Sotera Health Co [SHC] Filings

10-Q 1 shc-20230930.htm 10-Q shc-20230930

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 September 30, 2023


☐			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 October 25, 2023, there were 282,622,621 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			34
Item 3. Quantitative and Qualitative Disclosures About Market Risk			50
Item 4. Controls and Procedures			50
Part II—OTHER INFORMATION			51
Item 1. Legal Proceedings.			51
Item 1A. Risk Factors.			52
Item 5. Other Information.			52
Item 6. Exhibits.			53
SIGNATURES			54

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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 words such as “believes,” “estimates,” “expects,” “projects,” “may,” “intends,” “plans” or “anticipates,” or by discussions of strategy, plans or intentions. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements, or industry results, to differ materially from historical results or any future results, performance or achievements expressed, suggested or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to:

•any disruption in the availability or supply 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 and/or sanctions arising from United States, Canadian, United Kingdom or European Union relations with Russia;

•foreign currency exchange rates and changes in those rates;

•changes in environmental, health and safety regulations or preferences, and general economic, social and business conditions;

•health and safety risks associated with the use, storage, transportation and disposal of potentially hazardous materials such as EO and Co-60;

•the impact and outcome of current and future legal proceedings and liability claims, including litigation related to purported exposure to emissions of EO from our facilities in Illinois, Georgia and New Mexico and the possibility that other claims will be made in the future relating to these or other facilities;

•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;

•adverse changes in industry trends;

•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;

•business continuity hazards, including supply chain disruptions and other risks associated with our operations;

•the risks of doing business internationally, including global and regional economic and political instability and compliance with numerous laws and regulations in multiple jurisdictions;

•our ability to increase capacity at existing facilities, build new facilities in a timely and cost-effective manner and renew leases for our leased facilities;

•our ability to attract and retain qualified employees;

•severe health events, such as the COVID-19 pandemic, or environmental events;

•cyber security breaches, unauthorized data disclosures, and our dependence on information technology systems;

•any inability to pursue strategic transactions or 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;

•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;

•the effects of unionization efforts and labor regulations in certain countries in which we operate;

•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; and

•our significant leverage and how this 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/or prevent us from meeting our obligations under our existing and future indebtedness.

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These statements are based on current plans, estimates and projections, and therefore you should not place undue reliance on them. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them publicly in light of new information or future events, except as required by law. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved.

You should carefully consider the above factors, as well as the factors discussed elsewhere in this Quarterly Report on Form 10-Q, including under Part II, Item 1A, “Risk Factors,” as well as Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 10-K”). If any of these trends, risks or uncertainties actually occur or continue, 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, except per share amounts)


	As of
	September 30, 2023		December 31, 2022
Assets	(Unaudited)
Current assets:
Cash and cash equivalents	$	244,959	$	395,214
Restricted cash short-term	7,575		1,080
Accounts receivable, net of allowance for uncollectible accounts of $2,100 and $1,871, respectively	118,396		118,482
Inventories, net	37,924		37,145
Prepaid expenses and other current assets	84,201		80,995
Income taxes receivable	26,591		12,094
Total current assets	519,646		645,010
Property, plant, and equipment, net	884,385		774,527
Operating lease assets	24,672		26,481
Deferred income taxes	4,043		4,101
Post-retirement assets	39,342		35,570
Other assets	34,563		38,983
Other intangible assets, net	429,112		491,265
Goodwill	1,100,811		1,101,768
Total assets	$	3,036,574	$	3,117,705
Liabilities and equity
Current liabilities:
Accounts payable	$	57,125	$	74,139
Accrued liabilities	106,371		490,130
Deferred revenue	12,712		12,140
Current portion of long-term debt	5,235		197,119
Current portion of finance lease obligations	8,398		1,722
Current portion of operating lease obligations	6,362		7,554
Current portion of asset retirement obligations	252		2,896
Income taxes payable	4,139		5,867
Total current liabilities	200,594		791,567
Long-term debt	2,222,789		1,747,115
Finance lease obligations, less current portion	63,219		56,955
Operating lease obligations, less current portion	20,674		21,577
Noncurrent asset retirement obligations	44,382		42,586
Deferred lease income	18,444		18,902
Post-retirement obligations	7,760		7,910
Noncurrent liabilities	12,415		12,831
Deferred income taxes	68,826		68,024
Total liabilities	2,659,103		2,767,467
See Commitments and contingencies note
Equity:
Common stock, with $0.01 par value, 1,200,000 shares authorized; 286,037 shares issued at September 30, 2023 and December 31, 2022	2,860		2,860
Preferred stock, with $0.01 par value, 120,000 authorized; no shares issued at September 30, 2023 and December 31, 2022	—		—
Treasury stock, at cost (3,414 and 3,616 shares at September 30, 2023 and December 31, 2022, respectively)	(28,474)		(29,775)
Additional paid-in capital	1,210,346		1,189,622
Retained deficit	(693,121)		(705,816)
Accumulated other comprehensive loss	(114,140)		(106,653)
Total equity	377,471		350,238
Total liabilities and equity	$	3,036,574	$	3,117,705

