ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
In Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), we explain the general financial condition and the results of operations for STERIS and its subsidiaries including:
• what factors affect our business;
• what our earnings and costs were in each period presented;
• why those earnings and costs were different from the year before;
• where our earnings came from;
• how this affects our overall financial condition;
• what our expenditures for capital projects were; and
• where cash is expected to come from to fund future debt principal repayments, growth outside of core operations, repurchases of shares, cash dividends and future working capital needs.
The MD&A also analyzes and explains the annual changes in the specific line items in the Consolidated Statements of Income. As you read the MD&A, it may be helpful to refer to information in Item 1, "Business," Part I, Item 1A, "Risk Factors," and Note 12 to our consolidated financial statements titled, "Commitments and Contingencies" for a discussion of some of the matters that can adversely affect our business and results of operations. This information, discussion, and disclosure may be important to you in making decisions about your investments in STERIS.
FINANCIAL MEASURES
In the following sections of the MD&A, we may, at times, refer to financial measures that are not required to be presented in the consolidated financial statements under accounting principles generally accepted in the United States ("U.S. GAAP"). We sometimes use the following financial measures in the context of this report: backlog and debt-to-total capital ratio. We define these financial measures as follows:
• Backlog – We define backlog as the amount of unfilled capital equipment purchase orders (excluding freight) at a point in time. We use this figure as a measure to assist in the projection of short-term financial results and inventory requirements.
• Debt-to-total capital ratio – We define debt-to-total capital ratio as total debt divided by the sum of total debt and shareholders’ equity. We use this figure as a financial liquidity measure to gauge our ability to borrow and fund growth.
We, at times, may also refer to financial measures which are considered to be “non-GAAP financial measures” under SEC rules. We have presented these financial measures because we believe that meaningful analysis of our financial performance is enhanced by an understanding of certain additional factors underlying that performance. These financial measures should not be considered an alternative to measures required by accounting principles generally accepted in the United States. Our calculations of these measures may differ from calculations of similar measures used by other companies, and you should be careful when comparing these financial measures to those of other companies. Additional information regarding these financial measures, including reconciliations of each non-GAAP financial measure, is available in the subsection of MD&A titled, "Non-GAAP Financial Measures."
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REVENUES– DEFINED
As required by Regulation S-X, we separately present revenues generated as either Product revenues or Service revenues on our Consolidated Statements of Income for each period presented. When we discuss revenues, we may, at times, refer to revenues summarized differently than the Regulation S-X requirements. The terminology, definitions, and applications of terms that we use to describe revenues may be different from terms used by other companies. We use the following terms to describe revenues:
• Revenues – Our revenues are presented net of sales returns and allowances.
• Product Revenues – We define Product revenues as revenues generated from sales of consumable and capital equipment products.
• Service Revenues – We define Service revenues as revenues generated from parts and labor associated with the maintenance, repair, and installation of our capital equipment. Service revenues also include outsourced reprocessing services and instrument and scope repairs, as well as revenues generated from contract sterilization and laboratory services offered through our AST segment.
• Capital Equipment Revenues – We define capital equipment revenues as revenues generated from sales of capital equipment, which includes steam and gas sterilizers, low temperature liquid chemical sterilant processing systems, automated endoscope reprocessors, pure steam/water systems, surgical lights and tables, and integrated operating rooms.
• Consumable Revenues – We define consumable revenues as revenues generated from sales of the consumable family of products, which includes dedicated consumables used in our capital equipment, gastrointestinal endoscopy accessories, instruments and tools, sterility assurance products, barrier protection solutions, and cleaning consumables.
• Recurring Revenues – We define recurring revenues as revenues generated from sales of consumable products and Service revenues.
GENERAL OVERVIEW AND EXECUTIVE SUMMARY
STERIS is a leading global provider of products and services that support patient care with an emphasis on infection prevention. WE HELP OUR CUSTOMERS CREATE A HEALTHIER AND SAFER WORLD by providing innovative healthcare and life science products and services around the globe. We offer our Customers a unique mix of innovative products and services. These include: consumable products, such as detergents, endoscopy accessories, barrier products, instruments and tools; services, including equipment installation and maintenance, microbial reduction of medical devices, instrument and scope repair, laboratory testing, and outsourced reprocessing; capital equipment, such as sterilizers, surgical tables, and automated endoscope reprocessors; and connectivity solutions such as OR integrati on.
We operate and report our financial information in three reportable business segments: Healthcare, AST, and Life Sciences. Previously, we had four reportable business segments; however, as a result of the fiscal 2025 divestiture of our Dental segment, Dental is presented as discontinued operations. Historical information has been retrospectively adjusted to exclude discontinued operations for comparability, as required. For more information, refer to Note 4 to our consolidated financial statements titled, "Discontinued Operations." Non-allocated operating costs that support the entire Company and items not indicative of operating trends are excluded from segment operating income. We describe our business segments in Note 13 to our consolidated financial statements titled, "Business Segment Information."
The bulk of our revenues are derived from healthcare, medical device and pharmaceutical Customers. Much of the growth in these industries is driven by the aging of the population throughout the world, as an increasing number of individuals are entering their prime healthcare consumption years, and is dependent upon advancement in healthcare delivery, acceptance of new technologies, government policies, and general economic conditions.
In addition, there is increased demand for medical procedures, including preventive screenings such as endoscopies and colonoscopies; and a desire by our Customers to operate more efficiently, all of which are driving increased demand for many of our products and services.
Acquisitions, Divestitures, and Investments . During fiscal 2026, we completed two tuck-in acquisitions which continued to expand our product and service offerings in the Healthcare segment. Total aggregate consideration was approximately $23.4 million, including fair value of contingent consideration. We also purchased investments totaling $134.0 million, predominantly related to a noncontrolling equity investment in a non-U.S.-based healthcare product manufacturer.
During fiscal 2025, we completed several tuck-in acquisitions which continued to expand our product and service offerings in the Healthcare and AST segments. Total aggregate consideration was approximately $54.1 million.
On April 1, 2024, we completed the sale of the Controlled Environment Certification Services ("CECS") business. We recorded net proceeds of $41.9 million and recognized a pre-tax gain on the sale of $19.3 million in fiscal 2025. The business generated approximately $35.0 million in revenues during fiscal 2024.
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For more information regarding our recent acquisitions and divestitures, see Note 3 to our consolidated financial statements titled, " Business Acquisitions, Divestitures, and Investments ."
Discontinued Operations. On April 11, 2024, the Company announced its plan to sell substantially all of the net assets of its Dental segment for total cash consideration of $787.5 million, subject to customary adjustments, and up to an additional $12.5 million in contingent payment had the Dental business achieved certain revenue targets in fiscal 2025. No amounts have been recorded or are expected to be recorded with respect to this contingent consideration. The transaction was structured as an equity sale and closed on May 31, 2024. A component of an entity is reported in discontinued operations after meeting the criteria for held for sale classification if the disposition represents a strategic shift that has (or will have) a major effect on the entity's operations and financial results. We analyzed the quantitative and qualitative factors relevant to the divestiture of our Dental segment and determined that those conditions for discontinued operations presentation had been met prior to March 31, 2024. The Dental segment results of operations have been reclassified as income (loss) from discontinued operations in the Consolidated Statements of Income for all periods presented. Our Consolidated Statements of Cash Flows include the financial results of the Dental segment through the date of sale on May 31, 2024. A majority of the proceeds received from the sale were utilized to pay off existing debt.
For more information, see Note 4 to our consolidated financial statements titled "Discontinued Operations."
U.S. Tax Reform . On July 4, 2025, the U.S. enacted the One Big Beautiful Bill Act ("OBBBA") which contains substantial changes to its tax policies. Business provisions in the OBBBA, some of which were extensions of those established in the Tax Cuts and Jobs Act, include favorable cost recovery allowances, changes to U.S. international tax rules, and changes to energy and environmental related incentives. The law has multiple effective dates, with certain provisions applicable to fiscal years beginning after fiscal 2026. The law did not have a material impact on our consolidated financial statements for fiscal 2026, and we do not expect it to have a material impact on our effective tax rate in the future.
