill a contract were not material to our Consolidated Financial Statements.

Refer to Note 11, 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 certain capital equipment products is deferred until installation is complete as the capital equipment and installation are highly integrated and form a single performance obligation.

Service Revenue

Within our Healthcare Products and Life Sciences segments, service revenues consist of 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 GPO agreement. For maintenance, repair and installation of capital equipment, revenue is recognized upon completion of the service.

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 cancelable 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 Healthcare Specialty Services segment, revenues relate primarily to outsourced instrument reprocessing services and instrument repairs. Contracts for outsourced instrument reprocessing services are primarily based on an agreement with a Customer, ranging in length from several months to 15 years. Outsourced instrument 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.

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.

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 fiscal 2019, we recognized revenue of $30,169 that was included in our contract liability balance at the beginning of the period.

Refer to Note 7, titled "Additional Consolidated Balance Sheet Information" for Deferred revenue balances.

Service Liabilities

Payments received in advance of performance for cancelable preventative 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. Prior to the adoption of Accounting Standards Codification ("ASC") 606, these amounts were included in Deferred revenues.

Refer to Note 7, 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 instrument reprocessing services. As of March 31, 2019, the transaction price allocated to

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

remaining performance obligations was approximately $900,000. We expect to recognize approximately 47% of the transaction price within one year and approximately 49% beyond one year. The remainder has yet to be scheduled for delivery.

Accounts Receivable. Accounts receivable are presented at their face amount, less allowances for sales returns and uncollectible accounts. Accounts receivable consist of amounts billed and currently due from Customers and amounts earned but unbilled. We generally obtain and perfect security interest in products sold in the United States when we have a concern with the Customer's risk profile.

We maintain an allowance for uncollectible accounts receivable for estimated losses in the collection of amounts owed by Customers. We estimate the allowance based on analyzing a number of factors, including amounts written off historically, Customer payment practices, and general economic conditions. We also analyze significant Customer accounts on a regular basis and record a specific allowance when we become aware of a specific Customer’s inability to pay. As a result, the related accounts receivable are reduced to an amount that we reasonably believe is collectible.

We maintain an allowance for sales returns based upon known returns and estimated returns for both capital equipment and consumables. We estimate returns of capital equipment and consumables based upon recent historical experience.

Inventories, net. Inventories are stated at the lower of their cost or market value. We determine cost based upon a combination of the last-in, first-out (“LIFO”) and first-in, first-out (“FIFO”) cost methods. For inventories valued using the LIFO method, we believe that the use of the LIFO method results in a matching of current costs and revenues. Inventories valued using the LIFO method represented approximately 25.2% and 26.0% of total inventories at March 31, 2019 and 2018, respectively. Inventory costs include material, labor, and overhead. If we had used only the FIFO method of inventory costing, inventories would have been $16,757 and $17,280 higher than those reported at March 31, 2019 and 2018, respectively.

We review inventory on an ongoing basis, considering factors such as deterioration, obsolescence, and other items. We record an allowance for estimated losses when the facts and circumstances indicate that particular inventories will not be usable. If future market conditions vary from those projected, and our estimates prove to be inaccurate, we may be required to write-down inventory values and record an adjustment to cost of revenues.

Property, Plant, and Equipment. Our property, plant, and equipment consists of land and land improvements, buildings and leasehold improvements, machinery and equipment, information systems, radioisotope (cobalt-60), and construction in progress. Property, plant, and equipment are presented at cost less accumulated depreciation and depletion. We capitalize additions and improvements. Repairs and maintenance are charged to expense as they are incurred.

Land is not depreciated and construction in progress is not depreciated until placed in service. Depreciation of most assets is computed on the cost less the estimated salvage value by using the straight-line method over the estimated remaining useful lives. Depletion of radioisotope is computed using the annual decay factor of the material, which is similar to the sum-of-the-years-digits method.

We generally depreciate or deplete property, plant, and equipment over the useful lives presented in the following table:

Asset Type		Useful Life (years)
Land improvements		3-40
Buildings and leasehold improvements		2-50
Machinery and equipment		2-20
Information Systems		2-20
Radioisotope (cobalt-60)		20

When we sell, retire, or dispose of property, plant, and equipment, we remove the asset’s cost and accumulated depreciation from our Consolidated Balance Sheet. We recognize the net gain or loss on the sale or disposition in the Consolidated Statements of Income in the period when the transaction occurs.

Interest. We capitalize interest costs incurred during the construction of long-lived assets. We capitalized interest costs of $495 and $528 for the years ended March 31, 2019 and 2018, respectively. Total interest expense for the years ended March 31, 2019, 2018, and 2017 was $45,015, $50,629, and $44,520, respectively.

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

Identifiable Intangible Assets. Our identifiable intangible assets include product technology rights, trademarks, licenses, and Customer and vendor relationships. We record these assets at cost, or when acquired as part of a business acquisition, at estimated fair value. We generally amortize identifiable intangible assets over periods ranging from 5 to 20 years using the straight-line method. Our intangible assets also include indefinite lived assets including certain trademarks and tradenames that were acquired in connection with business combinations. These assets are tested at least annually for impairment.

Investments. Investments in marketable securities are stated at fair value and are included in "Other assets" on the Consolidated Balance Sheets. Following the fiscal 2019 adoption of ASU 2016-01, "Financial Instruments - Overall - Recognition and Measurement of Financial Assets and Liabilities, changes in the fair value of these investments are recorded in the "Interest income and miscellaneous expense line" of the Consolidated Statement of Income.

Asset Impairment Losses. Property, plant, equipment, and identifiable intangible assets are reviewed for impairment when indicators of impairment exist and circumstances indicate that the carrying value of such assets may not be recoverable. Impaired assets are recorded at the lower of carrying value or estimated fair value. We monitor for such indicators on an ongoing basis and if an impairment exists, we record the loss in the Consolidated Statements of Income during that period.

Asset Retirement Obligations. We incur retirement obligations for certain assets. We record initial liabilities for the asset retirement obligations ("ARO") at fair value. Recognition of ARO includes: estimating the present value of a liability and offsetting asset, the subsequent accretion of that liability and depletion of the asset, and a periodic review of the ARO liability estimates and discount rates used in the analysis. We provide additional information about our asset retirement obligations in Note 5 to our consolidated financial statements titled, “Property, Plant and Equipment.”

Acquisitions of Business. Assets acquired and liabilities assumed in a business combination are accounted for at fair value on the date of acquisition. Costs related to the acquisition are expensed as incurred.

Goodwill. We perform our annual impairment test for goodwill in the third quarter of each year. We may consider qualitative indicators of the fair value of a reporting unit when it is unlikely that a reporting unit has impaired goodwill. We may also utilize a discounted cash flow analysis that requires certain assumptions and estimates be made regarding market conditions and our future profitability. We review the book value compared to the fair value at the reporting unit level. We calculate the fair value of our reporting units based on the present value of estimated future cash flows. Considerable management judgment is necessary to evaluate the impact of operating and macroeconomic changes and to estimate future cash flows to measure fair value. Assumptions used in our impairment evaluations, such as forecasted growth rates and cost of capital, are consistent with internal projections, strategic plans, and operating plans. We believe such assumptions and estimates are also comparable to those that would be used by other market place participants.

Self-Insurance Liabilities. We record a liability for self-insured risks that we retain for general and product liabilities, workers’ compensation, and automobile liabilities based on actuarial calculations. We use our historical loss experience and actuarial methods to calculate the liability. This liability includes estimates for both losses and incurred but not reported claims. We review the assumptions used to calculate the estimated liability at least annually to evaluate the adequacy of the amount recorded. We maintain insurance policies to cover losses greater than our estimated liability, which are subject to the terms and conditions of those policies. We are also self-insured for certain employee medical claims. We estimate a liability for incurred but not reported claims based upon recent claims experience.

Benefit Plans. We sponsor defined benefit pension plans. We also sponsor a post-retirement benefits plan for certain former employees. We determine our costs and obligations related to these plans by evaluating input from third-party professional advisers. These costs and obligations are affected by assumptions including the discount rate, expected long-term rate of return on plan assets, the annual rate of change in compensation for eligible employees, estimated changes in costs of healthcare benefits, and other factors. We review the assumptions used on an annual basis.

We recognize an asset for the overfunded status or a liability for the underfunded status of defined benefit pension and post-retirement benefits plans in our consolidated balance sheets. This amount is measured as the difference between the fair value of plan assets and the benefit obligation (the projected benefit obligation for pension plans and the accumulated post-retirement benefit obligation for other post-retirement benefit plans). Changes in the funded status of the plans are recorded in other comprehensive income in the year they occur. We measure plan assets and obligations as of the balance sheet date. We provide additional information about our pension and other post-retirement benefits plans in Note 9 to our consolidated financial statements titled, “Benefit Plans.”

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

Fair Value of Financial Instruments. Except for long-term debt, our financial instruments are highly liquid or have short-term maturities. We provide additional information about the fair value of our financial instruments in Note 17 titled, “Fair Value Measurements.”

Foreign Currency Translation. Most of our operations use their local currency as their functional currency. Financial statements of subsidiaries are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and a weighted average exchange rate for each period for revenues, expenses, gains and losses. Translation adjustments for subsidiaries whose local currency is their functional currency are recorded as a component of accumulated other comprehensive income (loss) within equity. Transaction gains and losses resulting from fluctuations in currency exchange rates on transactions denominated in currencies other than the functional currency are recognized as incurred in the accompanying Consolidated Statement of Income, except for certain inter-company balances designated as long-term in nature.

Forward and Swap Contracts. We enter into foreign currency forward contracts to hedge assets and liabilities denominated in foreign currencies, including inter-company transactions.We may also enter into commodity swap contracts to hedge price changes in nickel that impact raw materials included in our cost of revenues. We do not use derivative financial instruments for speculative purposes. These contracts are marked to market, with gains and losses recognized within “Selling, general, and administrative expenses” or "Cost of revenues" in the accompanying Consolidated Statements of Income.

Warranty. Warranties are provided on the sale of certain of our products and services and an accrual for estimated future claims is recorded at the time revenue is recognized. We estimate warranty expense based primarily on historical warranty claim experience.

Shipping and Handling. We record shipping and handling costs in costs of revenues. Shipping and handling costs charged to Customers are recorded as revenues in the period the product revenues are recognized.

Advertising Expenses. Costs incurred for communicating, advertising and promoting our products are generally expensed when incurred as a component of Selling, General and Administrative Expense. We incurred $10,691, $10,886, and $12,622 of advertising costs during the years ended March 31, 2019, 2018, and 2017, respectively.

Research and Development. We incur research and development costs associated with commercial products and expense these costs as incurred. If a Customer reimburses us for research and development costs, the costs are charged to the related contracts as costs of revenues.

Income Taxes. We defer income taxes for all temporary differences between pre-tax financial and taxable income and between the book and tax basis of assets and liabilities. We record valuation allowances to reduce net deferred tax assets to an amount that we expect will more-likely-than-not be realized. In making such a determination, we consider all available information, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and if applicable, any carryback claims that can be filed. In the event we were to determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance which would reduce the provision for income taxes and the effective tax rate.

We evaluate uncertain tax positions in accordance with a two-step process. The first step is recognition: The determination of whether or not it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, we presume that the position will be examined by the appropriate tax authority and that the tax authority will have full knowledge of all relevant information. The second step is measurement: A tax position that meets the more-likely-than-not threshold is measured to determine the amount of benefit to recognize in the financial statements. The measurement process requires the determination of the range of possible settlement amounts and the probability of achieving each of the possible settlements. The tax position is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. No tax benefits are recognized for positions that do not meet the more-likely-than-not threshold. Tax positions that previously failed to meet the more-likely-than-not threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold are derecognized in the first subsequent financial reporting period in which the threshold is no longer met. We describe income taxes further in Note 8 to our consolidated financial statements titled, “Income Taxes.”

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

Medical Device Excise Tax. The Medical Device Excise Tax became effective January 1, 2013. The excise tax was mandated by the 2010 health care reform legislation and assesses a 2.3% tax on the sale or use of certain medical devices that are sold or manufactured in the United States. Many of our products are subject to the excise tax. Late in 2015, Congress enacted legislation that suspended the excise tax for 2016 and 2017. Early in 2018, U.S. Congress enacted legislation that extended the suspension of the excise tax for 2018 and 2019. Therefore, we did not incur Medical Device Excise taxes during fiscal 2019, 2018 or 2017. Should the U.S. Congress take no further action with regard to this tax we may begin to incur excise tax in the fourth quarter of fiscal 2020.

Share-Based Compensation. We describe share-based compensation in Note 14 to our consolidated financial statements titled, “Share-Based Compensation.” We measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. We record liability awards at fair value each reporting period and the change in fair value is reflected as share-based compensation expense in our Consolidated Statements of Income. The expense is classified as cost of goods sold, selling, general and administrative expenses or research and development expenses in a manner consistent with the employee’s compensation and benefits. These costs are recognized in the Consolidated Statement of Income over the period during which an employee is required to provide service in exchange for the award.

