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 ~~June 30, 2023~~March 31, 2024


☐			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 ~~July 27, 2023,~~April 25, 2024, there were ~~282,615,723~~283,070,826 shares of the registrant’s common stock, $0.01 par value per share, outstanding.

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SOTERA HEALTH COMPANY

- TABLE OF CONTENTS -

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are often characterized by the use of 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, 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~~a 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 geopolitical instability ~~and~~and/or sanctions ~~arising from~~against Russia by the United States, ~~Canadian,~~Canada, United Kingdom and/or the European ~~Union relations with Russia;~~Union;

•fluctuations in 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~~the use, emissions and releases of EO from our facilities in California, Georgia, Illinois ~~Georgia~~ and New Mexico and the possibility that ~~other~~additional 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~~clearances 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 sometimes inconsistent 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~~cybersecurity breaches, unauthorized data disclosures, and our dependence on information technology systems;

•~~any~~an inability to pursue strategic transactions, or find suitable acquisition targets, or ~~our failure to~~ integrate strategic acquisitions ~~successfully~~ into our ~~business;~~business successfully;

•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~~have infringed or ~~misappropriate~~misappropriated, or are infringing or misappropriating, their intellectual property rights;

•our ability to comply with rapidly evolving data privacy and security laws and regulations in various jurisdictions 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 or 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 challenges confronting our Company or broader changes in our industry or 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~~2023 (the ~~“2022 Form~~“2023 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
		June 30, 2023		December 31, 2022
	As of							As of
	March 31, 2024						March 31, 2024		December 31, 2023
Assets	Assets	(Unaudited)
Current assets:	Current assets:
Current assets:
Current assets:
Cash and cash equivalents
Cash and cash equivalents
Cash and cash equivalents	Cash and cash equivalents	$	262,700	$	395,214
Restricted cash short-term	Restricted cash short-term	7,790		1,080
Accounts receivable, net of allowance for uncollectible accounts of $1,965 and $1,871, respectively		117,307		118,482
Accounts receivable, net of allowance for uncollectible accounts of $3,925 and $4,689, respectively
Inventories, net	Inventories, net	42,102		37,145
Prepaid expenses and other current assets	Prepaid expenses and other current assets	90,910		80,995
Income taxes receivable	Income taxes receivable	25,883		12,094
Total current assets	Total current assets	546,692		645,010
Property, plant, and equipment, net	Property, plant, and equipment, net	859,138		774,527
Operating lease assets	Operating lease assets	25,179		26,481
Deferred income taxes	Deferred income taxes	4,157		4,101
Post-retirement assets	Post-retirement assets	39,004		35,570
Other assets	Other assets	34,082		38,983
Other intangible assets, net	Other intangible assets, net	456,120		491,265
Goodwill	Goodwill	1,110,498		1,101,768
Total assets	Total assets	$	3,074,870	$	3,117,705
Liabilities and equity	Liabilities and equity
Current liabilities:	Current liabilities:
Current liabilities:
Current liabilities:
Accounts payable
Accounts payable
Accounts payable	Accounts payable	$	55,580	$	74,139
Accrued liabilities	Accrued liabilities	103,450		490,130
Deferred revenues		13,840		12,140
Deferred revenue
Current portion of long-term debt	Current portion of long-term debt	5,225		197,119
Current portion of finance lease obligations	Current portion of finance lease obligations	8,605		1,722
Current portion of operating lease obligations	Current portion of operating lease obligations	7,111		7,554
Current portion of asset retirement obligations		793		2,896

Income taxes payable
Income taxes payable
Income taxes payable	Income taxes payable	5,726		5,867
Total current liabilities	Total current liabilities	200,330		791,567
Long-term debt		2,221,987		1,747,115
Long-term debt, less current portion
Finance lease obligations, less current portion	Finance lease obligations, less current portion	61,283		56,955
Operating lease obligations, less current portion	Operating lease obligations, less current portion	20,538		21,577
Noncurrent asset retirement obligations	Noncurrent asset retirement obligations	44,492		42,586
Deferred lease income	Deferred lease income	19,045		18,902
Post-retirement obligations	Post-retirement obligations	8,008		7,910
Noncurrent liabilities	Noncurrent liabilities	12,626		12,831
Deferred income taxes	Deferred income taxes	68,194		68,024
Total liabilities	Total liabilities	2,656,503		2,767,467
See Commitments and contingencies note	See Commitments and contingencies note					See Commitments and contingencies note
Equity:	Equity:
Common stock, with $0.01 par value, 1,200,000 shares authorized; 286,037 shares issued at June 30, 2023 and December 31, 2022		2,860		2,860
Preferred stock, with $0.01 par value, 120,000 authorized; no shares issued at June 30, 2023 and December 31, 2022		—		—
Treasury stock, at cost (3,493 and 3,616 shares at June 30, 2023 and December 31, 2022, respectively)		(28,700)		(29,775)
Common stock, with $0.01 par value, 1,200,000 shares authorized; 286,037 shares issued at March 31, 2024 and December 31, 2023
Common stock, with $0.01 par value, 1,200,000 shares authorized; 286,037 shares issued at March 31, 2024 and December 31, 2023
Common stock, with $0.01 par value, 1,200,000 shares authorized; 286,037 shares issued at March 31, 2024 and December 31, 2023
Preferred stock, with $0.01 par value, 120,000 authorized; no shares issued at March 31, 2024 and December 31, 2023
Treasury stock, at cost (2,966 and 3,207 shares at March 31, 2024 and December 31, 2023, respectively)
Additional paid-in capital	Additional paid-in capital	1,202,972		1,189,622
Retained deficit	Retained deficit	(679,461)		(705,816)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(79,304)		(106,653)
Total equity	Total equity	418,367		350,238
Total liabilities and equity	Total liabilities and equity	$	3,074,870	$	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 June 30,				Six Months Ended June 30,
		2023		2022		2023		2022