Highlights. Revenues increased $476.4 million, or 8.7%, to $5,935.9 million for the year ended March 31, 2026, as compared to $5,459.5 million for the year ended March 31, 2025. These increases reflect higher volume and pricing, as well as favorable impacts from foreign currency movements.
Our gross profit percentage increased to 44.2% for fiscal 2026 as compared to 44.0% for fiscal 2025. Favorable impacts from pricing, operational improvements and lower restructuring costs, and productivity were partially offset by unfavorable impacts from tariffs and inflation.
Fiscal 2026 income from operations increased 27.1% to $1,101.8 million over fiscal 2025 income from operations of $866.6 million. This increase was primarily due to increased pricing, volume, and lower restructuring and litigation costs, which were partially offset by inflation and tariffs.
Cash flows provided by operating activities were $1,341.4 million and free cash flow was $982.9 million in fiscal 2026 compared to cash flows provided by operating activities of $1,148.1 million and free cash flow of $787.2 million in fiscal 2025 (see subsection of MD&A titled, "Non-GAAP Financial Measures" for additional information and related reconciliation of cash flows from operations to free cash flow). The increase in cash flows from operations and free cash flow during the period was driven primarily by improvements in net income, which more than offset the significantly lower contribution from working capital when compared to the prior year.
Our debt-to-total capital ratio was 21.3% at March 31, 2026. We have paid quarterly dividends each year since 2005 and have increased the dividend each consecutive year, including an increase during fiscal 2026 to $0.63 per share.
Outlook. In fiscal 2027 and beyond, we expect to manage our costs, grow our business with internal product and service development, invest in greater capacity and efficiency, and augment these value creating methods with potential acquisitions of additional products and services. Please refer to "Information With Respect to Our Business In General" in Item 1."Business" to this Annual Report on Form 10-K.
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NON-GAAP FINANCIAL MEASURES
We, at times, refer to financial measures which are considered to be “non-GAAP financial measures” under the Securities and Exchange Commission rules. We, at times, also refer to our results of operations excluding certain transactions or amounts that are non-recurring or are not indicative of future results, in order to provide meaningful comparisons between the periods presented.
These non-GAAP financial measures are not intended to be, and should not be, considered separately from or as an alternative to the most directly comparable U.S. GAAP financial measures.
These non-GAAP financial measures are presented with the intent of providing greater transparency to supplemental financial information used by management and the Board of Directors in their financial analysis and operational decision-making. These amounts are disclosed so that the reader has the same financial data that management uses with the belief that it will assist investors and other readers in making comparisons to our historical operating results and analyzing the underlying performance of our operations for the periods presented.
We believe that the presentation of these non-GAAP financial measures, when considered along with our U.S. GAAP financial measures and the reconciliation to the corresponding U.S. GAAP financial measures, provides the reader with a more complete understanding of the factors and trends affecting our business than could be obtained absent this disclosure. It is important for the reader to note that the non-GAAP financial measures used may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies.
We define free cash flow as net cash provided by operating activities as presented in the Consolidated Statements of Cash Flows less purchases of property, plant, equipment, and intangibles (capital expenditures) plus proceeds from the sale of property, plant, equipment, and intangibles, which are also presented within investing activities in the Consolidated Statements of Cash Flows. We use this as a measure to gauge our ability to pay cash dividends, fund growth outside of core operations, fund future debt principal repayments, and repurchase shares.
The following table summarizes the calculation of our free cash flow for the years ended March 31, 2026 and 2025:
Years Ended March 31,
(in millions)
Net cash provided by operating activities
Purchases of property, plant, equipment and intangibles
Proceeds from the sale of property, plant, equipment and intangibles
Free cash flow
RESULTS OF OPERATIONS
In the following subsections, we discuss our performance and the factors affecting it. We begin with a general overview of our operating results and then separately discuss earnings for our operating segments. As a result of the fiscal 2025 divestiture of our Dental segment, Dental is presented as discontinued operations. Historical information has been retrospectively adjusted to reflect these changes for comparability, as required. Therefore, the discussion within this Results of Operations section excludes discontinued operations and relates solely to our continuing operations.
The discussion of factors affecting our performance for the year ended March 31, 2025 compared to the fiscal year ended March 31, 2024 is included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II of our Annual Report on Form 10-K for the year ended March 31, 2025.
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FISCAL 2026 AS COMPARED TO FISCAL 2025
Revenues. The following table compares our revenues, in total and by type and geography, for the year ended March 31, 2026 to the year ended March 31, 2025:
Years Ended March 31,
Percent
(dollars in millions)
Change
Change
Total revenues
Revenues by type:
Service revenues
Consumable revenues
Capital equipment revenues
Revenues by geography (1) :
Ireland revenues
United States revenues
Other foreign revenues
(1) Allocation of revenues by geography is based on the location of delivery or distribution of products or location where services are performed.
Revenues increased $476.4 million, or 8.7%, to $5,935.9 million for the year ended March 31, 2026, as compared to $5,459.5 million for the year ended March 31, 2025. These increases reflect higher volume, primarily due to organic growth and increased pricing across all three segments, as well as the favorable impacts of foreign currency movements.
Service revenues for fiscal 2026 increased $287.9 million, or 11.1% over fiscal 2025, reflecting growth across all segments. Consumable revenues for fiscal 2026 increased $122.5 million, or 7.3%, over fiscal 2025, reflecting growth in the Healthcare and Life Sciences segments. Capital equipment revenues for fiscal 2026 increased by $66.0 million, or 5.6%, over fiscal 2025, reflecting growth in the Healthcare and Life Sciences segments, partially offset by a decline in the AST segment.
Ireland revenues for fiscal 2026 were $108.5 million, representing an increase of $1.1 million, or 1.0%, over fiscal 2025 revenues of $107.3 million, reflecting growth in service revenues, partially offset by a decline in capital equipment revenues.
United States revenues for fiscal 2026 were $4,333.8 million, representing an increase of $326.2 million, or 8.1%, over fiscal 2025 revenues of $4,007.6 million, reflecting growth in service, consumable, and capital equipment revenues.
Revenues from other foreign locations for fiscal 2026 were $1,493.7 million, representing an increase of $149.1 million, or 11.1%, over the fiscal 2025 revenues of $1,344.6 million. The increase reflects growth across all geographic regions.
Gross Profit. The following table compares our gross profit for the year ended March 31, 2026 to the year ended March 31, 2025:
Years Ended March 31,
Change
Percent
Change
(dollars in millions)
Gross profit:
Product
Service
Total gross profit
Gross profit percentage:
Product
Service
Total gross profit percentage
Our gross profit is affected by the volume, pricing and mix of sales of our products and services, as well as the costs associated with the products and services that are sold. Our gross profit percentage increased to 44.2% for fiscal 2026 as compared to 44.0% for fiscal 2025. Favorable impacts from pricing (120 basis points), operational improvements and lower restructuring costs (70 basis points), and productivity (50 basis points) were partially offset by unfavorable impacts from tariffs (80 basis points), inflation (70 basis points), materials costs (30 basis points), mix (30 basis points), and currency (10 basis points).
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Operating Expenses. The following table compares our operating expenses for the year ended March 31, 2026 to the year ended March 31, 2025:
Years Ended March 31,
Change
Percent
Change
(in millions)
Operating expenses:
Selling, general, and administrative
Research and development
Illinois EO litigation settlement
Restructuring expenses
Total operating expenses
NM - Not meaningful
Selling, General, and Administrative Expenses. Significant components of total selling, general, and administrative expenses (“SG&A”) are compensation and benefit costs, fees for professional services, travel and entertainment expenses, facility costs, and other general and administrative expenses. SG&A increased 5.5% in fiscal 2026 over fiscal 2025. The increase in SG&A during the fiscal year ended March 31, 2026, compared to the fiscal year ended March 31, 2025, is primarily attributable to increased compensation and benefit costs, dealer commissions, and bad debt expense, which were partially offset by lower costs associated with our EO litigation.
