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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to
Commission file number   001-39729
https://cdn.kscope.io/192bbda1a519620295254a9cf1f5a746-shc-20210331_g1.jpg
SOTERA HEALTH COMPANY
(Exact name of registrant as specified in its charter)
Delaware47-3531161
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
9100 South Hills Blvd, Suite 300
Broadview Heights, Ohio
44147
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code
(440)
262-1409
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par value per shareSHCThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes   No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes   No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes    No
As of May 6, 2021, there were 282,869,957 shares of the registrant’s common stock, $0.01 par value per share, outstanding.


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SOTERA HEALTH COMPANY
- TABLE OF CONTENTS -


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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward looking statements are often characterized by the use of the words such as “believes,” “estimates,” “expects,” “projects,” “may,” “intends,” “plans” or “anticipates,” or by discussions of strategy, plans or intentions. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements, or industry results, to differ materially from historical results or any future results, performance or achievements expressed, suggested or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to:
any disruption in the availability of, or increases in the price of, ethylene oxide (“EO”), cobalt-60 (“Co-60”) or our other direct materials, services and supplies, including as a result of current geopolitical instability arising from U.S. relations with Russia and related sanctions;
adverse changes in industry trends;
adverse changes in environmental, health and safety regulations;
accidents resulting from the safety risks associated with the use and disposal of potentially hazardous materials such as EO and Co-60;
accidents resulting from the safety risks associated with the transportation of potentially hazardous materials such as EO and Co-60;
liability claims relating to health risks associated with the use of EO and Co-60;
current and future legal proceedings;
the intensity of competition we face;
any market changes that impact our long-term supply contracts with variable price clauses;
allegations of our failure to properly perform our services and any potential product liability claims, recalls, penalties and reputational harm;
the regulatory requirements to which we are subject, and any failures to receive or maintain, or delays in receiving, required clearance or approvals;
business continuity hazards and other risks associated with our operations, including our reliance on the use and sale of products and services from a single location;
the impact of the COVID-19 pandemic;
our ability to increase capacity at existing facilities and build new facilities in a timely and cost-effective manner;
our ability to renew the long-term leases for our facilities at the end of their terms;
the risks of doing business internationally;
instability in global and regional economic and political conditions;
our failure to retain key personnel and attract talent;
the significant regulatory oversight to which our import and export operations are subject, and any failure to comply with applicable regulations;
any cyber security breaches and data leaks as a result of our dependence on information technology systems;
the risks of pursuing strategic transactions, including acquisitions, and our ability to find suitable acquisition targets or integrate strategic acquisitions successfully into our business;
our ability to maintain effective internal controls over financial reporting;
our reliance on intellectual property to maintain our competitive position and the risk of claims from third parties that we infringe or misappropriate their intellectual property rights;
the data privacy and security laws and regulations to which we are subject, and any ineffective compliance efforts with such laws and regulations;
our ability to maintain profitability in the future;
impairment charges on our goodwill and other intangible assets with indefinite lives;
unionization efforts and labor regulations in certain countries in which we operate;
the variety of laws involving the cannabis industry to which we are subject, and any failure to comply with those laws;
the risk of government or private civil antitrust actions;
adverse changes to our tax positions in U.S. or non-U.S. jurisdictions, the interpretation and application of recent U.S. tax legislation or other changes in U.S. or non-U.S. taxation of our operations;
our substantial leverage could adversely affect our ability to raise additional capital, limit our ability to react to changes in the economy or our industry and prevent us from meeting our obligations under our existing and future indebtedness; and
our ability to generate sufficient cash flows or access sufficient additional capital to meet our debt obligations or to fund our other liquidity needs.
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These statements are based on current plans, estimates and projections, and therefore you should not place undue reliance on them. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them publicly in light of new information or future events, except as required by law. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved.
You should carefully consider the above factors, as well as the factors discussed elsewhere in this Quarterly Report on Form 10-Q, including under Part II, Item 1A, “Risk Factors,” as well as Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 10-K”). If any of these trends, risks or uncertainties actually occurs or continues, our business, financial condition or operating results could be materially adversely affected, the trading prices of our securities could decline and you could lose all or part of your investment. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement.
Unless expressly indicated or the context requires otherwise, the terms “Sotera Health,” “Company,” “we,” “us,” and “our” in this document refer to Sotera Health Company, a Delaware corporation, and, where appropriate, its subsidiaries on a consolidated basis.
