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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, 2022
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/b5eb45366380812c8a9e661b1fd63961-shc-20220331_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)
262-1410
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 April 28, 2022, there were 282,817,234 shares of the registrant’s common stock, $0.01 par value per share, outstanding.


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SOTERA HEALTH COMPANY
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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:
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., Canadian and European Union relations with Russia and related sanctions;
adverse changes in industry trends;
changes in environmental, health and safety regulations or preferences;
health and safety risks associated with the use, storage, transportation and disposal of potentially hazardous materials such as EO and Co-60;
liability claims relating to health risks associated with the use of EO;
current and future legal proceedings;
competition we face;
market changes, including inflationary trends, that impact our long-term supply contracts with variable price clauses and increase our cost of revenues;
allegations of our failure to properly perform services and potential product liability claims, recalls, penalties and reputational harm;
compliance with the extensive regulatory requirements to which we are subject, the related costs, and any failures to receive or maintain, or delays in receiving, required clearance or approvals;
business continuity hazards, including supply chain disruptions and other risks associated with our operations;
the ongoing impact of the COVID-19 pandemic;
our ability to increase capacity at existing facilities, build new facilities in a timely and cost-effective manner and renew leases for our facilities;
our ability to attract and retain qualified employees;
the risks of doing business internationally, including global and regional economic and political instability and compliance with numerous laws and regulations in multiple jurisdictions;
cyber security breaches, unauthorized data disclosures, and our dependence on information technology systems;
any inability to pursue strategic transactions, including our ability to find suitable acquisition targets, or our failure to 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;
our ability to comply with rapidly evolving data privacy and security laws and regulations and any ineffective compliance efforts with such laws and regulations;
the effects of unionization efforts and labor regulations in certain countries in which we operate;
our ability to maintain profitability in the future;
impairment charges on our goodwill and other intangible assets with indefinite lives, as well as other long-lived assets and intangible assets with definite lives;
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 significant leverage could adversely affect our ability to raise additional capital, limit our ability to react to changes in the economy or our industry, limit our flexibility in operating our business through restrictions contained in our debt agreements and prevent us from meeting our obligations under our existing and future indebtedness; and
uncertainty around LIBOR and certain other interest “benchmarks.”
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.
3

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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, 2021 (the “2021 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, 2022December 31, 2021
Assets(Unaudited)
Current assets:
Cash and cash equivalents$121,440 $106,917 
Restricted cash short-term6 7 
Accounts receivable, net of allowance for uncollectible accounts of $1,458 and $1,287, respectively
114,763 108,183 
Inventories, net45,701 54,288 
Prepaid expenses and other current assets83,956 71,923 
Income taxes receivable5,694 4,643 
Total current assets371,560 345,961 
Property, plant, and equipment, net669,161 650,797 
Operating lease assets36,984 39,946 
Deferred income taxes5,769 5,885 
Investment in unconsolidated affiliate9,550 9,405 
Post-retirement asset7,285 5,478 
Other assets27,488 12,866 
Other intangible assets, net582,144 598,844 
Goodwill1,125,828 1,120,320 
Total assets$2,835,769 $2,789,502 
Liabilities and equity
Current liabilities:
Accounts payable$55,221 $72,868 
Accrued liabilities60,459 61,861 
Deferred revenue12,928 8,669 
Current portion of finance lease obligations1,342 1,160 
Current portion of operating lease obligations8,906 9,289 
Current portion of asset retirement obligations627 619 
Income taxes payable4,368 6,695 
Total current liabilities143,851 161,161 
Long-term debt, less current portion1,744,541 1,743,534 
Finance lease obligations, less current portion40,014 40,877 
Operating lease obligations, less current portion31,065 33,017 
Noncurrent asset retirement obligations42,995 41,833 
Deferred lease income20,916 20,745 
Post-retirement obligations11,608 11,464 
Noncurrent liabilities16,188 16,274 
Deferred income taxes142,461 134,501 
Total liabilities2,193,639 2,203,406 
See Commitments and contingencies note
Equity:
Common stock, with $0.01 par value, 1,200,000 shares authorized; 286,037 shares issued at March 31, 2022 and December 31, 2021, respectively
2,860 2,860 
Preferred stock, with $0.01 par value, 120,000 authorized; no shares issued at March 31, 2022 and
December 31, 2021, respectively
  
Treasury stock, at cost (3,107 and 3,052 shares at March 31, 2022 and December 31, 2021, respectively)
(33,536)(33,545)
Additional paid-in capital1,177,097 1,172,593 
Retained deficit(441,605)(472,246)
Accumulated other comprehensive loss(62,686)(83,566)
Total equity attributable to Sotera Health Company642,130 586,096 
Noncontrolling interests  
Total equity642,130 586,096 
Total liabilities and equity$2,835,769 $2,789,502 
See notes to consolidated financial statements.