Research and Development. Research and development expenses increased $5.3 million in fiscal 2026 over fiscal 2025. Research and development expenses are influenced by the number and timing of in-process projects and labor hours and other costs associated with these projects. Our research and development initiatives continue to emphasize improving innovation governance processes and leveraging technology to accelerate development initiatives to launch critical capital and consumable products. During fiscal 2026, our investments in research and development have continued to be focused on, but were not limited to, enhancing capabilities of sterile processing technologies, procedural products and accessories, and devices and support accessories used in gastrointestinal endoscopy procedures.
Illinois EO Litigation Settlement . On March 3, 2025, the Company entered into binding confidential term sheets ("Term Sheets") with plaintiffs’ counsel, as well as settlement agreements with several plaintiffs in cases which were at the time scheduled for trial in fiscal 2026. On October 29, 2025, the Company entered into binding confidential settlement agreements ("Settlement Agreements") with plaintiffs' counsel, containing terms and provisions consistent with the Term Sheets. The Settlement Agreements are expected to lead to resolution of substantially all of the claims for personal injury related to EO that are currently pending in the Circuit Court of Cook County, Illinois. We recorded an expense of $48.2 million related to this settlement in fiscal 2025. For more information, refer to Note 12 to our consolidated financial statements titled, "Commitments and Contingencies."
Restructuring Expenses. In May 2024, we adopted and announced a targeted restructuring plan (the "Restructuring Plan"). This plan includes a strategic shift in our approach to the Healthcare surgical business in Europe, as well as other actions including the impairment of an internally developed X-ray accelerator, product rationalizations and facility consolidations. Approximately 300 positions have been eliminated. These restructuring actions were designed to enhance profitability and improve efficiency, which we realized beginning in fiscal 2025 and 2026. As of March 31, 2026, the execution of our Restructuring Plan is substantially complete.
The following table summarizes our total pre-tax restructuring expenses recorded in fiscal 2026 related to the Restructuring Plan:
Restructuring Plan
Years Ended March 31,
(in millions)
Severance and other compensation related costs
Lease and other contract termination and other costs
Product rationalization (1)
Accelerated depreciation and amortization and asset impairment
Total Restructuring Expense
(1) Recorded in Cost of revenues on the Consolidated Statements of Income.
The Restructuring Plan expenses incurred during fiscal 2026 and 2025 primarily related to actions taken in our Healthcare segment. Total pre-tax restructuring expense of $110.1 million has been recorded relating to the Restructuring Plan since inception, of which $33.9 million has been recorded in Cost of revenues.
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Liabilities related to restructuring activities are recorded as current liabilities in 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:
(in millions)
Restructuring Plan
Balance at March 31, 2024
Fiscal 2025 charges
Payments
Balance at March 31, 2025
Fiscal 2026 Charges
Payments
Balance at March 31, 2026
Non-Operating Expenses, Net. Non-operating expenses, net consists of interest expense on debt, offset by interest earned on cash, cash equivalents, short-term investment balances, losses (gains) related to disposal activities, and other expense (income) related to our equity investments, including our equity earnings and amortization of basis differences arising from our investments. The following table compares our net non-operating expenses, net for the year ended March 31, 2026 to the year ended March 31, 2025:
Years Ended March 31,
(in millions)
Change
Non-operating expenses, net:
Interest expense
Interest and miscellaneous income
Other expense (income), net
Non-operating expenses, net
Interest expense decreased $25.6 million during fiscal 2026 as compared to fiscal 2025, primarily due to the lower principal amount of debt outstanding. For more information, refer to Note 8 to our consolidated financial statements titled, "Debt."
Interest and miscellaneous income increased during fiscal 2026, as compared to fiscal 2025, by $1.4 million and is driven by higher interest income.
Other expense, net was $3.5 million during fiscal 2026, primarily reflecting a disposal-related fixed asset impairment, as well as amortization related to a noncontrolling equity investment, which were partially offset by a gain on the sale of a building. Other income, net during fiscal 2025 was $7.4 million and primarily related to the gain recorded from the sale of our CECS business, which was partially offset by a loss recorded on an equity investment. For more information on our fixed assets, refer to Note 7 to our consolidated financial statements, titled "Property, Plant, and Equipment." For more information on our equity investments, refer to Note 3 to our consolidated financial statements, titled "Business Acquisitions, Divestitures, and Investments."
Income Tax Expense. The following table compares our tax expense and effective income tax rates for the years ended March 31, 2026 and March 31, 2025:
Years Ended March 31,
Change
Percent
Change
(dollars in millions)
Income tax expense
Effective income tax rate
The effective income tax rates from continuing operations for fiscal 2026 was 25.0% compared to 23.2% for fiscal 2025. The fiscal 2026 effective tax rate from continuing operations increased when compared to 2025, primarily due to changes in geographic mix of income and unfavorable discrete items, including withholding taxes. Additional information regarding our income tax expense and effective income tax rate is included in Note 10 to our consolidated financial statements titled, "Income Taxes."
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Business Segment Results of Operations.
We operate and report our financial information in three reportable business segments: Healthcare, AST, and Life Sciences. Previously, we had four reportable business segments; however, as a result of the fiscal 2025 divestiture of our Dental segment, Dental is presented as discontinued operations. Historical information has been retrospectively adjusted to reflect these changes for comparability, as required.
Our Healthcare segment provides a comprehensive offering for healthcare providers worldwide, focused on sterile processing departments and procedural centers, such as operating rooms and endoscopy suites. Our products and services range from infection prevention consumables and capital equipment, as well as services to maintain that equipment; to the repair of re-usable procedural instruments; to outsourced instrument reprocessing services. In addition, our procedural products also include endoscopy accessories, instruments, and capital equipment infrastructure used primarily in operating rooms, ambulatory surgery centers, endoscopy suites, and other procedural areas.
Our AST segment supports medical device and pharmaceutical manufacturers through a global network of contract sterilization and laboratory testing facilities, and integrated sterilization equipment and control systems. Our technology-neutral offering supports Customers every step of the way, from testing through sterilization.
Our Life Sciences segment provides a comprehensive offering of products and services designed to support biopharmaceutical and medical device manufacturing facilities, in particular those focused on aseptic manufacturing. Our portfolio includes a full suite of capital equipment, consumable products, equipment maintenance and specialty services.
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.
For more information regarding our segments please refer to Note 13 to our consolidated financial statements titled, "Business Segment Information," and Item 1, "Business."
The following table compares business segment revenues as well as impacts from acquisitions, divestitures, and foreign currency movements for the year ended March 31, 2026 to the year ended March 31, 2025.
Years ended March 31,
As reported, U.S. GAAP
Impact of Acquisitions
Impact of Divestitures
Impact of Foreign Currency Movements
U.S. GAAP Growth
Organic Growth
Constant Currency Organic Growth
(dollars in millions)
Segment revenues:
Healthcare
AST
Life Sciences
Total
Organic revenue growth and constant currency organic revenue growth are non-GAAP financial measures of revenue performance. Organic revenue growth is calculated by removing the impact of acquisitions and divestitures for one year following the respective transaction from the GAAP revenue growth. Constant currency organic revenue growth is subject to a further adjustment to eliminate the impact of foreign currency movements.
Healthcare revenues increased 8.5% in fiscal 2026, as compared to fiscal 2025, reflecting growth across service, consumable, and capital revenues of 11.8%, 7.2%, and 5.7%, respectively. The constant currency organic growth of 7.6% is primarily due to increased volume, impacting revenues by a mid-single digit percentage, as well as increased pricing, impacting revenues by a low-single digit percentage.
