Business Segment Information (Notes)

9 Months Ended

Dec. 31, 2018

We operate and report our financial information in four reportable business segments: Healthcare Products, Healthcare Specialty Services, Life Sciences, and Applied Sterilization Technologies. Corporate, which is presented separately, contains 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.

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.

Segment income is calculated as the segment’s gross profit less direct costs and indirect costs if the resources are dedicated to a single segment. Corporate costs include corporate and administrative functions, public company costs, legacy post-retirement benefits, and certain services and facilities related to distribution and research and development that are shared by multiple segments. Adjustments include acquisition related costs, amortization of acquired intangibles, restructuring costs and other charges that management believes may or may not recur with similar materiality or impact on operating income in future periods. Management believes that by adjusting for these items they gain better insight and greater transparency into the operating performance of the segments, thus aiding them in more meaningful financial trend analysis and operational decision making.

For the three and nine months ended December 31, 2018, revenues from a single Customer did not represent ten percent or more of any reportable segment’s revenues. Additional information regarding our segments is included in our consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2018, dated May 30, 2018.

Financial information for each of our segments is presented in the following table:



	Three Months Ended December 31,						Nine Months Ended December 31,
	2018			2017			2018			2017
Revenues:
Healthcare Products	$	338,264		$	324,895		$	951,779		$	916,053
Healthcare Specialty Services	127,761			117,389			374,564			346,934
Life Sciences	93,451			90,895			275,571			261,291
Applied Sterilization Technologies	136,762			128,721			412,043			379,745
Total revenues	$	696,238		$	661,900		$	2,013,957		$	1,904,023
Segment operating income:
Healthcare Products	$	82,820		$	81,502		$	217,011		$	207,787
Healthcare Specialty Services	16,007			13,720			44,422			44,014
Life Sciences	33,129			31,245			96,260			89,418
Applied Sterilization Technologies	54,798			48,191			164,417			144,713
Corporate	(42,025		)	(38,140		)	(135,053		)	(122,147		)
Total segment operating income	$	144,729		$	136,518		$	387,057		$	363,785
Less: Adjustments
Restructuring charges ⁽¹⁾	$	35,243		$	78		$	35,243		$	156
Amortization of acquired intangible assets ^{(2) (3)}	33,894			16,700			68,907			50,173
Acquisition and integration related charges ⁽⁴⁾	1,816			4,428			6,197			11,850
(Gain) on fair value adjustment of acquisition related contingent consideration ⁽²⁾	—			—			(842		)	—
Net (gain) loss on divestiture of businesses ⁽²⁾	(1,170		)	11,405			(508		)	12,538
Amortization of property "step up" to fair value ⁽²⁾	615			627			1,840			1,895
Redomiciliation costs ⁽⁵⁾	4,747			—			5,633			—
Total operating income	$	69,584		$	103,280		$	270,587		$	287,173

⁽¹⁾ For more information regarding restructuring see Note 2 titled, "Restructuring".

⁽²⁾ For more information regarding our recent acquisitions and divestitures see Note 17 titled, "Business Acquisitions and Divestitures", as well as our Annual Report on Form 10-K for the year ended March 31, 2018, dated May 30, 2018.

⁽³⁾We evaluate the recoverability of indefinite-lived 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 the 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.

⁽⁴⁾ Acquisition and integration related charges include transaction costs and integration expenses associated with acquisitions.

⁽⁵⁾ Costs incurred in connection with the proposal to redomicile. For more information see Note 19 titled, "Proposal to Redomicile".

Additional information regarding our revenue is disclosed in the following tables:



	Three Months Ended December 31,				Nine Months Ended December 31,
	2018		2017		2018		2017
Healthcare Products:
Capital equipment	$	143,180	$	134,196	$	384,086	$	359,196
Consumables	107,451		106,406		309,545		310,938
Service	87,633		84,293		258,148		245,919
Total Healthcare Products Revenues	$	338,264	$	324,895	$	951,779	$	916,053
Total Healthcare Specialty Services Revenues	$	127,761	$	117,389	$	374,564	$	346,934
Life Sciences:
Capital equipment	$	23,363	$	25,337	$	72,289	$	67,093
Consumables	41,157		37,875		119,844		113,833
Service	28,931		27,683		83,438		80,365
Total Life Sciences Revenues	$	93,451	$	90,895	$	275,571	$	261,291
Applied Sterilization Technologies Service Revenues	$	136,762	$	128,721	$	412,043	$	379,745
Total Revenues	$	696,238	$	661,900	$	2,013,957	$	1,904,023



	Three Months Ended December 31,				Nine Months Ended December 31,
	2018		2017		2018		2017
Revenues:
United Kingdom	$	46,067	$	50,902	$	138,074	$	158,211
United States	494,328		465,228		1,423,101		1,334,895
Other locations	155,843		145,770		452,782		410,917
Total Revenues	$	696,238	$	661,900	$	2,013,957	$	1,904,023

STERIS plc 10-Q