Published: 2022-02-09 00:00:00 ET

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Nature of Operations

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

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

Interim Financial Statements

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

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

Principles of Consolidation

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

Use of Estimates

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

Revenue Recognition and Associated Liabilities

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

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

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

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

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

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

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

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

Product Revenue

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

Service Revenue

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

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

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

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Contract Liabilities

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

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

Service Liabilities

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

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

Remaining Performance Obligations

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

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Recently Issued Accounting Standards Impacting the Company

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

Standard

Date of Issuance

Description

Date of Adoption

Effect on the financial statements or other significant matters

Standards that have been adopted in fiscal 2022

ASU 2019-12 "Income Taxes (Topic 740)"

December 2019

The standard provides final guidance that simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The guidance simplifies accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill.

First Quarter Fiscal 2022

We adopted this standard effective April 1, 2021 with no material impact to our consolidated financial statements.

ASU 2020-06 "Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)"

August 2020

This standard simplifies the accounting for convertible instruments and its application of the derivatives scope exception for contracts in an entity’s own equity. The standard reduces the number of accounting models that require separating embedded conversion features from convertible instruments. As a result, only conversion features accounted for under the substantial premium model and those that require bifurcation will be accounted for separately. For contracts in an entity’s own equity, the new standard eliminates some of the current requirements for equity classification. The standard also addresses how convertible instruments are accounted for in the diluted earnings per share calculation and requires enhanced disclosures about the terms of convertible instruments and contracts in an entity’s own equity.

First Quarter Fiscal 2022

We adopted this standard effective April 1, 2021 and applied it to our accounting for the convertible debt assumed in the acquisition of Cantel Medical Corp. ("Cantel").

Standards that have not yet been adopted.

ASU 2021-08 "Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.

October 2021

The standard provides guidance to improve the accounting for acquired revenue contracts with Customers in a business combination by addressing diversity in practice and inconsistency related to the recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer. The standard is effective for annual periods beginning after December 15, 2022 including interim periods within that year and early adoption is permitted.

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We are in the process of evaluating the impact that the standard will have on our consolidated financial statements.

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

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

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

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

Total Purchase Consideration

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

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

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

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

Fair Value of Assets Acquired and Liabilities Assumed

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

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

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

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

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

Other Intangible Assets

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

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

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

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

Actual and Pro Forma Impact

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

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

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

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

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

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

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

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

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

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

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

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Indebtedness was as follows:

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

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

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

Senior Public Notes

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

Cantel's Convertible Debt

On May 15, 2020, Cantel issued $168,000 aggregate principal amount of 3.25% convertible senior notes due 2025 (the “Notes”) in a private placement. The initial conversion price was $41.51 per share of Cantel common stock (based on an initial conversion rate of 24.0912 shares of Cantel common stock per one thousand dollars in principal amount of Notes) and was, along with the conversion rate, subject to adjustment if certain events occurred.

On June, 3, 2021, Cantel (a) delivered a notice to holders of its Notes pursuant to the indenture governing the Notes (as supplemented, the "Cantel Indenture”), notifying holders that, as a result of each of (i) the consummation of the series of mergers (the “Mergers”) contemplated by the Agreement and Plan of Merger, dated as of January 12, 2021 (as amended by Amendment to Agreement and Plan of Merger, dated as of March 1, 2021), among Cantel, STERIS plc (“Parent”), Solar New US Holding Co, LLC (now known as Solar New US Holding Corporation) (“US Holdco”), an indirect and wholly owned subsidiary of Parent, and Crystal Merger Sub 1, LLC, a direct and wholly owned subsidiary of US Holdco, and (ii) the delisting of Cantel common stock from the New York Stock Exchange (the “NYSE”), a “Fundamental Change” and a “Make-Whole Fundamental Change,” each as defined in the Cantel Indenture, had occurred effective as of June 2, 2021 and (b) commenced an offer to purchase any and all outstanding Notes as a result of the Fundamental Change.

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A tender offer statement on Schedule TO (“Schedule TO”) was filed by Cantel with the U.S. Securities and Exchange Commission ("SEC") with respect to the right of each holder (each, a “Holder”) of the Notes to require Cantel to repurchase, at the Holder’s option, 100% of the principal amount of the Notes, plus accrued and unpaid interest thereon to, but excluding the settlement date of July 6, 2021 (as such date was amended by Amendment No. 1 to Schedule TO (“Amendment No. 1”), dated June 29, 2021).