Restructuring. We recognize restructuring expenses as incurred. Asset impairment and accelerated depreciation expenses primarily relate to inventory write-downs for rationalized products and adjustments in the carrying value of the related facilities and machinery and equipment to their estimated fair value. In addition, the remaining useful lives of other property, plant, and equipment associated with the related operations are reevaluated based on the respective restructuring plan, which may result in the acceleration of depreciation and amortization of certain assets.

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

Recently Issued Accounting Standards Impacting the Company

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

Standard		Date of Issuance		Description		Date of Adoption		Effect on the financial statements or other significant matters
Standards that have recently been adopted
ASU 2014-09, "Revenue from Contracts with Customers" and subsequently issued amendments		May 2014		The standard replaced existing revenue recognition standards and significantly expands the disclosure requirements for revenue arrangements.		First Quarter Fiscal 2019		Additional information is disclosed in Note 1 under the heading, "Revenue Recognition and Associated Liabilities".
ASU 2016-01, "Financial Instruments - Overall - Recognition and Measurement of Financial Assets and Liabilities" (Subtopic 825-10)		January 2016		The standard changed how equity investments are measured and presented changes in the fair value of financial liabilities measured under the fair value option. Presentation and disclosure requirements for financial instruments were also affected. Entities are required to measure equity investments that do not result in consolidation and are not recorded under the equity method at fair value with changes in fair value recognized in net income. The standard clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale securities. The accounting for other financial instruments, such as loans, investments in debt securities, and financial liabilities is largely unchanged.		First Quarter Fiscal 2019		We adopted the standard on a modified retrospective basis at the beginning of fiscal 2019 and we recorded a cumulative effect adjustment to our opening retained earnings balance of $1,970 that increased retained earnings and decreased accumulated other comprehensive income.
ASU 2016-15, "Statement of Cash Flows" (Topic 230)		August 2016		This standard provides guidance on the following specific cash flow issues: Debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle.		First Quarter Fiscal 2019		We adopted this standard effective April 1, 2018. The impact will depend on the future occurrence of the relevant transactions or conditions addressed by the standard.

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

ASU 2016-16, "Income Taxes, Intra-Entity Transfers of Assets Other Than Inventory" (Topic 740)		October 2016		The standard improves the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. The new standard requires the recognition of income tax consequences resulting from an intra-entity transfer of an asset other than inventory when the transfer occurs.		First Quarter Fiscal 2019		We adopted this standard effective April 1, 2018 with no material impact to our Consolidated Balance Sheets. The impact to our Consolidated Statements of Income will depend on the value of future intra-entity transfers.
ASU 2017-01 "Clarifying the Definition of a Business"		January 2017		The standard update narrows the definition of a business by providing a screen to determine when an integrated set of assets and activities is not a business. The screen specifies that an integrated set of assets and activities is not a business if substantially all of the fair value of the gross assets acquired or disposed of is concentrated in a single or a group of similar identifiable assets.		First Quarter Fiscal 2019		We adopted this standard effective April 1, 2018. The impact will depend on the future occurrence of the relevant transactions or conditions addressed by the standard.
ASU 2017-07 "Compensation - Retirement Benefits - Improving the Presentation of Net Periodic Pension and Net Periodic Postretirement Benefit Cost" (Topic 715)		March 2017		This standard requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside the subtotal of income from operations, if one is presented.		First Quarter Fiscal 2019		We retrospectively adopted the standard in the first quarter of fiscal 2019. Prior periods have been recast for the adoption of this standard. Changes have been reflected in the Cost of Revenues, Selling, general and administrative expense, and Interest income and miscellaneous expense lines of our Consolidated Statements of Income. Amounts are not considered material for additional disclosure.
ASU 2017-09 "Compensation - Stock Compensation" (Topic 718)		May 2017		The standard provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718.		First Quarter Fiscal 2019		We adopted this standard effective April 1, 2018. The impact will depend on the future occurrence of the relevant terms or conditions addressed by the standard.

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

Standards that have not yet been adopted
ASU 2016-02, "Leases" (Topic 842)		February 2016		The standard will require lessees to record all leases, whether finance or operating, on the balance sheet. An asset will be recorded to represent the right to use the leased asset, and a liability will be recorded to represent the lease obligation. The standard is effective for annual periods beginning after December 15, 2018 and interim periods within that period. Early adoption is permitted.		N/A		We are currently evaluating the impact that the standard will have on our consolidated financial statements. We are also evaluating our lease portfolio, software packages, process and policy change requirements. We expect to adopt this standard using the additional, optional transition method, the package of transitional practical expedients relating to the identification, classification and initial direct costs of leases, and the transitional practical expedient for the treatment of existing land easements. We anticipate that most of our operating leases will result in the recognition of additional assets and corresponding liabilities in our Consolidated Balance Sheet, however we do not expect the standard to have a material impact on our financial position. We currently estimate the impact of the adoption will result in the recognition of the right of use assets and lease liabilities within the range of approximately $110,000 to $130,000 as of April 1, 2019. For more information regarding our total operating lease commitments refer to Note 5, "Property, Plant and Equipment".
ASU 2016-13, "Measurement of Credit Losses on Financial Instruments"		June 2016		The standard requires a financial asset (or group of financial assets) measured at amortized cost to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. The standard is effective for annual periods beginning after December 15, 2019. Early adoption is permitted.		N/A		We are in the process of evaluating the impact that the standard will have on our consolidated financial statements.

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

ASU 2017-12 "Targeted Improvements to Accounting for Hedging Activities" (Topic 815)		August 2017		The standard provides targeted improvements to accounting for hedging activities by expanding an entity’s ability to hedge non-financial and financial risk components and reduce complexity in fair value hedges of interest rate risk. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance also eases certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of hedge effectiveness. The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted in any interim period after issuance of the standard. The standard should be applied using a modified retrospective approach for cash flow and net investment hedge relationships that exist on the date of adoption, and prospectively for presentation and disclosure requirements.		N/A		We do not expect this standard to have a material impact on our consolidated financial statements.
ASU 2018-02 "Income Statement - Reporting Comprehensive Income" (Topic 220)		February 2018		The standard allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act ("TCJA") and requires certain disclosures about stranded tax effects. The underlying guidance requiring that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. This standard is effective for fiscal years beginning after December 15, 2018 and interim periods within those years. Early adoption is permitted.		N/A		We are in the process of evaluating the impact that the standard will have on our consolidated financial statements.
ASU 2018-13 "Fair Value Measurement (Topic 820) Disclosure Framework- Changes to Disclosure Requirements for Fair Value Measurement”		August 2018		The standard modifies the disclosure requirements by adding, removing, and modifying certain required disclosures for fair value measurements for assets and liabilities disclosed within the fair value hierarchy. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 and early adoption is permitted.		N/A		We do not expect this standard to have a material impact on our consolidated financial statements as it modifies disclosure requirements only.
ASU 2018-14 "Compensation- Retirement Benefits - Defined Benefit Plans- General Topic (715-20): Disclosure Framework- Changes to the Disclosure Requirements for Defined Benefit Plans"		August 2018		The standard modifies the disclosure requirements by adding, removing, and modifying certain required disclosures for employers that sponsor defined benefit pension or other post-retirement benefit plans. The standard also clarifies disclosure requirements for defined benefit pension plans relating to the projected benefit obligation and accumulated benefit obligation. The standard is effective for fiscal years ending after December 15, 2019 and early adoption is permitted.		N/A		We do not expect this standard to have a material impact on our consolidated financial statements as it modifies disclosure requirements only.

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

ASU 2018-15 "Intangibles- Goodwill and Other- Internal Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract"		August 2018		The standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard is effective for fiscal years ending after December 15, 2019 and early adoption is permitted.		N/A		We do not expect this standard to have a material impact on our consolidated financial statements.

2. RESTRUCTURING

Fiscal 2019 Restructuring Plan. During the third quarter of fiscal 2019, we adopted and announced a targeted restructuring plan (the "Fiscal 2019 Restructuring Plan"), which included the closure of two manufacturing facilities, one in Brazil and one in England, as well as other actions including the rationalization of certain products. Fewer than 200 positions are being eliminated. The Company will relocate the production of certain impacted products to other existing manufacturing operations during fiscal 2020. These restructuring actions are designed to enhance profitability and improve efficiency.

We have incurred pre-tax expenses totaling $40,708 related to these restructuring actions, of which $30,987 was recorded as restructuring expenses and $9,721 was recorded in cost of revenues, with a total of $28,417, $2,518, $664, and $7,794 related to the Healthcare Products, Healthcare Specialty Services, Life Sciences, and Applied Sterilization Technologies segments, respectively. Corporate related restructuring charges were $1,315. We expect to incur additional restructuring expenses related to this plan of approximately $3,000 in fiscal 2020 and beyond.

The following table summarizes our total pre-tax restructuring expenses for fiscal 2019:

Year Ended March 31, 2019	Fiscal 2019 Restructuring Plan
Severance and other compensation related costs	$	5,651
Accelerated depreciation and amortization	16,194
Asset impairment	4,312
Lease termination costs and other	4,830
Product rationalization (1)	9,721
Total restructuring expenses	$	40,708

(1) Recorded in cost of revenues on the Consolidated Statements of Income.

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 restructuring liability balances:

Fiscal 2019 Restructuring Plan		March 31, 2018					Provisions					Payments /Impairments (1)					March 31, 2019
Severance and termination benefits		$	—				$	5,651				$	(1,549	)			$	4,102
Lease termination obligations and other		—					4,830					(2,801		)			2,029
Total		$	—		—		$	10,481		—		$	(4,350	)	—		$	6,131

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

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

3. GOODWILL AND INTANGIBLE ASSETS

Changes to the carrying amount of goodwill for the years ended March 31, 2019, 2018 and 2017 were as follows:

		Healthcare Products Segment				Healthcare Specialty Services Segment				Life Sciences Segment				Applied Sterilization Technologies Segment				Total
Balance at March 31, 2017		377,765				375,879				146,514				1,331,145				2,231,303
Goodwill acquired or allocated		16,418				3,501				—				15,847				35,766
Reassignment		—				(1,855		)		—				1,855				—
Foreign currency translation adjustments		10,491				10,500				2,302				143,422				166,715
Balance at March 31, 2018		$	404,674			$	388,025			$	148,816			$	1,492,269			$	2,433,784
Goodwill acquired or allocated		(1,202		)		(907		)		—				5,341				3,232
Foreign currency translation adjustments		(6,188		)		(12,208		)		(1,021		)		(94,671		)		(114,088		)
Balance at March 31, 2019		$	397,284			$	374,910			$	147,795			$	1,402,939			$	2,322,928

The fiscal 2018 goodwill increase was due to our recent business acquisitions, which are discussed in Note 18, titled "Business Acquisitions" and the impact of foreign currency. The fiscal 2018 reassignment between the Healthcare Specialty Services and the Applied Sterilization Technologies segments resulted from certain minor organizational changes that were made to better align with our Customers.

We evaluate the recoverability of recorded goodwill amounts annually during the third fiscal quarter, or when evidence of potential impairment exists. As a result of our annual impairment review for goodwill for fiscal years 2019 and 2018, no indicators of impairment were identified. As a result of our annual goodwill impairment review for fiscal year 2017, we concluded that the carrying value of one of our reporting units exceeded its fair value. The Synergy Health Netherlands linen management unit was reported within our Healthcare Specialty Services segment. Financial forecasts prepared for the annual assessment reflected pricing pressures, volume declines driven by overcapacity in the market, and a decline in the overall market size. These factors resulted in further degradation of the already low operating margin and cash flows of this unit. We incurred a goodwill impairment charge of $58,356 as a result, which is recorded within Goodwill impairment loss in the Consolidated Statements of Income. The fair market value of the reporting unit was determined under an income approach using discounted cash flows and estimated fair market values. Fair value calculated using a discounted cash flow analysis is classified within level 3 of the fair value hierarchy and requires several assumptions including risk adjusted discount rates and financial forecasts.

Our fiscal 2019, 2018, and 2017 acquisitions are described in Note 18 to our consolidated financial statements titled, "Business Acquisitions and Divestitures".