	Three Months Ended March 31,										Three Months Ended March 31,
	2024									2024		2023
	(Unaudited)										(Unaudited)
Revenues:	Revenues:
Service
Service
Service	Service	$	226,050	$	221,529	$	440,560	$	427,747
Product	Product	29,232		45,110		35,312		75,646
Total net revenues	Total net revenues	255,282		266,639		475,872		503,393
Cost of revenues:	Cost of revenues:
Service
Service
Service	Service	103,900		98,407		208,110		192,983
Product	Product	11,794		17,836		16,671		31,139
Total cost of revenues	Total cost of revenues	115,694		116,243		224,781		224,122
Gross profit	Gross profit	139,588		150,396		251,091		279,271
Operating expenses:	Operating expenses:
Selling, general and administrative expenses	Selling, general and administrative expenses	60,287		63,132		122,197		122,674
Selling, general and administrative expenses
Selling, general and administrative expenses
Amortization of intangible assets	Amortization of intangible assets	16,097		15,769		32,324		31,610
Total operating expenses	Total operating expenses	76,384		78,901		154,521		154,284
Operating income	Operating income	63,204		71,495		96,570		124,987
Interest expense, net	Interest expense, net	30,728		14,044		59,598		24,448
Impairment of investment in unconsolidated affiliate		—		9,613		—		9,613
Foreign exchange loss (gain)		465		(755)		812		33
Other (income) expense, net		(2,474)		485		(3,727)		(2,482)
Foreign exchange (gain) loss
Other expense (income), net
Income before income taxes	Income before income taxes	34,485		48,108		39,887		93,375
Provision for income taxes	Provision for income taxes	10,972		17,690		13,532		32,316
Net income	Net income	23,513		30,418		26,355		61,059
Other comprehensive income (loss) net of tax:	Other comprehensive income (loss) net of tax:
Pension and post-retirement benefits (net of taxes of $6, $179, $(11), and $87, respectively)		18		532		(33)		258
Interest rate derivatives (net of taxes of $1,036, $1,241, $(2,360) and $3,350, respectively)		4,002		3,178		(5,249)		9,357
Pension and post-retirement benefits (net of taxes of $37 and $(17), respectively)
Pension and post-retirement benefits (net of taxes of $37 and $(17), respectively)
Pension and post-retirement benefits (net of taxes of $37 and $(17), respectively)
Interest rate derivatives (net of taxes of $146 and $(3,396), respectively)
Foreign currency translation	Foreign currency translation	21,374		(46,038)		32,631		(31,063)
Comprehensive income (loss)		$	48,907	$	(11,910)	$	53,704	$	39,611
Comprehensive (loss) income
Earnings per share:	Earnings per share:
Basic
Basic
Basic	Basic	$	0.08	$	0.11	$	0.09	$	0.22
Diluted	Diluted	0.08		0.11		0.09		0.22
Weighted average number of shares outstanding:	Weighted average number of shares outstanding:
Basic	Basic	280,893		279,990		280,793		279,910
Basic
Basic
Diluted	Diluted	283,147		280,171		283,040		280,038

See notes to consolidated financial statements.

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Sotera Health Company

Consolidated Statements of Cash Flows

(in thousands)

~~(Unaudited)~~


		Six Months Ended June 30,
		2023		2022
	Three Months Ended March 31,						Three Months Ended March 31,
	2024					2024		2023
	(Unaudited)						(Unaudited)
Operating activities:	Operating activities:
Net income	Net income	$	26,355	$	61,059
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net income
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
Depreciation
Depreciation	Depreciation	37,920		31,611
Amortization of intangible assets	Amortization of intangible assets	41,108		41,378
Impairment of investment in unconsolidated affiliate		—		9,613

Deferred income taxes
Deferred income taxes
Deferred income taxes	Deferred income taxes	315		10,416
Share-based compensation expense	Share-based compensation expense	15,661		10,339
Accretion of asset retirement obligations	Accretion of asset retirement obligations	1,127		1,118
Unrealized foreign exchange losses		4,601		1,274
Unrealized gains on derivatives not designated as hedging instruments		(747)		(8,029)
Unrealized foreign exchange (gain) loss
Unrealized loss on derivatives not designated as hedging instruments
Amortization of debt issuance costs	Amortization of debt issuance costs	4,112		2,836
Other	Other	(2,623)		(4,043)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:
Accounts receivable
Accounts receivable
Accounts receivable	Accounts receivable	2,549		(13,921)
Inventories	Inventories	(3,877)		14,012
Other current assets	Other current assets	(9,220)		(6,683)
Accounts payable	Accounts payable	(20,325)		(9,993)
Accrued liabilities	Accrued liabilities	22,273		(11,869)
Illinois EO litigation settlement		(407,712)		—
Georgia EO litigation settlement
Income taxes payable / receivable, net	Income taxes payable / receivable, net	(14,067)		(15,968)
Other liabilities	Other liabilities	(512)		(468)
Other long-term assets	Other long-term assets	358		(4,426)
Net cash provided by (used in) operating activities		(302,704)		108,256
Net cash provided by operating activities
Investing activities:	Investing activities:
Purchases of property, plant and equipment	Purchases of property, plant and equipment	(98,134)		(71,642)
Adjustment to purchase of Regulatory Compliance Associates Inc.		—		450
Purchases of property, plant and equipment
Purchases of property, plant and equipment
Other investing activities	Other investing activities	32		—
Net cash used in investing activities	Net cash used in investing activities	(98,102)		(71,192)
Financing activities:	Financing activities:
Proceeds from long-term borrowings	Proceeds from long-term borrowings	500,000		—
Payment of revolving credit facility		(200,000)		—
Payments of debt issuance costs and debt discount		(24,672)		(27)
Proceeds from long-term borrowings
Proceeds from long-term borrowings
Payment on long-term borrowings
Payment on revolving credit facility
Payments of debt issuance costs
Buyout of leased facilities
Other financing activities	Other financing activities	(2,122)		(1,056)
Net cash provided by (used in) financing activities		273,206		(1,083)
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	1,796		(2,287)
Net increase (decrease) in cash and cash equivalents, including restricted cash		(125,804)		33,694
Net (decrease) increase in cash and cash equivalents, including restricted cash
Cash and cash equivalents, including restricted cash, at beginning of period	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	Cash and cash equivalents, including restricted cash, at end of period	$	270,490	$	140,618
Supplemental disclosures of cash flow information:	Supplemental disclosures of cash flow information:
Cash paid during the period for interest	Cash paid during the period for interest	$	78,352	$	42,057
Cash paid during the period for interest
Cash paid during the period for interest
Cash paid during the period for income taxes, net of tax refunds received	Cash paid during the period for income taxes, net of tax refunds received	27,590		37,340
Purchases of property, plant and equipment included in accounts payable	Purchases of property, plant and equipment included in accounts payable	16,986		17,923