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Sotera Health Company
Consolidated Statements of Operations and Comprehensive Income
(in thousands, except per share amounts)
Three Months Ended March 31,
20222021
(Unaudited)
Revenues:
Service$206,218 $188,698 
Product30,536 23,450 
Total net revenues236,754 212,148 
Cost of revenues:
Service94,576 85,036 
Product13,303 11,740 
Total cost of revenues107,879 96,776 
Gross profit128,875 115,372 
Operating expenses:
Selling, general and administrative expenses59,542 52,465 
Amortization of intangible assets15,841 16,543 
Total operating expenses75,383 69,008 
Operating income53,492 46,364 
Interest expense, net10,404 21,282 
Loss on extinguishment of debt 14,312 
Foreign exchange loss788 578 
Other income, net(2,967)(3,890)
Income before income taxes45,267 14,082 
Provision for income taxes14,626 3,017 
Net income30,641 11,065 
Less: Net income attributable to noncontrolling interests 223 
Net income attributable to Sotera Health Company30,641 10,842 
Other comprehensive income (loss) net of tax:
Pension and post-retirement benefits (net of taxes of $(92) and $(84), respectively)
(274)(249)
Interest rate derivatives (net of taxes of $2,109 and $0, respectively)
6,179  
Foreign currency translation14,975 (3,086)
Comprehensive income51,521 7,730 
Less: comprehensive income attributable to noncontrolling interests 208 
Comprehensive income attributable to Sotera Health Company$51,521 $7,522 
Earnings per share:
Basic$0.11 $0.04 
Diluted0.11 0.04 
Weighted average number of shares outstanding:
Basic279,829 278,827 
Diluted279,908 278,968 
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,
20222021
(Unaudited)
Operating activities:
Net income$30,641 $11,065 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation15,867 15,379 
Amortization of intangible assets20,182 22,282 
Loss on extinguishment of debt 14,312 
Deferred income taxes5,633 (3,637)
Share-based compensation expense4,538 3,449 
Accretion of asset retirement obligations520 551 
Unrealized foreign exchange losses2,430 2,354 
Unrealized gain on derivatives not designated as hedging instruments(7,364)(853)
Amortization of debt issuance costs1,414 1,663 
Other(1,989)(2,843)
Changes in operating assets and liabilities:
Accounts receivable(6,387)(4,134)
Inventories9,323 1,099 
Other current assets(8,934)(2,324)
Accounts payable(12,742)6,625 
Accrued liabilities2,479 (5,542)
Income taxes payable / receivable(5,222)(4,518)
Other liabilities(81)1,513 
Other long-term assets(341)(282)
Net cash provided by operating activities49,967 56,159 
Investing activities:
Purchases of property, plant and equipment(35,546)(20,942)
Purchase of mandatorily redeemable noncontrolling interest in Nelson Laboratories Fairfield, Inc. (12,425)
Purchase of BioScience Laboratories, LLC, net of cash acquired (13,152)
Adjustment to purchase of Regulatory Compliance Associates Inc.63  
Net cash used in investing activities(35,483)(46,519)
Financing activities:
Payments of debt issuance costs(31)(3,435)
Other financing activities(418)(348)
Net cash used in financing activities(449)(3,783)
Effect of exchange rate changes on cash and cash equivalents487 (295)
Net increase in cash and cash equivalents, including restricted cash14,522 5,562 
Cash and cash equivalents, including restricted cash, at beginning of period106,924 102,454 
Cash and cash equivalents, including restricted cash, at end of period$121,446 $108,016 
Supplemental disclosures of cash flow information:
Cash paid during the period for interest$15,809 $19,745 
Cash paid during the period for income taxes, net of tax refunds received13,505 11,561 
Equipment purchases included in accounts payable9,508 7,389 
See notes to consolidated financial statements.