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

Information regarding our intangible assets is as follows:

		2019								2018
March 31,		Gross Carrying Amount				Accumulated Amortization				Gross Carrying Amount				Accumulated Amortization
Customer relationships		$	623,774			$	189,752			$	663,532			$	150,358
Non-compete agreements		4,693				3,945				4,738				3,790
Patents and technology		226,520				126,149				226,318				107,598
Trademarks and tradenames		63,570				38,850				83,509				36,864
Supplier relationships		54,800				10,047				54,800				7,307
Other		—				—				10				10
Total		$	973,357			$	368,743			$	1,032,907			$	305,927

Certain trademarks and tradenames obtained as a result of business combinations are indefinite-lived assets. The approximate carrying value of these assets at March 31, 2019 and March 31, 2018 was $13,000 and $35,266, respectively. We evaluate our indefinite-lived intangible assets annually during the third quarter, or when evidence of potential impairment exists. During the third quarter of fiscal 2019, management adopted a branding strategy that included phasing out the usage of a tradename associated with certain products in the Healthcare Products business segment. As a result, management recorded an impairment charge of $16,249, which is included within the Selling, general, and administrative line of the Consolidated Statements of Income. The remaining fair value of the asset was calculated using an income approach (the relief from royalty method). The remaining fair value was not material and will be amortized over the asset's remaining useful life. Fair value calculated using this approach is classified within Level 3 of the fair value hierarchy and requires several assumptions. No impairment was recognized for the fiscal years 2018 or 2017.

Total amortization expense for finite-lived intangible assets was $98,747, $70,195, and $68,607 for the years ended March 31, 2019, 2018, and 2017, respectively. Based upon the current amount of intangible assets subject to amortization, the amortization expense for each of the five succeeding fiscal years is estimated to be as follows:

		2020				2021				2022				2023				2024
Estimated amortization expense		$	71,917			$	66,716			$	63,853			$	58,412			$	52,452

The estimated annual amortization expense presented in the preceding table has been calculated based upon March 31, 2019 currency exchange rates.

4. INVENTORIES, NET

Inventories, net consisted of the following:

March 31,		2019				2018
Raw materials		$	83,009			$	83,741
Work in process		30,694				34,904
Finished goods		131,051				124,005
LIFO reserve		(16,757		)		(17,280		)
Reserve for excess and obsolete inventory		(19,754		)		(19,639		)
Inventories, net		$	208,243			$	205,731

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

5. PROPERTY, PLANT AND EQUIPMENT

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

March 31,		2019				2018
Land and land improvements (1)		$	63,522			$	55,417
Buildings and leasehold improvements		480,359				467,063
Machinery and equipment		656,956				631,623
Information systems		169,711				151,360
Radioisotope		483,080				458,440
Construction in progress (1)		133,689				87,745
Total property, plant, and equipment		1,987,317				1,851,648
Less: accumulated depreciation and depletion		(955,735		)		(841,124		)
Property, plant, and equipment, net		$	1,031,582			$	1,010,524

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

Depreciation and depletion expense were $127,174, $108,137 and $119,536, for the years ended March 31, 2019, 2018, and 2017, respectively.

Rental expense for operating leases was $30,319, $30,474, and $32,740 for the years ended March 31, 2019, 2018, and 2017, respectively. Operating leases primarily relate to manufacturing, warehouse and office space, service facilities, vehicles, equipment, and communication systems. Certain lease agreements grant us varying renewal and purchase options.

Future minimum annual rentals payable under noncancelable operating lease agreements at March 31, 2019 were as follows:

		Operating Leases
2020		$	24,008
2021		18,567
2022		13,917
2023		11,929
2024 and thereafter		93,939
Total minimum lease payments		$	162,360

In the preceding table, the future minimum annual rentals payable under noncancelable leases denominated in foreign currencies have been calculated using March 31, 2019 foreign currency exchange rates.

Asset Retirement Obligations

We provide contract sterilization services including Gamma irradiation which utilizes cobalt-60 in the form of cobalt pencils. We have incurred asset retirement obligations (ARO) associated with the future disposal of these assets once depleted. Recognition of ARO includes: the present value of a liability and offsetting asset, the subsequent accretion of that liability and depletion of the asset, and the periodic review of the ARO liability estimates and discount rates used in the analysis.

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

The following table summarizes the activity in the liability for asset retirement obligations.

	Asset Retirement Obligations
Balance at March 31, 2017	$	9,953
Liabilities incurred during the period	89
Liabilities settled during the period	(352		)
Accretion expense	1,198
Foreign currency and other	751
Balance at March 31, 2018	$	11,639
Liabilities incurred during the period	1,033
Accretion expense	385
Foreign currency and other	(671		)
Balance at March 31, 2019	$	12,386

6. DEBT

Indebtedness as of March 31, 2019 and 2018 was as follows:

		2019				2018
Credit Agreement		$	301,846			$	331,206
Private Placement		884,967				988,190
Deferred financing fees		(3,619		)		(3,395		)
Other		33				—
Total long term debt		$	1,183,227			$	1,316,001

On March 23, 2018, STERIS UK and certain of its subsidiaries entered into a Credit Agreement (the "Credit Agreement") with various financial institutions as lenders, and JPMorgan Chase Bank, N.A., as Administrative Agent. STERIS Ireland subsequently became a borrower and guarantor under the Credit Agreement. The Credit Agreement replaced a bank credit facility dated March 31, 2015. The Credit Agreement provides up to $1,000,000 of credit, in the form of a revolver facility, which may be utilized for revolving credit borrowings, swing line borrowings and letters of credit, with sublimits for swing line borrowings and letters of credit. The revolver facility may be increased in specified circumstances by up to $500,000. The Credit Agreement will mature on March 23, 2023, and all unpaid borrowings, together with accrued and unpaid interest thereon, are repayable on that date. The Credit Agreement contains leverage and interest coverage covenants. Borrowings may be taken in U.S. dollars, euros, and pounds sterling and certain other specified currencies and bear interest at our option based upon either the Base Rate or the Eurocurrency Rate, plus the Applicable Margin in effect from time to time under the Credit Agreement. The Applicable Margin is determined based on the ratio of Consolidated Total Debt to Consolidated EBITDA (as such terms are defined in the Credit Agreement). Interest on Base Rate Advances is payable quarterly in arrears and interest on Eurocurrency Rate Advances is payable at the end of the relevant interest period therefor, but in no event less frequently than every three months. Borrowings at closing were used to repay outstanding balances of debt outstanding under the former bank credit facility dated March 31, 2015 that was scheduled to mature on March 31, 2020 and for other general corporate purposes. The Credit Agreement was amended in March 2019, in connection with the Redomiciliation to permit the Redomiciliation. The amendments did not effect any material changes in the terms of the Credit Agreement regarding borrowings or the issuance of letters of credit.

As of March 31, 2019 a total of $301,846 of Credit Agreement and Swing Line Facility borrowings were outstanding under the Credit Agreement, based on currency exchange rates as of March 31, 2019.

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

Our outstanding Senior Notes at March 31, 2019 and 2018 were as follows:

		Applicable Note Purchase Agreement		Maturity Date		U.S. Dollar Value at March 31, 2019				U.S. Dollar Value at March 31, 2018
$85,000 Senior notes at 6.33%		2008 Private Placement		August 2018		—				85,000
$35,000 Senior notes at 6.43%		2008 Private Placement		August 2020		35,000				35,000
$91,000 Senior notes at 3.20%		2012 Private Placement		December 2022		91,000				91,000
$80,000 Senior notes at 3.35%		2012 Private Placement		December 2024		80,000				80,000
$25,000 Senior notes at 3.55%		2012 Private Placement		December 2027		25,000				25,000
$125,000 Senior notes at 3.45%		2015 Private Placement		May 2025		125,000				125,000
$125,000 Senior notes at 3.55%		2015 Private Placement		May 2027		125,000				125,000
$100,000 Senior notes at 3.70%		2015 Private Placement		May 2030		100,000				100,000
$50,000 Senior notes at 3.93%		2017 Private Placement		February 2027		50,000				50,000
€60,000 Senior notes at 1.86%		2017 Private Placement		February 2027		67,352				73,912
$45,000 Senior notes at 4.03%		2017 Private Placement		February 2029		45,000				45,000
€20,000 Senior notes at 2.04%		2017 Private Placement		February 2029		22,450				24,637
£45,000 Senior notes at 3.04%		2017 Private Placement		February 2029		58,702				63,141
€19,000 Senior notes at 2.30%		2017 Private Placement		February 2032		21,328				23,406
£30,000 Senior notes at 3.17%		2017 Private Placement		February 2032		39,135				42,094
Total Senior Notes						$	884,967			$	988,190

On February 27, 2017, STERIS UK issued and sold an aggregate principal amount of $95,000, €99,000, and £75,000, of senior notes in a private placement to certain institutional investors in an offering that was exempt from the registration requirements of the Securities Act of 1933. These notes have maturities of between 10 years and 15 years from the issue date. The agreement governing these notes contains leverage and interest coverage covenants.

On May 15, 2015, STERIS Corporation issued and sold $350,000 of senior notes, in a private placement to certain institutional investors in an offering that was exempt from the registration requirements of the Securities Act of 1933. These notes have maturities of 10 years to 15 years from the issue date. The agreement governing these notes contains leverage and interest coverage covenants.

The agreements governing certain senior notes issued and sold in February 2013, December 2012, and August 2008, were amended and restated in their entirety on March 31, 2015. All of these notes were issued and sold in private placements to certain institutional investors in offerings that were exempt from the registration requirements of the Securities Act of 1933. The amended and restated agreements, which have been consolidated into a single agreement for the 2013 and 2012 notes, and a separate single agreement for the 2008 notes, contain leverage and interest coverage covenants.

All of the note agreements were amended in March 2019, in connection with the Redomiciliation. The amendments waived certain repurchase rights of the note holders and increased the size of certain baskets to more closely align with Credit Agreement baskets.

At March 31, 2019, we were in compliance with all financial covenants associated with our indebtedness.

The combined annual aggregate amount of maturities of our outstanding debt by fiscal year is as follows:

2020	$	—
2021	35,033
2022	—
2023	392,846
2024 and thereafter	758,967
Total	$	1,186,846

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

7. ADDITIONAL CONSOLIDATED BALANCE SHEET INFORMATION

Additional information related to our Consolidated Balance Sheet is as follows:

March 31,		2019				2018
Accrued payroll and other related liabilities:
Compensation and related items		$	37,251			$	30,270
Accrued vacation/paid time off		10,191				11,011
Accrued bonuses		40,194				31,716
Accrued employee commissions		17,854				17,168
Other post-retirement benefits obligations-current portion		1,633				1,906
Other employee benefit plans' obligations-current portion		1,935				1,929
Total accrued payroll and other related liabilities		$	109,058			$	94,000
Accrued expenses and other:
Deferred revenues		$	55,333			$	31,621
Service liabilities		42,101				43,077
Self-insured and related risk reserves-current portion		6,537				7,349
Accrued dealer commissions		15,283				16,121
Accrued warranty		7,194				6,872
Asset retirement obligation-current portion		2,656				1,798
Other		58,661				61,379
Total accrued expenses and other		$	187,765			$	168,217
Other liabilities:
Self-insured risk reserves-long-term portion		$	14,445			$	15,008
Other post-retirement benefits obligations-long-term portion		10,918				12,194
Defined benefit pension plans obligations-long-term portion		16,168				29,407
Other employee benefit plans obligations-long-term portion		4,711				3,221
Accrued long-term income taxes		13,515				18,922
Asset retirement obligation-long-term portion		9,730				9,841
Other		18,325				20,007
Total other liabilities		$	87,812			$	108,600

8. INCOME TAXES

The Tax Cuts and Jobs Act (the “TCJA”) was enacted on December 22, 2017. The TCJA reduces the U.S. federal corporate income tax rate from 35.0% to 21.0%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. The Company applied the guidance in Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cut and Jobs Act when accounting for the enactment-date effects of the TCJA. As of March 31, 2018, the Company had recorded a provisional tax benefit of $18.9 million related to the reduction of the U.S. federal corporate income tax rate and the deemed repatriation tax. During fiscal 2019, the Company completed its accounting for the tax effects of the TCJA. During the nine months ended December 31, 2018, the Company recorded an immaterial favorable adjustment to the provisional amounts recorded as of March 31, 2018 for remeasurement of the Company’s deferred tax balances and the one-time transition tax.

The TCJA also subjects a U.S. shareholder to current tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries and allows a benefit for foreign-derived intangible income (“FDII”). The Company has confirmed its policy decision to treat GILTI as a period expense in the period the tax is incurred. The Company has included the impacts of GILTI and FDII in the estimated annual effective tax rate for the year ended March 31, 2019. The impact was not significant.

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

We consider the tax expense recorded for the TCJA to be complete at this time. However, it is possible that additional legislation, regulations and/or guidance may be issued in the future that may result in additional adjustments to the tax expense recorded related to the TCJA. We will continue to monitor and assess the impact of any new developments.