See notes to consolidated financial statements.

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Sotera Health Company

Consolidated Statements of Equity

(in thousands)

(Unaudited)


		Three Months Ended June 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 March 31, 2023		282,516	$	2,860	$	(29,420)			$	1,195,357			$	(702,974)	$	(104,698)			$	361,125
	Shares																					Shares			Amount		Additional Paid-In Capital			Retained Earnings / (Accumulated Deficit)			Accumulated Other Comprehensive (Loss) Income			Total Equity
	Common Stock
Balance at December 31, 2022
Balance at December 31, 2022
Balance at December 31, 2022
Share-based compensation plans	Share-based compensation plans	28	—		720		7,615				—		—		8,335
Comprehensive income (loss):	Comprehensive income (loss):														—
Pension and post-retirement plan adjustments, net of tax
Pension and post-retirement plan adjustments, net of tax
Pension and post-retirement plan adjustments, net of tax	Pension and post-retirement plan adjustments, net of tax	—	—		—		—				—		18		18
Foreign currency translation	Foreign currency translation	—	—		—		—				—		21,374		21,374
Interest rate derivatives, net of tax	Interest rate derivatives, net of tax	—	—		—		—				—		4,002		4,002
Net income	Net income	—	—		—		—				23,513		—		23,513		Net income	—			—		—	—	—	—		—	2,842		2,842	—		—	2,842		2,842
Balance at June 30, 2023		282,544	$	2,860	$	(28,700)	$	1,202,972			$	(679,461)	$	(79,304)	$	418,367
Balance at March 31, 2023


		Six Months Ended June 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
	Shares																								Shares			Amount		Additional Paid-In Capital			Retained Earnings / (Accumulated Deficit)			Accumulated Other Comprehensive (Loss) Income			Total Equity
	Common Stock
Balance at December 31, 2023
Balance at December 31, 2023
Balance at December 31, 2023
Share-based compensation plans	Share-based compensation plans	123	—		1,075		13,350				—				—				14,425
Comprehensive income (loss):	Comprehensive income (loss):
Pension and post-retirement plan adjustments, net of tax
Pension and post-retirement plan adjustments, net of tax
Pension and post-retirement plan adjustments, net of tax	Pension and post-retirement plan adjustments, net of tax	—	—		—		—				—				(33)				(33)
Foreign currency translation	Foreign currency translation	—	—		—		—				—				32,631				32,631
Interest rate derivatives, net of tax	Interest rate derivatives, net of tax	—	—		—		—				—				(5,249)				(5,249)
Net income	Net income	—	—		—		—				26,355				—				26,355		Net income		—	—		—	—	—	—		—	6,323		6,323	—		—	6,323		6,323
Balance at June 30, 2023		282,544	$	2,860	$	(28,700)	$	1,202,972			$	(679,461)			$	(79,304)			$	418,367
Balance at March 31, 2024

See notes to consolidated financial statements.

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~~Sotera Health Company~~

~~Consolidated Statements of Equity (continued)~~

~~(in thousands)~~

~~(Unaudited)~~

Three Months Ended June 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 March 31, 2022 282,930 $ 2,860 $ (33,536) $ 1,177,097 $ (441,605) $ (62,686) $ 642,130
Share-based compensation plans (28) — 882 4,898 — — 5,780
Comprehensive income (loss):
Pension and post-retirement plan adjustments, net of tax — — — — — 532 532
Foreign currency translation — — — — — (46,038) (46,038)
Interest rate derivatives, net of tax — — — — — 3,178 3,178
Net income — — — — 30,418 — 30,418
Balance at June 30, 2022 282,902 $ 2,860 $ (32,654) $ 1,181,995 $ (411,187) $ (105,014) $ 636,000

Six Months Ended June 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 (83) — 891 9,402 — — 10,293
Comprehensive income (loss):
Pension and post-retirement plan adjustments, net of tax — — — — — 258 258
Foreign currency translation — — — — — (31,063) (31,063)
Interest rate derivatives, net of tax — — — — — 9,357 9,357
Net income — — — — 61,059 — 61,059
Balance at June 30, 2022 282,902 $ 2,860 $ (32,654) $ 1,181,995 $ (411,187) $ (105,014) $ 636,000

~~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,~~segments: Sterigenics, Nordion and Nelson Labs. We describe our reportable segments in Note ~~17,~~16, “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 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 in our ~~2022 Form~~2023 10-K.