The offer to purchase the Notes expired at 11:59 p.m. New York City time, on July 1, 2021 (the “Expiration Time,” as such date was amended by Amendment No. 1), and was not extended. Wells Fargo Bank, National Association, as paying agent and trustee under the Indenture (the “Cantel Trustee”), informed Cantel that as of the Expiration Time, none of the Notes had been validly tendered (and not properly withdrawn) for purchase.

Pursuant to the terms of the Cantel Indenture, in connection with the consummation of the Mergers, Cantel, Parent and the Cantel Trustee entered into a supplemental indenture providing that, following the Mergers, each holder’s right to convert each one thousand dollar principal amount of Notes into shares of Cantel common stock was changed into a right to convert such principal amount of Notes into the kind and amount of cash, stock, other securities, other property or assets, subject to settlement method election provisions of the Indenture, that a holder of Cantel common stock was entitled to receive upon consummation of the Mergers. At the consummation of the Mergers, holders of Cantel common stock received $16.93 in cash and 0.33787 ordinary shares, par value $0.001 per share, of the Parent (“Parent Shares”) for each share of Cantel common stock (each a “unit of Reference Property”).

Because each of the consummation of the Mergers and the delisting of Cantel common stock from the NYSE constituted a “Make-Whole Fundamental Change” under the Cantel Indenture, any Notes surrendered for conversion from and including June 2, 2021 until July 2, 2021 (the “Make-Whole Conversion Period”) are subject to conversion at the conversion rate of 25.0843 units of Reference Property (the “Make-Whole Conversion Rate”), which corresponds to 8.4752 Parent Shares and approximately $424.68 in cash per one thousand dollars in principal amount of Cantel Notes. The Make-Whole Conversion Rate was based on an increase in the Conversion Rate by 0.9931 Additional Shares (as defined in the Indenture) based on a Make-Whole Effective Date of June 2, 2021 and a Stock Price (each as defined in the Indenture) of $81.3520. As previously announced by Cantel, it will settle all conversions of Notes in connection with the Make-Whole Fundamental Changes that constitute the Mergers and delisting of Cantel common stock from the NYSE pursuant to the Cash Settlement provisions of the Cantel Indenture.

The Cantel Trustee, acting as conversion agent, informed Cantel that holders of 100% of the outstanding Notes elected to convert their Notes during the Make-Whole Conversion Period.

The fair value of the Notes exceeded their aggregate par value of $168,000 at the date of consummation of the Mergers. The fair value was estimated utilizing the closing price of Parent Shares on June 2, 2021. A premium of approximately $175,555 in excess of the aggregate par value of the Notes represented purchase consideration and was initially classified in additional paid-in capital in accordance with ASC 2020-06, "Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)."

Because all Holders elected to convert during the Make-Whole Conversion Period, the aggregate par value outstanding was reclassified to current liabilities in the balance sheet. The premium initially recorded as additional paid in capital at the effective time of the Mergers was reclassified to "Convertible debt, premium liability," also classified as a current liability, and was settled in cash.

The final total Cash Settlement value of the Notes was approximately $371,361, comprised of the aggregate par value of $168,000 and the fair value of the liability representing the premium over par of approximately $203,361.

The liability representing the premium over par value increased between the effective date of the Mergers and settlement because of the movement in trading prices of Parent Shares during the Observation Periods. The fluctuation in fair value during such Observation Periods is reported in the statement of income as a component of “Non-operating expense, net.”

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

2023			142,875
2024			60,000
2025			165,938
2026			549,038
2027 and thereafter			2,407,965
Total			$	3,325,816