The Healthcare segment’s backlog at March 31, 2026 amounted to $392.1 million. The Healthcare segment's backlog at March 31, 2025 was $369.2 million. The increase is due to the timing of shipments and the benefit of acquisitions.
AST revenues increased 9.6% in fiscal 2026, as compared to fiscal 2025. The constant currency organic growth of 6.7% is primarily due to increased pricing, impacting revenues by a mid-single digit percentage, as well as increased volume, impacting revenues by a low-single digit percentage, with service growth partially offset by a decline in capital equipment.
Life Sciences revenues increased 8.6% in fiscal 2026, as compared to fiscal 2025 reflecting growth across capital, consumable, and service revenues of 15.5%, 7.6%, and 4.9% , respectively. The constant currency organic growth of 6.7% is
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primarily due to increased volume, impacting revenues by a mid-single digit percentage, as well as increased pricing, impacting revenues by a low-single digit percentage.
The Life Sciences backlog at March 31, 2026 and 2025 amounted to $98.7 million and $83.7 million, respectively. The increase is due to timing of shipments.
The following table compares business segment and Corporate operating income for the year ended March 31, 2026 to the year ended March 31, 2025:
Years ended March 31,
Percent
(dollars in millions)
Change
Change
Income (loss) from operations before adjustments:
Healthcare
AST
Life Sciences
Corporate
Total income from operations before adjustments
Less: Adjustments
Amortization of acquired intangible assets (1)
Acquisition and integration related charges (2)
Tax restructuring costs (3)
Amortization of inventory and property "step up" to fair value (1)
Restructuring charges (4)
Illinois EO litigation settlement (5)
Total income from operations
(1) For more information regarding our recent acquisitions and divestitures, refer to Note 3 to our consolidated financial statements titled, " Business Acquisitions, Divestitures, and Investments ."
(2) Acquisition and integration related charges include transaction costs and integration expenses associated with acquisitions.
(3) Costs incurred in tax restructuring.
(4) For more information regarding the restructurings, refer to Note 2 to our consolidated financial statements titled, "Restructuring."
(5) For more information regarding the Illinois EO litigation settlement, refer to Note 12 to our consolidating financial statements titled "Commitments and Contingencies."
The Healthcare segment’s operating income increased $64.8 million to $1,036.4 million in fiscal year 2026, as compared to $971.5 million in fiscal year 2025. The increase in operating income is primarily due to the benefits of higher volume, pricing, and productivity, which were partially offset by increased tariff costs and inflation. The segment's operating margins were 24.6% for fiscal year 2026 and 25.0% for fiscal year 2025. Operating margin declined as tariff costs and inflation more than offset the margin expansion otherwise driven by volume, pricing, and productivity.
The AST segment’s operating income increased $59.1 million to $524.7 million in fiscal year 2026, as compared to $465.6 million in fiscal year 2025. The AST segment's operating margins were 46.1% for fiscal year 2026 and 44.8% for fiscal year 2025. The increase in operating income and margin for the year is primarily due to higher pricing and volume, which were partially offset by increased labor inflation costs.
The Life Sciences segment’s operating income increased $21.5 million to $251.0 million in fiscal year 2026, as compared to $229.4 million in fiscal year 2025. The segment’s operating margins were 42.6% for fiscal year 2026 and 42.3% for fiscal year 2025. The increase in operating income and margin for the year is primarily due to the benefit of higher volume and pricing, which were partially offset by increased inflation and tariff costs.
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LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes significant components of our cash flows for the years ended March 31, 2026 and 2025:
Years Ended March 31,
(dollars in millions)
Net cash provided by operating activities
Net cash (used in) provided by investing activities
Net cash used in financing activities
Debt-to-total capital ratio
Free cash flow
Net Cash Provided By Operating Activities – The net cash provided by our operating activities was $1,341.4 million for the year ended March 31, 2026, compared to $1,148.1 million for the year ended March 31, 2025. Net cash provided by operating activities increased in fiscal 2026 by 16.8% over fiscal 2025, and was driven primarily by improvements in net income, which more than offset the significantly lower contribution from working capital in fiscal 2026 compared with fiscal 2025.
Net Cash Provided By/Used In Investing Activities – The net cash used in our investing activities was $512.5 million for the year ended March 31, 2026, compared to net cash provided by our investing activities of $388.8 million for the year ended March 31, 2025. The following discussion summarizes the significant changes in our investing cash flows for the years ended March 31, 2026 and 2025:
• Purchases of property, plant, equipment, and intangibles – Capital expenditures totaled $369.0 million in fiscal 2026 compared to $370.1 million in fiscal 2025.
• Proceeds from the sale of businesses – During fiscal 2025, we received proceeds of $814.6 million primarily from the sales of our Dental segment and our CECS businesses. For more information, refer to Note 3 to our consolidated financial statements titled, "Business Acquisitions, Divestitures, and Investments" and Note 4 to our consolidated financial statements titled "Discontinued Operations."
• Purchases of investments – During fiscal 2026, we purchased $134.0 million in investments, predominantly related to a noncontrolling equity investment in a non-U.S.-based healthcare product manufacturer. During fiscal 2025, we purchased $10.8 million in equity investments and convertible notes related to funding the development of intellectual property and access to new markets. For more information on our equity investments, refer to Note 3 to our consolidated financial statements titled, "Business Acquisitions and Divestitures."
• Acquisition of businesses, net of cash acquired – During fiscal 2026 and 2025, we used $20.1 million and $54.1 million, respectively, to acquire businesses. For more information on these acquisitions refer to Note 3 to our consolidated financial statements titled, "Business Acquisitions, Divestitures, and Investments."
Net Cash Used In Financing Activities – Net cash used in financing activities was $568.2 million for the year ended March 31, 2026, compared to net cash used in financing activities of $1,572.4 million for the year ended March 31, 2025. The following discussion summarizes the significant changes in our financing cash flows for the years ended March 31, 2026 and 2025:
• Payments on term loans – During fiscal 2025, we repaid $638.1 million of our term loans. Our fiscal 2025 repayments were made with the proceeds from the sale of the Dental segment and funds generated from our operations. For more information on our term loans, refer to Note 8 to our consolidated financial statements titled, "Debt."
• Payments on Private Placement Senior Notes – During fiscal 2026 and 2025, we repaid $125.0 million and $80.0 million of Private Placement Senior Notes, respectively, upon maturity. For more information on our Private Placement Senior Notes, refer to Note 8 to our consolidated financial statements titled, "Debt."
• Payments/Proceeds under credit facilities, net – Net proceeds under credit facilities totaled $3.0 million for fiscal 2026 compared to net payments under credit facilities of $446.3 million for fiscal 2025. The fiscal 2025 payments were made using proceeds from the sale of the Dental segment and funds generated by our operations. At the end of fiscal 2026, $37.8 million of debt was outstanding under our bank credit facility, compared to $34.8 million at the end of fiscal 2025. We provide additional information about our bank credit facility in Note 8 to our consolidated financial statements titled, "Debt."
• Repurchases of ordinary shares – During both fiscal 2026 and 2025, we obtained 0.1 million of our ordinary shares in connection with share-based compensation award programs in the aggregate amount of $12.5 million and $11.3 million,
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respectively. During fiscal 2026, we repurchased 0.9 million of our ordinary shares in the aggregate amount of $225.0 million (exclusive of fees, commissions, and other charges) through our Outgoing Repurchase Program. During fiscal 2025, we repurchased 0.9 million of our ordinary shares for the aggregate amount of $200.0 million (exclusive of fees, commissions, and other charges) through our Outgoing Repurchase Program. On May 5, 2026, the Board of Directors terminated the Outgoing Repurchase Program and authorized the New Repurchase Program for the purchase of up to $1,000.0 million (exclusive of fees, commissions, and other charges). We provide additional information about our share repurchases, the Outgoing Repurchase Program and the New Repurchase Program in Note 15 to our consolidated financial statements titled, "Repurchases of Ordinary Shares."