Income from continuing operations before income taxes was as follows:

Years Ended March 31,		2019				2018				2017
United States operations		$	235,405			$	203,872			$	189,429
Ireland operations		13,693				11,837				8,597
Other locations operations		120,372				139,273				(13,380		)
		$	369,470			$	354,982			$	184,646

The components of the provision for income taxes related to income from continuing operations consisted of the following:

Years Ended March 31,		2019				2018				2017
Current:
United States federal		$	29,943			$	47,728			$	43,900
United States state and local		12,484				7,727				8,171
Ireland		2,627				2,596				1,899
Other locations		26,824				26,742				19,557
		71,878				84,793				73,527
Deferred:
United States federal		5,775				(15,728		)		10,293
United States state and local		2,836				2,656				2,131
Ireland		(546		)		(280		)		(645		)
Other locations		(15,549		)		(8,081		)		(11,291		)
		(7,484		)		(21,433		)		488
Total Provision for Income Taxes		$	64,394			$	63,360			$	74,015

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

The total provision for income taxes can be reconciled to the tax computed at the Ireland statutory tax rate for 2019 and the United Kingdom statutory tax rate for 2018 and 2017 as follows:

Years Ended March 31,		2019			2018			2017
National statutory tax rate		12.5	%		19.0	%		20.0	%
Increase in accruals for uncertain tax positions		—	%		0.1	%		0.3	%
U.S. state and local taxes, net of federal income tax benefit		3.1	%		2.3	%		3.8	%
Increase in valuation allowances		0.4	%		0.1	%		0.1	%
U.S. research and development credit		(0.6	)%		(0.5	)%		(1.1	)%
U.S. foreign income tax credit		(0.2	)%		(0.2	)%		—	%
Difference in non-Ireland tax rates		4.5	%		—	%		—	%
Difference in non-United Kingdom tax rates		—	%		4.1	%		6.0	%
U.S. manufacturing deduction		—	%		(0.8	)%		(2.5	)%
Excess tax benefit for equity compensation		(2.2	)%		(1.8	)%		(2.8	)%
Tax rate changes on deferred tax assets and liabilities		(0.6	)%		(10.3	)%		(2.3	)%
U.S. transition tax on foreign earnings		(0.3	)%		4.9	%		—	%
U.S. tax reform impact, GILTI and FDII		0.3	%		—	%		—	%
Acquisitions and divestitures		—	%		0.5	%		9.0	%
Goodwill impairment on divestitures		—	%		—	%		7.9	%
Capitalized acquisition, redomiciliation costs		0.5	%		—	%		0.2	%
All other, net		—	%		0.4	%		1.5	%
Total Provision for Income Taxes		17.4	%		17.8	%		40.1	%

Unrecognized Tax Benefits. We classify uncertain tax positions and related interest and penalties as long-term liabilities within “Other liabilities” in our accompanying Consolidated Balance Sheets, unless they are expected to be paid within 12 months, in which case, the uncertain tax positions would be classified as current liabilities within “Accrued income taxes.” We recognize interest and penalties related to unrecognized tax benefits within “Income tax expense” in our accompanying Consolidated Statements of Income.

A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits is as follows:

		2019				2018
Unrecognized Tax Benefits Balance at April 1		$	2,500			$	1,884
Increases for tax provisions of current year		178				356
Decreases for tax provisions of prior year		(186		)		—
Other, including currency translation		(178		)		260
Unrecognized Tax Benefits Balance at March 31		$	2,314			$	2,500

We recognized interest and penalties related to uncertain tax positions in the provision for income taxes. As of March 31, 2019, and 2018 we had $360 and $295 accrued for interest and penalties, respectively. If all unrecognized tax benefits were recognized, the net impact on the provision for income tax expense would be $2,674. It is reasonably possible that during the next 12 months, there will be no material reductions in unrecognized tax benefits as a result of the expiration of various statutes of limitations or matters related to transfer pricing.

We operate in numerous taxing jurisdictions and are subject to regular examinations by various United States federal, state and local, as well as foreign jurisdictions. We are no longer subject to United States federal examinations for years before fiscal 2016 and, with limited exceptions, we are no longer subject to United States state and local, or non-United States, income tax examinations by tax authorities for years before fiscal 2013. We remain subject to tax authority audits in various jurisdictions wherever we do business.

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

In May 2019, we received two notices of proposed tax adjustment from the U.S. Internal Revenue Service (the “IRS”) regarding the deductibility of interest paid on certain intercompany debt. The notices relate to fiscal years 2016 and 2017. The IRS adjustment would result in a tax liability of approximately $25,000. We intend to contest the IRS’s assertions, including pursuing all available remedies such as appeals and litigation, if necessary. We have not established reserves related to these notices. An unfavorable outcome is not expected to have a material adverse impact on our consolidated financial position but could be material to our consolidated results of operations and cash flows for any one period.

We estimate that the tax benefit from our Costa Rican Tax Holiday is $1,008 (or $0.01 per fully diluted share), annually. The Tax Holiday runs fully exempt, from income tax, through 2025 and partially exempt through 2029.

Deferred Taxes. The significant components of the deferred tax assets and liabilities recorded in our accompanying balance sheets at March 31, 2019 and 2018 were as follows:

March 31,		2019				2018
Deferred Tax Assets:
Post-retirement benefit accrual		$	3,142			$	3,505
Compensation		14,275				12,334
Net operating loss carryforwards		19,195				26,217
Accrued expenses		4,858				5,795
Insurance		3,187				3,417
Deferred income		7,509				4,632
Bad debt		1,386				1,426
Pension		3,364				5,247
Other		7,707				1,668
Deferred Tax Assets		64,623				64,241
Less: Valuation allowance		13,478				13,596
Total Deferred Tax Assets		51,145				50,645
Deferred Tax Liabilities:
Depreciation and depletion		61,060				61,171
Intangibles		128,479				140,398
Other		2,197				2,774
Total Deferred Tax Liabilities		191,736				204,343
Net Deferred Tax Assets (Liabilities)		$	(140,591	)		$	(153,698	)

At March 31, 2019, we had U.S. federal operating loss carryforwards of $13,665, which remain subject to a 20 year carryforward period. Additionally, we had non-U.S. operating loss carry forwards of $46,595. Although the majority of the non-U.S. carryforwards have indefinite expiration periods, those carryforwards that have definite expiration periods will expire if unused between fiscal years 2020 and 2040. In addition, we have recorded tax benefits of $2,602 related to state operating loss carryforwards. If unused, these state operating loss carryforwards will expire between fiscal years 2020 and 2039. At March 31, 2019, we had $1,379 of tax credit carryforwards. These credit carryforwards can be used through fiscal 2029.

We review the need for a valuation allowance against our deferred tax assets. A valuation allowance of $13,478 has been applied to a portion of the net deferred tax assets because we do not believe it is more-likely-than-not that we will receive future benefit. The valuation allowance decreased during fiscal 2019 by $118.

Other than the tax expense recorded for the one-time transition tax on unremitted earnings of non-US subsidiaries, no additional provision has been made for income taxes on undistributed earnings of foreign subsidiaries as the amounts continue to be indefinitely reinvested. The Company is still evaluating whether to change its indefinite reinvestment assertion in light of U.S. Tax Reform and considers this conclusion to be incomplete. If the Company subsequently changes its assertion, it will account for the change in the quarter of fiscal year 2020 when the analysis is complete. The amount of undistributed earnings of subsidiaries was approximately $1,300,000 at March 31, 2019. It is not practicable to estimate the additional income taxes and applicable withholding taxes that would be payable on the remittance of such undistributed earnings.

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

In October 2015, the Organization for Economic Cooperation and Development (OECD), in conjunction with the G20, finalized broad-based international tax policy guidelines that involve transfer pricing and other international tax subjects. While some member jurisdictions automatically adopt the new OECD guidelines, most member countries can adopt the guidelines only by new law or regulations. We are currently adopting processes to comply with the reporting requirements specified by the guidelines and are evaluating the other parts of the guidelines.

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

9. BENEFIT PLANS

In the United States, we sponsor an unfunded post-retirement benefits plan for two groups of United States retirees. Benefits under this plan include retiree life insurance and retiree medical insurance, including prescription drug coverage.

During the second quarter of fiscal 2009, we amended our United States post-retirement welfare benefits plan, reducing the benefits to be provided to retirees under the plan and increasing their share of the costs. The amendments resulted in a decrease of $46,001 in the accumulated post-retirement benefit obligation. The impact of this change was recognized in our Consolidated Balance Sheets in fiscal 2009 and is being amortized as a component of the annual net periodic benefit cost over a period of approximately thirteen years.

We also sponsor several defined benefit pension schemes outside the United States: two in the UK, one in the Netherlands, two in Germany, and one in Switzerland. The Synergy Health plc Retirement Benefit Scheme is a defined benefit (final salary) funded pension scheme. In previous years, Synergy sponsored a funded defined benefit arrangement in the Netherlands. This was a separate fund holding the pension scheme assets to meet long-term pension liabilities for past and present employees. Accrual of benefits ceased under the scheme effective January 1, 2013. The Synergy Radeberg and Synergy Allershausen Schemes are unfunded defined pension schemes and are closed to new entrants. The Synergy Daniken Scheme is a defined benefit funded pension scheme. As a result of our fiscal 2018 acquisition of Harwell Dosimeters Ltd, we also sponsor in the Harwell Dosimeters Ltd Retirement Benefits Scheme which is a defined benefit funded pension scheme.

We recognize the funded status of our defined benefit pension and post-retirement benefit plans in our Consolidated Balance Sheets, with a corresponding adjustment to accumulated other comprehensive income, net of tax. The funded status is measured as of March 31 each year and is calculated as the difference between the fair value of plan assets and the benefit obligation (which is the projected benefit obligation for pension plans and the accumulated post-retirement benefit obligation for post-retirement benefit plans). Accumulated comprehensive income (loss) represents the net unrecognized actuarial losses and unrecognized prior service cost. These amounts will be recognized in net periodic benefit cost as they are amortized. We will recognize future changes to the funded status of these plans in the year the change occurs, through other comprehensive income.

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

Obligations and Funded Status. The following table reconciles the funded status of the defined benefit pension plans and the other post-retirement benefits plan to the amounts recorded on our Consolidated Balance Sheets at March 31, 2019 and 2018, respectively. Benefit obligation balances presented in the following table reflect the projected benefit obligations for our defined benefit pension plans and the accumulated other post-retirement benefit obligation for our post-retirement benefits plan. The measurement date of our defined benefit pension plans and other post-retirement benefits plan is March 31, for both periods presented.

	Other Defined Benefit Pension Plans								Other Post-Retirement Benefits Plan
	2019				2018				2019				2018
Change in Benefit Obligations:
Benefit Obligations at Beginning of Year	$	148,848			$	128,897			$	14,100			$	16,008
Obligation assumed in business acquisition	—				3,843				—				—
Service cost	2,394				2,402				—				—
Prior service cost	831				—				—				—
Interest cost	3,255				3,262				457				519
Actuarial loss (gain)	(4,402		)		(697		)		(106		)		(501		)
Benefits and expenses	(6,150		)		(6,075		)		(1,900		)		(1,926		)
Employee contributions	743				765				—				—
Impact of foreign currency exchange rate changes	(11,847		)		16,451				—				—
Benefit Obligations at End of Year	133,672				148,848				12,551				14,100
Change in Plan Assets:
Fair Value of Plan Assets at Beginning of Year	119,441				101,663				—				—
Assets assumed in business acquisition	—				4,462				—				—
Actual return on plan assets	6,543				1,052				—				—
Employer contributions	5,005				5,150				1,900				1,926
Employee contributions	742				765				—				—
Benefits and expenses paid	(6,150		)		(6,078		)		(1,900		)		(1,926		)
Impact of foreign currency exchange rate changes	(8,077		)		12,427				—				—
Fair Value of Plan Assets at End of Year	117,504				119,441				—				—
Funded Status of the Plans	$	(16,168	)		$	(29,407	)		$	(12,551	)		$	(14,100	)

Amounts recognized in the consolidated balance sheets consist of the following:

		Other Defined Benefit Pension Plans								Other Post-Retirement Benefits Plan
		2019				2018				2019				2018
Current liabilities		$	—			$	—			$	(1,633	)		$	(1,906	)
Noncurrent liabilities		(16,168		)		(29,407		)		(10,918		)		(12,194		)
		$	(16,168	)		$	(29,407	)		$	(12,551	)		$	(14,100	)

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

The pre-tax amount of unrecognized actuarial net loss and unamortized prior service cost included in accumulated other comprehensive (loss) income at March 31, 2019, was approximately $15,326 and $10,833, respectively. During fiscal 2020, we will amortize the following pre-tax amounts from accumulated other comprehensive income:

		Defined Benefit Pension Plans				Other Post-Retirement Benefits Plan
Actuarial loss		$	8			$	552
Prior Service Cost		71				(3,263		)

Defined benefit plans with an accumulated benefit obligation and projected benefit obligation exceeding the fair value of plan assets had the following plan assets and obligations at March 31, 2019 and 2018:

		Other Defined Benefit Pension Plans
		2019				2018
Aggregate fair value of plan assets		$	117,504			$	119,441
Aggregate accumulated benefit obligations		130,669				148,848
Aggregate projected benefit obligations		133,672				148,848