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Sotera Health Company
Consolidated Statements of Equity
(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, 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)
Interest rate derivatives, net of tax— — — — — — —  
Net income— — — — 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 
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, 2021282,985 $2,860 $(33,545)$1,172,593 $(472,246)$(83,566)$ $586,096 
Share-based compensation plans(55)— 9 4,504 — — — 4,513 
Comprehensive income (loss):
Pension and post-retirement plan adjustments, net of tax— — — — — (274)— (274)
Foreign currency translation— — — — — 14,975 — 14,975 
Interest rate derivatives, net of tax— — — — — 6,179 — 6,179 
Net income— — — — 30,641 — — 30,641
Balance at March 31, 2022282,930 $2,860 $(33,536)$1,177,097 $(441,605)$(62,686)$ $642,130 
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 represented the noncontrolling stockholders’ proportionate share of the total equity in the Company’s consolidated subsidiaries. In the second quarter of 2021, we purchased the outstanding noncontrolling interests of 15% and 33% in our two China subsidiaries. Refer to Note 4, “Acquisitions” for additional details. Prior to our acquisition of the noncontrolling interests in our two subsidiaries in China, we consolidated the results of operations of these subsidiaries with our results of operations and reflected the noncontrolling interests on our Consolidated Statements of Operations and Comprehensive Income 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”). As the purchase of this noncontrolling interest was mandatorily redeemable, no earnings were allocated to this noncontrolling interest. See Note 4, “Acquisitions” for additional details.
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”). 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. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. 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, 2021.
2.Recent Accounting Standards
Adoption of Accounting Standard Updates
Effective January 1, 2022, we adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (“ASU 2016-13”): Measurement of Credit Losses on Financial Instruments, and the subsequently issued additional guidance that modified ASU 2016-13 which was originally issued by the Financial Accounting Standards Board (“FASB”) in June 2016. 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. The adoption of this standard did not have a material impact on our consolidated financial statements and disclosures.
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Sotera Health Company
Notes to Consolidated Financial Statements
Effective January 1, 2022, we adopted ASU 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes which was issued by the FASB in December 2019. 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. The adoption of this standard did not have a material impact on our consolidated financial statements and disclosures.
ASU’s Issued But Not Yet Adopted
In October 2021, the FASB issued ASU 2021-08 - Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). The amendments in ASU 2021-08 require that an acquiring entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contract with Customers (“ASC Topic 606”). At the acquisition date, an acquirer should account for the related revenue contracts in accordance with ASC Topic 606 as if it had originated the contracts. For public business entities, these amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We are currently assessing the effect that ASU 2021-08 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, 2022 and 2021:
(thousands of U.S. dollars)Three Months Ended March 31, 2022
SterigenicsNordionNelson LabsConsolidated
Point in time$149,462 $33,285 $ $182,747 
Over time 717 53,290 54,007 
Total$149,462 $34,002 $53,290 $236,754 
(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 
Contract Balances
As of March 31, 2022, and December 31, 2021, contract assets included in prepaid expenses and other current assets on the Consolidated Balance Sheets totaled approximately $18.5 million and $15.6 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 $12.9 million and $8.7 million at March 31, 2022 and December 31, 2021, respectively. We recognize deferred revenue after all revenue recognition criteria are met.
4.Acquisitions
Acquisition of Regulatory Compliance Associates Inc.
On November 4, 2021, we acquired Regulatory Compliance Associates Inc. (“RCA”) for approximately $31.0 million, net of $0.6 million of cash acquired. RCA is an industry leader in providing life sciences consulting focused on quality, regulatory, and technical advisory services for the pharmaceutical, medical device and combination device industries. Headquartered in Pleasant Prairie, Wisconsin, RCA will expand and further strengthen the technical consulting and expert advisory capabilities of our Nelson Labs segment.
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Notes to Consolidated Financial Statements
The purchase price of RCA 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 these measurements are completed. As of March 31, 2022, approximately $20.7 million of goodwill was recorded related to the RCA acquisition, representing the excess of the purchase price over preliminary estimated fair values of all the assets acquired and liabilities assumed. Based on our preliminary estimates, we also recorded $12.5 million of finite-lived intangible assets, primarily related to customer relationships. The purchase price allocation will be finalized within a measurement period not to exceed one year from closing. We funded this acquisition using available cash. The acquisition price and the results of operations for this acquired entity are not material in relation to our consolidated financial statements.
