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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


☐			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

SOTERA HEALTH COMPANY

(Exact name of registrant as specified in its charter)

Delaware

47-3531161

(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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	SHC	The 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 filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller 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 -


Part I—FINANCIAL INFORMATION			5
Item 1. Financial Statements			5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			30
Item 3. Quantitative and Qualitative Disclosures About Market Risk			41
Item 4. Controls and Procedures			41
Part II—OTHER INFORMATION			42
Item 1. Legal Proceedings.			42
Item 1A. Risk Factors.			43
Item 6. Exhibits.			44
SIGNATURES			45

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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, 2021		December 31, 2020
Assets	(Unaudited)
Current assets:
Cash and cash equivalents	$	108,009	$	102,447
Restricted cash short-term	7		7
Accounts receivable, net of allowance for uncollectible accounts of $603 and $708, respectively	96,393		91,735
Inventories, net	33,375		34,093
Prepaid expenses and other current assets	69,758		64,964
Income taxes receivable	20,825		21,769
Total current assets	328,367		315,015
Property, plant, and equipment, net	611,620		609,814
Operating lease assets	47,117		45,963
Deferred income taxes	8,088		8,424
Investment in unconsolidated affiliate	9,227		13,457
Other assets	9,281		9,304
Other intangible assets, net	656,572		643,366
Goodwill	1,106,728		1,115,936
Total assets	$	2,777,000	$	2,761,279
Liabilities and equity
Current liabilities:
Accounts payable	$	57,174	$	52,400
Accrued liabilities	56,373		60,518
Deferred revenue	5,958		6,056

Current portion of finance lease obligations	1,108		1,173
Current portion of operating lease obligations	9,631		9,383
Current portion of asset retirement obligations	391		620
Income taxes payable	7,384		10,448
Total current liabilities	138,019		140,598
Long-term debt, less current portion	1,837,580		1,824,789
Finance lease obligations, less current portion	33,432		34,939
Operating lease obligations, less current portion	39,806		38,941
Noncurrent asset retirement obligations	45,633		45,013
Deferred lease income	21,362		21,255
Post-retirement obligations	46,959		48,223
Mandatorily redeemable noncontrolling interest	—		13,625
Noncurrent liabilities	18,795		17,506
Deferred income taxes	129,670		121,816
Total liabilities	2,311,256		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 capital	1,169,852		1,166,412
Retained deficit	(578,286)		(589,128)
Accumulated other comprehensive loss	(97,162)		(93,842)
Total equity attributable to Sotera Health Company	463,264		452,302
Noncontrolling interests	2,480		2,272
Total equity	465,744		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,
	2021		2020
	(Unaudited)
Revenues:
Service	$	188,698	$	167,405
Product	23,450		20,795
Total net revenues	212,148		188,200
Cost of revenues:
Service	85,036		83,069
Product	11,740		8,614
Total cost of revenues	96,776		91,683
Gross profit	115,372		96,517
Operating expenses:
Selling, general and administrative expenses	52,465		37,053
Amortization of intangible assets	16,543		14,599

Total operating expenses	69,008		51,652
Operating income	46,364		44,865
Interest expense, net	21,282		56,562
Loss on extinguishment of debt	14,312		—
Foreign exchange loss (gain)	578		(627)
Other (income) expense, net	(3,890)		3,150
Income (loss) before income taxes	14,082		(14,220)
Provision (benefit) for income taxes	3,017		(12,234)
Net income (loss)	11,065		(1,986)
Less: Net income (loss) attributable to noncontrolling interests	223		(22)
Net income (loss) attributable to Sotera Health Company	10,842		(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 interests	208		(22)
Comprehensive income (loss) attributable to Sotera Health Company	$	7,522	$	(76,203)
Earnings (loss) per share:
Basic	$	0.04	$	(0.01)
Diluted	0.04		(0.01)
Weighted average number of shares outstanding:
Basic	278,827		232,400
Diluted	278,968		232,400

See notes to consolidated financial statements.