Components of Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income. Components of the annual net periodic benefit cost of our defined benefit pension plans and our other post-retirement benefits plan were as follows:

		Other Defined Benefit Pension Plans												Other Post-Retirement Benefits Plan
		2019				2018				2017				2019				2018				2017
Service cost		$	2,394			$	2,402			$	1,650			$	—			$	—			$	—
Interest cost		3,139				3,262				3,434				457				519				554
Expected return on plan assets		(4,930		)		(4,835		)		(2,853		)						—				—
Prior service cost recognition		51				—				—				(3,263		)		(3,263		)		(3,263		)
Net amortization and deferral		474				126				—				552				648				739
Net periodic benefit cost		$	1,128			$	955			$	2,231			$	(2,254	)		$	(2,096	)		$	(1,970	)
Recognized in other comprehensive loss (income) before tax:
Net loss (gain) occurring during year		$	(6,545	)		$	(697	)		$	(7,553	)		$	106			$	501			$	531
Amortization of prior service credit		781				—				—				3,263				3,263				3,263
Amortization of net loss		(468		)		(126		)		—				(552		)		(648		)		(739		)
Total recognized in other comprehensive loss (income)		(6,232		)		(823		)		(7,553		)		2,817				3,116				3,055
Total recognized in total benefits cost and other comprehensive loss (income)		$	(5,104	)		$	132			$	(5,322	)		$	563			$	1,020			$	1,085

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

Assumptions Used in Calculating Benefit Obligations and Net Periodic Benefit Cost. The following table presents significant assumptions used to determine the projected benefit obligations at March 31:

		2019			2018
Discount Rate:
Synergy Health plc Retirement Benefits Scheme		2.50	%		2.50	%
Isotron BV Pension Plan		1.20	%		1.60	%
Synergy Health Daniken AG		0.85	%		0.95	%
Synergy Health Radeberg		1.60	%		1.60	%
Synergy Health Allershausen		1.60	%		1.60	%
Harwell Dosimeters Ltd Retirement Benefits Scheme		2.35	%		2.55	%
Other post-retirement plan		3.50	%		3.50	%

The following table presents significant assumptions used to determine the net periodic benefit costs for the years ended March 31:

		2019			2018			2017
Discount Rate:
Synergy Health plc Retirement Benefits Scheme		2.50	%		2.60	%		3.50	%
Isotron BV Pension Plan		1.60	%		1.60	%		1.60	%
Synergy Health Daniken AG		0.95	%		0.65	%		0.65	%
Synergy Health Radeberg		1.60	%		1.50	%		1.50	%
Synergy Health Allershausen		1.60	%		1.50	%		1.50	%
Harwell Dosimeters Ltd Retirement Benefits Scheme		2.55	%		2.55	%		n/a
Other post-retirement plan		3.50	%		3.50	%		3.50	%
Expected Return on Plan Assets:
Synergy Health plc Retirement Benefits Scheme		5.02	%		4.97	%		4.87	%
Isotron BV Pension Plan		1.60	%		1.60	%		1.60	%
Synergy Health Daniken AG		1.20	%		1.40	%		1.40	%

The net periodic benefit cost and the actuarial present value of projected benefit obligations are based upon assumptions that we review on an annual basis. These assumptions may be revised annually based upon an evaluation of long-term trends, as well as market conditions that may have an impact on the cost of providing benefits.

We develop our expected long-term rate of return on plan assets assumptions by evaluating input from third-party professional advisers, taking into consideration the asset allocation of the portfolios and the long-term asset class return expectations.

We develop our discount rate assumptions by evaluating input from third-party professional advisers, taking into consideration the current yield on country specific investment grade long-term bonds which provide for similar cash flow streams as our projected obligations.

We have made assumptions regarding healthcare costs in computing our other post-retirement benefit obligation. The assumed rates of increase generally decline ratably over a five-year period from the assumed current year healthcare cost trend rate to the assumed long-term healthcare cost trend rate noted below.

		2019			2018			2017
Healthcare cost trend rate – medical		6.8	%		7.0	%		7.0	%
Healthcare cost trend rate – prescription drug		6.8	%		7.0	%		7.0	%
Long-term healthcare cost trend rate		4.5	%		4.5	%		4.5	%

To determine the healthcare cost trend rates, we evaluate a combination of information, including ongoing claims cost monitoring, annual statistical analyses of claims data, reconciliation of forecasted claims against actual claims, review of trend

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

assumptions of other plan sponsors and national health trends, and adjustments for plan design changes, workforce changes, and changes in plan participant behavior.

A one-percentage-point change in assumed healthcare cost trend rates (including medical, prescription drug, and long-term rates) would have had the following effect on our other post-retirement benefit obligation at March 31, 2019:

		One-Percentage Point
		Increase				Decrease
Effect on total service and interest cost components		$	—			$	—
Effect on other post-retirement benefit obligation		11				(11		)

Plan Assets. The investment policies for our plans are generally established by the local pension plan trustees and seek to maintain the plans' ability to meet liabilities and to comply with local minimum funding requirements. Plan assets are invested in diversified portfolios that provide adequate levels of return at an acceptable level of risk. The investment policies are reviewed at least annually and revised, as deemed appropriate to ensure that the objectives are being met. At March 31, 2019, the targeted allocation for the plans were approximately 75% equity investments and 25% fixed income investments.

Financial instruments included in pension plan assets are categorized into three tiers. These tiers include a fair value hierarchy of three levels, based on the degree of subjectivity inherent in the valuation methodology as follows:

Level 1 - Quoted prices for identical assets in active markets.

Level 2 - Quoted prices for similar assets in active markets with inputs that are observable, either directly or indirectly.

Level 3 - Unobservable prices or inputs in which little or no market data exists.

The fair value of our pension benefits plan assets at March 31, 2019 and 2018 by asset category is as follows:

		Fair Value Measurements at March 31, 2019
(In thousands)		Total				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Other Unobservable Inputs (Level 3)
Cash		$	450			$	450			$	—			$	—
Insured annuities		14,720				—				14,720				—
Insurance contracts		5,089				—				—				5,089
Common and collective trusts valued at net asset value:
Equity security trusts		73,532				—				—				—
Debt security trusts		23,713				—				—				—
Total Plan Assets		$	117,504			$	450			$	14,720			$	5,089

		Fair Value Measurements at March 31, 2018
(In thousands)		Total				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Other Unobservable Inputs (Level 3)
Cash		$	67			$	67			$	—			$	—
Insured annuities		15,228				—				15,228				—
Insurance contracts		5,484				—				—				5,484
Common and collective trusts valued at net asset value:
Equity security trusts		74,081				—				—				—
Debt security trusts		24,581				—				—				—
Total Plan Assets		$	119,441			$	67			$	15,228			$	5,484

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

Collective investment trusts are measured at fair value using the net asset value per share practical expedient. These trusts have not been categorized in the fair value hierarchy and are being presented in the tables above to permit a reconciliation of the fair value hierarchy to the total plan assets.

The fair value measurement of plan assets using significant unobservable inputs (Level 3) changed during fiscal year 2019 due to the following:

		Insurance contracts
Balance at March 31, 2017		$	3,959
Gains (losses) related to assets still held at year-end		(43		)
Additions from business acquisition		2,231
Transfers out of Level 3		(852		)
Foreign currency		189
Balance at March 31, 2018		$	5,484
Gains (losses) related to assets still held at year-end		29
Transfers out of Level 3		(132		)
Foreign currency		(292		)
Balance at March 31, 2019		$	5,089

Cash Flows. We contribute amounts to our defined benefit pension plans at least equal to the minimum amounts required by applicable employee benefit laws and local tax laws. We expect to make contributions of approximately $3,781 during fiscal 2020.

Based upon the actuarial assumptions utilized to develop our benefit obligations at March 31, 2019, the following benefit payments are expected to be made to plan participants:

		Other Defined Benefit Pension Plans				Other Post-Retirement Benefits Plan
2020		$	5,613			$	1,633
2021		5,767				1,499
2022		5,928				1,394
2023		6,441				1,261
2024		6,254				1,139
2025-2030		34,102				4,244

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) provides a prescription drug benefit for Medicare beneficiaries, a benefit we provide to Medicare eligible retirees covered by our post-retirement benefits plan. We have concluded that the prescription drug benefit provided in our post-retirement benefit plan is considered to be actuarially equivalent to the benefit provided under the Act and thus qualifies for the subsidy under the Act. Benefits are subject to a per capita per month cost cap and any costs above the cap become the responsibility of the retiree. The subsidy is applied to reduce the retiree responsibility. As a result, the expected future subsidy no longer reduces our accumulated post-retirement benefit obligation and net periodic benefit cost. We collected subsidies totaling approximately $706 and $383, during fiscal 2019 and fiscal 2018, respectively, which reduced the retiree responsibility for costs in excess of the caps established in the post-retirement benefit plan.

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

Defined Contribution Plans. We maintain a 401(k) defined contribution plan for eligible U.S. employees, a 401(k) defined contribution plan for eligible Puerto Rico employees and similar savings plans for certain employees in Canada, United Kingdom, Ireland, and Finland. We provide a match on a specified portion of an employee’s contribution. The U.S. plan assets are held in trust and invested as directed by the plan participants. The Canadian plan assets are held by insurance companies. The aggregate fair value of the U.S. plan assets was $703,740 at March 31, 2019. At March 31, 2019, the U.S. plan held 617,900 STERIS ordinary shares with a fair value of $79,110. We paid dividends of $826, $781, and $734 to the plan and participants on STERIS shares held by the plan for the years ended March 31, 2019, 2018, and 2017, respectively. We contributed approximately $25,935, $24,037, and $22,676, to the defined contribution plans for the years ended March 31, 2019, 2018, and 2017, respectively.

We also maintain a domestic non-qualified deferred compensation plan covering certain employees, which formerly allowed for the deferral of compensation for an employee-specified term or until retirement or termination. There have been no employee contributions made to this plan since fiscal 2012. The Plan was amended in fiscal 2012 to disallow deferrals of salary payable in 2012 and subsequent calendar years and of commissions and other incentive compensation payable in respect of the 2013 and subsequent fiscal years. We hold investments in mutual funds to satisfy future obligations of the plan. We account for these assets as available-for-sale securities and they are included in “Other assets” on our accompanying Consolidated Balance Sheets, with a corresponding liability for the plan’s obligation recorded in “Accrued expenses and other.” The aggregate value of the assets was $1,400 and $1,583 at March 31, 2019 and March 31, 2018, respectively. Realized gains and losses on these investments are recorded in “Interest and miscellaneous income” within “Non-operating expenses” on our accompanying Consolidated Statements of Income. Changes in the fair value of the assets are recorded in other comprehensive income on our accompanying balance sheets.

10. COMMITMENTS AND CONTINGENCIES

We are, and will likely continue to be, involved in a number of legal proceedings, government investigations, and claims, which we believe generally arise in the course of our business, given our size, history, complexity, and the nature of our business, products, Customers, regulatory environment, and industries in which we participate. These legal proceedings, investigations and claims generally involve a variety of legal theories and allegations, including, without limitation, personal injury (e.g., slip and falls, burns, vehicle accidents), product liability or regulation (e.g., based on product operation or claimed malfunction, failure to warn, failure to meet specification, or failure to comply with regulatory requirements), product exposure (e.g., claimed exposure to chemicals, asbestos, contaminants, radiation), property damage (e.g., claimed damage due to leaking equipment, fire, vehicles, chemicals), commercial claims (e.g., breach of contract, economic loss, warranty, misrepresentation), financial (e.g., taxes, reporting), employment (e.g., wrongful termination, discrimination, benefits matters), and other claims for damage and relief.

We believe we have adequately reserved for our current litigation and claims that are probable and estimable, and further believe that the ultimate outcome of these pending lawsuits and claims will not have a material adverse effect on our consolidated financial position or results of operations taken as a whole. Due to their inherent uncertainty, however, there can be no assurance of the ultimate outcome or effect of current or future litigation, investigations, claims or other proceedings (including without limitation the matters discussed below). For certain types of claims, we presently maintain insurance coverage for personal injury and property damage and other liability coverages in amounts and with deductibles that we believe are prudent, but there can be no assurance that these coverages will be applicable or adequate to cover adverse outcomes of claims or legal proceedings against us.

On May 31, 2012, our Albert Browne Limited subsidiary received a warning letter from the FDA regarding chemical indicators manufactured in the United Kingdom. These devices are intended for the monitoring of certain sterilization and other processes. The FDA warning letter states that the agency has concerns regarding operational business processes. We do not believe that the FDA's concerns are related to product performance, or that they result from Customer complaints. We have reviewed our processes with the agency and finalized our remediation measures, and are awaiting FDA reinspection. We do not currently believe that the impact of this event will have a material adverse effect on our financial results.