See notes to consolidated financial statements.

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Sotera Health Company

Consolidated Statements of Operations and Comprehensive Income (Loss)

(in thousands, except per share amounts)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenues:
Service	$	227,120	$	216,704	$	667,680	$	644,451
Product	36,057		32,000		71,369		107,646
Total net revenues	263,177		248,704		739,049		752,097
Cost of revenues:
Service	103,580		99,772		311,690		292,755
Product	13,613		12,919		30,284		44,058
Total cost of revenues	117,193		112,691		341,974		336,813
Gross profit	145,984		136,013		397,075		415,284
Operating expenses:
Selling, general and administrative expenses	54,112		57,091		176,309		179,765
Amortization of intangible assets	15,774		15,727		48,098		47,337
Total operating expenses	69,886		72,818		224,407		227,102
Operating income	76,098		63,195		172,668		188,182
Interest expense, net	40,627		23,427		100,225		47,875
Georgia EO litigation settlement	35,000		—		35,000		—
Impairment of investment in unconsolidated affiliate	—		—		—		9,613
Foreign exchange (gain) loss	(426)		(535)		386		(502)
Other expense (income), net	427		(1,713)		(3,300)		(4,195)
Income before income taxes	470		42,016		40,357		135,391
Provision for income taxes	14,130		16,926		27,662		49,242
Net income (loss)	(13,660)		25,090		12,695		86,149
Other comprehensive income (loss) net of tax:
Pension and post-retirement benefits (net of taxes of $(43), $357, $(54), and $444, respectively)	(126)		1,065		(159)		1,323
Interest rate derivatives (net of taxes of $(934), $3,368, $(3,294) and $6,718, respectively)	(1,714)		9,408		(6,963)		18,765
Foreign currency translation	(32,996)		(69,460)		(365)		(100,523)
Comprehensive income (loss)	$	(48,496)	$	(33,897)	$	5,208	$	5,714
Earnings per share:
Basic	$	(0.05)	$	0.09	$	0.04	$	0.31
Diluted	(0.05)		0.09		0.04		0.31
Weighted average number of shares outstanding:
Basic	281,105		280,142		280,898		279,988
Diluted	281,105		280,172		283,190		280,093

See notes to consolidated financial statements.

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Sotera Health Company

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)