Acquisition of Noncontrolling Interests in China Subsidiaries
On May 18, 2021, we acquired the remaining 15% and 33% noncontrolling interests associated with our two subsidiaries located in China. As a result, both entities are now 100% owned by the Company. The purchase price of the remaining equity interests was approximately $8.6 million, net of the cancellation of an $0.8 million demand note. We paid 90% of the cash consideration on the acquisition date. The remaining amounts were partially settled in post-closing payments in the third quarter of 2021; $0.2 million of the post-closing payment remains outstanding as of March 31, 2022 subject to the terms of the equity transfer agreements. As a result of the transactions, we continue to consolidate both of these subsidiaries, however, as of May 18, 2021, we no longer record noncontrolling interests in the consolidated financial statements as these subsidiaries are fully owned by the Company. The purchases were accounted for as equity transactions. As a result of these transactions, noncontrolling interests were reduced by $2.8 million reflecting the carrying value of the interest with $5.8 million of the difference charged to additional paid-in capital.
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 relative to the $13.6 million previously accrued. Pursuant to the terms of this 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 BioScience Laboratories, LLC
On March 8, 2021, we acquired BioScience Laboratories, LLC (“BioScience Labs”) for approximately $13.5 million, net of $0.2 million of cash acquired plus the contemporaneous repayment of BioScience Labs’ outstanding debt of $1.9 million. BioScience Labs is a provider of outsourced topical antimicrobial product testing in the pharmaceutical, medical device, and consumer products industries with one location in Bozeman, Montana. BioScience Labs is included within the Nelson Labs segment.
The purchase price of BioScience Labs 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 these measurements are completed. Approximately $8.4 million of goodwill was recorded related to the BioScience Labs acquisition, representing the excess of the purchase price over preliminary estimated fair values of all the assets acquired and liabilities assumed. We funded this acquisition using available cash. The acquisition price and the results of operations for this acquired entity are not material in relation to our consolidated financial statements.
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Sotera Health Company
Notes to Consolidated Financial Statements
5.Inventories
Inventories consisted of the following:
(thousands of U.S. dollars)
March 31, 2022December 31, 2021
Raw materials and supplies$32,451 $41,514 
Work-in-process758 3,919 
Finished goods12,618 8,979 
45,827 54,412 
Reserve for excess and obsolete inventory(126)(124)
Inventories, net$45,701 $54,288 
6.Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
(thousands of U.S. dollars)
March 31, 2022December 31, 2021
Prepaid taxes$26,752 $24,937 
Prepaid business insurance8,107 10,707 
Prepaid rent1,203 920 
Customer contract assets18,547 15,565 
Insurance and indemnification receivables3,805 3,144 
Current deposits493 623 
Prepaid maintenance contracts336 279 
Value added tax receivable1,500 2,512 
Prepaid software licensing1,428 2,055 
Stock supplies3,587 3,374 
Embedded derivative assets1,842 496 
Other16,356 7,311 
Prepaid expenses and other current assets$83,956 $71,923 
7.Goodwill and Other Intangible Assets
Changes to goodwill during the three months ended March 31, 2022 were as follows:
(thousands of U.S. dollars)SterigenicsNordionNelson LabsTotal
Goodwill at December 31, 2021$660,743 $288,905 $170,672 $1,120,320 
RCA acquisition measurement period adjustments
  56 56 
Changes due to foreign currency exchange rates1,733 4,423 (704)5,452 
Goodwill at March 31, 2022$662,476 $293,328 $170,024 $1,125,828 
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Sotera Health Company
Notes to Consolidated Financial Statements
Other intangible assets consisted of the following:
(thousands of U.S. dollars)
Gross Carrying
Amount
Accumulated
Amortization
As of March 31, 2022
Finite-lived intangible assets
Customer relationships$668,034 $380,341 
Proprietary technology89,037 46,268 
Trade names170 139 
Land-use rights9,773 1,650 
Sealed source and supply agreements245,334 114,818 
Other6,483 2,628 
Total finite-lived intangible assets1,018,831 545,844 
Indefinite-lived intangible assets
Regulatory licenses and other(a)
83,375 — 
Trade names / trademarks25,782 — 
Total indefinite-lived intangible assets109,157 — 
Total$1,127,988 $545,844 
As of December 31, 2021
Gross Carrying
Amount
Accumulated
Amortization
Finite-lived intangible assets
Customer relationships$668,628 $365,935 
Proprietary technology88,826 44,866 
Trade names145 116 
Land-use rights9,744 1,586 
Sealed source and supply agreements241,611 109,838 
Other6,454 2,166 
Total finite-lived intangible assets1,015,408 524,507 
Indefinite-lived intangible assets
Regulatory licenses and other(a)
82,110 — 
Trade names / trademarks25,833 — 
Total indefinite-lived intangible assets107,943 — 
Total$1,123,351 $524,507 
(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 year license period as Nordion has demonstrated over its 75 years of history.