Civil, criminal, regulatory or other proceedings involving our products or services could possibly result in judgments, settlements or administrative or judicial decrees requiring us, among other actions, to pay damages or fines or effect recalls, or be subject to other governmental, Customer or other third party claims or remedies, which could materially effect our business, performance, prospects, value, financial condition, and results of operations.

For additional information regarding these matters, see the risks and uncertainties described under the title "product related regulations and claims" in Item 1A. of this Annual Report on Form 10-K.

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

From time to time, STERIS is also involved in legal proceedings as a plaintiff involving contract, patent protection, and other claims asserted by us. Gains, if any, from these proceedings are recognized when they are realized.

We are subject to taxation from United States federal, state and local, and foreign jurisdictions. Tax positions are settled primarily through the completion of audits within each individual jurisdiction or the closing of statutes of limitation. Changes in applicable tax law or other events may also require us to revise past estimates. We describe income taxes further in Note 8 to our consolidated financial statements titled, “Income Taxes” in this Annual Report on Form 10-K.

Additional information regarding our contingencies is included in Item 7 of Part II titled, “Management’s Discussion and Analysis of Financial Conditions and Results of Operations under "Contingencies".

As of March 31, 2019 and 2018, our commercial commitments totaled $73,765 and $66,992, respectively. Commercial commitments include standby letters of credit, letters of credit required as security under our self-insured risk retention policies, and other potential cash outflows resulting from an event that requires payment by us. Approximately $7,794 and $7,694 of the March 31, 2019 and 2018 totals, respectively, relate to letters of credit required as security under our self-insured risk retention policies.

As of March 31, 2019, we had minimum purchase commitments with suppliers for raw material purchases totaling $96,087. As of March 31, 2019, we also had commitments of $82,040 for long term construction contracts.

11. BUSINESS SEGMENT INFORMATION

We operate and report in four reportable business segments: Healthcare Products, Healthcare Specialty Services, Life Sciences, and Applied Sterilization Technologies. Corporate is presented separately and contains the costs that are associated with being a publicly traded company and certain other corporate costs.

Our Healthcare Products segment offers infection prevention and procedural solutions for healthcare providers worldwide, including consumable products, equipment maintenance and installation services, and capital equipment.

Our Healthcare Specialty Services segment provides a range of specialty services for healthcare providers including hospital sterilization services and instrument and scope repairs. Linen Management Services were divested in fiscal 2017.

Our Life Sciences segment offers consumable products, equipment maintenance and specialty services for pharmaceutical manufacturers and research facilities, and capital equipment.

Our Applied Sterilization Technologies segment offers contract sterilization and laboratory services for medical device and pharmaceutical Customers and others.

We disclose a measure of segment income that is consistent with the way management operates and views the business. The accounting policies for reportable segments are the same as those for the consolidated Company. In fiscal 2019, we ceased the allocation of certain corporate costs to our segments to align with internal management measures. The prior period operating income measures have been recast for comparability.

For the year ended March 31, 2019, revenues from a single Customer did not represent ten percent or more of any reportable segment’s revenues.

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

Years Ended March 31,		2019				2018				2017
Revenues:
Healthcare Products		$	1,338,428			$	1,276,054			$	1,266,517
Healthcare Specialty Services		510,057				469,065				539,536
Life Sciences		378,558				361,590				328,866
Applied Sterilization Technologies		555,127				513,287				477,837
Total revenues		$	2,782,170			$	2,619,996			$	2,612,756
Operating income (loss):
Healthcare Products		323,684				294,162				285,177
Healthcare Specialty Services		64,222				58,458				41,019
Life Sciences		132,129				123,889				109,953
Applied Sterilization Technologies		221,828				196,297				176,397
Total reportable segments		741,863				672,806				612,546
Corporate		(184,900		)		(162,999		)		(137,403		)
Total operating income before adjustments		$	556,963			$	509,807			$	475,143
Less: Adjustments
Goodwill impairment loss (1)		—				—				58,356
Amortization of inventory and property "step up" to fair value (2)		2,440				1,599				4,743
Amortization of acquired intangible assets (2)		86,878				67,793				66,398
Acquisition and integration related transaction charges (3)		8,901				16,211				30,082
(Gain) loss on fair value adjustment of acquisition related contingent consideration		(842		)		(593		)		2,569
Net (gain) loss on divestiture of businesses (2)		(1,370		)		14,547				86,574
Impact of the U.S. Tax Cuts and Jobs Act (4)		—				10,264				—
Redomiciliation costs (5)		8,783				—				—
Restructuring charges (6)		40,708				103				215
Total operating income		$	411,465			$	399,883			$	226,206

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

(2) For more information regarding our recent acquisitions and divestitures see Note 18 titled, "Business Acquisitions and Divestitures". Amortization of purchased intangible assets fiscal 2019 total includes an impairment charge of $16,249, see Note 3 titled, "Goodwill and Intangible Assets", for more information.

(3) Acquisition and integration related charges include transaction costs and integration expenses associated with acquisitions.

(4) Represents a one-time special employee bonus paid to most U.S. employees and associated professional fees.

(5) Costs incurred in connection with the decision to redomicile.

(6) See Note 2 titled, "Restructuring", for more information.

Assets include the current and long-lived assets directly attributable to the segment based on the management of the location or on utilization. Certain corporate assets were allocated to the reportable segments based on revenues. Assets attributed to sales and distribution locations are only allocated to the Healthcare Products and Life Sciences segments.

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

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

March 31,		2019				2018
Assets:
Healthcare Products and Life Sciences		$	1,611,852			$	1,621,156
Healthcare Specialty Services		805,349				813,909
Applied Sterilization Technologies		2,655,870				2,765,269
Total assets		$	5,073,071			$	5,200,334

Years Ended March 31,		2019				2018				2017
Capital Expenditures
Healthcare Products and Life Sciences		$	49,688			$	52,767			$	39,253
Healthcare Specialty Services		39,950				16,497				42,408
Applied Sterilization Technologies		100,077				96,193				91,240
Total Capital Expenditures		$	189,715			$	165,457			$	172,901
Depreciation, Depletion, and Amortization
Healthcare Products and Life Sciences (1)		$	81,264			$	52,025			$	46,709
Healthcare Specialty Services		33,392				29,269				56,860
Applied Sterilization Technologies (1)		111,265				97,038				84,573
Total Depreciation, Depletion, and Amortization		$	225,921			$	178,332			$	188,142

(1) The fiscal 2019 totals include the impact of Restructuring and an impairment charge. See Note 2 titled, "Restructuring" and Note 3 titled, "Goodwill and Intangible Assets", for additional information.

Financial information for each of our United States and international geographic areas is presented in the following table. Revenues are based on the location of these operations and their Customers. Property, plant and equipment, net are those assets that are identified within the operations in each geographic area.

March 31,		2019				2018
Property, Plant, and Equipment, Net
Ireland		$	41,137			$	38,946
United States		577,113				530,591
Other locations		413,332				440,987
Property, Plant, and Equipment, Net		$	1,031,582			$	1,010,524

Years Ended March 31,		2019				2018				2017
Revenues:
Ireland		$	56,784			$	48,246			$	42,733
United States		1,976,814				1,836,414				1,803,457
Other locations		748,572				735,336				766,566
Total Revenues		$	2,782,170			$	2,619,996			$	2,612,756

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

Years Ended March 31,		2019				2018				2017
Healthcare Products:
Capital equipment		$	568,811			527,402				549,238
Consumables		414,969				412,495				403,747
Service		354,648				336,157				313,532
Total Healthcare Products Revenues		$	1,338,428			$	1,276,054			$	1,266,517
Total Healthcare Specialty Services Revenues		$	510,057			$	469,065			$	539,536
Life Sciences:
Capital equipment		$	102,714			100,555				84,069
Consumables		161,780				150,656				143,143
Service		114,064				110,379				101,654
Total Life Sciences Revenues		$	378,558			$	361,590			$	328,866
Applied Sterilization Technologies Service Revenues		$	555,127			$	513,287			$	477,837
Total Revenues		$	2,782,170			$	2,619,996			$	2,612,756

12. SHARES AND PREFERRED SHARES

Ordinary Shares

In connection with the Redomiciliation, STERIS UK shareholders exchanged their shares of stock in STERIS UK for STERIS Ireland shares of stock pursuant to a cancellation scheme of arrangement under UK law. Each STERIS UK ordinary shareholder received one ordinary share, par value $75.00, of STERIS Ireland for each STERIS UK ordinary share held. The par value of these shares was subsequently reduced to $0.001 per share, as described further in note 21 to our Consolidated Financial Statements titled, "Subsequent Events."

We calculate basic earnings per share based upon the weighted average number of shares outstanding. We calculate diluted earnings per share based upon the weighted average number of shares outstanding plus the dilutive effect of share equivalents calculated using the treasury stock method. The following is a summary of shares and share equivalents outstanding used in the calculations of basic and diluted earnings per share:

Years ended March 31,		2019			2018			2017
Denominator (shares in thousands):
Weighted average shares outstanding—basic		84,577			85,028			85,473
Dilutive effect of share equivalents		891			685			621
Weighted average shares outstanding and share equivalents—diluted		85,468			85,713			86,094

Options to purchase the following number of shares were outstanding but excluded from the computation of diluted earnings per share because the combined exercise prices, unamortized fair values, and assumed tax benefits upon exercise were greater than the average market price for the shares during the periods, so including these options would be anti-dilutive:

Years ended March 31,		2019			2018			2017
Number of ordinary share options (shares in thousands)		352			393			576

Preferred Shares

Pursuant to an engagement letter dated October 23, 2015, we issued 100,000 preferred shares, par value of £0.10 each, for an aggregate consideration of approximately $15, in satisfaction of debt owed to a service provider. The holders of the preferred shares were entitled to a fixed cumulative preferential annual dividend of 5 percent on the amount paid periodically on the preferred shares respectively held by them. The shares were redeemed in connection with the Redomiciliation that occurred on March 28, 2019 and the holders of the preferred shares received £0.10 per preferred share plus accrued but unpaid dividends, and will not be entitled to any further participation in the assets of the Company.

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

Additional Authorized Shares

STERIS Ireland has an additional authorized share capital of 50,000,000 preferred shares of $0.001 each, plus €25,000 divided into 25,000 deferred ordinary shares of €1.00 each, in order to satisfy minimum statutory capital requirements for all Irish public limited companies.

13. REPURCHASE OF ORDINARY SHARES

On August 9, 2016, STERIS UK announced that its Board of Directors had authorized the purchase of up to $300 million (net of taxes, fees and commissions) of our ordinary shares. We repurchased 651,093 of our ordinary shares during fiscal 2019 for the amount of $72,082, excluding taxes, fees and commissions. We repurchased 664,963 of our ordinary shares during fiscal 2018 for the amount of $58,939, excluding taxes, fees and commissions. As a result of the Redomiciliation that share repurchase authorization terminated.

On May 7, 2019, our Board of Directors authorized the continuation of the share repurchase program by STERIS Ireland. There is approximately $80,000 (net of taxes, fees and commissions) of remaining availability under the authorization. Under the authorization, the Company may repurchase its shares from time to time through open market purchases, including 10b5-1 plans. The repurchase program may be suspended or discontinued at any time.

We obtained 112,356 of our shares during fiscal 2019 in the aggregate amount of $8,262 in connection with stock based compensation award programs. We obtained 127,903 of our shares during fiscal 2018 in the aggregate amount of $7,014 in connection with these programs. We obtained 168,906 of our shares during fiscal 2017 in the aggregate amount of $7,034 in connection with these programs.

14. SHARE-BASED COMPENSATION

We maintain a long-term incentive plan that makes available shares for grants, at the discretion of the Compensation and Organization Development Committee of the Board of Directors, or the Board of Directors, to officers, directors, and key employees in the form of stock options, restricted shares, restricted share units, stock appreciation rights and share grants. We satisfy share award incentives through the issuance of new ordinary shares.

Stock options provide the right to purchase our shares at the market price on the date of grant, or for options granted to employees in fiscal 2019 and thereafter, 110% of the market price on the date of grant, subject to the terms of the option plan and agreements. Generally, one-fourth of the stock options granted to employees become exercisable for each full year of employment following the grant date. Stock options granted generally expire 10 years after the grant date, or in some cases earlier if the option holder is no longer employed by us. Restricted shares and restricted share units generally cliff vest after a four year period or vest in tranches of one-fourth of the number granted for each year of employment after the grant date. As of March 31, 2019, 4,400,306 shares remained available for grant under the long-term incentive plan.

The fair value of share-based stock option compensation awards was estimated at their grant date using the Black-Scholes-Merton option pricing model. This model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable, characteristics that are not present in our option grants. If the model permitted consideration of the unique characteristics of employee stock options, the resulting estimate of the fair value of the stock options could be different. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our Consolidated Statements of Income. The expense is classified as cost of goods sold or selling, general and administrative expenses in a manner consistent with the employee’s compensation and benefits.