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Part I—FINANCIAL INFORMATION
Item 1. Financial Statements
Sotera Health Company
Consolidated Balance Sheets
(in thousands)
As of
March 31, 2021December 31, 2020
Assets(Unaudited)
Current assets:
Cash and cash equivalents$108,009 $102,447 
Restricted cash short-term7 7 
Accounts receivable, net of allowance for uncollectible accounts of $603 and $708, respectively
96,393 91,735 
Inventories, net33,375 34,093 
Prepaid expenses and other current assets69,758 64,964 
Income taxes receivable20,825 21,769 
Total current assets328,367 315,015 
Property, plant, and equipment, net611,620 609,814 
Operating lease assets47,117 45,963 
Deferred income taxes8,088 8,424 
Investment in unconsolidated affiliate9,227 13,457 
Other assets9,281 9,304 
Other intangible assets, net656,572 643,366 
Goodwill1,106,728 1,115,936 
Total assets$2,777,000 $2,761,279 
Liabilities and equity
Current liabilities:
Accounts payable$57,174 $52,400 
Accrued liabilities56,373 60,518 
Deferred revenue5,958 6,056 
Current portion of finance lease obligations1,108 1,173 
Current portion of operating lease obligations9,631 9,383 
Current portion of asset retirement obligations391 620 
Income taxes payable7,384 10,448 
Total current liabilities138,019 140,598 
Long-term debt, less current portion1,837,580 1,824,789 
Finance lease obligations, less current portion33,432 34,939 
Operating lease obligations, less current portion39,806 38,941 
Noncurrent asset retirement obligations45,633 45,013 
Deferred lease income21,362 21,255 
Post-retirement obligations46,959 48,223 
Mandatorily redeemable noncontrolling interest 13,625 
Noncurrent liabilities18,795 17,506 
Deferred income taxes129,670 121,816 
Total liabilities2,311,256 2,306,705 
See Commitments and contingencies note
Equity:
Common stock, with $0.01 par value, 1,200,000 shares authorized; 285,990 shares issued at March 31, 2021 and December 31, 2020, respectively
2,860 2,860 
Preferred stock, with $0.01 par value, 120,000 authorized; no shares issued at March 31, 2021 and
December 31, 2020, respectively
  
Treasury stock, at cost (3,090 and 2,742 shares at March 31, 2021 and December 31, 2020, respectively)
(34,000)(34,000)
Additional paid-in capital1,169,852 1,166,412 
Retained deficit(578,286)(589,128)
Accumulated other comprehensive loss(97,162)(93,842)
Total equity attributable to Sotera Health Company463,264 452,302 
Noncontrolling interests2,480 2,272 
Total equity465,744 454,574 
Total liabilities and equity$2,777,000 $2,761,279 
See notes to consolidated financial statements.
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Sotera Health Company
Consolidated Statements of Operations and Comprehensive Income (Loss)
(in thousands, except per share amounts)
Three Months Ended March 31,
20212020
(Unaudited)
Revenues:
Service$188,698 $167,405 
Product23,450 20,795 
Total net revenues212,148 188,200 
Cost of revenues:
Service85,036 83,069 
Product11,740 8,614 
Total cost of revenues96,776 91,683 
Gross profit115,372 96,517 
Operating expenses:
Selling, general and administrative expenses52,465 37,053 
Amortization of intangible assets16,543 14,599 
Total operating expenses69,008 51,652 
Operating income46,364 44,865 
Interest expense, net21,282 56,562 
Loss on extinguishment of debt14,312  
Foreign exchange loss (gain)578 (627)
Other (income) expense, net(3,890)3,150 
Income (loss) before income taxes14,082 (14,220)
Provision (benefit) for income taxes3,017 (12,234)
Net income (loss)11,065 (1,986)
Less: Net income (loss) attributable to noncontrolling interests223 (22)
Net income (loss) attributable to Sotera Health Company10,842 (1,964)
Other comprehensive (loss) income net of tax:
Pension and post-retirement benefits (net of taxes of $84 and $(744), respectively)
(249)2,207 
Interest rate swaps (net of taxes of $0 and $1,234, respectively)
 (3,479)
Foreign currency translation(3,086)(72,967)
Comprehensive income (loss)7,730 (76,225)
Less: comprehensive income (loss) attributable to noncontrolling interests208 (22)
Comprehensive income (loss) attributable to Sotera Health Company$7,522 $(76,203)
Earnings (loss) per share:
Basic$0.04 $(0.01)
Diluted0.04 (0.01)
Weighted average number of shares outstanding:
Basic278,827 232,400 
Diluted278,968 232,400 
See notes to consolidated financial statements.