• Cash dividends paid to ordinary shareholders – During fiscal 2026, we paid cash dividends totaling $241.8 million or $2.46 per outstanding share. During fiscal 2025, we paid cash dividends totaling $219.9 million or $2.23 per outstanding share.
• Stock option and other equity transactions, net – We generally receive cash for issuing shares upon the exercise of options under our employee stock option program. During fiscal 2026 and fiscal 2025, we received cash proceeds totaling $32.9 million and $25.5 million, respectively, under these programs.
Cash Flow Measures. The net cash provided by our operating activities was $1,341.4 million in fiscal 2026 compared to $1,148.1 million in fiscal 2025. Free cash flow was $982.9 million in fiscal 2026, compared to $787.2 million in fiscal 2025 (see subsection above titled "Non-GAAP Financial Measures" for additional information and related reconciliation of cash flows from operations to free cash flow). The increase in free cash flow during the period was driven primarily by improvements in net income, which more than offset the significantly lower contribution from working capital in fiscal 2026 compared with fiscal 2025.
Our debt-to-total capital ratio was 21.3% at March 31, 2026 and 23.6% at March 31, 2025.
Sources of Credit. Our sources of credit as of March 31, 2026 are summarized in the following table:
(in millions)
Maximum
Amounts
Available
Reductions in
Available Credit
Facility for Other
Financial Instruments
March 31, 2026 Amounts Outstanding
March 31, 2026 Amounts
Available
Sources of Credit
Private Placement Senior Notes
Revolving Credit Facility (1)
Senior Public Notes
Total Sources of Credit
(1) At March 31, 2026, there were $9.8 million of letters of credit outstanding under the Revolving Credit Agreement.
Our sources of funding from credit as of March 31, 2026 are summarized below:
• On October 7, 2024, STERIS plc (“Parent”), STERIS Corporation ("Corporation"), STERIS Limited ("Limited"), and STERIS Irish FinCo Unlimited Company (“FinCo”), each as a borrower and guarantor, entered into a credit agreement with various financial institutions as lenders, and JPMorgan Chase Bank, N.A., as administrative agent (the “Revolving Credit Agreement”) providing for a $1,100.0 million revolving credit facility (the “Revolving Credit Facility”), which replaced a prior credit agreement, dated as of March 19, 2021.
• The Revolving Credit Agreement provides for revolving credit borrowings, swing line borrowings and letters of credit, with sublimits for swing line borrowings and letters of credit. The Revolving Credit Agreement may be increased in specified circumstances by up to $625.0 million in the discretion of the lenders. The Revolving Credit Agreement matures on the date that is five years after October 7, 2024, and all unpaid borrowings, together with accrued and unpaid interest thereon, are repayable on that date. The Revolving Credit Facility bears interest from time to time, at either the Base Rate or the Relevant Rate, as defined in and calculated under and as in effect from time to time under the Revolving Credit Agreement, plus the Applicable Margin, as defined in the Revolving Credit Agreement. The Applicable Margin is determined based on the Debt Rating of Parent, as defined in the Revolving Credit Agreement. Base Rate Advances are payable quarterly in arrears and Term Benchmark Advances are payable at the end of the relevant interest period therefor, but in no event less frequently than every three months. Swingline borrowings bear interest at a rate to be agreed by the applicable swingline lender and the applicable borrower, subject to a cap in the case of swingline borrowings denominated in U.S. Dollars equal to the Base Rate plus the Applicable Margin for Base Rate plus the Facility Fee. There is no premium or for prepayment of Base Rate , but prepayments of Term Benchmark are generally subject to a fee. may be extended in U.S. Dollars or in specified alternative currencies (“Alternative Currency ”). Alternative Currency are limited in the aggregate to the equivalent of $625.0 million.
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• On April 1, 2021, FinCo completed an offering of $1,350.0 million in aggregate principal amount, of its senior notes in two separate tranches: (i) $675.0 million aggregate principal amount of the FinCo’s 2.700% Senior Notes due 2031 (the “2031 Notes”) and (ii) $675.0 million aggregate principal amount of the FinCo’s 3.750% Senior Notes due 2051 (the “2051 Notes” and, together with the 2031 Notes, the “Senior Public Notes”). The Senior Public Notes were issued pursuant to an Indenture, dated as of April 1, 2021 (the “Base Indenture”), among FinCo, Parent, Corporation and Limited (collectively "the Guarantors”) and U.S. Bank National Association as trustee (the “Trustee”), as supplemented by the First Supplemental Indenture, dated as of April 1, 2021, among FinCo, the Guarantors and the Trustee (together with the Base Indenture, the “Indenture”). Each of the Guarantors guaranteed the Senior Public Notes jointly and severally on a senior unsecured basis. The 2031 Notes will mature on March 15, 2031 and the 2051 Notes will mature on March 15, 2051. The Senior Public Notes will bear interest at the rates set forth above. Interest on the Senior Public Notes is payable on March 15 and September 15 of each year until their respective maturities.
• As of March 31, 2026, a total of $37.8 million was outstanding under the Revolving Credit Agreement, based on currency exchange rates as of March 31, 2026. At March 31, 2026, we had $1,052.5 million of unused funding available under the Revolving Credit Agreement. The Revolving Credit Agreement includes a sub-limit that reduces the maximum amount available to us by letters of credit outstanding. At March 31, 2026, there was $9.8 million in letters of credit outstanding under the Revolving Credit Agreement.
Our outstanding Private Placement Senior Notes at March 31, 2026 were as follows:
(in millions)
Applicable Note Purchase Agreement
Maturity Date
U.S. Dollar Value at March 31, 2026
$25,000 Senior notes at 3.55%
2012 Private Placement
December 2027
$125,000 Senior notes at 3.55%
2015 Private Placement
May 2027
$100,000 Senior notes at 3.70%
2015 Private Placement
May 2030
$50,000 Senior notes at 3.93%
2017 Private Placement
February 2027
€60,000 Senior notes at 1.86%
2017 Private Placement
February 2027
$45,000 Senior notes at 4.03%
2017 Private Placement
February 2029
€20,000 Senior notes at 2.04%
2017 Private Placement
February 2029
£45,000 Senior notes at 3.04%
2017 Private Placement
February 2029
€19,000 Senior notes at 2.30%
2017 Private Placement
February 2032
£30,000 Senior notes at 3.17%
2017 Private Placement
February 2032
Total Private Placement Senior Notes
The Private Placement Senior Notes were issued as follows:
• On February 27, 2017, Limited issued and sold an aggregate principal amount of $95.0 million, €99.0 million, and £75.0 million of senior notes (collectively, the "2017 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, Corporation issued and sold $350.0 million of senior notes (the "2015 senior notes") in a private placement to certain institutional investors in an offering that was exempt from the registration requirements of the Securities Act of 1933. These notes have maturities of 10 years to 15 years from the issue date. The agreement governing these notes contains leverage and interest coverage covenants.
• In December 2012 and in February 2013, Corporation issued and sold $200.0 million of senior notes (collectively, the "2012 senior notes") in a private placement to certain institutional investors in offerings that were exempt from the registration requirements of the Securities Act of 1933. The agreement governing the notes contains leverage and interest coverage covenants.
• On March 19, 2021, Corporation as issuer, and Parent, Limited and FinCo, as guarantors, entered into (1) a First Amendment to Amended and Restated Note Purchase Agreement dated March 5, 2019 (which had amended and restated certain note purchase agreements originally dated December 4, 2012) for the 2012 senior notes (the “2012 Amendment”), and (2) a First Amendment to Amended and Restated Note Purchase Agreement dated March 5, 2019 (which had amended and restated certain note purchase agreements originally dated March 31, 2015) for the 2015 senior notes (the “2015 Amendment”). Also on March 19, 2021, Limited, as issuer, and Parent, Corporation and FinCo, as guarantors, entered into a First Amendment to Amended and Restated Note Purchase Agreement dated March 5, 2019 (which had amended and
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restated a certain note purchase agreement originally dated January 23, 2017) for the 2017 senior notes (together with the 2012 Amendment and the 2015 Amendment, the “NPA Amendments”). The NPA Amendments provided, among other things, for the waiver of certain repurchase rights of the note holders and increased the size of certain baskets to more closely align with other current credit agreement baskets.