The following weighted-average assumptions were used for options granted during fiscal 2019, fiscal 2018 and fiscal 2017:

		Fiscal 2019			Fiscal 2018			Fiscal 2017
Risk-free interest rate		2.64	%		2.01	%		1.29	%
Expected life of options		6.2 years			5.7 years			5.7 years
Expected dividend yield of stock		1.47	%		1.58	%		1.54	%
Expected volatility of stock		19.91	%		22.08	%		22.92	%

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

The risk-free interest rate is based upon the U.S. Treasury yield curve. The expected life of options is reflective of historical experience, vesting schedules and contractual terms. The expected dividend yield of stock represents our best estimate of the expected future dividend yield. The expected volatility of stock is derived by referring to our historical stock prices over a time frame similar to that of the expected life of the grant. An estimated forfeiture rate of 2.37%, 2.25% and 1.85% was applied in fiscal 2019, 2018 and 2017, respectively. This rate is calculated based upon historical activity and represents an estimate of the granted options not expected to vest. If actual forfeitures differ from this calculated rate, we may be required to make additional adjustments to compensation expense in future periods. The assumptions used above are reviewed at the time of each significant option grant, or at least annually.

A summary of share option activity is as follows:

		Number of Options			Weighted Average Exercise Price				Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at March 31, 2018		2,021,662			$	58.56
Granted		436,121			114.49
Exercised		(335,358	)		40.70
Forfeited		(17,740	)		79.91
Outstanding at March 31, 2019		2,104,685			$	72.82			6.7 years		$	116,199
Exercisable at March 31, 2019		1,164,583			$	57.81			5.5 years		$	81,780

We estimate that 924,224 of the non-vested stock options outstanding at March 31, 2019 will ultimately vest.

The aggregate intrinsic value in the table above represents the total pre-tax difference between the $128.03 closing price of our ordinary shares on March 29, 2019 over the exercise prices of the stock options, multiplied by the number of options outstanding or outstanding and exercisable, as applicable. The aggregate intrinsic value is not recorded for financial accounting purposes and the value changes daily based on the daily changes in the fair market value of our ordinary shares.

The total intrinsic value of stock options exercised during the years ended March 31, 2019, 2018 and 2017 was $25,371, $16,096 and $6,454, respectively. Net cash proceeds from the exercise of stock options were $13,308, $11,093 and $4,955 for the years ended March 31, 2019, 2018 and 2017, respectively. The tax benefit from stock option exercises was $8,306, $6,581 and $5,058 for the years ended March 31, 2019, 2018 and 2017, respectively.

The weighted average grant date fair value of stock option grants was $18.12, $15.51 and $13.42 for the years ended March 31, 2019, 2018 and 2017, respectively.

Stock appreciation rights (“SARS”) carry generally the same terms and vesting requirements as stock options except that they are settled in cash upon exercise and therefore, are classified as liabilities. The fair value of the outstanding SARS as of March 31, 2019, 2018 and 2017 was $889, $1,437, and $1,622, respectively. The fair value of outstanding SARS is revalued at each reporting date and the related liability and expense are adjusted appropriately.

A summary of the non-vested restricted share activity is presented below:

		Number of Restricted Shares			Number of Restricted Share Units			Weighted-Average Grant Date Fair Value
Non-vested at March 31, 2018		763,201			35,431			$	68.65
Granted		178,142			22,038			104.83
Vested		(233,629	)		(23,290	)		62.15
Forfeited		(31,341	)		(960	)		76.98
Non-vested at March 31, 2019		676,373			33,219			$	80.86

Restricted shares granted are valued based on the closing stock price at the grant date. The value of restricted shares and units that vested during fiscal 2019 was $15,968.

As of March 31, 2019, there was a total of $39,023 in unrecognized compensation cost related to non-vested share-based compensation granted under our share-based compensation plans. We expect to recognize the cost over a weighted average period of 2.09 years.

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

15. FINANCIAL AND OTHER GUARANTEES

We generally offer a limited parts and labor warranty on capital equipment. The specific terms and conditions of those warranties vary depending on the product sold and the countries where we conduct business. We record a liability for the estimated cost of product warranties at the time product revenues are recognized. The amounts we expect to incur on behalf of our Customers for the future estimated cost of these warranties are recorded as a current liability on the accompanying Consolidated Balance Sheets. Factors that affect the amount of our warranty liability include the number and type of installed units, historical and anticipated rates of product failures, and material and service costs per claim. We periodically assess the adequacy of our recorded warranty liabilities and adjust the amounts as necessary.

Changes in our warranty liability during the periods presented are as follows:

Years Ended March 31,		2019				2018				2017
Balance, Beginning of Year		$	6,872			$	6,861			$	5,909
Warranties issued during the period		11,177				12,305				11,823
Settlements made during the period		(10,855		)		(12,294		)		(10,871		)
Balance, End of Year		$	7,194			$	6,872			$	6,861

16. DERIVATIVES AND HEDGING

From time to time, we enter into forward contracts to hedge potential foreign currency gains and losses that arise from transactions denominated in foreign currencies, including inter-company transactions. We may also enter into commodity swap contracts to hedge price changes in nickel that impact raw materials included in our cost of revenues. We do not use derivative financial instruments for speculative purposes. These contracts are not designated as hedging instruments and do not receive hedge accounting treatment; therefore, changes in their fair value are not deferred but are recognized immediately in the Consolidated Statements of Income. At March 31, 2019, we held foreign currency forward contracts to buy 9.0 million Canadian dollars and 150.0 million Mexican pesos. At March 31, 2019, we held commodity swap contracts to buy 652.9 thousand pounds of nickel.

		Asset Derivatives								Liability Derivatives
		Fair Value at				Fair Value at				Fair Value at				Fair Value at
Balance Sheet Location		March 31, 2019				March 31, 2018				March 31, 2019				March 31, 2018
Prepaid & Other		$	552			$	187			$	—			$	—
Accrued expenses and other		$	—			$	—			$	278			$	—

The following table presents the impact of derivative instruments and their location within the Consolidated Statements of Income:

		Location of (loss) gain recognized in income		Amount of (loss) gain recognized in income
Years Ended March 31,
2019				2018				2017
Foreign currency forward contracts		Selling, general and administrative		$	235			$	(1,357	)		$	(1,886	)
Commodity swap contracts		Cost of revenues		$	434			$	373			$	376

Additionally, we hold our debt in multiple currencies to fund our operations and investments in certain subsidiaries. We designate portions of non-functional currency denominated intercompany loans as hedges of portions of net investments in foreign operations. Net debt designated as non-derivative net investment hedging instruments totaled $51,916 at March 31, 2019. These hedges are designed to be fully effective and any associated gain or loss is recognized in Accumulated Other Comprehensive Income and will be reclassified to income in the same period when a gain or loss related to the net investment in the foreign operation is included in income.

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

17. FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. We estimate the fair value of financial assets and liabilities using available market information and generally accepted valuation methodologies. The inputs used to measure fair value are classified into three tiers. These tiers include Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring the entity to develop its own assumptions. The following table shows the fair value of our financial assets and liabilities at March 31, 2019 and March 31, 2018:

									Fair Value Measurements
At March 31,		Carrying Value							Quoted Prices in Active Markets for Identical Assets							Significant Other Observable Inputs							Significant Unobservable Inputs
								Level 1							Level 2							Level 3
	2019			2018				2019			2018				2019			2018				2019			2018
Assets:
Cash and cash equivalents		$	220,633		$	201,534			$	220,633		$	201,534			$	—		$	—			$	—		$	—
Forward and swap contracts (1)		552			187				—			—				552			187				—			—
Equity investments (2)		13,873			12,961				13,873			12,961				—			—				—			—
Other investments		2,545			3,421				2,545			3,421				—			—				—			—
Liabilities:
Forward and swap contracts (1)		$	278		$	—			$	—		$	—			$	278		$	—			$	—		$	—
Deferred compensation plans (2)		1,564			1,694				1,564			1,694				—			—				—			—
Long term debt (3)		1,183,227			1,316,001				—			—				1,200,558			1,305,181				—			—
Contingent consideration obligations (4)		5,950			8,068				—			—				—			—				5,950			8,068

(1) The fair values of forward and swap contracts are based on period-end forward rates and reflect the value of the amount that we would pay or receive for the contracts involving the same notional amounts and maturity dates.

(2) We maintain a frozen domestic non-qualified deferred compensation plan covering certain employees, which allowed for the deferral of payment of previously earned compensation for an employee-specified term or until retirement or termination. Amounts deferred can be allocated to various hypothetical investment options (compensation deferrals have been frozen under the plan). We hold investments to satisfy the future obligations of the plan. Employees who made deferrals are entitled to receive distributions of their hypothetical account balances (amounts deferred, together with earnings (losses)). We also hold an investment in the common stock of Servizi Italia, S.p.A, a leading provider of integrated linen washing and outsourced sterile processing services to hospital Customers. Beginning in fiscal 2019, changes in the fair value of these investments are recorded in the "Interest income and miscellaneous expense line" of the Consolidated Statement of Income. During fiscal 2019, we recorded a loss of $2,731, related to these investments.

(3) We estimate the fair value of our long-term debt using discounted cash flow analyses, based on our current incremental borrowing rates for similar types of borrowing arrangements.

(4) Contingent consideration obligations arise from prior business acquisitions. The fair values are based on discounted cash flow analyses reflecting the possible achievement of specified performance measures or events and captures the contractual nature of the contingencies, commercial risk, and the time value of money. Contingent consideration obligations are classified in the consolidated balance sheets as accrued expense (short-term) and other liabilities (long-term), as appropriate based on the contractual payment dates.

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis at March 31, 2019 are summarized as follows:

		Contingent Consideration
Balance at March 31, 2017		$	4,451
Additions		5,774
Payments		(1,735		)
Reductions and adjustments		(593		)
Foreign currency translation adjustments		171
Balance at March 31, 2018		$	8,068
Payments		(691		)
Reductions and adjustments		(1,466		)
Foreign currency translation adjustments		39
Balance at March 31, 2019		$	5,950

Additions and payments of contingent consideration obligations during fiscal year 2019 and 2018 were primarily related to our fiscal year 2018 and 2017 acquisitions. Refer to Note 18, "Business Acquisitions and Divestitures" for more information.

18. BUSINESS ACQUISITIONS AND DIVESTITURES

Fiscal 2019 Acquisitions

During fiscal 2019, we completed a minor purchase to expand our service offerings in the Applied Sterilization Technologies segment. The total purchase price was $13,313, and was financed with both cash on hand and with credit facility borrowings. Purchase price allocations will be finalized within a measurement period not to exceed one year from closing.

Fiscal 2018 Acquisitions

We completed several minor purchases that continued to expand our product and service offerings in the Healthcare Products, Healthcare Specialty Services and Applied Sterilization Technologies segments. The aggregate purchase price associated with these transactions was approximately $52,527, net of cash acquired and including contingent consideration of $5,018. The purchase price for the acquisitions was financed with both cash on hand and with credit facility borrowings.

Fiscal 2017 Acquisitions

Compass Medical, Inc.

On September 16, 2016, we purchased the assets of Compass Medical, Inc. ("Compass'') for approximately $16,000. The purchase price was financed with bank credit facility borrowings. Compass specializes in the sale and repair of flexible endoscopes. Prior to the acquisition, Compass generated annual revenues of approximately $6,000 and was integrated into our Healthcare Specialty Services segment.

Phoenix Surgical Holdings, Ltd. and Endo-Tek LLP

On August 31, 2016, we purchased 100% of the shares of Phoenix Surgical Holdings, Ltd. and the assets of Endo-Tek LLP ("Phoenix Surgical and Endo-Tek") for approximately $14,300 combined, net of cash acquired. The purchase price was financed with cash on hand. Prior to the acquisition, these operations, which specialize in the repair of endoscopes, generated approximately $8,000 in combined annual revenue and were integrated into our Healthcare Specialty Services segment.

Medisafe

On July 22, 2016, we purchased 100% of the shares of Medisafe Holdings, Ltd. ("Medisafe"), a U.K. manufacturer of washer/disinfector equipment and related consumables and services for approximately $34,500, net of cash acquired. The purchase price was financed with cash on hand. Prior to the acquisition, the Medisafe product line generated $18,000 in annual revenue. The acquisition of Medisafe provides washer manufacturing and research and development capabilities in the U.K. Medisafe's products and services are being integrated into our Healthcare Products segment.

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

Fair Value of Assets Acquired and Liabilities Assumed

The table below summarizes the allocation of the purchase price to the net assets acquired based on fair values at the acquisition dates for our fiscal 2019, 2018 and 2017 acquisitions.