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Sotera Health Company

Consolidated Statements of Cash Flows

(in thousands)


	Three Months Ended March 31,
	2021		2020
	(Unaudited)
Operating activities:
Net income (loss)	$	11,065	$	(1,986)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation	15,379		16,110
Amortization of intangible assets	22,282		19,913

Loss on extinguishment of debt	14,312		—
Deferred income taxes	(3,637)		(6,683)
Share-based compensation expense	3,449		1,725
Accretion of asset retirement obligations	551		471
Unrealized foreign exchange (gains) / losses	2,354		(4,876)
Unrealized (gain) / loss on embedded derivative instruments	(853)		4,819
Gain (loss) on interest rate swap	—		(4,713)
Amortization of debt issuance costs	1,663		2,977
Other	(2,843)		(2,306)
Changes in operating assets and liabilities:
Accounts receivable	(4,134)		(433)
Inventories	1,099		(1,553)
Other current assets	(2,324)		(1,404)
Accounts payable	6,625		(733)
Accrued liabilities	(5,542)		(8,334)
Income taxes payable / receivable	(4,518)		(8,132)
Other liabilities	1,513		(61)
Other long-term assets	(282)		889
Net cash provided by operating activities	56,159		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 cash	5,562		42,162
Cash and cash equivalents, including restricted cash, at beginning of period	102,454		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 received	11,561		1,868
Equipment purchases included in accounts payable	7,389		5,100

See notes to consolidated financial statements.

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Sotera Health Company

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, 2019	232,400	$	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, 2020	232,400	$	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, 2020	283,248	$	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, 2021	282,900	$	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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Sotera Health Company

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
	Sterigenics		Nordion		Nelson Labs		Consolidated
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
	Sterigenics		Nordion		Nelson Labs		Consolidated
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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Sotera Health Company

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, 2020		Measurement Period Adjustments		Amount recognized as of March 31, 2021
Goodwill	$	69,046	$	(17,142)	$	51,904
Intangibles	16,427		26,273		42,700
Property, plant, and equipment	13,812		4,346		18,158
Working capital, net	1,115		2		1,117
Investment in unconsolidated affiliate	12,881		(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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Sotera Health Company

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, 2021		December 31, 2020
Raw materials and supplies	$	29,512	$	29,114
Work-in-process	1,371		846
Finished goods	2,617		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, 2021		December 31, 2020
Prepaid taxes	$	25,356	$	22,883
Prepaid business insurance	7,421		10,403
Prepaid rent	1,212		1,170
Customer contract assets	14,133		12,670
Insurance and indemnification receivables	2,751		2,751
Current deposits	797		673
Prepaid maintenance contracts	432		404
Value added tax receivable	1,385		2,094
Prepaid software licensing	1,299		1,181
Stock supplies	3,210		2,715
Other	11,762		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)	Sterigenics		Nordion		Nelson Labs		Total
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 technology	89,604		39,707
Trade names	142		100
Land-use rights	9,454		1,364
Sealed source and supply agreements	243,660		98,237
Other	5,675		1,138
Total finite-lived intangible assets	1,011,044		463,231

Indefinite-lived intangible assets
Regulatory licenses and other(a)	82,807		—
Trade names / trademarks	25,952		—
Total indefinite-lived intangible assets	108,759		—
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 technology	90,964		38,075
Trade names	156		105
Land-use rights	9,489		1,311
Sealed source and supply agreements	240,791		92,953
Other	1,937		519
Total finite-lived intangible assets	977,791		442,391

Indefinite-lived intangible assets
Regulatory licenses and other(a)	81,832		—
Trade names / trademarks	26,134		—
Total indefinite-lived intangible assets	107,966		—
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
2022	80,665
2023	80,659
2024	79,882
2025	41,982
Thereafter	198,736
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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Sotera Health Company

Notes to Consolidated Financial Statements

8.Accrued Liabilities

Accrued liabilities consisted of the following:


(thousands of U.S. dollars)
	March 31, 2021		December 31, 2020
Accrued employee compensation	$	27,651	$	34,760
Legal reserves	2,751		2,751
Accrued interest expense	764		186
Embedded derivatives	229		670
Professional fees	13,744		12,686
Accrued utilities	2,397		1,864
Insurance accrual	1,886		1,255
Accrued taxes	3,332		2,599
Other	3,619		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, 2021		December 31, 2020
Term loan, due 2026	$	1,763,100	$	1,763,100
Senior notes, due 2026	100,000		100,000

Other long-term debt	1,059		450
Total long-term debt	1,864,159		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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Sotera Health Company

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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Sotera Health Company

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	$	—
2022	609
2023	450
2024	—
2025	—
Thereafter	1,863,100
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 defined contribution pension plans, retirement compensation arrangements, and plans that provide extended health care coverage to retired employees, the majority of which relate to Nordion.

Defined benefit pension plan

The interest cost and expected return on plan assets are recorded in “Other income, net” and the service cost component is included in the same financial statement line item as the applicable employee’s wages in the Consolidated Statements of Operations and Comprehensive Income (Loss). The components of net periodic pension cost for the defined benefit plans for the three months ended March 31, 2021 and 2020 were as follows:


Three Months Ended March 31,
(thousands of U.S. dollars)	2021	2020
Service cost	$