At March 31, 2026, we were in compliance with all financial covenants associated with our indebtedness. For additional information on our sources of funding and credit, refer to Note 8 to our consolidated financial statements titled, “Debt.”
CAPITAL EXPENDITURES
Our capital expenditure program is a component of our long-term strategy. This program includes, among other things, investments in new and existing facilities, business expansion projects, cobalt-60, information technology enhancements, and research and development advances. During fiscal 2026, our capital expenditures amounted to $369.0 million. We use cash provided by operating activities and our cash and cash equivalent balances to fund capital expenditures. In fiscal 2027, we plan to continue to invest in facility expansions, particularly within our Healthcare and AST segments, and in ongoing maintenance for existing facilities. We will also commence a multi-year project to invest in upgraded technology to support our service and sales workflows within our Healthcare and Life Sciences segments.
MATERIAL FUTURE CASH OBLIGATIONS AND COMMERCIAL COMMITMENTS
Cash Requirements. We intend to use our existing cash and cash equivalent balances and cash generated from operations to fund capital expenditures and meet our other liquidity needs. Our capital requirements depend on many uncertain factors, including our rate of sales growth, our Customers’ acceptance of our products and services, the costs of obtaining adequate manufacturing capacities, the timing and extent of our research and development projects, changes in our operating expenses and other factors. To the extent that existing and anticipated sources of cash are not sufficient to fund our future activities, we may need to raise additional funds through additional borrowings or the sale of equity securities. There can be no assurance that our financing arrangements will provide us with sufficient funds or that we will be able to obtain any additional funds on terms favorable to us or at all.
Our material future cash obligations and commercial commitments as of March 31, 2026 are presented in the following tables. 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 events that require us to fulfill commitments.
Payments due by March 31,
(in millions)
2031 and thereafter
Total
Material Future Cash Obligations:
Debt
Operating leases
Purchase obligations
Benefit payments under defined benefit plans
Trust assets available for benefit payments under defined benefit plans
Benefit payments under other post-retirement benefits plans
Total Material Future Cash Obligations
The table above includes only the principal amounts of our material future cash obligations. We provide information about the interest component of our long-term debt in the subsection of MD&A titled, “Liquidity and Capital Resources,” and in Note 8 to our consolidated financial statements titled, “Debt.”
Purchase obligations shown in the table above relate to minimum purchase commitments with suppliers for materials purchases and long-term construction contracts.
The table above excludes contributions we make to our defined contribution plans. Our future contributions to the defined contribution plans depend on uncertain factors, such as the amount and timing of employee contributions and discretionary employer contributions. We provide additional information about our defined benefit pension plans, defined contribution plan, and other post-retirement benefits plan in Note 11 to our consolidated financial statements titled, "Benefit Plans."
The table above also excludes potential obligations related to our investment activities of approximately $211.0 million (based on contractual amounts, excluding working capital adjustments), including arrangements that provide for the potential
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acquisition of the remaining equity interests in an investee, as well as contingent consideration arrangements. The timing and ultimate amount of any such obligations cannot be determined at this time, as they are contingent on the occurrence of specified events or conditions and, in certain cases, future operating performance.
Amount of Commitment Expiring March 31,
(in millions)
2031 and thereafter
Totals
Commercial Commitments:
Letters of credit and surety bonds
Letters of credit as security for self-insured risk retention policies
Total Commercial Commitments
SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
Parent and its wholly-owned subsidiaries, Limited and Corporation, each have provided guarantees of the obligations of FinCo, a wholly-owned subsidiary issuer, under Senior Public Notes issued by FinCo on April 1, 2021 and of certain other obligations relating to the Senior Public Notes. The Senior Public Notes are guaranteed, jointly and severally, on a senior unsecured basis. The Senior Public Notes and the related guarantees are senior unsecured obligations of FinCo and the Guarantors, respectively, and are equal in priority with all other unsecured and unsubordinated indebtedness of FinCo and the Guarantors, respectively, from time to time outstanding, including, as applicable, under the Private Placement Senior Notes and borrowings under the Revolving Credit Facility.
All of the liabilities of non-guarantor direct and indirect subsidiaries of Parent, other than FinCo, Limited and Corporation, including any claims of trade creditors, are effectively senior to the Senior Public Notes.
FinCo’s main objective and source of revenues and cash flows is the provision of short- and long-term financing for the activities of Parent and its subsidiaries.
The ability of our subsidiaries to pay dividends, interest and other fees to FinCo and ability of FinCo and Guarantors to service the Senior Public Notes may be restricted by, among other things, applicable corporate and other laws and regulations as well as agreements to which our subsidiaries are or may become a party.
The following is a summary of these guarantees:
Guarantees of Senior Notes
• Parent Company Guarantor – STERIS plc
• Subsidiary Issuer – STERIS Irish FinCo Unlimited Company
• Subsidiary Guarantor – STERIS Limited
• Subsidiary Guarantor – STERIS Corporation
The guarantee of a Guarantor will be automatically and unconditionally released and discharged:
• in the case of a subsidiary Guarantor, upon the sale, transfer or other disposition (including by way of consolidation or merger) of such subsidiary Guarantor, other than to the Parent or a subsidiary of the Parent and as permitted by the Indenture;
• in the case of a subsidiary Guarantor, upon the sale, transfer or other disposition of all or substantially all the assets of such subsidiary Guarantor, other than to the Parent or a subsidiary of the Parent and as permitted by the Indenture;
• in the case of a subsidiary Guarantor, at such time as such subsidiary Guarantor is no longer a borrower under or no longer guarantees any material credit facility (subject to reinstatement in specified circumstances);
• upon the legal defeasance or covenant defeasance of the Senior Public Notes or the discharge of FinCo’s obligations under the Indenture in accordance with the terms of the Indenture;
• as described in accordance with the terms of the Indenture; or
• in the case of Parent, if FinCo ceases for any reason to be a subsidiary of Parent; provided that all guarantees and other obligations of Parent in respect of all other indebtedness under any material credit facility of FinCo terminate upon FinCo ceasing to be a subsidiary of Parent; and
• upon such Guarantor delivering to the trustee an officer’s certificate and an opinion of counsel, each stating that all conditions precedent provided for in the Indenture relating to such transaction or release have been complied with.
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The obligations of each Guarantor under its guarantee are expressly limited to the maximum amount that such Guarantor could guarantee without such guarantee constituting a fraudulent conveyance. Each Guarantor that makes a payment under its guarantee will be entitled upon payment in full of all guaranteed obligations under the indenture to a contribution from each Guarantor in an amount equal to such other Guarantor’s pro rata portion of such payment based on the respective net assets of all the Guarantors at the time of such payment determined in accordance with U.S. GAAP.
The following tables present summarized results of operations for the year ended March 31, 2026 and summarized balance sheet information at March 31, 2026 and 2025 for the obligor group of the Senior Public Notes. The obligor group consists of Parent, FinCo, and the other Guarantors. The summarized financial information is presented after elimination of (i) intercompany transactions and balances among the guarantors and issuer and (ii) equity in earnings from and investments in any subsidiary that is a non-guarantor or issuer. Transactions with non-issuer and non-guarantor subsidiaries have been presented separately.