	Nine Months Ended September 30,
	2023		2022
Operating activities:
Net income	$	12,695	$	86,149
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	55,913		47,496
Amortization of intangible assets	61,290		61,596
Impairment of investment in unconsolidated affiliate	—		9,613
Deferred income taxes	3,284		17,153
Share-based compensation expense	24,034		14,955
Accretion of asset retirement obligations	1,683		1,645
Unrealized foreign exchange (gain) loss	2,444		(5,610)
Unrealized loss (gain) on derivatives not designated as hedging instruments	1,087		(4,323)
Amortization of debt issuance costs	6,522		4,259
Other	(3,492)		(6,109)
Changes in operating assets and liabilities:
Accounts receivable	302		(8,558)
Inventories	(866)		13,896
Other current assets	(892)		(13,066)
Accounts payable	(17,412)		(13,367)
Accrued liabilities	(11,389)		(1,874)
Illinois EO litigation settlement	(407,712)		—
Georgia EO litigation settlement	35,000		—
Income taxes payable / receivable, net	(18,366)		(25,050)
Other liabilities	(809)		1,489
Other long-term assets	(4,171)		(4,259)
Net cash provided by (used in) operating activities	(260,855)		176,035
Investing activities:
Purchases of property, plant and equipment	(150,149)		(110,642)
Adjustment to purchase of Regulatory Compliance Associates Inc.	—		450
Other investing activities	69		34
Net cash used in investing activities	(150,080)		(110,158)
Financing activities:
Proceeds from long-term borrowings	500,000		—
Payment of revolving credit facility	(200,000)		—
Payment of long-term borrowings	(1,250)		—
Payments of debt issuance costs and debt discount	(25,645)		(31)
Other financing activities	(3,353)		(1,452)
Net cash provided by (used in) financing activities	269,752		(1,483)
Effect of exchange rate changes on cash and cash equivalents	(2,577)		(6,357)
Net increase (decrease) in cash and cash equivalents, including restricted cash	(143,760)		58,037
Cash and cash equivalents, including restricted cash, at beginning of period	396,294		106,924
Cash and cash equivalents, including restricted cash, at end of period	$	252,534	$	164,961
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	150,696	$	65,045
Cash paid during the period for income taxes, net of tax refunds received	42,587		56,474
Purchases of property, plant and equipment included in accounts payable	16,383		18,583

See notes to consolidated financial statements.

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Sotera Health Company

Consolidated Statements of Equity

(in thousands)

(Unaudited)


	Three Months Ended September 30, 2023
	Common Stock					Additional Paid-In Capital		Retained Earnings / (Accumulated Deficit)		Accumulated Other Comprehensive (Loss) Income		Total Equity
	Shares	Amount		Treasury Stock
Balance at June 30, 2023	282,544	$	2,860	$	(28,700)	$	1,202,972	$	(679,461)	$	(79,304)	$	418,367


Share-based compensation plans	79	—		226		7,374		—		—		7,600
Comprehensive income (loss):
Pension and post-retirement plan adjustments, net of tax	—	—		—		—		—		(126)		(126)
Foreign currency translation	—	—		—		—		—		(32,996)		(32,996)
Interest rate derivatives, net of tax	—	—		—		—		—		(1,714)		(1,714)
Net loss	—	—		—		—		(13,660)		—		(13,660)
Balance at September 30, 2023	282,623	$	2,860	$	(28,474)	$	1,210,346	$	(693,121)	$	(114,140)	$	377,471


	Nine Months Ended September 30, 2023
	Common Stock					Additional Paid-In Capital		Retained Earnings / (Accumulated Deficit)		Accumulated Other Comprehensive (Loss) Income		Total Equity
	Shares	Amount		Treasury Stock
Balance at December 31, 2022	282,421	$	2,860	$	(29,775)	$	1,189,622	$	(705,816)	$	(106,653)	$	350,238
Share-based compensation plans	202	—		1,301		20,724		—		—		22,025
Comprehensive income (loss):
Pension and post-retirement plan adjustments, net of tax	—	—		—		—		—		(159)		(159)
Foreign currency translation	—	—		—		—		—		(365)		(365)
Interest rate derivatives, net of tax	—	—		—		—		—		(6,963)		(6,963)
Net income	—	—		—		—		12,695		—		12,695
Balance at September 30, 2023	282,623	$	2,860	$	(28,474)	$	1,210,346	$	(693,121)	$	(114,140)	$	377,471

See notes to consolidated financial statements.