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Consolidated Statements of Cash Flows
(in thousands)
Three Months Ended March 31,
20212020
(Unaudited)
Operating activities:
Net income (loss)$11,065 $(1,986)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation15,379 16,110 
Amortization of intangible assets22,282 19,913 
Loss on extinguishment of debt14,312  
Deferred income taxes(3,637)(6,683)
Share-based compensation expense3,449 1,725 
Accretion of asset retirement obligations551 471 
Unrealized foreign exchange (gains) / losses2,354 (4,876)
Unrealized (gain) / loss on embedded derivative instruments(853)4,819 
Gain (loss) on interest rate swap (4,713)
Amortization of debt issuance costs1,663 2,977 
Other(2,843)(2,306)
Changes in operating assets and liabilities:
Accounts receivable(4,134)(433)
Inventories1,099 (1,553)
Other current assets(2,324)(1,404)
Accounts payable6,625 (733)
Accrued liabilities(5,542)(8,334)
Income taxes payable / receivable(4,518)(8,132)
Other liabilities1,513 (61)
Other long-term assets(282)889 
Net cash provided by operating activities56,159 5,690 
Investing activities:
Purchases of property, plant and equipment(20,942)(12,989)
Purchase of mandatorily redeemable noncontrolling interest in Nelson Laboratories Fairfield, Inc.(12,425) 
Purchase of BioScience Laboratories, LLC, net of cash acquired(13,152) 
Net cash used in investing activities(46,519)(12,989)
Financing activities:
Proceeds from revolving credit facility 50,000 
Payments of debt issuance costs(3,435)(207)
Payments on long-term borrowings (142)
Other(348)(344)
Net cash provided by (used in) financing activities(3,783)49,307 
Effect of exchange rate changes on cash and cash equivalents(295)154 
Net increase in cash and cash equivalents, including restricted cash5,562 42,162 
Cash and cash equivalents, including restricted cash, at beginning of period102,454 63,025 
Cash and cash equivalents, including restricted cash, at end of period$108,016 $105,187 
Supplemental disclosures of cash flow information:
Cash paid during the period for interest$19,745 $63,570 
Cash paid during the period for income taxes, net of tax refunds received11,561 1,868 
Equipment purchases included in accounts payable7,389 5,100 
See notes to consolidated financial statements.
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Consolidated Statements of Equity (Deficit)
(in thousands)
(Unaudited)
Shares
Amount
Amount
Additional
Paid-In
Capital
Retained
Earnings /
(Accumulated
Deficit)
Accumulated
Other
Comprehensive
(Loss) Income
Noncontrolling
Interests
Total
Equity
Common
Stock
Common
Stock
Treasury
Stock
Balance at December 31, 2019232,400 $2,324 $ $ $(550,511)$(94,387)$1,442 $(641,132)
Share-based compensation plans— — — 1,725 — — — 1,725 
Comprehensive income (loss):
Pension and post-retirement plan adjustments, net of tax— — — — — 2,207 — 2,207 
Foreign currency translation— — — — — (72,967)— (72,967)
Interest rate swaps— — — — — (3,479)— (3,479)
Net income (loss)— — — — (1,964)— (22)(1,986)
Balance at March 31, 2020232,400 $2,324 $ $1,725 $(552,475)$(168,626)$1,420 $(715,632)
Shares
Amount
Amount
Additional
Paid-In
Capital
Retained
Earnings /
(Accumulated
Deficit)
Accumulated
Other
Comprehensive
(Loss) Income
Noncontrolling
Interests
Total
Equity
Common
Stock
Common
Stock
Treasury
Stock
Balance at December 31, 2020283,248 $2,860 $(34,000)$1,166,412 $(589,128)$(93,842)$2,272 $454,574 
Share-based compensation plans(348)— — 3,440 — — — 3,440 
Comprehensive income (loss):
Pension and post-retirement plan adjustments, net of tax— — — — — (249)— (249)
Foreign currency translation— — — — — (3,071)(15)(3,086)
Net income (loss)— — — — 10,842 — 223 11,065
Balance at March 31, 2021282,900 $2,860 $(34,000)$1,169,852 $(578,286)$(97,162)$2,480 $465,744 
See notes to consolidated financial statements.
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Sotera Health Company
Notes to Consolidated Financial Statements

1.Basis of Presentation
Principles of Consolidation – Sotera Health Company (also referred to herein as the “Company,” “we,” “our,” “us” or “its”), is a global provider of mission-critical sterilization and lab testing and advisory services to the medical device and pharmaceutical industries with operations primarily in the Americas, Europe and Asia.
We operate and report in three segments, Sterigenics, Nordion and Nelson Labs. We describe our reportable segments in Note 18, “Segment Information”. All significant intercompany balances and transactions have been eliminated in consolidation.
Noncontrolling interests represent the noncontrolling stockholders’ proportionate share of the total equity in the Company’s consolidated subsidiaries. As of March 31, 2021, our subsidiaries were wholly owned by us, except for noncontrolling interests of 15% and 33% in our two China subsidiaries. We consolidate the results of operations of these subsidiaries with our results of operations and reflect the noncontrolling interests in our two China subsidiaries on our Consolidated Statements of Operations and Comprehensive Income (Loss) as “Net income attributable to noncontrolling interests.” On March 11, 2021, we purchased the 15% noncontrolling interest that remained from the August 2018 acquisition of Nelson Laboratories Fairfield, Inc. (“Nelson Labs Fairfield”). This required future purchase was considered mandatorily redeemable, and therefore no earnings were allocated to this noncontrolling interest. See Note 4, “Acquisitions” for additional details.