Amounts include the impact of foreign currency translation.
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Sotera Health Company
Notes to Consolidated Financial Statements
Amortization expense for other intangible assets was $20.2 million ($4.3 million is included in “Cost of revenues” and $15.9 million in “Selling, general and administrative expenses”) in the Consolidated Statements of Operations and Comprehensive Income and $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 for the three months ended March 31, 2022 and 2021, 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 2022$62,157 
202382,016 
202481,237 
202543,437 
202623,181 
Thereafter180,959 
Total$472,987 
The weighted-average remaining useful life of the finite-lived intangible assets was approximately 9.5 years as of March 31, 2022.
8.Accrued Liabilities
Accrued liabilities consisted of the following:
(thousands of U.S. dollars)
March 31, 2022December 31, 2021
Accrued employee compensation$29,391 $33,334 
Legal reserves3,134 3,259 
Accrued interest expense10,132 10,755 
Embedded derivatives308  
Professional fees7,708 4,314 
Accrued utilities1,833 1,797 
Insurance accrual1,407 2,068 
Accrued taxes2,333 2,209 
Other4,213 4,125 
Accrued liabilities$60,459 $61,861 
9.Long-Term Debt
Long-term debt consisted of the following:
(thousands of U.S. dollars)
March 31, 2022December 31, 2021
Term loan, due 2026$1,763,100 $1,763,100 
Other long-term debt450 450 
Total long-term debt1,763,550 1,763,550 
Less unamortized debt issuance costs and debt discounts(19,009)(20,016)
Total long-term debt, less debt issuance costs and debt discounts$1,744,541 $1,743,534 
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Sotera Health Company
Notes to Consolidated Financial Statements
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 Revolving Credit Facility and Term Loan mature on June 13, 2026 and December 13, 2026, respectively. The total borrowing capacity under the Revolving Credit Facility is $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, 2022 and December 31, 2021, total borrowings under the Term Loan were $1,763.1 million, 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, 2022 and March 31, 2021 was 3.25% and 3.73%, 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 225 basis points. 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.
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 did not change the capacity of our Revolving Credit Facility. 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, 2022 and December 31, 2021, capitalized debt issuance costs totaled $2.5 million and $2.7 million, respectively, and debt discounts totaled $16.5 million and $17.3 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.
The Senior Secured Credit Facilities contain additional covenants that, among other things, restrict, subject to certain exceptions, our ability and the ability of our restricted subsidiaries to engage in certain activities, such as incur indebtedness or permit to exist any lien on any property or asset now owned or hereafter acquired, as specified in the Senior Secured Credit Facilities. The Senior Secured Credit Facilities also contain certain customary affirmative covenants and events of default, including upon a change of control. As of March 31, 2022, we were in compliance with all the Senior Secured Credit Facilities covenants.

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.
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Sotera Health Company
Notes to Consolidated Financial Statements
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, 2022, the Company had $69.2 million of letters of credit issued against the Revolving Credit Facility, resulting in total availability under the Revolving Credit Facility of $278.3 million.
Term Loan Interest Rate Risk Management
The Company utilizes interest rate derivatives to eliminate the variability of cash flows in the interest payments associated with the Term Loan due to changes in LIBOR (or its successor). For additional information on the derivative instruments described above, refer to Note 17, “Financial Instruments and Financial Risk”, “Derivatives Instruments.”
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 were scheduled to mature on December 13, 2026. On August 27, 2021 SHH redeemed in full the $100.0 million aggregate principal amount of the First Lien Notes. In connection with this redemption, the Company paid a $3.0 million early redemption premium, in accordance with the terms of the First Lien Notes Indenture, and wrote off $3.4 million of debt issuance and discount costs. The Company recognized these expenses within “Loss on extinguishment of debt” in our Consolidated Statements of Operations and Comprehensive Income for the year ended December 31, 2021.