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

						December 31, 2021						March 31, 2021
Accrued payroll and other related liabilities:
Compensation and related items						$	83,919					$	47,157
Accrued vacation/paid time off						14,692						12,389
Accrued bonuses						59,079						62,530
Accrued employee commissions						18,962						24,022
Other postretirement benefit obligations-current portion						1,326						1,326
Other employee benefit plans obligations-current portion						2,547						2,654
Total accrued payroll and other related liabilities						$	180,525					$	150,078
Accrued expenses and other:
Deferred revenues						$	106,329					$	62,492
Service liabilities						44,503						46,720
Self-insured risk reserves-current portion						11,320						8,095
Accrued dealer commissions						37,037						27,348
Accrued warranty						13,999						9,406
Asset retirement obligation-current portion						1,186						1,193
Accrued Interest						18,209						7,751
Other						95,876						57,552
Total accrued expenses and other						$	328,459					$	220,557
Other liabilities:
Self-insured risk reserves-long-term portion						$	17,295					$	17,295
Other postretirement benefit obligations-long-term portion						7,809						8,690
Defined benefit pension plans obligations-long-term portion						1,211						3,748
Other employee benefit plans obligations-long-term portion						2,175						2,353
Accrued long-term income taxes						12,350						13,241
Asset retirement obligation-long-term portion						12,066						12,137
Other						21,857						30,546
Total other liabilities						$	74,763					$	88,010

The effective income tax rates for the three month periods ended December 31, 2021 and 2020 were 21.6% and 17.8%, respectively. The effective income tax rates for the nine month periods ended December 31, 2021 and 2020 were 21.5% and 18.8%, respectively. The fiscal 2022 effective tax rates increased when compared to fiscal 2021, primarily due to Cantel and our other recent acquisitions, which historically have had higher effective tax rates than STERIS. The fiscal 2022 effective tax rate also reflects the impact of one-time, non-deductible acquisition related costs.

Income tax expense is provided on an interim basis based upon our estimate of the annual effective income tax rate, adjusted each quarter for discrete items. In determining the estimated annual effective income tax rate, we analyze various factors, including projections of our annual earnings and taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes, our ability to use tax credits and net operating loss carry forwards, and available tax planning alternatives.

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 2018 and, with limited exceptions, we are no longer subject to United States state and local, or non-United States, income tax

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examinations by tax authorities for years before fiscal 2016. We remain subject to tax authority audits in various jurisdictions wherever we do business.

In the fourth quarter of fiscal 2021, we completed an appeals process with the U.S. Internal Revenue Service (the “IRS”) regarding proposed audit adjustments related to deductibility of interest paid on intercompany debt for fiscal years 2016 through 2017. An agreement was reached on final interest rates, and we are continuing to determine total impact on tax liability in each affected year. We recorded an estimate of the total federal, state, and local tax impact of the settlement of approximately $12,000, for the fiscal years 2016 through 2020.

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.

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 following portions of our Annual Report on Form 10-K for the year ended March 31, 2021 dated May 28, 2021: Item 1 titled “Business - Information with respect to our Business in General - Government Regulation,” and the “Risk Factors” in Item 1A titled "Product related regulations and claims."

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 non-U.S. 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 7 to our consolidated financial statements titled, “Income Tax Expense” in this Quarterly Report on Form 10-Q.

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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 solutions also include single-use devices and capital equipment infrastructure used primarily in operating rooms, ambulatory surgery centers, endoscopy suites, and other procedural areas.

Our Applied Sterilization Technologies ("AST") segment is a third-party service provider for contract sterilization, as well as testing services needed to validate sterility services for medical device and pharmaceutical manufacturers. 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 that support pharmaceutical manufacturing, primarily for vaccine and other biopharma Customers focused on aseptic manufacturing. These solutions include a full suite of consumable products, equipment maintenance and specialty services, and capital equipment.

Our Dental segment provides a comprehensive offering for dental practitioners and dental schools, offering instruments, infection prevention consumables and instrument management systems.

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 the three and nine months ended December 31, 2021, revenues from a single Customer did not represent ten percent or more of the Healthcare, Applied Sterilization Technologies or Life Sciences segment’s revenues. Three Customers collectively consistently account for more than 40.0% of our Dental segment revenue. The percentage associated with these three Customers collectively in any one period may vary due to the buying patterns of these three Customers as well as other Dental Customers. These three Customers collectively accounted for approximately 55.8% and 46.1% of our Dental segment revenues for the three months and nine months ended December 31, 2021, respectively. Additional information regarding certain of our segments is included in our consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2021, dated May 28, 2021.