In the first quarter of 2021, we entered into binding agreements to purchase the outstanding noncontrolling interests of 15% and 33% of our two China subsidiaries, respectively. The purchase transactions are expected to close in the second quarter of 2021 for a total purchase price of $8.6 million.
In July 2020, we acquired a 60% equity ownership interest in a joint venture to construct an E-beam facility in Alberta, Canada in connection with our acquisition of Iotron Industries Canada, Inc. (“Iotron”). Refer to Note 4, “Acquisitions” for additional information. We have determined this to be an investment in a variable interest entity (“VIE”). The investment is not consolidated as the Company has concluded that we are not the primary beneficiary of the VIE. The Company accounts for the joint venture using the equity method. The investment is reflected within “Investment in unconsolidated affiliates” on the Consolidated Balance Sheets.
Use of Estimates – In preparing our consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles ("GAAP"), we make estimates and assumptions that affect the amounts reported and the accompanying notes. We regularly evaluate the estimates and assumptions used and revise them as new information becomes available. Actual results may vary from those estimates.
Interim Financial Statements – The accompanying consolidated financial statements include the assets, liabilities, operating results, and cash flows of the Company and its wholly owned subsidiaries. These financial statements are prepared in accordance with 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. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These unaudited interim financial statements should be read in conjunction with the Company's annual consolidated financial statements and accompanying notes on Form 10-K for the year ended December 31, 2020.
2.Recent Accounting Standards
ASU’s Issued But Not Yet Adopted
Under the Jumpstart Our Business Startups Act of 2012, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. As an emerging growth company, we have elected to take advantage of the extended transition period for complying with new or revised accounting standards until those standards would otherwise apply to private companies or at which time we conclude it is appropriate to avail ourselves of early adoption provisions of applicable standards. As a result, our results of operations and financial statements may not be comparable to the results of operations and financial statements of other companies who have adopted the new or revised accounting standards.
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Notes to Consolidated Financial Statements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (“ASU 2016-13”): Measurement of Credit Losses on Financial Instruments, and subsequently issued additional guidance that modified ASU 2016-13. The standard requires an entity to change its accounting approach in determining impairment of certain financial instruments, including trade receivables, from an “incurred loss” to a “current expected credit loss” model. We intend to adopt the standard as of January 1, 2022. We are currently assessing the effect that ASU 2016-13 will have on our financial position, results of operations, and disclosures.
In March 2019, the FASB issued ASU 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The standard simplifies the accounting for income taxes and makes a number of changes meant to add or clarify guidance on accounting for income taxes. This update is effective for annual financial statement periods beginning after March 15, 2021 and interim periods beginning after March 15, 2022, with early adoption permitted in any interim period for which financial statements have not yet been filed. We are currently assessing the effect that ASU 2019-12 will have on our financial position, results of operations, and disclosures.
3.Revenue Recognition
The following table shows disaggregated net revenues from contracts with external customers by timing of revenue and by segment for the three months ended March 31, 2021 and 2020:
(thousands of U.S. dollars)Three Months Ended March 31, 2021
SterigenicsNordionNelson LabsConsolidated
Point in time$131,151 $25,918 $ $157,069 
Over time  55,079 55,079 
Total$131,151 $25,918 $55,079 $212,148 
(thousands of U.S. dollars)Three Months Ended March 31, 2020
SterigenicsNordionNelson LabsConsolidated
Point in time$117,280 $23,625 $ $140,905 
Over time  47,295 47,295 
Total$117,280 $23,625 $47,295 $188,200 
Contract Balances
As of March 31, 2021, and December 31, 2020, contract assets included in prepaid expenses and other current assets on the Consolidated Balance Sheets totaled approximately $14.1 million and $12.7 million, respectively, resulting from revenue recognized over time in excess of the amount billed to the customer.
When we receive consideration from a customer prior to transferring goods or services under the terms of a sales contract, we record deferred revenue, which represents a contract liability. Deferred revenue totaled $6.0 million and $6.1 million at March 31, 2021 and December 31, 2020, respectively. We recognize deferred revenue after all revenue recognition criteria are met.
4.Acquisitions
Acquisition of BioScience Laboratories, LLC
On March 8, 2021, we acquired BioScience Laboratories, LLC (“BioScience”) for approximately $13.2 million, net of $0.8 million of cash acquired plus the contemporaneous repayment of BioScience's outstanding debt of $1.9 million. BioScience is a provider of outsourced topical antimicrobial product testing in the pharmaceutical, medical device, and consumer products industries with one location in Bozeman, Montana.
The purchase price of BioScience was allocated to the underlying assets acquired and liabilities assumed based upon management's estimated fair values at the date of acquisition. Changes to the allocation of the purchase price may occur as
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Notes to Consolidated Financial Statements
these measurements are completed. Approximately $8.4 million of goodwill was recorded related to the BioScience acquisition, representing the excess of the purchase price over preliminary estimated fair values of all the assets acquired and liabilities assumed. The Company funded this acquisition using available cash. The acquisition price and the results of operations for this acquired entity are not material in relation to the Company's consolidated financial statements.