2.Recent Accounting Standards

~~Adoption of~~ Accounting ~~Standard~~Standards Updates (“ASU”) Issued But Not Yet Adopted

~~Effective January 1,~~

In November 2023, ~~we adopted~~ the Financial Accounting Standards Board (“FASB”) issued ASU ~~2021-08 - Business Combinations~~2023-07-Segment Reporting (Topic ~~805)~~280): ~~Accounting for Contract Assets and Contract Liabilities from Contracts with Customers~~ ~~(“ASU 2021-08”).~~Improvements to Reportable Segment Disclosures. The amendments in ASU ~~2021-08~~2023-07 require ~~that~~ an ~~acquiring~~ entity ~~recognize~~to provide enhanced disclosures about significant segment expenses. The amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and ~~measure contract assets and contract liabilities acquired~~interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is 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~~process of evaluating the ~~related revenue contracts in accordance with ASC Topic 606 as if it had originated the contracts. The adoption~~impact of this standard ~~did not have a material impact~~ on our consolidated financial statements and disclosures.

In December 2023, the FASB issued ASU 2023-09-Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this ASU require entities to disclose, on an annual basis, specific categories in the reconciliation of the provision (benefit) for income taxes to the statutory rate and provide additional information for reconciling items that meet a quantitative threshold. Additionally, the update requires entities to disclose a disaggregation of taxes paid by category (federal, state and foreign taxes) as well as individual jurisdictions. For public business entities, the amendments in this ASU are effective for annual periods beginning after December 15, 2024. The Company is in the process of evaluating the impact of this standard 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 six~~ months ended ~~June 30, 2023~~March 31, 2024 and ~~2022:~~2023:


(thousands of U.S. dollars)	Three Months Ended March 31, 2024
	Sterigenics		Nordion		Nelson Labs		Consolidated
Point in time	$	166,497	$	23,051	$	—	$	189,548
Over time	—		956		57,672		58,628
Total	$	166,497	$	24,007	$	57,672	$	248,176

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Notes to Consolidated Financial Statements

(thousands of U.S. dollars) Three Months Ended June 30, 2023
Sterigenics Nordion Nelson Labs Consolidated
Point in time $ 166,590 $ 30,653 $ — $ 197,243
Over time — 1,322 56,717 58,039
Total $ 166,590 $ 31,975 $ 56,717 $ 255,282

(thousands of U.S. dollars) Three Months Ended June 30, 2022
Sterigenics Nordion Nelson Labs Consolidated
Point in time $ 157,792 $ 46,386 $ — $ 204,178
Over time — 4,092 58,369 62,461
Total $ 157,792 $ 50,478 $ 58,369 $ 266,639

(thousands of U.S. dollars) Six Months Ended June 30, 2023
Sterigenics Nordion Nelson Labs Consolidated
Point in time $ 326,587 $ 38,241 $ — $ 364,828
Over time — 2,285 108,759 111,044
Total $ 326,587 $ 40,526 $ 108,759 $ 475,872

(thousands of U.S. dollars) Six Months Ended June 30, 2022
Sterigenics Nordion Nelson Labs Consolidated
Point in time $ 307,254 $ 79,671 $ — $ 386,925
Over time — 4,809 111,659 116,468
Total $ 307,254 $ 84,480 $ 111,659 $ 503,393

~~Contract Balances~~

As of June 30, 2023, and December 31, 2022, contract assets included in “Prepaid expenses and other current assets” on the Consolidated Balance Sheets totaled approximately $18.8 million and $19.8 million, respectively, resulting from revenue recognized over time in excess of the amount billed to the customer.


(thousands of U.S. dollars)	Three Months Ended March 31, 2023
	Sterigenics		Nordion		Nelson Labs		Consolidated
Point in time	$	159,997	$	7,588	$	—	$	167,585
Over time	—		963		52,042		53,005
Total	$	159,997	$	8,551	$	52,042	$	220,590

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 ~~$13.8~~$12.9 million and ~~$12.1~~$13.5 million at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively. We recognize deferred revenue after we have transferred control of the

goods or services to the customer and 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 June 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 of 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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~~Notes to Consolidated Financial Statements~~

5.Inventories

Inventories consisted of the following:


(thousands of U.S. dollars)	(thousands of U.S. dollars)
		June 30, 2023		December 31, 2022
		March 31, 2024
		March 31, 2024
		March 31, 2024				December 31, 2023
Raw materials and supplies	Raw materials and supplies	$	36,600	$	36,402
Work-in-process	Work-in-process	881		584
Finished goods	Finished goods	4,739		276
		42,220		37,262
	51,573
Reserve for excess and obsolete inventory	Reserve for excess and obsolete inventory	(118)		(117)
Inventories, net	Inventories, net	$	42,102	$	37,145

6.5.Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:

(thousands of U.S. dollars)
June 30, 2023 December 31, 2022
Prepaid taxes $ 27,814 $ 26,598
Prepaid business insurance 4,904 9,964
Prepaid rent 1,083 998
Customer contract assets 18,800 19,777
Insurance and indemnification receivables 2,039 3,724
Current deposits 422 660
Prepaid maintenance contracts 683 324
Value added tax receivable 3,561 1,640
Prepaid software licensing 2,873 1,832
Stock supplies 3,640 3,656
Embedded derivatives 1,551 2,721
Interest receivable - interest rate cap settlement 7,596 —
Interest receivable - Illinois EO litigation settlement funds(a)
1,319 —
Other 14,625 9,101
Prepaid expenses and other current assets $ 90,910 $ 80,995

~~(a)~~Represents interest receivable on funds on deposit in a settlement escrow fund that was used to pay all settlement fees and expenses and cash payments to the Eligible Claimants participating in the Illinois EO litigation settlement. Refer to Note 15, “Commitments and Contingencies”.