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Sotera Health Company

Consolidated Statements of Equity (continued)

(in thousands)

(Unaudited)


	Three Months Ended September 30, 2022
	Common Stock					Additional Paid-In Capital		Retained Earnings / (Accumulated Deficit)		Accumulated Other Comprehensive (Loss) Income		Total Equity
	Shares	Amount		Treasury Stock
Balance at June 30, 2022	282,902	$	2,860	$	(32,654)	$	1,181,995	$	(411,187)	$	(105,014)	$	636,000
Share-based compensation plans	(789)	—		1		4,625		—		—		4,626
Comprehensive income (loss):	—	—				—		—		—		—
Pension and post-retirement plan adjustments, net of tax	—	—		—		—		—		1,065		1,065
Foreign currency translation	—	—		—		—		—		(69,460)		(69,460)
Interest rate derivatives, net of tax	—	—		—		—		—		9,408		9,408
Net income	—	—		—		—		25,090		—		25,090
Balance at September 30, 2022	282,113	$	2,860	$	(32,653)	$	1,186,620	$	(386,097)	$	(164,001)	$	606,729


	Nine Months Ended September 30, 2022
	Common Stock					Additional Paid-In Capital		Retained Earnings / (Accumulated Deficit)		Accumulated Other Comprehensive (Loss) Income		Total Equity
	Shares	Amount		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	(872)	—		892		14,027		—		—		14,919
Comprehensive income (loss):
Pension and post-retirement plan adjustments, net of tax	—	—		—		—		—		1,323		1,323
Foreign currency translation	—	—		—		—		—		(100,523)		(100,523)
Interest rate derivatives, net of tax	—	—		—		—		—		18,765		18,765
Net income	—	—		—		—		86,149		—		86,149
Balance at September 30, 2022	282,113	$	2,860	$	(32,653)	$	1,186,620	$	(386,097)	$	(164,001)	$	606,729

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 leading global provider of mission-critical end-to-end sterilization solutions, lab testing and advisory services for the healthcare industry 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 17, “Segment Information”. All significant intercompany balances and transactions have been eliminated in consolidation.

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”). Our equity ownership interest in the joint venture was determined to be an investment in a variable interest entity (“VIE”). The investment was not consolidated as the Company concluded that it was not the primary beneficiary of the VIE. The Company accounted for the joint venture using the equity method.

During the year ended December 31, 2022, we identified certain events and circumstances that indicated a decline in value of our investment in this joint venture that was other-than-temporary. Consequently, in the second quarter of 2022, we wrote down the investment in the joint venture to its fair value of $0, resulting in an impairment charge of approximately $9.6 million. In February 2023, we entered into a Share Purchase Agreement to transfer our equity ownership interest to the joint venture partner, thereby terminating our equity ownership interest.

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 GAAP for interim financial information, 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 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 in our 2022 10-K.

2.Recent Accounting Standards

Adoption of Accounting Standard Updates

Effective January 1, 2023, we adopted 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 Contracts 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. The adoption of this standard did not have a material impact on our consolidated financial statements 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 and nine months ended September 30, 2023 and 2022:

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Sotera Health Company

Notes to Consolidated Financial Statements


(thousands of U.S. dollars)	Three Months Ended September 30, 2023
	Sterigenics		Nordion		Nelson Labs		Consolidated
Point in time	$	168,347	$	37,068	$	—	$	205,415
Over time	—		3,030		54,732		57,762
Total	$	168,347	$	40,098	$	54,732	$	263,177


(thousands of U.S. dollars)	Three Months Ended September 30, 2022
	Sterigenics		Nordion		Nelson Labs		Consolidated
Point in time	$	157,723	$	33,830	$	—	$	191,553
Over time	—		1,241		55,910		57,151
Total	$	157,723	$	35,071	$	55,910	$	248,704


(thousands of U.S. dollars)	Nine Months Ended September 30, 2023
	Sterigenics		Nordion		Nelson Labs		Consolidated
Point in time	$	494,934	$	75,309	$	—	$	570,243
Over time	—		5,315		163,491		168,806
Total	$	494,934	$	80,624	$	163,491	$	739,049


(thousands of U.S. dollars)	Nine Months Ended September 30, 2022
	Sterigenics		Nordion		Nelson Labs		Consolidated
Point in time	$	464,977	$	113,501	$	—	$	578,478
Over time	—		6,050		167,569		173,619
Total	$	464,977	$	119,551	$	167,569	$	752,097

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 $12.7 million and $12.1 million at September 30, 2023 and December 31, 2022, 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 $30.6 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 expands and further strengthens our technical consulting and expert advisory capabilities within our Nelson Labs segment.