Acquisition of Mandatorily Redeemable Noncontrolling Interest - Nelson Labs Fairfield
On March 11, 2021, we completed the acquisition of the remaining 15% ownership of Nelson Labs Fairfield for $12.4 million, resulting in a gain of $1.2 million included in “Other expense (income), net” in the Consolidated Statements of Operations and Comprehensive Income (Loss) relative to the $13.6 million previously accrued. Pursuant to the terms of the August 2018 acquisition, we initially acquired 85% of the equity interests of Nelson Labs Fairfield in August 2018 and were obligated to acquire the remaining 15% noncontrolling interest within three years from the date of the acquisition.
Acquisition of Iotron Industries Canada, Inc.
On July 31, 2020, we acquired Iotron Industries Canada, Inc.(“Iotron”) for approximately $105.2 million. Iotron was an independent contact sterilizer with two North American locations in Vancouver, Canada, and Columbia City, Indiana. Each location uses proprietary high energy electron beam technology to process products for orthopedic, medical device, plastics, and agricultural businesses. The acquisition was financed by the issuance of $100.0 million of First Lien Notes due 2026. Refer to Note 9, “Long-Term Debt” for additional details.
As part of this acquisition, we also acquired Iotron’s 60% equity ownership interest in a joint venture to construct an E-beam facility in Alberta, Canada. The joint venture is accounted for using the equity method.
The opening balance sheet for the Iotron acquisition reflects the net tangible and intangible assets acquired and liabilities assumed at their preliminary estimated fair values at the acquisition date.
The preliminary estimated fair value of the underlying acquired assets and assumed liabilities of the Iotron acquisition and the measurement period adjustments recognized during the three months ended March 31, 2021, were as follows:
(thousands of U.S. dollars)
Allocation of purchase price to the fair value of
net assets acquired (net of cash acquired):
Amount recognized as of December 31, 2020Measurement Period AdjustmentsAmount recognized as of March 31, 2021
Goodwill$69,046 $(17,142)$51,904 
Intangibles16,427 26,273 42,700 
Property, plant, and equipment13,812 4,346 18,158 
Working capital, net1,115 2 1,117 
Investment in unconsolidated affiliate12,881 (4,181)8,700 
Assumed long-term liabilities(2,248) (2,248)
Other assets/liabilities, net(5,846)(9,298)(15,144)
Total estimated purchase price$105,187 $ $105,187 
The fair value of all the above assets acquired and liabilities assumed are preliminary in nature since the fair value analyses are not yet complete, including finalizing third party appraisals and analyzing the tax attributes of the fair value adjustments. Changes to the allocation of the purchase price may occur as these analyses are completed.
Approximately $51.9 million of goodwill was recorded related to the Iotron acquisition, representing the excess of the purchase price over preliminary estimated fair values of all the assets acquired and liabilities assumed. The fair value allocated to goodwill and tangible and intangible assets are deductible for tax purposes. The qualitative elements of goodwill primarily represent the expanded future growth opportunities for the combined company and the addition of Iotron’s highly skilled workforce. A preliminary valuation was recorded of approximately $39.1 million and $3.6 million for intangible assets as part of the acquisition related to customer relationships and employee non-compete agreements, respectively. The estimated useful lives of the identifiable finite-lived intangible assets range from 5 to 15 years.
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Notes to Consolidated Financial Statements
Iotron’s results of operations are included in our consolidated financial statements from the date of the transaction within the Sterigenics segment. The unaudited pro forma consolidated results for the three months ended March 31, 2020, are reflected in the pro forma table below had the transaction occurred on January 1, 2020. The following unaudited supplemental pro forma financial information is based on our historical consolidated financial statements and Iotron’s historical consolidated financial statements, as adjusted for amortization of acquired intangible assets, an increase in interest expense resulting from interest on the First Lien Notes to finance the acquisition, and to reflect the change in the estimated income tax rate for federal and state purposes.
(thousands of U.S. dollars)
Three Months Ended March 31,2020
Net revenues$194,402 
Net loss(889)
In connection with the Iotron acquisition, we incurred approximately $1.0 million in transaction costs for the three months ended March 31, 2020, which were included in “Selling, general and administrative expenses” in the Consolidated Statements of Operations and Comprehensive Income (Loss).