(thousands of U.S. dollars)
	March 31, 2024		December 31, 2023
Prepaid taxes	$	3,717	$	4,129
Prepaid business insurance	6,261		7,174
Prepaid rent	1,193		1,150
Customer contract assets	18,550		17,785
Current deposits	416		715
Prepaid maintenance contracts	448		422
Value added tax receivable	3,549		4,306
Prepaid software licensing	2,265		2,503
Stock supplies	3,754		3,669
Embedded derivative assets	1,667		1,225
Other	11,843		10,768
Prepaid expenses and other current assets	$	53,663	$	53,846

7.6.Goodwill and Other Intangible Assets

Changes to goodwill during the ~~six~~three months ended ~~June 30, 2023~~March 31, 2024 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 2,156 6,014 560 8,730
Goodwill at June 30, 2023 $ 659,614 $ 276,980 $ 173,904 $ 1,110,498

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Notes to Consolidated Financial Statements


(thousands of U.S. dollars)	Sterigenics		Nordion		Nelson Labs		Total
Goodwill at December 31, 2023	$	659,888	$	276,929	$	174,373	$	1,111,190
Changes due to foreign currency exchange rates	(1,682)		(5,903)		(754)		(8,339)
Goodwill at March 31, 2024	$	658,206	$	271,026	$	173,619	$	1,102,851

Other intangible assets consisted of the following:

(thousands of U.S. dollars)

Gross Carrying

Amount

Accumulated

Amortization

(thousands of U.S. dollars)

Gross Carrying

Amount

Accumulated

Amortization

As of June 30, 2023

As of March 31, 2024

Finite-lived intangible assets

Customer relationships

656,345

454,212

Proprietary technology

84,710

53,332

Trade names

2,568

965

Land-use rights

8,542

1,705

Sealed source and supply agreements

208,958

101,347

Other

4,518

2,453

Total finite-lived intangible assets

965,641

614,014

Indefinite-lived intangible assets

Regulatory licenses and other(a)

78,699

—

Trade names / trademarks

25,794

—

Total indefinite-lived intangible assets

104,493

—

Total

1,070,134

614,014


As of December 31, 2022		Gross Carrying Amount		Accumulated Amortization
As of December 31, 2023						As of December 31, 2023	Gross Carrying Amount	Accumulated Amortization
Finite-lived intangible assets	Finite-lived intangible assets
Customer relationships
Customer relationships
Customer relationships	Customer relationships	$	652,811	$	422,277
Proprietary technology	Proprietary technology	86,054		50,952
Trade names	Trade names	2,553		701
Land-use rights	Land-use rights	8,986		1,683
Sealed source and supply agreements	Sealed source and supply agreements	204,391		93,034
Other	Other	4,469		1,979
Total finite-lived intangible assets	Total finite-lived intangible assets	959,264		570,626

Indefinite-lived intangible assets	Indefinite-lived intangible assets
Indefinite-lived intangible assets
Indefinite-lived intangible assets
Regulatory licenses and other(a)
Regulatory licenses and other(a)
Regulatory licenses and other(a)	Regulatory licenses and other(a)	76,978		—
Trade names / trademarks	Trade names / trademarks	25,649		—
Total indefinite-lived intangible assets	Total indefinite-lived intangible assets	102,627		—
Total	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 $20.5 million ($4.4 million is included in “Cost of revenues” and $16.1 million in “Amortization of intangible assets”) and $41.1 million ($8.8 million is included in “Cost of revenues” and $32.3 million in “Amortization of intangible assets”) in the Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2023, respectively.

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Notes to Consolidated Financial Statements

Amounts include the impact of foreign currency translation. Fully amortized amounts are written off.

Amortization expense for ~~other~~finite-lived intangible assets was ~~$21.2~~$20.1 million ~~($5.4~~and $20.6 million isfor the three months ended March 31, 2024 and 2023, respectively. $15.7 million and $16.2 million was included ~~in “Cost of revenues” and $15.8 million~~ in “Amortization of intangible assets”~~) and $41.4 million ($9.8 million is included in “Cost of revenues” and $31.6 million in “Amortization of intangible assets”)~~ in the Consolidated Statements of Operations and Comprehensive Income (Loss) for the three ~~and six~~ months ended ~~June 30, 2022, respectively.~~March 31, 2024 and 2023, respectively, whereas the remainder was included in “Cost of revenues.”

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)	(thousands of U.S. dollars)
For the remainder of 2023		$	40,372
2024		80,050
For the remainder of 2024
For the remainder of 2024
For the remainder of 2024
2025	2025	42,671
2026	2026	22,492
2027	2027	21,416
2028
Thereafter	Thereafter	144,626
Total	Total	$	351,627

The weighted-average remaining useful life of the finite-lived intangible assets was approximately ~~nine~~9 years as of ~~June 30, 2023.~~March 31, 2024.