	Fiscal Year 2019				Fiscal Year 2018				Fiscal Year 2017
(dollars in thousands)	All Acquisitions (1)				All Acquisitions				Medisafe				Compass				Phoenix Surgical and Endo-Tek
Cash	$	—			$	235			$	3,751			$	—			$	769
Accounts receivable	750				1,464				3,634				629				1,123
Inventory	51				2,289				2,454				659				950
Property, plant and equipment	2,004				3,381				639				13				1,092
Other assets	479				126				—				31				46
Intangible assets	4,070				17,404				17,151				5,992				7,824
Goodwill	6,614				32,384				19,599				8,987				5,938
Total Assets	13,968				57,283				47,228				16,311				17,742
Current liabilities	(146		)		(2,077		)		(5,562		)		(309		)		(1,373		)
Non-current liabilities	(509		)		(2,679		)		(3,398		)		—				(1,263		)
Total Liabilities	(655		)		(4,756		)		(8,960		)		(309		)		(2,636		)
Net Assets	$	13,313			$	52,527			$	38,268			$	16,002			$	15,106

(1) Purchase price allocation is still preliminary as of March 31, 2019, as valuations have not been finalized.

Acquisition related transaction and integration costs totaled $8,901, $16,211, and $30,082 for the fiscal years ended March 31, 2019, 2018, and 2017, respectively. These costs are included in Selling, general, and administrative expenses in the Consolidated Statements of Income.

Divestitures

Synergy Health Healthcare Consumable Solutions

On November 20, 2017, we sold our Synergy Health Healthcare Consumable Solutions ("HCS") business to Vernacare. Annual revenues for the HCS business were approximately $40,000 and were included in the Healthcare Products segment. We recorded proceeds of $8,891, net of cash divested, including a working capital adjustment. We also recognized a pre-tax loss on the sale, subject to final working capital adjustments, of $13,021 in Selling, general, and administrative expense in the Consolidated Statement of Income.

Netherlands Linen Management Services

On February 9, 2017, we sold our Synergy Health Netherlands Linen Management Services business to EMEA B.V. Annual revenues for Synergy Health Netherlands Linen Management Services were approximately $75,000 and were included in the Healthcare Specialty Services segment. We recorded a $43,000 pre-tax loss on the sale in Selling, general, and administrative expense in the Consolidated Statements of Income as a result of the divestiture.

U.S. Linen Management Services

On November 3, 2016, we sold our Synergy Health U.S. Linen Management Services business to SRI Healthcare LLC. Annual revenues for U.S. Linen Management Services were approximately $50,000 and were included in the Healthcare Specialty Services segment. We recorded proceeds of $4,500 and recognized a pre-tax loss on the sale, subject to final adjustments, of $31,200 in Selling, general, and administrative expense in the Consolidated Statements of Income.

Synergy Health Labs

On September 2, 2016, we sold Synergy Health Laboratory Services to SYNLAB International. Annual revenues for the Synergy Health Labs were approximately $15,000 and were included in the Applied Sterilization Technologies segment. We recorded proceeds of $26,300, net of cash divested, and recognized a pre-tax gain on the sale of $18,700 in Selling, general, and administrative expense in the Consolidated Statements of Income.

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

Applied Infection Control

On August 31, 2016, we completed the sale of our Applied Infection Control ("AIC") product line to DEB USA, Inc., a wholly-owned subsidiary of S.C. Johnson & Son, Inc. Annual revenues for the AIC product line were typically less than $50,000 and were included in the Healthcare Products segment. We recorded proceeds of $41,800 and recognized a pre-tax gain on the sale of $36,200 in Selling, general, and administrative expense in the Consolidated Statements of Income.

UK Linen Management Services

On July 1, 2016, we sold our Synergy Health UK Linen Management Services business to STAR Mayan Limited. Annual revenues for UK Linen Management Services were approximately $50,000 and were included in the Healthcare Specialty Services segment. We recorded proceeds of $65,400, net of cash divested, and recognized a pre-tax loss on the sale of $66,400 in Selling, general, and administrative expense in the Consolidated Statements of Income.

Loans Receivable

In connection with a fiscal 2019 equity investment of $4,955, we agreed to provide a credit facility of up to approximately $10,000 for a term of up to 7 years. Loans carry an interest rate of 4% compounded daily and interest is payable annually. Outstanding borrowings under the agreement totaled $7,465 at March 31, 2019.

In connection with the fiscal 2017 divestiture of Synergy Health Netherlands Linen Management Services, we entered into a loan agreement to provide financing of up to €15,000 for a term of up to 15 years. The loan carries an interest rate of 4% for the first four years and 12% thereafter. Outstanding borrowings under the agreement totaled $8,494 (or €7,550) at March 31, 2019.

Amounts for loan receivables as noted above are recorded in the "Other assets" line of our Consolidated balance sheets. Interest income is not material.

19. RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Amounts in Accumulated Other Comprehensive Income (Loss) are presented net of the related tax. Foreign Currency Translation is not adjusted for income taxes. Accumulated other comprehensive income (loss) shown in our Consolidated Statements of Shareholders' Equity and changes in our balances, net of tax, for the years ended March 31, 2019, 2018 and 2017 were as follows:

	Gain (Loss) on Available for Sale Securities (1)									Defined Benefit Plans (2)									Foreign Currency Translation (3)									Total Accumulated Other Comprehensive Income (Loss)
	2019			2018			2017			2019			2018			2017			2019			2018			2017			2019			2018			2017
Beginning Balance	$	1,970		$	178		$	(673	)	$	(6,742	)	$	(2,355	)	$	5,108		$	16,457		$	(238,525	)	$	(72,594	)	$	11,685		$	(240,702	)	$	(68,159	)
Other Comprehensive Income (Loss) before reclassifications	—			1,703			745			3,920			(2,291		)	(5,491		)	(172,031		)	254,982			(165,931		)	(168,111		)	254,394			(170,677		)
Reclassified from Accumulated Other Comprehensive Income (Loss)	—			89			106			(1,382		)	(2,096		)	(1,972		)	—			—			—			(1,382		)	(2,007		)	(1,866		)
Net current-period Other Comprehensive Income (Loss)	—			1,792			851			2,538			(4,387		)	(7,463		)	(172,031		)	254,982			(165,931		)	(169,493		)	252,387			(172,543		)
Cumulative adjustment to Retained Earnings (4)	$	(1,970	)	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	(1,970	)	$	—		$	—
Ending Balance	$	—		$	1,970		$	178		$	(4,204	)	$	(6,742	)	$	(2,355	)	$	(155,574	)	$	16,457		$	(238,525	)	$	(159,778	)	$	11,685		$	(240,702	)

(1) Realized gain (loss) on available for sale securities is reported in the Interest income and miscellaneous expense line of the Consolidated

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

Statements of Income for fiscal 2018 and 2017.

(2) Amortization (gain) of defined benefit plan items are reported in the Interest income and miscellaneous expense line of our Consolidated Statements of Income.

(3) The effective portion of gain or loss on net debt designated as non-derivative net investment hedging instruments is recognized in Accumulated other comprehensive income and is reclassified to income in the same period when a gain or loss related to the net investment in the foreign operation is included in income.

(4) As a result of the adoption of ASC 2016-01 we recorded a cumulative effect adjustment to our opening fiscal 2019 retained earnings balance that increased retained earnings and decreased accumulated other comprehensive income. See Note 1 titled, "Nature of Operations and Summary of Significant Accounting Policies" for further details.

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

20. QUARTERLY RESULTS (UNAUDITED)

Quarters Ended	March 31,				December 31,				September 30,				June 30,
Fiscal 2019
Revenues:
Product	$	374,937			$	327,639			$	314,659			$	278,790
Service	393,276				368,599				364,302				359,968
Total Revenues	768,213				696,238				678,961				638,758
Cost of Revenues:
Product	201,357				182,229				172,107				146,602
Service	232,140				227,012				222,190				223,106
Total Cost of Revenues	433,497				409,241				394,297				369,708
Gross Profit	334,716				286,997				284,664				269,050
Percentage of Revenues	43.6		%		41.2		%		41.9		%		42.1		%
Restructuring Expenses	4,840				26,147				—				—
Net Income Attributable to Shareholders	$	108,745			$	47,858			$	77,457			$	69,991
Basic Income Per Ordinary Share Attributable to Shareholders:
Net income	$	1.29			$	0.57			$	0.92			$	0.83
Diluted Income Per Ordinary Share Attributable to Shareholders:
Net income	$	1.27			$	0.56			$	0.91			$	0.82
Fiscal 2018
Revenues:
Product	$	351,010			$	309,461			$	286,557			$	273,605
Service	364,963				352,439				347,602				334,359
Total Revenues	715,973				661,900				634,159				607,964
Cost of Revenues:
Product	187,710				162,611				152,611				143,245
Service	235,898				221,071				215,151				208,953
Total Cost of Revenues	423,608				383,682				367,762				352,198
Gross Profit	292,365				278,218				266,397				255,766
Percentage of Revenues	40.8		%		42.0		%		42.0		%		42.1		%
Restructuring Expenses	(53		)		78				27				51
Net Income Attributable to Shareholders	$	73,598			$	94,781			$	64,459			$	58,077
Basic Income Per Ordinary Share Attributable to Shareholders:
Net income	$	0.87			$	1.12			$	0.76			$	0.68
Diluted Income Per Ordinary Share Attributable to Shareholders:
Net income	$	0.86			$	1.11			$	0.75			$	0.68

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

21. SUBSEQUENT EVENTS

Under Irish law, STERIS Ireland may only declare dividends and make distributions out of distributable profits. As a new holding company, with no operational history, STERIS Ireland had no distributable profits as of March 31, 2019.

In connection with the Redomiciliation, on February 28, 2019, the shareholders of STERIS UK approved a special resolution authorizing a capital reduction of, and the creation of distributable profits for, STERIS Ireland through a reduction in the nominal value of its ordinary shares. To implement the approved proposal, STERIS Ireland authorized, subject to the confirmation of the High Court of Ireland, the creation of approximately $6,338,536 of distributable profits within STERIS Ireland by reducing the nominal value from $75.00 to $0.001 per share and cancelling the associated company capital paid-up on each of the ordinary shares of STERIS Ireland issued (1) pursuant to the Scheme, and (2) following the effective time of the Scheme and up to 11:59 a.m. on the day immediately prior to the High Court confirmation hearing (the “Par Value Reduction”).

On May 2, 2019, the High Court of Ireland confirmed the creation of distributable profits of STERIS Ireland via the Par Value Reduction, such that the reserve resulting from the cancellation of paid-up company capital will be treated as distributable profits of STERIS Ireland, and made a related order (the “Order”). The Par Value Reduction took effect on May 3, 2019, upon the registration with the Irish Registrar of Companies of the Order and of an associated minute approved by the High Court with respect to the company capital of STERIS Ireland. In connection with the Par Value Reduction, the authorized share capital of STERIS Ireland was also amended to (a) 500,000,000 ordinary shares, $0.001 par value per share, (b) 50,000,000 preferred shares, $0.001 par value per share and (c) 25,000 deferred ordinary shares, €1.00 par value per share. The rights and obligations of the ordinary shares of STERIS Ireland otherwise remain unchanged.

STERIS PLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts and as noted)

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

Description		Balance at Beginning of Period				Charges to Costs and Expenses					Charges to Other Accounts					Deductions					Balance at End of Period
(in thousands)
Year ended March 31, 2019
Deducted from asset accounts:
Allowance for trade accounts receivable (1)		$	12,472			$	356				$	(327	)	(3)		$	(2,856	)	(4)		$	9,645
Inventory valuation reserve		19,639				(673		)	(2)		788			(3)		—					19,754
Deferred tax asset valuation allowance		13,596				4,055					(1,653		)	(3)		(2,520		)			13,478
Recorded within liabilities:
Casualty loss reserves		$	20,949			$	4,456				$	(1,158	)			$	(4,505	)			$	19,742
Year ended March 31, 2018
Deducted from asset accounts:
Allowance for trade accounts receivable (1)		$	10,357			$	2,183				$	1,925		(3)		$	(1,993	)	(4)		$	12,472
Inventory valuation reserve		17,854				2,446			(2)		(661		)	(3)		—					19,639
Deferred tax asset valuation allowance		16,366				3,535					209			(3)		(6,514		)			13,596
Recorded within liabilities:
Casualty loss reserves		$	22,718			$	5,713				$	(2,563	)			$	(4,919	)			$	20,949
Year ended March 31, 2017
Deducted from asset accounts:
Allowance for trade accounts receivable (1)		$	11,185			$	1,248				$	11		(3)		$	(2,087	)	(4)		$	10,357
Inventory valuation reserve		18,707				(171		)	(2)		(682		)	(3)		—					17,854
Deferred tax asset valuation allowance		16,435				4,014					(214		)	(3)		(3,869		)			16,366
Recorded within liabilities:
Casualty loss reserves		$	20,222			$	5,000				$	768				$	(3,272	)			$	22,718

(1) Net allowance for doubtful accounts and allowance for sales and returns.

(2) Provision for excess and obsolete inventory, net of inventory written off.

(3) Change in foreign currency exchange rates and acquired reserves.

(4) Uncollectible accounts written off, net of recoveries.