5.Inventories
Inventories consisted primarily of the following:
(thousands of U.S. dollars)
March 31, 2021December 31, 2020
Raw materials and supplies$29,512 $29,114 
Work-in-process1,371 846 
Finished goods2,617 4,256 
33,500 34,216 
Reserve for excess and obsolete inventory(125)(123)
Inventories, net$33,375 $34,093 
6.Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted primarily of the following:
(thousands of U.S. dollars)
March 31, 2021December 31, 2020
Prepaid taxes$25,356 $22,883 
Prepaid business insurance7,421 10,403 
Prepaid rent1,212 1,170 
Customer contract assets14,133 12,670 
Insurance and indemnification receivables2,751 2,751 
Current deposits797 673 
Prepaid maintenance contracts432 404 
Value added tax receivable1,385 2,094 
Prepaid software licensing1,299 1,181 
Stock supplies3,210 2,715 
Other11,762 8,020 
Prepaid expenses and other current assets$69,758 $64,964 
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Sotera Health Company
Notes to Consolidated Financial Statements
7.Goodwill and Other Intangible Assets
Changes to goodwill during the three months ended March 31, 2021 were as follows:
(thousands of U.S. dollars)SterigenicsNordionNelson LabsTotal
Goodwill at December 31, 2020$683,481 $287,932 $144,523 $1,115,936 
BioScience acquisition
  8,435 8,435 
Iotron acquisition measurement period adjustments
(17,142)  (17,142)
Changes due to foreign currency exchange rates(2,252)3,408 (1,657)(501)
Goodwill at March 31, 2021$664,087 $291,340 $151,301 $1,106,728 
Other intangible assets consisted of the following:
(thousands of U.S. dollars)
Gross Carrying
Amount
Accumulated
Amortization
As of March 31, 2021
Finite-lived intangible assets
Customer relationships$662,509 $322,685 
Proprietary technology89,604 39,707 
Trade names142 100 
Land-use rights9,454 1,364 
Sealed source and supply agreements243,660 98,237 
Other5,675 1,138 
Total finite-lived intangible assets1,011,044 463,231 
Indefinite-lived intangible assets
Regulatory licenses and other(a)
82,807 — 
Trade names / trademarks25,952 — 
Total indefinite-lived intangible assets108,759 — 
Total$1,119,803 $463,231 
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Sotera Health Company
Notes to Consolidated Financial Statements
As of December 31, 2020
Gross Carrying
Amount
Accumulated
Amortization
Finite-lived intangible assets
Customer relationships$634,454 $309,428 
Proprietary technology90,964 38,075 
Trade names156 105 
Land-use rights9,489 1,311 
Sealed source and supply agreements240,791 92,953 
Other1,937 519 
Total finite-lived intangible assets977,791 442,391 
Indefinite-lived intangible assets
Regulatory licenses and other(a)
81,832 — 
Trade names / trademarks26,134 — 
Total indefinite-lived intangible assets107,966 — 
Total$1,085,757 $442,391 
(a)Includes certain transportation certifications, a class 1B nuclear license and other intangibles related to obtaining such licensure. These assets are considered indefinite-lived as the decision for renewal by the Canadian Nuclear Safety Commission is highly based on a licensee’s previous assessments, reported incidents, and annual compliance and inspection results. New applications for license can take a significant amount of time and cost; whereas an existing licensee with a historical record of compliance and current operating conditions more than likely ensures renewal for another 10 years license period as Nordion has demonstrated over its 70 years of history.
Amounts include the impact of foreign currency translation. Fully amortized amounts are written off.
Amortization expense for other intangible assets was $22.3 million ($5.8 million is included in “Cost of revenues” and $16.5 million in “Selling, general and administrative expenses”) in the Consolidated Statements of Operations and Comprehensive Income (Loss) and $19.9 million ($5.3 million is included in “Cost of revenues” and $14.6 million in “Selling, general and administrative expenses”) in the Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended March 31, 2021 and 2020, respectively.
The estimated aggregate amortization expense for finite-lived intangible assets for each of the next five years and thereafter is as follows:
(thousands of U.S. dollars)
For the remainder of 2021$65,889 
202280,665 
202380,659 
202479,882 
202541,982 
Thereafter198,736 
Total$547,813 
The weighted-average remaining useful life of the finite-lived intangible assets was approximately 10 years as of March 31, 2021.
