NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. PROPERTY, PLANT AND EQUIPMENT
Information related to the major categories of our depreciable assets is as follows:
March 31, 2015 2014
Land and land improvements (1) $ 40,668 $ 33,601
Buildings and leasehold improvements 263,007 256,879
Machinery and equipment 375,555 360,977
Information systems 104,049 100,349
Radioisotope 289,778 258,547
Construction in progress (1) 47,690 35,016
Total property, plant, and equipment 1,120,747 1,045,369
Less: accumulated depreciation and depletion (627,694) (590,959)
Property, plant, and equipment, net $ 493,053 $ 454,410
(1) Land is not depreciated. Construction in progress is not depreciated until placed in service.
Depreciation and depletion expense were $61,481, $57,037 and $55,085, for the years ended March 31, 2015, 2014, and 2013, respectively.
Rental expense for operating leases was $18,602, $17,643, and $15,664 for the years ended March 31, 2015, 2014, and 2013, respectively. Operating leases relate to manufacturing, warehouse and office space, service facilities, vehicles, equipment, and communication systems. Certain lease agreements grant us varying renewal and purchase options.
Future minimum annual rentals payable under noncancelable operating lease agreements at March 31, 2015 were as follows:
Operating Leases
2016 $ 16,411
2017 12,428
2018 9,149
2019 5,419
2020 and thereafter 4,273
Total Minimum Lease Payments $ 47,680
In the preceding table, the future minimum annual rentals payable under noncancelable leases denominated in foreign currencies have been calculated based upon March 31, 2015 foreign currency exchange rates.
STERIS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Asset Retirement Obligations
We provide contract sterilization services including gamma irradiation which utilizes cobalt-60 in the form of cobalt pencils.
Prior to fiscal 2016, the removal and disposal of depleted cobalt pencils was provided by our cobalt vendors for no charge or an immaterial charge. Beginning in fiscal 2016 and thereafter, we expect to incur costs associated with the disposal of these depleted assets. As a result we have recorded an initial liability for the asset retirement obligations (ARO) at fair value. Recognition of the ARO will include: the present value of a liability and offsetting asset, the subsequent accretion of that liability and depletion of the asset, and the periodic review of the ARO liability estimates and discount rates used in the analysis.
The following table summarizes the activity in the liability for asset retirement obligations.
Asset Retirement Obligations
Balance at March 31, 2014 $ —
Liabilities incurred during the period 8,083
Liabilities settled during the period —
Accretion expense and other provisions —
Balance at March 31, 2015 $ 8,083
7. DEBT
Indebtedness was as follows:
March 31, 2015 2014
Private Placement $ 340,000 $ 340,000
Credit Agreement and Swing Line Facility 283,250 153,480
Total long term debt $ 623,250 $ 493,480
In February 2013, we issued $100,000 of senior notes in a private placement to certain institutional investors in an offering that was exempt from the registration requirements of the Securities Act of 1933. Of the $100,000 of notes, $47,500 have a maturity of nine years and 10 months from issuance at an annual interest rate of 3.20%, an additional $40,000 have a maturity of 11 years and 10 months from issuance at an annual interest rate of 3.35%, and the remaining $12,500 have a maturity of 14 years and 10 months from issuance at an annual interest rate of 3.55%. These borrowings were used primarily for the
repayment of then existing credit facility debt. The agreements governing these notes and the notes were amended and restated in their entirety on March 31, 2015. The amended and restated agreements, which have been consolidated into a single agreement, contain leverage and interest coverage covenants.
In December 2012, we issued $100,000 of senior notes in a private placement to certain institutional investors in an offering that was exempt from the registration requirements of the Securities Act of 1933. Of the $100,000 of notes, $47,500 have a maturity of 10 years from issuance at an annual interest rate of 3.20%, an additional $40,000 have a maturity of 12 years from issuance at an annual interest rate of 3.35%, and the remaining $12,500 have a maturity of 15 years from issuance at an annual interest rate of 3.55%. These borrowings were used primarily for the repayment of then existing credit facility debt. The agreements governing these notes and the notes were amended and restated in their entirety on March 31, 2015. The amended and restated agreements, which have been consolidated into a single agreement, contain leverage and interest coverage covenants.