Prior to the redemption, the First Lien Notes bore interest at a rate equal to LIBOR subject to a 1.00% floor plus 6.00% per annum. Interest was payable on a quarterly basis with no principal due until maturity. The weighted average interest rate on the First Lien Notes during 2021 up to the August 27, 2021 redemption date was 7.00%.
Aggregate Maturities
Aggregate maturities of the Company’s long-term debt, excluding debt discounts, as of March 31, 2022, are as follows:
(thousands of U.S. dollars)
2022$ 
2023450 
2024 
2025 
20261,763,100 
Thereafter 
Total$1,763,550 
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 32.3 % and 21.4% for the three months ended March 31, 2022 and 2021, respectively. Income tax expense for the three months ended March 31, 2022 and March 31, 2021 differs from the statutory rate primarily due to a net increase in the valuation allowance attributable to the limitation on the deductibility of interest expense, the impact of the foreign rate differential, and global intangible low-tax income (“GILTI”). Provision for income tax expense for the three months ended March 31, 2021 was offset by a discrete item, which reversed the valuation allowance on deferred tax assets related to certain asset retirement obligations.
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Table of Contents
Sotera Health Company
Notes to Consolidated Financial Statements
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, expected return on plan assets, and amortization of net actuarial loss are recorded net 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. The components of net periodic pension cost for the defined benefit plans for the three months ended March 31, 2022 and 2021 were as follows:
Three Months Ended March 31,
(thousands of U.S. dollars)20222021
Service cost$249 $298 
Interest cost1,903 1,613 
Expected return on plan assets(3,704)(3,557)
Amortization of net actuarial loss 267 
Net periodic benefit$(1,552)$(1,379)
Other benefit plans
Other benefit plans are all related to our foreign subsidiaries and include a supplemental retirement arrangement, a retirement and termination allowance, and post-retirement benefit plans, which include contributory health and dental care benefits and contributory life insurance coverage. All but one, non-pension post-employment benefit plans are unfunded. The components of net periodic pension cost for the other benefit plans for the three months ended March 31, 2022 and 2021 were as follows:
Three Months Ended March 31,
(thousands of U.S. dollars)20222021
Service cost$4 $7 
Interest cost65 59 
Amortization of net actuarial (gain) loss(2)8 
Net periodic benefit cost$67 $74 
We currently expect funding requirements of approximately $3.1 million in each of the next five years to fund the regulatory solvency deficit, as defined by Canadian federal regulation, which requires solvency testing on defined benefit pension plans.
The Company may obtain a qualifying letter of credit for solvency payments, up to 15% of the market value of solvency liabilities as determined on the valuation date, instead of paying cash into the pension fund. As of March 31, 2022, and December 31, 2021, we had letters of credit outstanding relating to the defined benefit plans totaling $46.1 million and $46.2 million, respectively. The actual funding requirements over the five-year period will be dependent on subsequent annual actuarial valuations. These amounts are estimates, which may change with actual investment performance, changes in interest rates, any pertinent changes in Canadian government regulations and any voluntary contributions.
12.Related Parties
We do business with a number of other companies affiliated with Warburg Pincus and GTCR, whom we refer to collectively as our “Sponsors”. All transactions with these companies have been conducted in the ordinary course of our business and are not material to our operations.
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Sotera Health Company
Notes to Consolidated Financial Statements
13.Other Comprehensive Income (Loss)
Amounts in accumulated other comprehensive income (loss) are presented net of the related tax. Foreign currency translation is not adjusted for income taxes.
Changes in our accumulated other comprehensive income (loss) balances, net of applicable tax, were as follows:
(thousands of U.S. dollars)
Defined
Benefit
Plans
Foreign
Currency
Translation
Interest
Rate
Swaps
Total
Beginning balance – January 1, 2022$(17,581)$(66,389)$404 $(83,566)
Other comprehensive income (loss) before
reclassifications
(272)14,975 6,179 20,882 
Amounts reclassified from accumulated other
comprehensive income (loss)
(2)
(a)
  
(b)
(2)
Net current-period other comprehensive income (loss)(274)14,975 6,179 20,880 
Ending balance – March 31, 2022$(17,855)$(51,414)$6,583 $(62,686)
Beginning balance – January 1, 2021$(44,143)$(49,699)$ $(93,842)
Other comprehensive income (loss) before
reclassifications
(524)(3,071) (3,595)
Amounts reclassified from accumulated other
comprehensive income (loss)
275 
(a)
  275 
Net current-period other comprehensive income (loss)(249)(