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Notes to Consolidated Financial Statements
8.Accrued Liabilities
Accrued liabilities consisted of the following:
(thousands of U.S. dollars)
March 31, 2021December 31, 2020
Accrued employee compensation$27,651 $34,760 
Legal reserves2,751 2,751 
Accrued interest expense764 186 
Embedded derivatives229 670 
Professional fees13,744 12,686 
Accrued utilities2,397 1,864 
Insurance accrual1,886 1,255 
Accrued taxes3,332 2,599 
Other3,619 3,747 
Accrued liabilities$56,373 $60,518 
9.Long-Term Debt
Long-term debt consisted of the following:
(thousands of U.S. dollars)
March 31, 2021December 31, 2020
Term loan, due 2026$1,763,100 $1,763,100 
Senior notes, due 2026100,000 100,000 
Other long-term debt1,059 450 
Total long-term debt1,864,159 1,863,550 
Less unamortized debt issuance costs and debt discounts(26,579)(38,761)
Total long-term debt, less debt issuance costs and debt discounts$1,837,580 $1,824,789 
Debt Facilities
Senior Secured Credit Facilities
On December 13, 2019, Sotera Health Holdings, LLC (“SHH”), our wholly owned subsidiary, entered into senior secured first lien credit facilities (the “Senior Secured Credit Facilities”), consisting of both a prepayable senior secured first lien term loan (the “Term Loan”) and a senior secured first lien revolving credit facility (the “Revolving Credit Facility”) pursuant to a first lien credit agreement (the “Credit Agreement”). The Term Loan matures on December 13, 2026, and the Revolving Credit Facility's original maturity date was December 13, 2024. On December 17, 2020, we increased the capacity of our Revolving Credit Facility from $190.0 million to $347.5 million. The Senior Secured Credit Facilities also provide SHH the right at any time and under certain conditions to request incremental term loans or incremental revolving credit commitments based on a formula defined in the Senior Secured Credit Facilities. As of March 31, 2021 and December 31, 2020, total borrowings under the Term Loan were $1,763.1 million and $1,763.1 million, respectively, and there were no borrowings outstanding on the Revolving Credit Facility. The weighted average interest rate on borrowings under the Term Loan for the three months ended March 31, 2021 and March 31, 2020 was 3.73% and 6.18%, respectively.
On January 20, 2021, we closed on an amendment repricing our Term Loan. The interest rate spread over the London Interbank Offered Rate (“LIBOR”) on the facility was reduced from 450 basis points to 275 basis points, and the facility’s LIBOR floor was reduced from 100 basis points to 50 basis points. The changes result in an effective reduction in current interest rates of 2.25%. In connection with this amendment, we wrote off $11.3 million of unamortized debt issuance and discount costs and incurred an additional $2.9 million of expense related to debt issuance costs attributable to the refinancing. These costs were recorded to “Loss on extinguishment of debt” in our Consolidated Statements of Operations and Comprehensive Income (Loss).
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Notes to Consolidated Financial Statements
As of March 31, 2021 and December 31, 2020, capitalized debt issuance costs totaled $3.1 million and $3.4 million, respectively, and debt discounts totaled $20.0 million and $31.6 million, respectively, related to the Senior Secured Credit Facilities. Such costs are recorded as a reduction of debt on our consolidated balance sheets and amortized as a component of interest expense over the term of the debt agreement.
On March 26, 2021, we amended the Revolving Credit Facility, to (i) decrease the Applicable Rate (as defined in the Credit Agreement) related to any Revolving Loans (as defined in the Credit Agreement) from a rate per annum that ranged from an alternative base rate (“ABR”) plus 2.50% to ABR plus 3.00% depending on SHH’s Senior Secured First Lien Net Leverage Ratio to ABR plus 1.75%; and in the case of Eurodollar Loans (as defined in the Credit Agreement) from a rate per annum which ranged from the Adjusted LIBOR plus 3.50% to the Adjusted LIBOR plus 4.00% depending on SHH’s Senior Secured First Lien Net Leverage Ratio (as defined in the Credit Agreement), to the Adjusted LIBOR (as defined in the Credit Agreement) plus 2.75%, and (ii) extend the maturity date of the Revolving Facility from December 13, 2024 to June 13, 2026. The other material terms of the Credit Agreement are unchanged and the amendment does not change the capacity of our Revolving Credit Facility, which is $347.5 million. No unamortized debt issuance costs associated with the Revolving Credit Facility were written off and direct fees and costs incurred in connection with the amendment were immaterial.
As of March 31, 2021 and December 31, 2020, there were no borrowings on the Revolving Credit Facility. SHH borrowed $50.0 million on the Revolving Credit Facility during the first quarter of 2020 which was repaid in the second quarter of 2020. The interest rate on the borrowings under the Revolving Credit Facility during 2020 averaged approximately 5.0%.
All of SHH’s obligations under the Senior Secured Credit Facilities are unconditionally guaranteed by the Company and each existing and subsequently acquired or organized direct or indirect wholly-owned domestic restricted subsidiary of the Company, with customary exceptions including, among other things, where providing such guarantees is not permitted by law, regulation or contract or would result in material adverse tax consequences. All obligations under the Senior Secured Credit Facilities, and the guarantees of such obligations, are secured by substantially all assets of the borrower and guarantors, subject to permitted liens and other exceptions and exclusions, as outlined in the Senior Secured Credit Facilities.
Outstanding letters of credit are collateralized by encumbrances against the Revolving Credit Facility and the collateral pledged thereunder, or by cash placed on deposit with the issuing bank. As of March 31, 2021, the Company had $65.8 million of letters of credit issued against the Revolving Credit Facility, resulting in total availability under the Revolving Credit Facility of $281.7 million.
First Lien Notes
On July 31, 2020, SHH issued $100.0 million aggregate principal amount of senior secured first lien notes due 2026 (the “First Lien Notes”), which mature on December 13, 2026. The First Lien Notes bear interest at a rate equal to LIBOR subject to a 1.00% floor plus 6.00% per annum. Interest is payable on a quarterly basis with no principal due until maturity. The weighted average interest rate on the First Lien Notes for the three months ended March 31, 2021 was 7.00%.