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. As of September 30, 2023, approximately $25.3 million of goodwill was recorded related to the RCA acquisition, representing the excess of the purchase price over the estimated fair values of all the assets acquired and liabilities assumed. We also recorded $6.4 million of finite-lived intangible assets, primarily related to customer relationships. 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)
	September 30, 2023		December 31, 2022
Raw materials and supplies	$	33,563	$	36,402
Work-in-process	590		584
Finished goods	3,887		276
	38,040		37,262
Reserve for excess and obsolete inventory	(116)		(117)
Inventories, net	$	37,924	$	37,145

6.Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:


(thousands of U.S. dollars)
	September 30, 2023		December 31, 2022
Prepaid taxes	$	29,515	$	26,598
Prepaid business insurance	1,822		9,964
Prepaid rent	1,226		998
Customer contract assets	25,531		19,777
Insurance and indemnification receivables	2,039		3,724
Current deposits	412		660
Prepaid maintenance contracts	605		324
Value added tax receivable	3,636		1,640
Prepaid software licensing	2,344		1,832
Stock supplies	3,819		3,656
Embedded derivatives	2,287		2,721
Other	10,965		9,101
Prepaid expenses and other current assets	$	84,201	$	80,995

7.Goodwill and Other Intangible Assets

Changes to goodwill during the nine months ended September 30, 2023 were as follows:


(thousands of U.S. dollars)	Sterigenics		Nordion		Nelson Labs		Total
Goodwill at December 31, 2022	$	657,458	$	270,966	$	173,344	$	1,101,768
Changes due to foreign currency exchange rates	131		(690)		(398)		(957)
Goodwill at September 30, 2023	$	657,589	$	270,276	$	172,946	$	1,100,811

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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 September 30, 2023
Finite-lived intangible assets
Customer relationships	$	652,421	$	466,828
Proprietary technology	83,538		54,474
Trade names	2,561		1,081
Land-use rights	8,497		1,748
Sealed source and supply agreements	203,865		101,918
Other	4,464		2,647
Total finite-lived intangible assets	955,346		628,696

Indefinite-lived intangible assets
Regulatory licenses and other(a)	76,781		—
Trade names / trademarks	25,681		—
Total indefinite-lived intangible assets	102,462		—
Total	$	1,057,808	$	628,696


As of December 31, 2022	Gross Carrying Amount		Accumulated Amortization
Finite-lived intangible assets
Customer relationships	$	652,811	$	422,277
Proprietary technology	86,054		50,952
Trade names	2,553		701
Land-use rights	8,986		1,683
Sealed source and supply agreements	204,391		93,034
Other	4,469		1,979
Total finite-lived intangible assets	959,264		570,626

Indefinite-lived intangible assets
Regulatory licenses and other(a)	76,978		—
Trade names / trademarks	25,649		—
Total indefinite-lived intangible assets	102,627		—
Total	$	1,061,891	$	570,626

(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. Fully amortized amounts are written off.

Amortization expense for other intangible assets was $20.2 million ($4.4 million is included in “Cost of revenues”) and $61.3 million ($13.2 million is included in “Cost of revenues”) in the Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2023, respectively.

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Sotera Health Company

Notes to Consolidated Financial Statements

Amortization expense for other intangible assets was $20.2 million ($4.5 million is included in “Cost of revenues”) and $61.6 million ($14.3 million is included in “Cost of revenues”) in the Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2022, 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 2023	$	19,988
2024	79,336
2025	42,208
2026	22,130
2027	21,053
Thereafter	141,935
Total	$	326,650

The weighted-average remaining useful life of the finite-lived intangible assets was approximately nine years as of September 30, 2023.