8.7.Accrued Liabilities

Accrued liabilities consisted of the following:


(thousands of U.S. dollars)	(thousands of U.S. dollars)
		June 30, 2023		December 31, 2022
		March 31, 2024
		March 31, 2024
		March 31, 2024
		March 31, 2024
		March 31, 2024
		March 31, 2024
		March 31, 2024
		March 31, 2024
		March 31, 2024				December 31, 2023
Accrued employee compensation	Accrued employee compensation	$	32,385	$	32,936
Georgia EO litigation settlement reserve
Illinois EO litigation settlement reserve	Illinois EO litigation settlement reserve	288		408,000
Legal reserves		2,954		3,776
Other legal reserves
Accrued interest expense	Accrued interest expense	30,591		23,291
Embedded derivatives	Embedded derivatives	1,613		3,508
Professional fees	Professional fees	23,259		6,436
Accrued utilities	Accrued utilities	1,998		1,906
Insurance accrual	Insurance accrual	2,253		2,392
Accrued taxes	Accrued taxes	3,070		2,567
Other	Other	5,039		5,318
Accrued liabilities	Accrued liabilities	$	103,450	$	490,130

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Notes to Consolidated Financial Statements

9.8.Long-Term Debt

Long-term debt consisted of the following:


(thousands of U.S. dollars)	(thousands of U.S. dollars)
As of June 30, 2023		Gross Amount		Unamortized Debt Issuance Costs		Unamortized Debt Discount		Net Amount
As of March 31, 2024
As of March 31, 2024
As of March 31, 2024										Gross Amount	Unamortized Debt Issuance Costs	Unamortized Debt Discount	Net Amount
Term loan, due 2026	Term loan, due 2026	$	1,763,100	$	(1,911)	$	(12,013)	1,749,176
Term loan B, due 2026	Term loan B, due 2026	500,000		(8,354)		(14,059)		477,587
Other long-term debt		450		(1)		—		449
		2,263,550		(10,266)		(26,072)		2,227,212
		2,259,350
		2,259,350
		2,259,350
Less current portion	Less current portion	5,450		(84)		(141)		5,225
Long-term debt	Long-term debt	$	2,258,100	$	(10,182)	$	(25,931)	$	2,221,987


(thousands of U.S. dollars)	(thousands of U.S. dollars)
As of December 31, 2022		Gross Amount		Unamortized Debt Issuance Costs		Unamortized Debt Discount		Net Amount
As of December 31, 2023
As of December 31, 2023
As of December 31, 2023										Gross Amount	Unamortized Debt Issuance Costs	Unamortized Debt Discount	Net Amount
Term loan, due 2026	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
Term loan B, due 2026
	2,260,600
Less current portion	Less current portion	$	200,450	$	(3,331)	$	—	$	197,119
Long-term debt	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~~wholly-owned subsidiary, entered into senior secured first lien credit facilities (the “Senior Secured Credit Facilities”), consisting of both a prepayable senior secured first lien term loan (the “Term Loan”) and a senior secured first lien revolving credit facility (the “Revolving Credit Facility”) pursuant to a first lien credit agreement (the “Credit Agreement”). The Term Loan matures on ~~December~~June 13, 2026. ~~After giving effect to the Revolving Credit Facility Amendment (defined below), the~~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 ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, 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 ~~June 30,~~March 31, 2024 and March 31, 2023 was 8.26% and ~~June 30, 2022 was 7.89%~~7.44%, respectively.

On March 1, 2024, the Company and ~~3.53%~~SHH entered into Amendment No. 3 (“Amendment No. 3”) to the Revolving Credit Facility. Among other changes, the Amendment provides (i) for new commitments under the existing Revolving Credit Facility to replace existing revolving commitments in an aggregate principal amount of $83.0 million, ~~respectively, and 7.66% and 3.39%~~(ii) that certain of the lenders providing revolving credit commitments shall also provide additional commitments for the ~~six months ended June 30, 2023~~issuance of letters of credit under the Revolving Credit Facility in an aggregate principal amount of $37.5 million and ~~June 30, 2022, respectively.~~(iii) for the extension of the maturity date of the Revolving Credit Facility to the earlier of (a) March 1, 2029, and (b) the date that is 91 days prior to the maturity date of the Company’s existing term loans.

Amendment No. 3 does not give effect to any other material changes to the terms and conditions of the Credit Agreement, including with respect to the amount of commitments under the Revolving Credit Facility, which remains $423.8 million, the representations and warranties, events of default, affirmative or negative covenants.

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Sotera Health Company

Notes to Consolidated Financial Statements

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~~The Company ~~plans to use~~utilized the remaining proceeds to further enhance liquidity and for general

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~~Sotera Health Company~~

~~Notes to Consolidated Financial Statements~~

corporate purposes. The weighted average interest rate on borrowings under the 2023 Term Loan for the three ~~and six~~ months ended ~~June 30,~~March 31, 2024 and the three months ended March 31, 2023 was 9.09% and 8.82%.

, respectively.

On March 21, 2023, the Company entered into an Incremental Facility Amendment to the First Lien 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 ~~SOFR~~Secured Overnight Financing Rate (“SOFR”) plus an applicable credit spread adjustment of 0.10% (subject to a minimum floor of ~~0.00%~~0%). After giving effect to the Revolving Credit Facility Amendment, the aggregate amount of the ~~Lenders’ Revolving Commitments~~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 ~~June 30, 2023,~~March 31, 2024 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 ~~judgment~~judgments for payment in an aggregate amount in excess of $100.0 million ~~which judgment or~~and the judgments ~~are~~were not stayed or ~~remain~~remained undischarged for a period of 60sixty consecutive days or if, ~~in order~~ to enforce such ~~a judgment,~~judgments, a judgment creditor ~~attached or levied~~were to attach liens upon assets that are material to the business and operations ~~taken as a whole,~~

of the Company and certain of its ~~subsidiaries.~~subsidiaries as a whole. As of ~~June 30, 2023,~~March 31, 2024, 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 ~~June 30, 2023,~~March 31, 2024, the Company had ~~$51.7~~$23.7 million of letters of credit issued against the Revolving Credit Facility, resulting in total availability under the Revolving Credit Facility of ~~$372.1~~$400.1 million.