SHH is entitled to redeem all or a portion of the First Lien Notes, at any time and from time to time, subject to certain premiums depending on the date of redemption; any time on or prior to July 31, 2021, a customary make-whole premium applies and, thereafter, specified premiums that decline to zero apply (in each case as described in the indenture governing the First Lien Notes).
All of SHH’s obligations under the First Lien Notes are unconditionally guaranteed by the Company and each existing and subsequently acquired or organized direct or indirect wholly-owned domestic restricted subsidiary of SHH, with customary exceptions including, among other things, where providing such guarantees is not permitted by law, regulation or contract or would result in material adverse tax consequences. All obligations under the First Lien Notes, and the guarantees of such obligations, are secured by substantially all of the assets of the borrower and guarantors, subject to permitted liens and other exceptions and exclusions, as outlined in the First Lien Notes. Such collateral is substantially the same collateral that secures the Senior Secured Credit Facilities. Such collateral securing the First Lien Notes ranks pari passu with that of the Senior Secured Credit Facilities.
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Notes to Consolidated Financial Statements
At March 31, 2021 and December 31, 2020, capitalized debt issuance costs were $0.8 million and $0.9 million, respectively, and debt discounts were $2.7 million and $2.8 million, respectively, related to the First Lien Notes, which are recorded as a reduction of debt on our Consolidated Balance Sheets and amortized into interest expense over the term of the debt agreement.
2020 Debt Repayments
On November 24, 2020, we closed our initial public offering (the "IPO”), in which we sold 53,590,000 shares of our common stock at a price of $23.00 per share, which included the full exercise by the underwriters of their option to purchase up to an additional 6,990,000 shares of common stock. We raised approximately $1.2 billion in net proceeds after deducting underwriters’ discounts and commissions. We used the net proceeds received by us from the IPO to (i) redeem $770.0 million in aggregate principal amount of the Second Lien Senior Secured Notes with an original maturity date of December 13, 2027 (the "Second Lien Notes”), plus accrued and unpaid interest thereon and $15.4 million of redemption premium, (ii) repurchase 1,568,445 shares of our common stock from certain of our executive officers at a purchase price per share equal to the IPO price per share of our common stock less an amount equal to the underwriting discounts and commissions payable thereon and (iii) repay $341.0 million of the outstanding indebtedness under the Term Loan, plus accrued and unpaid interest thereon. In connection with the debt repayments, we wrote off $28.9 million of debt issuance and discount costs and recognized $15.4 million in premiums paid for the early extinguishment of the Second Lien Notes. We recognized these costs within “Loss on extinguishment of debt” in our Consolidated Statements of Operations and Comprehensive Income (Loss) in the fourth quarter of 2020.
Aggregate Maturities
Aggregate maturities of the Company’s long-term debt, excluding debt discounts, as of March 31, 2021, are as follows:
(thousands of U.S. dollars)
2021$ 
2022609 
2023450 
2024 
2025 
Thereafter1,863,100 
Total$1,864,159 
As referenced above, the Company utilized its IPO proceeds toward prepaying the Second Lien Notes in full as well as prepaying a portion of the Term Loan. The Term Loan prepayment amount eliminated all subsequent scheduled and outstanding repayments of the term borrowings resulting in no remaining short-term commitments.
10.Income Taxes
Income tax expense is provided on an interim basis based upon our estimate of the annual effective income tax rate. In determining the estimated annual effective income tax rate, we analyze various factors, including projections of our annual earnings and the taxing jurisdictions where the earnings will occur, the impact of state and local taxes, our ability to utilize tax credits and net operating loss carryforwards and available tax planning alternatives.
Our effective tax rate was 21.4 % and (86.0)% for the three months ended March 31, 2021 and 2020, respectively. Income tax expense for the three months ended March 31, 2021 differs from the statutory rate primarily due to the impact of the foreign rate differential, global intangible low-tax income (“GILTI”), and a net increase in the valuation allowance attributable to the limitation on the deductibility of interest expense. This was offset by a discrete item, which reversed the valuation allowance on deferred tax assets related to certain asset retirement obligations.
Income tax benefit for the three months ended March 31, 2020 differed from the statutory rate primarily due to the impact of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which increased the limitation on the deductibility of interest expense from 30% to 50% for tax years beginning in 2019 or 2020, and other provisions. The increased limitation
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Sotera Health Company
Notes to Consolidated Financial Statements
resulted in a current tax benefit for the three months ended March 31, 2020 of $9.1 million. The increased limitation also resulted in a $5.6 million valuation allowance reversal in the three months ended March 31, 2020.
11.Employee Benefits
The Company sponsors various post-employment benefit plans including, in certain countries outside the U.S., defined benefit and define