8.Accrued Liabilities

Accrued liabilities consisted of the following:


(thousands of U.S. dollars)
	September 30, 2023		December 31, 2022
Accrued employee compensation	$	29,361	$	32,936
Georgia EO litigation settlement reserve	35,000		—
Illinois EO litigation settlement reserve	288		408,000
Legal reserves	2,939		3,776
Accrued interest expense	2,478		23,291
Embedded derivatives	4,176		3,508
Professional fees	18,159		6,436
Accrued utilities	1,946		1,906
Insurance accrual	2,508		2,392
Accrued taxes	3,507		2,567
Other	6,009		5,318
Accrued liabilities	$	106,371	$	490,130

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Sotera Health Company

Notes to Consolidated Financial Statements

9.Long-Term Debt

Long-term debt consisted of the following:


(thousands of U.S. dollars)
As of September 30, 2023	Gross Amount		Unamortized Debt Issuance Costs		Unamortized Debt Discount		Net Amount
Term loan, due 2026	$	1,763,100	$	(1,760)	$	(11,155)	$	1,750,185
Term loan B, due 2026	498,750		(8,003)		(13,357)		477,390
Other long-term debt	450		(1)		—		449
	2,262,300		(9,764)		(24,512)		2,228,024
Less current portion	5,450		(80)		(135)		5,235
Long-term debt	$	2,256,850	$	(9,684)	$	(24,377)	$	2,222,789


(thousands of U.S. dollars)
As of December 31, 2022	Gross Amount		Unamortized Debt Issuance Costs		Unamortized Debt Discount		Net Amount
Term loan, due 2026	$	1,763,100	$	(2,140)	$	(13,845)	$	1,747,115
Revolving credit facility	200,000		(3,328)		—		196,672
Other long-term debt	450		(3)		—		447
	1,963,550		(5,471)		(13,845)		1,944,234
Less current portion	200,450		(3,331)		—		197,119
Long-term debt	$	1,763,100	$	(2,140)	$	(13,845)	$	1,747,115

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. After giving effect to the Revolving Credit Facility Amendment (defined below), the total borrowing capacity under the Revolving Credit Facility is $423.8 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 September 30, 2023 and December 31, 2022, total borrowings under the Term Loan were $1,763.1 million. The weighted average interest rate on borrowings under the Term Loan for the three months ended September 30, 2023 and September 30, 2022 was 8.14% and 4.96%, respectively, and 7.82% and 3.92% for the nine months ended September 30, 2023 and September 30, 2022, respectively.

On February 23, 2023, we entered into the First Lien Credit Agreement (the “2023 Credit Agreement”), which provides for, among other things, a new Term Loan B facility (the “2023 Term Loan”) in an aggregate principal amount of $500.0 million and bears interest, at the Company’s option, at a variable rate per annum equal to either (x) the Term Secured Overnight Financing Rate (“Term SOFR”) (as defined in the 2023 Credit Agreement) plus an applicable margin of 3.75% or (y) an alternative base rate (“ABR”) plus an applicable margin of 2.75%. The 2023 Credit Agreement is secured on a first priority basis on substantially all of our assets and is guaranteed by certain of our subsidiaries. It is prepayable without premium or penalty at any time six months after the closing date. The principal balance shall be paid at 1% of the aggregate principal amount ($5.0 million) per year, with the balance due at the end of 2026. The Company used the proceeds of the 2023 Term Loan to fund a previously announced $408.0 million EO litigation settlement in Cook County, Illinois and pay down the $200.0 million of existing borrowings under the Revolving Credit Facility concurrent with the funding of the 2023 Term Loan on February 23, 2023. In addition, the Company plans to use the remaining proceeds to further enhance liquidity and for general corporate purposes. The weighted average interest rate on borrowings under the 2023 Term Loan for the three and nine months ended September 30, 2023 was 8.84% and 8.83%, respectively.

