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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


☐			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)

262-1410

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 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

- 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			29
Item 3. Quantitative and Qualitative Disclosures About Market Risk			39
Item 4. Controls and Procedures			39
Part II—OTHER INFORMATION			41
Item 1. Legal Proceedings .			41
Item 1A. Risk Factors .			42
Item 6. Exhibits .			43
SIGNATURES			44

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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.

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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, 2022		December 31, 2021
Assets	(Unaudited)
Current assets:
Cash and cash equivalents	$	121,440	$	106,917
Restricted cash short-term	6		7
Accounts receivable, net of allowance for uncollectible accounts of $1,458 and $1,287, respectively	114,763		108,183
Inventories, net	45,701		54,288
Prepaid expenses and other current assets	83,956		71,923
Income taxes receivable	5,694		4,643
Total current assets	371,560		345,961
Property, plant, and equipment, net	669,161		650,797
Operating lease assets	36,984		39,946
Deferred income taxes	5,769		5,885
Investment in unconsolidated affiliate	9,550		9,405
Post-retirement asset	7,285		5,478
Other assets	27,488		12,866
Other intangible assets, net	582,144		598,844
Goodwill	1,125,828		1,120,320
Total assets	$	2,835,769	$	2,789,502
Liabilities and equity
Current liabilities:
Accounts payable	$	55,221	$	72,868
Accrued liabilities	60,459		61,861
Deferred revenue	12,928		8,669

Current portion of finance lease obligations	1,342		1,160
Current portion of operating lease obligations	8,906		9,289
Current portion of asset retirement obligations	627		619
Income taxes payable	4,368		6,695
Total current liabilities	143,851		161,161
Long-term debt, less current portion	1,744,541		1,743,534
Finance lease obligations, less current portion	40,014		40,877
Operating lease obligations, less current portion	31,065		33,017
Noncurrent asset retirement obligations	42,995		41,833
Deferred lease income	20,916		20,745
Post-retirement obligations	11,608		11,464
Noncurrent liabilities	16,188		16,274
Deferred income taxes	142,461		134,501
Total liabilities	2,193,639		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 capital	1,177,097		1,172,593
Retained deficit	(441,605)		(472,246)
Accumulated other comprehensive loss	(62,686)		(83,566)
Total equity attributable to Sotera Health Company	642,130		586,096
Noncontrolling interests	—		—
Total equity	642,130		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,
	2022		2021
	(Unaudited)
Revenues:
Service	$	206,218	$	188,698
Product	30,536		23,450
Total net revenues	236,754		212,148
Cost of revenues:
Service	94,576		85,036
Product	13,303		11,740
Total cost of revenues	107,879		96,776
Gross profit	128,875		115,372
Operating expenses:
Selling, general and administrative expenses	59,542		52,465
Amortization of intangible assets	15,841		16,543

Total operating expenses	75,383		69,008
Operating income	53,492		46,364
Interest expense, net	10,404		21,282
Loss on extinguishment of debt	—		14,312
Foreign exchange loss	788		578
Other income, net	(2,967)		(3,890)
Income before income taxes	45,267		14,082
Provision for income taxes	14,626		3,017
Net income	30,641		11,065
Less: Net income attributable to noncontrolling interests	—		223
Net income attributable to Sotera Health Company	30,641		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 translation	14,975		(3,086)
Comprehensive income	51,521		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
Diluted	0.11		0.04
Weighted average number of shares outstanding:
Basic	279,829		278,827
Diluted	279,908		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,
	2022		2021
	(Unaudited)
Operating activities:
Net income	$	30,641	$	11,065
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	15,867		15,379
Amortization of intangible assets	20,182		22,282