Term Loan Interest Rate Risk Management

The Company utilizes interest rate derivatives to ~~eliminate~~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,~~15, “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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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 ~~June 30, 2023,~~March 31, 2024, are as follows:

(thousands of U.S. dollars)
2023 $ 2,950
2024 5,000
2025 5,000
2026 2,250,600
2027 —
Thereafter —
Total $ 2,263,550


(thousands of U.S. dollars)
2024	3,750
2025	5,000
2026	2,250,600
2027	—
2028	—
Thereafter	—
Total	$	2,259,350

~~10.~~9.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 ~~rates were 31.8%~~rate was 42.6% and ~~33.9%~~47.4% for the three ~~and six~~ months ended ~~June 30,~~March 31, 2024 and 2023, ~~respectively, compared to 36.8% and 34.6% for the three and six months ended June 30, 2022,~~ respectively.

Income tax expense for the three months ended ~~June 30, 2023~~March 31, 2024 differed from the statutory rate primarily due to ~~the impact of the foreign rate differential,~~a net increase in the valuation allowance attributable to the limitation on the deductibility of interest expense and ~~global intangible low-tax~~the impact of the foreign rate differential, partially offset by a benefit for state income ~~(“GILTI”).~~taxes. Income tax expense for the three months ended ~~June 30, 2022~~March 31, 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.~~

~~Income tax expense for the six months ended June 30, 2023 differed from the statutory rate primarily due to~~ the impact of the foreign rate differential, the valuation allowance attributable to the limitation on the deductibility of interest expense and GILTI, partially offset by a benefit for state income taxes. Income tax expense for the six months ended June 30, 2022 differed from the statutory rate primarily due to a net increase in the foreign rate differential and GILTI.non-deductible compensation.

~~11.~~10.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 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 months ended March 31, 2024 and 2023 were as follows:


	Three Months Ended
(thousands of U.S. dollars)	March 31, 2024		March 31, 2023
Service cost	$	145	$	131
Interest cost	2,651		2,724
Expected return on plan assets	(4,019)		(4,019)

Net periodic benefit	$	(1,223)	$	(1,164)

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Notes to Consolidated Financial Statements

~~Income (Loss). The components of net periodic pension benefit for the defined benefit plan for the three and six months ended June 30, 2023 and 2022 were as follows:~~

Three Months Ended June 30, Six Months Ended June 30,
(thousands of U.S. dollars) 2023 2022 2023 2022
Service cost $ 132 $ 247 $ 263 $ 496
Interest cost 2,742 1,889 5,466 3,792
Expected return on plan assets (4,046) (3,676) (8,065) (7,380)
Net periodic benefit $ (1,172) $ (1,540) $ (2,336) $ (3,092)

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 ~~benefit~~pension cost for the other benefit plans for the three ~~and six~~ months ended ~~June 30,~~March 31, 2024 and 2023 ~~and 2022~~ were as follows:


		Three Months Ended June 30,				Six Months Ended June 30,
	Three Months Ended												Three Months Ended
(thousands of U.S. dollars)	(thousands of U.S. dollars)	2023		2022		2023		2022		(thousands of U.S. dollars)	March 31, 2024	March 31, 2023
Service cost	Service cost	$	2	$	4	$	4	$	8
Interest cost	Interest cost	90		65		180		130
Amortization of net actuarial gain	Amortization of net actuarial gain	(44)		(2)		(88)		(4)
Net periodic benefit cost	Net periodic benefit cost	$	48	$	67	$	96	$	134

WeThe Company currently ~~expect~~has no funding requirements ~~of approximately $0.3 million in each of~~as the ~~next five years to fund the regulatory solvency deficit,~~Nordion pension plan has a going concern surplus as defined by Canadian federal regulation, which requires solvency testing on defined benefit pension ~~plans.~~plans on an annual basis.

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 ~~June 30, 2023,~~March 31, 2024 and December 31, ~~2022,~~2023, we had letters of credit outstanding relating to the defined benefit plans totaling ~~$43.7 million and $44.1 million, respectively.~~$16.0 million. 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.~~11.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 – January 1, 2024	$	(7,297)		$	(91,031)	$	5,646		$	(92,682)
Other comprehensive income (loss) before reclassifications	146			(27,706)		4,051			(23,509)
Amounts reclassified from accumulated other comprehensive income (loss)	(33)		(a)	—		(3,632)		(b)	(3,665)
Net current-period other comprehensive income (loss)	113			(27,706)		419			(27,174)
Ending balance – March 31, 2024	$	(7,184)		$	(118,737)	$	6,065		$	(119,856)

Beginning balance – January 1, 2023	$	3,209		$	(131,205)	$	21,343		$	(106,653)
Other comprehensive income (loss) before reclassifications	(7)			11,257		(2,493)			8,757
Amounts reclassified from accumulated other comprehensive income (loss)	(44)		(a)	—		(6,758)		(b)	(6,802)
Net current-period other comprehensive income (loss)	(51)			11,257		(9,251)			1,955
Ending balance – March 31, 2023	$	3,158		$	(119,948)	$	12,092		$	(104,698)