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

						Three Months Ended December 31,												Nine Months Ended December 31,
						2021						2020						2021						2020
Revenues:												(*as adjusted)												(*as adjusted)
Healthcare						$	759,675					$	521,662					$	2,106,626					$	1,392,247
Applied Sterilization Technologies						216,298						176,462						630,092						498,371
Life Sciences						127,908						110,800						381,706						343,370
Dental						105,090						—						255,954						—
Total revenues						$	1,208,971					$	808,924					$	3,374,378					$	2,233,988
Operating income (loss):
Healthcare						$	169,267					$	115,412					$	465,817					$	304,380
Applied Sterilization Technologies						101,343						81,626						303,059						222,416
Life Sciences						52,032						41,541						158,639						136,435
Dental						23,096						—						65,607						—
Corporate						(55,849)						(47,941)						(202,461)						(158,463)
Total operating income before adjustments						$	289,889					$	190,638					$	790,661					$	504,768
Less: Adjustments
Amortization of acquired intangible assets (1)						$	75,021					$	23,194					$	191,552					$	62,648
Acquisition and integration related charges (2)						9,298						11,563						167,698						13,984
Redomiciliation and tax restructuring costs (3)						118						296						228						850
(Gain) on fair value adjustment of acquisition related contingent consideration (1)						—						(500)						—						(500)
Net loss on divestiture of businesses (1)						489						—						893						5
Amortization of inventory and property "step up" to fair value (1)						2,237						1,784						96,513						3,101
COVID-19 incremental costs (4)						—						7,251						—						20,460
Restructuring (credit) charges (5)						(207)						20						17						110
Total operating income						$	202,933					$	147,030					$	333,760					$	404,110

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

(1) For more information regarding our recent acquisitions and divestitures refer to Note 2 titled, "Business Acquisitions and Divestitures" and to our Annual Report on Form 10-K for the year ended March 31, 2021, dated May 28, 2021.

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

(3) Costs incurred in tax restructuring.

(4) COVID-19 incremental costs includes the additional costs attributable to COVID-19 such as enhanced cleaning protocols, personal protective equipment for our employees, event cancellation fees, and payroll costs associated with our response to COVID-19, net of any government subsidies available.

(5) For more information regarding our restructuring efforts refer to our Annual Report on Form 10-K for the year ended March 31, 2021, dated May 28, 2021.

Additional information regarding our fiscal 2022 and fiscal 2021 revenue is disclosed in the following tables:

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						Three Months Ended December 31,												Nine Months Ended December 31,
						2021						2020						2021						2020
Healthcare:
Capital equipment						$	217,214					$	147,855					$	570,509					$	407,610
Consumables						273,750						148,839						750,531						355,390
Service						268,711						224,968						785,586						629,247
Total Healthcare Revenues						$	759,675					$	521,662					$	2,106,626					$	1,392,247
Applied Sterilization Technologies Service Revenues						$	216,298					$	176,462					$	630,092					$	498,371
Life Sciences:
Capital equipment						$	30,412					$	28,993					$	97,343					$	88,664
Consumables						61,096						49,627						179,380						164,262
Service						36,400						32,180						104,983						90,444
Total Life Sciences Revenues						$	127,908					$	110,800					$	381,706					$	343,370
Dental Revenues						$	105,090					$	—					$	255,954					$	—
Total Revenues						$	1,208,971					$	808,924					$	3,374,378					$	2,233,988

			Three Months Ended December 31,												Nine Months Ended December 31,
			2021						2020						2021						2020
Revenues:
Ireland			$	20,086					$	20,316					$	62,077					$	51,779
United States			851,292						572,397						2,383,039						1,613,554
Other locations			337,593						216,211						929,262						568,655
Total Revenues			$	1,208,971					$	808,924					$	3,374,378					$	2,233,988

						December 31, 2021						March 31, 2021
Property, Plant, and Equipment, Net
Ireland						$	54,977					$	52,140
United States						859,601						673,784
Other locations						607,009						509,476
Property, Plant, and Equipment, Net						$	1,521,587					$	1,235,400

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 and Life Sciences segments.

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Individual facilities, equipment, and intellectual properties are utilized for production by both the Healthcare 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 and Life Sciences segments. Therefore, their respective amounts are reported together.

						December 31, 2021						March 31, 2021
Assets:
Healthcare and Life Sciences						$	5,374,009					$	3,600,182
Applied Sterilization Technologies						3,047,602						2,974,289
Dental						1,118,528						—
Cantel related goodwill not yet allocated (1)						2,149,827						—
Total assets						$	11,689,966					$	6,574,471

(1) Amount is still preliminary as of December 31, 2021, as valuations have not been finalized. For the purpose of our annual Goodwill testing performed at October 31, 2021, the preliminary allocation of Goodwill by business segment was approximately $1,336,000 and $814,000 to the Healthcare and Life Sciences, and the Dental business segments, respectively.