Summarized Results of Operations
Twelve Months Ended
March 31,
(in millions)
Revenues
Gross profit
Operating costs arising from transactions with non-issuers and non-guarantors - net
Income from operations
Non-operating income (expense) arising from transactions with subsidiaries that are non-issuers and non-guarantors - net
Net income
Summarized Balance Sheet Information
At March 31,
(in millions)
Receivables due from non-issuers and non-guarantor subsidiaries
Other current assets
Total current assets
Non-current receivables due from non-issuers and non-guarantor subsidiaries
Goodwill
Other non-current assets
Total non-current assets
Payables due to non-issuers and non-guarantor subsidiaries
Other current liabilities
Total current liabilities
Non-current payables due to non-issuers and non-guarantor subsidiaries
Other non-current liabilities
Total non-current liabilities
Credit Ratings
STERIS's Senior Public Notes have been assigned the following credit ratings:
Standard & Poor's
Moody's
Fitch
Credit Ratings (1)
BBB
Baa2
BBB
(1) Effective May 20, 2026
Each of the credit rating agencies reviews its rating periodically and there is no guarantee our current credit ratings will remain the same. If our credit ratings were lowered, our ability to access the debt markets, our cost of funds, and other terms for new debt issuances could be adversely impacted.
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CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
The following subsections describe our most critical accounting estimates, and assumptions. Our accounting policies and recently issued accounting pronouncements are more fully described in Note 1 to our consolidated financial statements titled, "Nature of Operations and Summary of Significant Accounting Policies."
Estimates and Assumptions. Our discussion and analysis of financial condition and results of operations is based on our consolidated financial statements that were prepared in accordance with United States generally accepted accounting principles. We make certain estimates and assumptions that we believe to be reasonable when preparing these financial statements. These estimates and assumptions involve judgments with respect to numerous factors that are difficult to predict and are beyond management’s control. As a result, actual amounts could be materially different from these estimates. We periodically review these critical accounting policies, estimates, assumptions, and the related disclosures with the Audit Committee of the Company’s Board of Directors.
Revenue Recognition. Revenue is recognized when obligations under the terms of the contract are satisfied and control of the promised products or services has transferred to the Customer. Revenues are measured at the amount of consideration that we expect to be paid in exchange for the products or services. Product revenues are recognized when control passes to the Customer, which is generally based on contract or shipping terms. Service revenues are 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 revenues are 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 revenues for discounts and estimated returns, rebates, and other similar allowances in the same period the related revenues are recorded. The reduction in revenues for these items is estimated based on historical experience and trend analysis to the extent that it is probable that a significant reversal of revenues 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 revenues 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 revenues are recognized and when payment is due is not significant. We do not evaluate whether the selling price contains a financing component for contracts that have a duration of less than one year.
We do not capitalize sales commissions as substantially all of our sales commission programs have an amortization period of one year or less.
Certain costs to fulfill a contract are capitalized and amortized over the term of the contract if they are recoverable, directly related to a contract and generate resources that we will use to fulfill the contract in the future. At March 31, 2026, assets related to costs to fulfill a contract were not material to our consolidated financial statements.
Inventories and Reserves. Inventories are stated at the lower of their cost and net realizable value determined by the first-in, first-out cost method. Inventory costs include material, labor, and overhead.
We review inventory on an ongoing basis, considering factors such as deterioration and obsolescence. We record an allowance for estimated losses when the facts and circumstances indicate that particular inventories will not be usable. If future 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.
Asset Impairment Losses. Property, plant, equipment, and identifiable intangible assets are reviewed for impairment when events and circumstances indicate that the carrying value of such assets may not be recoverable. Impaired assets are recorded at the lower of carrying value or estimated fair value. We conduct this review on an ongoing basis and, if impairment exists, we record the loss in the Consolidated Statements of Income during that period.
When we evaluate assets for impairment, we make certain judgments and estimates, including interpreting current economic indicators and market valuations, evaluating our strategic plans with regards to operations, historical and anticipated performance of operations, and other factors. If we incorrectly anticipate these factors, or unexpected events occur, our operating results could be materially affected.
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Purchase Accounting and Goodwill. Assets and liabilities of the business acquired are accounted for at their estimated fair values as of the acquisition date. Any excess of the cost of the acquisition over the fair value of the net tangible and intangible assets acquired is recorded as goodwill. We supplement management expertise with valuation specialists in performing appraisals to assist us in determining the fair values of assets acquired and liabilities assumed. These valuations require us to make estimates and assumptions, especially with respect to intangible assets. We generally amortize our intangible assets over their estimated useful lives with the exception of indefinite lived intangible assets. We do not amortize goodwill, but we evaluate it annually for impairment. Therefore, the allocation of the purchase price to intangible assets and goodwill has a significant impact on future operating results.
We evaluate the recoverability of recorded goodwill amounts annually, or when evidence of potential impairment exists. We may consider qualitative indicators of the fair value of a reporting unit when it is unlikely that a reporting unit has impaired goodwill. We may also utilize a discounted cash flow analysis that requires certain assumptions and estimates be made regarding market conditions and our future profitability. In those circumstances, we test goodwill for impairment by reviewing the book value compared to the fair value at the reporting unit level. We calculate the fair value of our reporting units based on the present value of estimated future cash flows. Management's judgment is necessary to evaluate the impact of operating and macroeconomic changes and to estimate future cash flows to measure fair value. Assumptions used in our impairment evaluations, such as forecasted growth rates and cost of capital, are consistent with internal projections and operating plans. We believe such assumptions and estimates are also comparable to those that would be used by other marketplace participants.
We evaluate indefinite lived intangible assets annually, or when evidence of potential impairment exists. We evaluate several qualitative indicators and assumptions, and trends that influence the valuation of the assets to determine if any evidence of potential impairment exists.
Income Taxes. Our provision for income taxes is based on our current period income, changes in deferred income tax assets and liabilities, income tax rates, changes in uncertain tax benefits, and tax planning opportunities available to us in the various jurisdictions in which we operate. Tax laws are complex and subject to different interpretations by the taxpayer and the respective governmental taxing authorities. We use judgment in determining our annual effective income tax rate and evaluating our tax positions. We prepare and file tax returns based on our interpretation of tax laws and regulations, and we record estimates based on these judgments and interpretations. We cannot be sure that the tax authorities will agree with all of the tax positions taken by us. The actual income tax liability for each jurisdiction in any year can, in some instances, ultimately be determined several years after the tax return is filed and the financial statements are published.
We evaluate our tax positions using the recognition threshold and measurement attribute in accordance with current accounting guidance. We determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, we presume that the position will be examined by the appropriate taxing authority and that the taxing authority will have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The appropriate unit of account for determining what constitutes an individual tax position, and whether the more-likely-than-not recognition threshold is met for a tax position, is a matter of judgment based on the individual facts and circumstances of that position evaluated in light of all available evidence. We review and adjust our tax estimates periodically because of ongoing examinations by and settlements with the various taxing authorities, as well as changes in tax laws, regulations and precedent.
We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. We regularly review our deferred tax assets for recoverability and establish a valuation allowance based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences, and the implementation of tax planning strategies. If we are unable to generate sufficient future taxable income in certain tax jurisdictions, or if there is a material change in the effective income tax rates or time period within which the underlying temporary differences become taxable or deductible, we could be required to increase our valuation allowance, which would increase our effective income tax rate and could result in an adverse impact on our consolidated financial position, results of operations, or cash flows.
We believe that adequate accruals have been made for income taxes. Differences between the estimated and actual amounts determined upon ultimate resolution, individually or in the aggregate, are not expected to have a material adverse effect on our consolidated financial position, but could possibly be material to our consolidated results of operations or cash flows for any one period.
Additional information regarding income taxes is included in Note 10 to our consolidated financial statements titled, “Income Taxes.”