Loss on extinguishment of debt	—		14,312
Deferred income taxes	5,633		(3,637)
Share-based compensation expense	4,538		3,449
Accretion of asset retirement obligations	520		551
Unrealized foreign exchange losses	2,430		2,354
Unrealized gain on derivatives not designated as hedging instruments	(7,364)		(853)
Amortization of debt issuance costs	1,414		1,663
Other	(1,989)		(2,843)
Changes in operating assets and liabilities:
Accounts receivable	(6,387)		(4,134)
Inventories	9,323		1,099
Other current assets	(8,934)		(2,324)
Accounts payable	(12,742)		6,625
Accrued liabilities	2,479		(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 activities	49,967		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 equivalents	487		(295)
Net increase in cash and cash equivalents, including restricted cash	14,522		5,562
Cash and cash equivalents, including restricted cash, at beginning of period	106,924		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 received	13,505		11,561
Equipment purchases included in accounts payable	9,508		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, 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)
Interest rate derivatives, net of tax	—	—		—		—		—		—		—		—
Net income	—	—		—		—		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


	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, 2021	282,985	$	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, 2022	282,930	$	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
	Sterigenics		Nordion		Nelson Labs		Consolidated
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
	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

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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Sotera Health Company

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, 2022		December 31, 2021
Raw materials and supplies	$	32,451	$	41,514
Work-in-process	758		3,919
Finished goods	12,618		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, 2022		December 31, 2021
Prepaid taxes	$	26,752	$	24,937
Prepaid business insurance	8,107		10,707
Prepaid rent	1,203		920
Customer contract assets	18,547		15,565
Insurance and indemnification receivables	3,805		3,144
Current deposits	493		623
Prepaid maintenance contracts	336		279
Value added tax receivable	1,500		2,512
Prepaid software licensing	1,428		2,055
Stock supplies	3,587		3,374
Embedded derivative assets	1,842		496
Other	16,356		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)	Sterigenics		Nordion		Nelson Labs		Total
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 rates	1,733		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 technology	89,037		46,268
Trade names	170		139
Land-use rights	9,773		1,650
Sealed source and supply agreements	245,334		114,818
Other	6,483		2,628
Total finite-lived intangible assets	1,018,831		545,844

Indefinite-lived intangible assets
Regulatory licenses and other(a)	83,375		—
Trade names / trademarks	25,782		—
Total indefinite-lived intangible assets	109,157		—
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 technology	88,826		44,866
Trade names	145		116
Land-use rights	9,744		1,586
Sealed source and supply agreements	241,611		109,838
Other	6,454		2,166
Total finite-lived intangible assets	1,015,408		524,507

Indefinite-lived intangible assets
Regulatory licenses and other(a)	82,110		—
Trade names / trademarks	25,833		—
Total indefinite-lived intangible assets	107,943		—
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
2023	82,016
2024	81,237
2025	43,437
2026	23,181
Thereafter	180,959
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, 2022		December 31, 2021
Accrued employee compensation	$	29,391	$	33,334
Legal reserves	3,134		3,259
Accrued interest expense	10,132		10,755
Embedded derivatives	308		—
Professional fees	7,708		4,314
Accrued utilities	1,833		1,797
Insurance accrual	1,407		2,068
Accrued taxes	2,333		2,209
Other	4,213		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, 2022		December 31, 2021
Term loan, due 2026	$	1,763,100	$	1,763,100
Other long-term debt	450		450
Total long-term debt	1,763,550		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	$	—
2023	450
2024	—
2025	—
2026	1,763,100
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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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)	2022		2021
Service cost	$	249	$	298
Interest cost	1,903		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)	2022		2021
Service cost	$	4	$	7
Interest cost	65		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)			(3,071)		—			(3,320)
Ending balance – March 31, 2021	$	(44,392)		$	(52,770)	$	—		$	(97,162)

(a)For defined benefit pension plans, amounts reclassified from accumulated other comprehensive income (loss) are recorded to “Other income, net” within the Consolidated Statements of Operations and Comprehensive Income.

(b)For interest rate derivatives, amounts reclassified from accumulated other comprehensive income (loss) are recorded to “Interest expense, net” within the Consolidated Statements of Operations and Comprehensive Income.

14.