The increase in total assets for the December 31, 2021 period is primarily related to the acquisition of Cantel. Refer to Note 2 titled, "Business Acquisitions and Divestiures," for more information.

Ordinary shares

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:

						Three Months Ended December 31,												Nine Months Ended December 31,
Denominator (shares in thousands):						2021						2020						2021						2020
Weighted average shares outstanding—basic						100,038						85,330						96,679						85,153
Dilutive effect of share equivalents						788						702						823						698
Weighted average shares outstanding and share equivalents—diluted						100,826						86,032						97,502						85,851

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:

						Three Months Ended December 31,												Nine Months Ended December 31,
(shares in thousands)						2021						2020						2021						2020
Number of share options						271						278						251						370

Additional Authorized Shares

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

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On May 7, 2019, our Board of Directors authorized a share repurchase program resulting in a share repurchase authorization of approximately $78,979 (net of taxes, fees and commissions). On July 30, 2019, our Board of Directors approved an increase in the May 7, 2019 authorization of an additional amount of $300,000 (net of taxes, fees and commissions). As of December 31, 2021, there was approximately $333,932 (net of taxes, fees and commissions) of remaining availability under the Board authorized share repurchase program. The share repurchase program has no specified expiration date.

Under the authorization, the Company may repurchase its shares from time to time through open market purchases, including 10b5-1 plans. Any share repurchases may be activated, suspended or discontinued at any time. Due to the uncertainty surrounding the COVID-19 pandemic, share repurchases were suspended on April 9, 2020. The suspension has been lifted effective February 10, 2022, enabling the Company to resume stock repurchases pursuant to the prior authorizations.

From the start of fiscal 2021 through April 9, 2020, we repurchased 35,000 of our ordinary shares for the aggregate amount of $5,047 (net of fees and commissions) pursuant to the authorizations.

We maintain a long-term incentive plan that makes available shares for grants, at the discretion of the Board of Directors or the Compensation and Organizational Development Committee of 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 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 December 31, 2021, 3,139,888 ordinary shares remained available for grant under the long-term incentive plan.

The fair value of stock option 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 the first nine months of fiscal 2022 and 2021:

						Fiscal 2022						Fiscal 2021
Risk-free interest rate						1.10		%				0.46		%
Expected life of options						5.9 years						6.0 years
Expected dividend yield of stock						0.95		%				0.96		%
Expected volatility of stock						24.27		%				23.04		%

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 2.85% and 2.78% was applied in fiscal 2022 and 2021, respectively. This rate is calculated based upon historical activity and represents an estimate of the granted

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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 Per Share						Average Remaining Contractual Term						Aggregate Intrinsic Value
Outstanding at March 31, 2021						1,637,047						$	112.03
Granted						284,566						215.10
Exercised						(304,341)						82.95
Forfeited						(4,043)						128.11
Outstanding at December 31, 2021						1,613,229						$	135.66					6.8 years						$	173,829
Exercisable at December 31, 2021						904,909						$	101.43					5.5 years						$	128,481

We estimate that 690,359 of the non-vested stock options outstanding at December 31, 2021 will ultimately vest.

The aggregate intrinsic value in the table above represents the total pre-tax difference between the $243.41 closing price of our ordinary shares on December 31, 2021 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 ordinary shares.

The total intrinsic value of stock options exercised during the first nine months of fiscal 2022 and fiscal 2021 was $43,425 and $36,850, respectively. Net cash proceeds from the exercise of stock options were $6,789 and $26,018 for the first nine months of fiscal 2022 and fiscal 2021, respectively.

The weighted average grant date fair value of stock option grants was $37.52 and $27.66 for the first nine months of fiscal 2022 and fiscal 2021, 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. As of December 31, 2021, we no longer have outstanding SARS. The fair value of the outstanding SARS as of December 31, 2020 was $491.

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

						Number of Restricted Shares						Number of Restricted Share Units						Weighted-Average Grant Date Fair Value
Non-vested at March 31, 2021						533,323						29,500						$	121.35
Granted						163,120						21,437						197.51
Vested						(174,509)						(15,621)						96.30
Forfeited						(15,050)						(620)						161.59
Non-vested at December 31, 2021						506,884						34,696						$	155.01

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 the first nine months of fiscal 2022 at the time of grant was $18,267.