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Contingencies. We are, and will likely continue to be, involved in a number of legal proceedings, government investigations, and claims, which we believe generally arise in the course of our business, given our size, history, complexity, and the nature of our business, products, Customers, regulatory environment, and industries in which we participate. These legal proceedings, investigations and claims generally involve a variety of legal theories and allegations, including, without limitation, personal injury (e.g., slip and falls, burns, vehicle accidents), product liability or regulation (e.g., based on product operation or claimed malfunction, failure to warn, failure to meet specification, or failure to comply with regulatory requirements), product exposure (e.g., claimed exposure to chemicals, gases, asbestos, contaminants, radiation), property (e.g., claimed due to leaking equipment, fire, vehicles, chemicals), commercial (e.g., of contract, economic , warranty, ), financial (e.g., taxes, reporting), employment (e.g., , discrimination, benefits matters), and other for and relief.
We record a liability for such contingencies to the extent we conclude that their occurrence is both probable and estimable and believe we have adequately reserved for our current litigation and claims that are probable and estimable. In the event that the estimate of a probable loss is a range and no amount within the range is more likely, we accrue the minimum amount of the range. We consider many factors in making these assessments, including the professional judgment of experienced members of management and our legal counsel. We have made estimates as to the likelihood of unfavorable outcomes and the amounts of such potential losses. Further, we believe that the ultimate outcome of 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, or other proceedings. For certain types of , we presently maintain insurance coverage for personal and property and other liability coverages in amounts and with deductibles that we believe are prudent, and we may also have contractual indemnification rights certain liabilities, but there can be no assurance that either will be applicable or adequate to cover outcomes of or legal proceedings us. We record expected recoveries under applicable contracts when we are of recovery. Additional information regarding our commitments and contingencies is included in Note 12 to our consolidated financial statements titled, "Commitments and Contingencies."
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 10 to our consolidated financial statements titled, “Income Taxes” in t his Annual Report on Form 10-K.
Benefit Plans. We provide defined benefit pension plans for certain employees and retirees. In addition, we sponsor an unfunded post-retirement benefits plan for two groups of United States retirees. Benefits under this plan include retiree life insurance and retiree medical insurance, including prescription drug coverage.
Employee pension and post-retirement benefits plans are a cost of conducting business and represent obligations that will be settled in the future and therefore, require us to use estimates and make certain assumptions to calculate the expense and liabilities related to the plans. Changes to these estimates and assumptions can result in different expense and liability amounts. Future actual experience may be significantly different from our current expectations. We believe that the most critical assumptions used to determine net periodic benefit costs and projected benefit obligations are the expected long-term rate of return on plan assets and the discount rate. A summary of significant assumptions used to determine the March 31, 2026 projected benefit obligations and the fiscal 2026 net periodic benefit costs is as follows:
Synergy Health plc
Isotron BV
Synergy Health Daniken AG
Synergy Health Radeberg
Synergy Health Allershausen
Harwell Dosimeters Ltd
U.S. Post-
Retirement Benefits Plan
Funding Status
Funded
Funded
Unfunded
Unfunded
Unfunded
Funded
Unfunded
Assumptions used to determine March 31, 2026
Benefit obligations:
Discount rate
Assumptions used to determine fiscal 2026
Net periodic benefit costs:
Discount rate
Expected return on plan assets
NA – Not applicable.
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We develop our expected long-term rate of return on plan assets assumptions by evaluating input from third-party professional advisors, taking into consideration the asset allocation of the portfolios, and the long-term asset class return expectations. Generally, net periodic benefit costs increase as the expected long-term rate of return on plan assets assumption decreases. Holding all other assumptions constant, lowering the expected long-term rate of return on plan assets assumption for our funded defined benefit pension plans by 50 basis points would have increased the fiscal 2026 benefit costs by less than $0.4 million.
We develop our discount rate assumptions by evaluating input from third-party professional advisers, taking into consideration the current yield on country specific investment grade long-term bonds which provide for similar cash flow streams as our projected benefit obligations. Generally, the projected benefit obligations and the net periodic benefit costs both increase as the discount rate assumption decreases. Holding all other assumptions constant, lowering the discount rate assumption for our defined benefit pension plans and for the other post-retirement benefits plan by 50 basis points would have decreased the fiscal 2026 net periodic benefit costs by less than $0.2 million and would have increased the projected benefit obligations by approximately $7.6 million at March 31, 2026.
We recognize an asset for the overfunded status or a liability for the underfunded status of defined benefit pension and post-retirement benefit plans in our balance sheets. This amount is measured as the difference between the fair value of plan assets and the benefit obligation (the projected benefit obligation for pension plans and the accumulated post-retirement benefit obligation for other post-retirement benefit plans). Changes in the funded status of the plans are recorded in other comprehensive income in the year they occur. We measure plan assets and obligations as of the balance sheet date. Note 11 to our consolidated financial statements titled, “Benefit Plans,” contains additional information about our pension and other post-retirement welfare benefits plans.
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FORWARD-LOOKING STATEMENTS
This Form 10-K may contain statements concerning certain trends, expectations, forecasts, estimates, or other forward-looking information affecting or relating to STERIS or its industry, products or activities that are intended to qualify for the protections afforded “forward-looking statements” under the Private Securities Litigation Reform Act of 1995 and other laws and regulations. Forward-looking statements speak only as to the date the statement is made and may be identified by the use of forward-looking terms such as “may,” “will,” “expects,” “believes,” “anticipates,” “plans,” “estimates,” “projects,” “targets,” “forecasts,” “outlook,” “impact,” “potential,” “confidence,” “improve,” “optimistic,” “deliver,” “orders,” “backlog,” “comfortable,” “trend,” and “seeks,” or the negative of such terms or other variations on such terms or comparable terminology.
Many factors could cause actual results to differ materially from those in the forward-looking statements including, without limitation, those identified in Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K. Other potential risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements include, without limitation: (a) the impact on STERIS and its operations of any legislation, regulations or orders, including but not limited to any new trade, regulations or orders, that may be implemented by the U.S. administration or Congress , or of any responses thereto by non-U.S. governments; (b) operating costs, pressure on pricing (including, without limitation, as a result of inflation), Customer loss and business disruption (including, without limitation, difficulties in maintaining relationships with employees, Customers, clients or suppliers) being greater than expected and leading to erosion of profit margins; (c) the potential of international , military , economic , currency fluctuations and cybersecurity events and any resulting effects on STERIS’s anticipated growth, performance or other results; (d) changes in healthcare policy or government or other third-party payor reimbursement levels; (e) the possibility that compliance with laws, court rulings, certifications, regulations, or other regulatory actions, or the outcome of any pending or , including the EO , may , limit or prevent new product or service introductions, impact production, supply and/or marketing of existing products or services, result in costs, or otherwise affect STERIS’s performance, results, prospects or value; (f) changes in tax laws or interpretations or the adoption of certain income tax treaties in jurisdictions where we operate that could increase our consolidated tax liabilities, including changes in tax laws that would result in STERIS being treated as a U.S. resident for U.S. federal tax purposes, or the impact of tariffs and/or other trade as a result of STERIS’s corporate structure; (g) the impacts of increasing consolidation and competition within our industry, which may exert pressure on our pricing strategy, manufacturing strategy or lead to decreasing demand for our products and services; (h) the effects on our operations resulting from labor-related issues, such as strikes, union negotiations and other workforce or from our to recruit or retain management and other personnel; (i) the level of STERIS’s indebtedness limiting financial flexibility or increasing future borrowing costs; (j) the effects of changes in credit availability and pricing, as well as the ability of STERIS and STERIS’s Customers and suppliers to access the credit markets, on terms or at all, when needed; and (k) the possibility that anticipated financial results, anticipated revenues, productivity , cost savings, growth synergies, and other anticipated benefits of acquisitions, efforts, and will not be realized or will be less than anticipated due to unknown or inestimable liabilities, , or increases in expected integration costs or in connection with the integration of acquired businesses.
Unless legally required, STERIS does not undertake to update or revise any forward-looking statements even if events make clear that any projected results, express or implied, will not be realized.
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