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Sotera Health Company

Notes to Consolidated Financial Statements

On March 21, 2023, the Company entered into an Incremental Facility Amendment to the Credit Agreement (“Revolving Credit Facility Amendment”), which provides for an increase in the commitments under the existing Revolving Credit Facility in an aggregate principal amount of $76.3 million. In addition, certain of the lenders providing revolving credit commitments provided additional commitments for the issuance of the letters of credit under the Revolving Credit Facility in an aggregate principal amount of $165.1 million. The Revolving Credit Facility Amendment also provides for the replacement of the reference interest rate option for Revolving Loans from London Interbank Offered Rate (“LIBOR”) to Secured Overnight Financing Rate (“SOFR”) plus an applicable credit spread adjustment of 0.10% (subject to a minimum floor of 0.00%). After giving effect to the Revolving Credit Facility Amendment, the aggregate amount of the lenders’ revolving commitments is $423.8 million. The maturity date of the Revolving Credit Facility remains June 13, 2026. The Company borrowed $200.0 million under the Revolving Credit Facility during the fourth quarter of 2022, which was repaid in the first quarter of 2023, as noted above. As of September 30, 2023, there were no borrowings outstanding under the Revolving Credit Facility.

The Senior Secured Credit Facilities and 2023 Credit Agreement 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 and 2023 Credit Agreement. The Senior Secured Credit Facilities and 2023 Credit Agreement also contain certain customary affirmative covenants and events of default, including upon a change of control. An event of default under the Senior Secured Credit Facilities and 2023 Credit Agreement would occur if the Company or certain of its subsidiaries received one or more enforceable judgments for payment in an aggregate amount in excess of $100.0 million, which judgment or judgments are not stayed or remain undischarged for a period of 60 consecutive days or if, in order to enforce such a judgment, a judgment creditor attached or levied upon assets that are material to the business and operations, taken as a whole, of the Company and certain of its subsidiaries. As of September 30, 2023, we were in compliance with all of the Senior Secured Credit Facilities and 2023 Credit Agreement covenants.

All of SHH’s obligations under the Senior Secured Credit Facilities and 2023 Credit Agreement 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 2023 Credit Agreement, 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 and 2023 Credit Agreement.

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 September 30, 2023, the Company had $24.0 million of letters of credit issued against the Revolving Credit Facility, resulting in total availability under the Revolving Credit Facility of $399.8 million.

Term Loan Interest Rate Risk Management

The Company utilizes interest rate derivatives to reduce the variability of cash flows in the interest payments associated with our variable rate debt due to changes in LIBOR (up to June 22, 2023) and Term SOFR. For additional information on the derivative instruments described above, refer to Note 16, “Financial Instruments and Financial Risk”, “Derivative Instruments.”

LIBOR Transition

Publication of all U.S. LIBOR tenors ceased after June 30, 2023. To align with the market phaseout of LIBOR, SHH entered into an amendment to the Senior Secured Credit Facilities to replace the LIBOR-based reference interest rate option under the Term Loan with a reference interest rate option based on Term SOFR plus an applicable credit spread adjustment of 0.11448% (for one-month interest periods), 0.26161% (for three-month interest periods) and 0.42826% (for six-month interest periods) (in all cases, subject to a minimum floor of 0.50%).

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Sotera Health Company

Notes to Consolidated Financial Statements

In accordance with ASC 848 Reference Rate Reform, we have elected to apply certain optional expedients for contract modifications and hedging relationships for derivative instruments impacted by the benchmark interest rate transition. The optional expedients remove the requirement to remeasure contract modifications or dedesignate hedging relationships impacted by reference rate reform.

Aggregate Maturities

Aggregate maturities of the Company’s long-term debt, excluding debt discounts, as of September 30, 2023, are as follows:


(thousands of U.S. dollars)
2023	$	1,700
2024	5,000
2025	5,000
2026	2,250,600
2027	—
Thereafter	—
Total	$	2,262,300

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.

Income tax expense for the three months ended September 30, 2023 differed 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”), partially offset by a benefit for state income taxes. The increase in the valuation allowance was a direct result of the $35.0 million Georgia EO litigation settlement, as described in Note 15, “Commitments and Contingencies”. Income tax expense for the three months ended September 30, 2022 differed from the statutory rate primarily due to a net increase in the valuation allowance, the impact of the foreign rate differential, and GILTI. The increase in the valuation allowance for the three months ended September 30, 2022 was attributable to the limitation on the deductibility of interest expense and the impairment of an investment in a joint venture.