As of December 31, 2021, there was a total of $66,715 in unrecognized compensation cost related to non-vested share-based compensation granted under our share-based compensation plan. We expect to recognize the cost over a weighted average period of 2.2 years.

Cantel Share Based Compensation Plan

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In connection with the June 2, 2021, acquisition of Cantel, outstanding, non-vested Cantel restricted share units were replaced with STERIS restricted share units.

A total of 280,402 STERIS restricted share units replaced Cantel awards based on a ratio of one Cantel restricted share unit to 0.4262 STERIS restricted share units. These Cantel awards consisted of time, performance and market based awards. Cantel time based restricted share units were replaced with STERIS restricted share units with the same three-year pro-rata vesting terms based on the original award date. Performance and market based Cantel restricted share units were replaced with time based STERIS restricted share units that vest pro rata over the remaining one, two or three anniversaries from the original Cantel award date. The number of performance restricted share units was replaced based on the original target achievement level. All replacement restricted share units retained dividend accumulation rights.

The fair value of each STERIS restricted share unit awarded on June 2, 2021 to replace outstanding non-vested Cantel restricted share units was $191.18 based on the closing price of STERIS ordinary shares on June 2, 2021. Approximately $18,173 of the total $53,607 grant date fair value was attributable to pre-acquisition services provided and was recorded as a component of purchase consideration in connection with the acquisition of Cantel.

During the first nine months of fiscal 2022, recognition of unamortized share-based compensation expense totaling $18,861 was accelerated in connection with the termination of certain Cantel employees in fiscal 2022. As a result of the formal notices provided and the terms of the Cantel share based compensation plans and Cantel Executive Severance and Change of Control Plan, the restricted share units vested requiring acceleration of the remaining related compensation cost.

As of December 31, 2021, there was a total of $9,248 in unrecognized compensation cost related to non-vested STERIS restricted share units awarded to replace Cantel restricted share units.

A summary of the non-vested restricted share units activity associated with the Cantel share-based compensation plans is presented below:

												Number of Restricted Share Units						Weighted-Average Grant Date Fair Value
Non-vested at March 31, 2021												—						$	—
Granted												280,402						$	191.18
Vested												(209,878)						191.18
Forfeited												(7,602)						191.18
Non-vested at December 31, 2021												62,922						$	191.18

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 first nine months of fiscal 2022 were as follows:

			Warranties
Balance, March 31, 2021			$	9,406
Liabilities assumed in acquisition of Cantel			4,769
Warranties issued during the period			12,835
Settlements made during the period			(13,011)
Balance, December 31, 2021			$	13,999

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contracts to hedge price changes in nickel that impact raw materials included in our cost of revenues. During the third quarter of fiscal 2022, we also held forward foreign currency contracts to hedge a portion of our expected non-U.S. dollar denominated earnings against our reporting currency, the U.S. dollar. These foreign currency exchange contracts will mature during fiscal 2022. We did not elect hedge accounting for these forward foreign currency contracts; however, we may seek to apply hedge accounting in future scenarios. We do not use derivative financial instruments for speculative purposes.

None of these contracts are 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 December 31, 2021, we held foreign currency forward contracts to buy 19.9 million Mexican pesos and 2.6 million Canadian dollars; and to sell 14.0 million euros. At December 31, 2021 we held commodity swap contracts to buy 192.0 thousand pounds of nickel.

						Asset Derivatives												Liability Derivatives
						Fair Value at						Fair Value at						Fair Value at						Fair Value at
Balance sheet location						December 31, 2021						March 31, 2021						December 31, 2021						March 31, 2021
Prepaid & Other						$	685					$	57					$	—					$	—
Accrued expenses and other						$	—					$	—					$	91					$	367

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

						Location of gain (loss) recognized in income						Amount of gain (loss) recognized in income
												Three Months Ended December 31,												Nine Months Ended December 31,
												2021						2020						2021						2020
Foreign currency forward contracts						Selling, general and administrative						$	1,707					$	741					$	4,279					$	661
Commodity swap contracts						Cost of revenues						$	417					$	153					$	1,110					$	904

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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 December 31, 2021 and March 31, 2021:

																		Fair Value Measurements
						Carrying Value												Quoted Prices in Active Markets for Identical Assets									Significant Other Observable Inputs									Significant Unobservable Inputs
																		Level 1									Level 2									Level 3
						December 31,			March 31,									December 31,			March 31,						December 31,			March 31,						December 31,			March 31,
Assets:
Cash and cash equivalents						$	359,089		$	220,531								$	359,089		$	220,531					$	—		$	—					$	—		$	—
Forward and swap contracts (1)						685			57									—			—						685			57						—			—
Equity investments(2)						9,957			10,301									9,957			10,301						—			—						—			—
Other investments						2,571			2,665									2,571			2,665						—			—						—			—
Liabilities:
Forward and swap contracts (1)						$	91		$	367								$	—		$	—					$	91		$	367					$	—		$	—
Deferred compensation plans (2)						2,062			1,715									2,062			1,715						—			—						—			—
Total debt (3)						3,299,509			1,650,540									—			—						3,432,856			1,722,459						—			—
Contingent consideration obligations (4)						12,864			19,642									—			—						—			—						12,864			19,642

(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 allows 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. 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 the third quarter and first nine months of fiscal 2022, we recorded gains (losses) of $28 and $(200), respectively, related to these investments. During the third quarter and first nine months of fiscal 2021, we recorded gains of $210 and $138, respectively, related to these investments.

(3) We estimate the fair value of our debt using discounted cash flow analyses, based on our current incremental borrowing rates for similar types of borrowing arrangements. The fair values of our Senior Public Notes are estimated using quoted market prices for the publicly registered Senior Notes. These amounts exclude lease liabilities.

(4) Contingent consideration obligations arise from 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.

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The changes in Level 3 assets and liabilities measured at fair value on a recurring basis at December 31, 2021 are summarized as follows:

						Contingent Consideration
Balance at March 31, 2021						$	19,642
Liabilities assumed in acquisition of Cantel						25,000
Additions						540
Payments						(32,302)
Currency translation adjustments						(16)
Balance at December 31, 2021						$	12,864

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Amounts in Accumulated Other Comprehensive Income (Loss) are presented net of the related tax. Currency Translation is not adjusted for income taxes. Changes in our Accumulated Other Comprehensive Income (Loss) balances, net of tax, for the three months ended December 31, 2021 and 2020 were as follows:

			Defined Benefit Plans (1)												Currency Translation (2)												Total Accumulated Other Comprehensive Income (Loss)
			Three Months						Nine Months						Three Months						Nine Months						Three Months						Nine Months
Beginning Balance			$	(6,533)					$	(5,519)					$	(99,200)					$	(55,724)					$	(105,733)					$	(61,243)
Other Comprehensive Income (Loss) before reclassifications			575						1,751						(30,638)						(74,114)						(30,063)						(72,363)
Amounts reclassified from Accumulated Other Comprehensive Income (Loss)			(1,082)						(3,272)						—						—						(1,082)						(3,272)
Net current-period Other Comprehensive (Loss)			(507)						(1,521)						(30,638)						(74,114)						(31,145)						(75,635)
Balance at December 31, 2021			$	(7,040)					$	(7,040)					$	(129,838)					$	(129,838)					$	(136,878)					$	(136,878)

(1) The amortization (gain) of defined benefit pension items is reported in the Interest income and miscellaneous expense line of our Consolidated Statements of Income.

(2) 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 is included in income.

						Defined Benefit Plans (1)												Currency Translation (2)												Total Accumulated Other Comprehensive Income (Loss)
						Three Months						Nine Months						Three Months						Nine Months						Three Months						Nine Months
Beginning Balance						$	(7,833)					$	(6,813)					$	(122,780)					$	(228,650)					$	(130,613)					$	(235,463)
Other Comprehensive Income before reclassifications						323						972						128,737						234,607						129,060						235,579
Amounts reclassified from Accumulated Other Comprehensive Income (Loss)						(833)						(2,502)						—						—						(833)						(2,502)
Net current-period Other Comprehensive Income (Loss)						(510)						(1,530)						128,737						234,607						128,227						233,077
Balance at December 31, 2020						$	(8,343)					$	(8,343)					$	5,957					$	5,957					$	(2,386)					$	(2,386)

1) The amortization (gain) of defined benefit pension items is reported in the Interest income and miscellaneous expense line of our Consolidated Statements of Income.

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