On August 15, 2008, we issued $150,000 of senior notes, of which $120,000 currently remain outstanding, in a private placement to certain institutional investors in an offering that was exempt from the registration requirements of the Securities Act of 1933. Of the outstanding notes $85,000 have a maturity of 10 years from issuance at an annual interest rate of 6.33%, and the remaining $35,000 have a maturity of 12 years from issuance at an annual interest rate of 6.43%. The agreements governing these notes and the notes were amended and restated in their entirety on March 31, 2015. The amended and restated agreements, which have been consolidated into a single agreement, contain leverage and interest coverage covenants.
STERIS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
In December 2003, we issued $100,000 of senior notes, of which $20,000 currently remain outstanding, in a private placement to certain institutional investors in an offering that was exempt from the registration requirements of the Securities Act of 1933. The remaining $20,000 have a maturity of 12 years from issuance at an annual interest rate of 5.38%. The agreements governing these notes and the notes were amended and restated in their entirety on March 31, 2015. The amended and restated agreements, which have been consolidated into a single agreement, contain leverage and interest coverage covenants.
On March 31, 2015 we entered into a Credit Agreement (the "Credit Agreement") with various financial institutions as lenders, and JPMorgan Chase Bank, N.A., as Administrative Agent. The Credit Agreement replaced the Company’s Third Amended and Restated Credit Agreement dated April 13, 2012 with KeyBank National Association, as Administrative Agent, and the other lenders party thereto, as amended, and the Company’s Swing Line Facility (Committed Line of Credit) with PNC Bank, National Association, which agreements were terminated and all outstanding borrowings thereunder were repaid on March 31, 2015. The Credit Agreement provides $1,250,000 of credit, in the form of a $850,000 revolver facility, which may be utilized for revolving credit borrowings, swing line borrowings and letters of credit, with sublimits for swing line
borrowings and letters of credit. The Credit Agreement also contains a $400,000 term loan facility. The revolver and term loan facilities may be increased in specified circumstances by up to $500,000. The term loan facility may not be utilized unless, among other conditions, the Combination is consummated, and will terminate if not used at that time. Likewise only $500,000 of the revolver may be utilized unless and until the Combination is consummated. For more information on the Combination refer to note 3 of our consolidated financial statements titled, "Business Acquisitions". Term loans are repayable quarterly pursuant to a specified amortization schedule, with principal payments increasing from 1.25% to 2.50% over the term, and with a balloon payment for the remaining unpaid balance at maturity. The Credit Agreement will mature on March 31, 2020, and all unpaid borrowings, together with accrued and unpaid interest thereon, are repayable on that date. The Credit Agreement contains leverage and interest coverage covenants.
On March 31, 2015, the Bridge Credit Agreement we had obtained on October 13, 2014 with various financial institutions as lenders and Bank of America N.A. as Administrative Agent, was amended and restated in its entirety (as so amended and restated, the “Amended Bridge Credit Agreement”). Under the Amended Bridge Credit Agreement, the lenders have agreed to provide senior unsecured debt financing, to consist of up to £340,000 of commitments, and up to $1,050,000 of commitments.
Proceeds of borrowings under the Amended Bridge Credit Agreement may be used to (i) finance the payment of the cash consideration for the Combination, and related fees and expenses and (ii) to pay or refinance our existing debt and Synergy debt. Per the terms of the Amended Bridge Credit Agreement and as a result of the execution of the Credit Agreement and of the effectiveness of the amendment of certain of our private placement notes and note purchase agreements, the Commitments of the lenders under the Amended Bridge Credit Agreement were reduced by an aggregate of $520,000 on March 31, 2015.
This resulted in an outstanding USD commitment of $530,000 and a GBP commitment of £340,000 under the Amended Bridge Credit Agreement. The foregoing reduction treatment also would have applied under the Bridge Credit Agreement. The Amended Bridge Credit Agreement will mature on the 364th day after the Combination closing, and all unpaid borrowings, together with accrued and unpaid interest thereon, are repayable on that date. The Amended Bridge Credit Agreement contains leverage and interest coverage covenants. For more information on the Combination refer to note 3 of our consolidated financial statements titled, "Business Acquisitions".
As of March 31, 2015, a total $283,250 of indebtedness was outstanding under the Credit Agreement.
At March 31, 2015, we were in compliance with all financial covenants associated with our indebtedness.
The combined annual aggregate amount of maturities of our outstanding debt by fiscal year is as follows:
2016 $ 20,000
2017 —
2018 —
2019 85,000
2020 and thereafter 518,250
Total $ 623,250
STERIS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
8. ADDITIONAL CONSOLIDATED BALANCE SHEETS INFORMATION