Income tax expense for the nine months ended September 30, 2023 differed 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 GILTI, partially offset by a benefit for state income taxes. Income tax expense for the nine months ended September 30, 2022 differed from the statutory rate primarily due to a net increase in the valuation allowance, the impact of the foreign rate differential, and GILTI.

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.

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Sotera Health Company

Notes to Consolidated Financial Statements

Defined benefit pension plans

The following defined benefit pension plan disclosure relates to Nordion. Certain immaterial foreign defined benefit pension plans have been excluded from the table below. The interest cost, expected return on plan assets and amortization of net actuarial gain are recorded in “Other expense (income), net” and the service cost component is included in the same financial statement line item as the applicable employee’s wages in the Consolidated Statements of Operations and Comprehensive Income (Loss). The components of net periodic pension benefit for the defined benefit plans for the three and nine months ended September 30, 2023 and 2022 were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(thousands of U.S. dollars)	2023		2022		2023		2022
Service cost	$	132	$	242	$	395	$	738
Interest cost	2,745		1,848		8,211		5,640
Expected return on plan assets	(4,050)		(3,595)		(12,115)		(10,975)
Net periodic benefit	$	(1,173)	$	(1,505)	$	(3,509)	$	(4,597)

Other benefit plans

Other benefit plans disclosed below relate to Nordion 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. Certain immaterial other foreign benefit plans have been excluded from the table below. 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 and nine months ended September 30, 2023 and 2022 were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(thousands of U.S. dollars)	2023		2022		2023		2022
Service cost	$	2	$	4	$	6	$	12
Interest cost	91		63		271		193
Amortization of net actuarial gain	(44)		(2)		(132)		(6)
Net periodic cost	$	49	$	65	$	145	$	199

We currently expect funding requirements of approximately $0.3 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 September 30, 2023, and December 31, 2022, we had letters of credit outstanding relating to the defined benefit plans totaling $16.0 million and $44.1 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.

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Sotera Health Company

Notes to Consolidated Financial Statements

12. 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 Derivatives			Total
Beginning balance – July 1, 2023	$	3,176		$	(98,574)	$	16,094		$	(79,304)
Other comprehensive income (loss) before reclassifications	(82)			(32,996)		2,976			(30,102)
Amounts reclassified from accumulated other comprehensive income (loss)	(44)		(a)	—		(4,690)		(b)	(4,734)
Net current-period other comprehensive loss	(126)			(32,996)		(1,714)			(34,836)
Ending balance – September 30, 2023	$	3,050		$	(131,570)	$	14,380		$	(114,140)

Beginning balance – January 1, 2023	$	3,209		$	(131,205)	$	21,343		$	(106,653)
Other comprehensive income (loss) before reclassifications	(27)			(365)		11,531			11,139
Amounts reclassified from accumulated other comprehensive income (loss)	(132)		(a)	—		(18,494)		(b)	(18,626)
Net current-period other comprehensive loss	(159)			(365)		(6,963)			(7,487)
Ending balance – September 30, 2023	$	3,050		$	(131,570)	$	14,380		$	(114,140)


(thousands of U.S. dollars)	Defined Benefit Plans			Foreign Currency Translation		Interest Rate Derivatives		Total
Beginning balance – July 1, 2022	$	(17,323)		$	(97,452)	$	9,761	$	(105,014)
Other comprehensive income (loss) before reclassifications	1,067			(69,460)		9,408		(58,985)
Amounts reclassified from accumulated other comprehensive income (loss)	(2)		(a)	—		—		(2)
Net current-period other comprehensive income (loss)

Sotera Health Co [SHC] Filings
10-Q	[2023-11-01]
10-Q	[2023-08-03]
10-Q	[2023-05-03]
10-K	[2023-02-28]
10-Q	[2022-11-02]
10-Q	[2022-08-04]
10-Q	[2022-05-05]
10-K	[2022-03-01]
10-Q	[2021-11-10]
10-Q	[2021-08-12]
10-Q	[2021-05-13]
S-1	[2021-03-15]
10-K	[2021-03-09]
S-1	[2020-10-23]