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Sotera Health Company

Notes to Consolidated Financial Statements

~~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 – April 1, 2023 $ 3,158 $ (119,948) $ 12,092 $ (104,698)
Other comprehensive income (loss) before
reclassifications
62 21,374 10,950 32,386
Amounts reclassified from accumulated other
comprehensive income (loss)
(44) (a) — (6,948) (b) (6,992)
Net current-period other comprehensive income (loss) 18 21,374 4,002 25,394
Ending balance – June 30, 2023 $ 3,176 $ (98,574) $ 16,094 $ (79,304)
Beginning balance – January 1, 2023 $ 3,209 $ (131,205) $ 21,343 (106,653)
Other comprehensive income (loss) before
reclassifications
55 32,631 8,555 41,241
Amounts reclassified from accumulated other
comprehensive income (loss)
(88) (a) — (13,804) (b) (13,892)
Net current-period other comprehensive income (loss) (33) 32,631 (5,249) 27,349
Ending balance – June 30, 2023 $ 3,176 $ (98,574) $ 16,094 $ (79,304)

(thousands of U.S. dollars)
Defined
Benefit
Plans
Foreign
Currency
Translation
Interest
Rate
Derivatives
Total
Beginning balance – April 1, 2022 $ (17,855) $ (51,414) $ 6,583 $ (62,686)
Other comprehensive income (loss) before
reclassifications
534 (46,038) 3,178 (42,326)
Amounts reclassified from accumulated other
comprehensive income (loss)
(2) (a) — — (2)
Net current-period other comprehensive income (loss) 532 (46,038) 3,178 (42,328)
Ending balance – June 30, 2022 $ (17,323) $ (97,452) $ 9,761 $ (105,014)
Beginning balance – January 1, 2022 $ (17,581) $ (66,389) $ 404 $ (83,566)
Other comprehensive income (loss) before
reclassifications
262 (31,063) 9,357 (21,444)
Amounts reclassified from accumulated other
comprehensive income (loss)
(4) (a) — — (4)
Net current-period other comprehensive income (loss) 258 (31,063) 9,357 (21,448)
Ending balance – June 30, 2022 $ (17,323) $ (97,452) $ 9,761 $ (105,014)

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

(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 (Loss).

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~~Sotera Health Company~~

~~Notes to Consolidated Financial Statements~~

~~13.~~12.Share-Based Compensation

Pre-IPO Awards

Restricted stock distributed in respect of pre-IPO Class B-1 time vesting units vests on a daily basis pro rata over a five-year vesting period (20% per year) beginning on the original vesting commencement date of the corresponding Class B-1 time vesting units, subject to the grantee’s continued services through each vesting date. Upon the occurrence of a change in control of the Company, all ~~then outstanding~~then-outstanding unvested shares of our common stock distributed in respect of Class B-1 Units will ~~become vested~~vest as of the date of consummation of such change in control, subject to the grantee’s continued services through the consummation of the change in control.

Restricted stock distributed in respect of pre-IPO Class B-2 Units ~~(which~~ were considered performance vesting ~~units) are scheduled to vest only upon satisfaction~~units. The required performance threshold for the vesting of ~~certain thresholds. These units generally vest as of~~B-2 restricted stock is the first date on which (i) our Sponsors have received actual cash proceeds in an amount equal to or in excess of at least two and one-half times their invested capital in Sotera Health Topco Parent, L.P. (of which the Company was a direct wholly owned subsidiary prior to the IPO) and (ii) the Sponsors’ internal rate of return exceeds 20%, subject to such grantee’s continued services through such date. ~~In the event of~~Both performance thresholds were satisfied on March 4, 2024 and, as a ~~change in control of the Company, any~~result, all outstanding ~~shares of our common stock distributed in respect of Class~~ B-2 Units fully vested as of that ~~remain unvested immediately following the consummation of such a change in control of the Company shall be immediately canceled and forfeited without compensation.~~date. Stock based compensation expense attributed to the pre-IPO Class B-2 awards was recorded in the fourth quarter of 2020 as the related performance conditions were considered probable of achievement and the implied service conditions were met. ~~As of June 30, 2023, these awards remain unvested.~~

We recognized ~~$0.5~~$0.4 million and $0.5 million of share-based compensation expense related to the pre-IPO Class B-1 ~~awards~~Units for the three months ended ~~June 30,~~March 31, 2024 and 2023, ~~and 2022, respectively, and $1.0 million and $1.1 million for the six months ended June 30, 2023 and 2022,~~ respectively.

A summary of the activity for the ~~six~~three months ended ~~June 30, 2023~~March 31, 2024 related to the restricted stock awards distributed in respect of the pre-IPO awards (Class B-1 and B-2 Units) is presented below:

Restricted
Stock - Pre-
IPO B-1
Restricted
Stock - Pre-
IPO B-2
Unvested at December 31, 2022 716,091 1,098,415
Forfeited (5,378) (80,051)
Vested (172,654) —
Unvested at June 30, 2023 538,059 1,018,364


	Number of shares
	Restricted Stock Pre-IPO B-1	Restricted Stock - Pre-IPO B-2
Unvested at December 31, 2023	352,447	987,111


Vested	(74,335)	(987,111)
Unvested at March 31, 2024	278,112	—

2020 Omnibus Incentive Plan

We maintain a long-term incentive plan (the “2020 Omnibus Incentive Plan” or the “2020 Plan”) that allows for grants of incentive stock options to employees (including employees of any of our subsidiaries), nonstatutory stock options, restricted stock awards (“RSAs”), restricted stock units (“RSUs”) and other cash-based, equity-based or equity-related awards to employees, directors, and consultants, including employees or consultants of our subsidiaries.

We ~~recognized $7.9~~recognized $8.2 million ($~~3.7~~3.9 million for stock options and ~~$4.2~~$4.3 million for RSUs) and ~~$5.3~~$6.8 million ($~~2.2~~3.1 million for stock options and ~~$3.1~~$3.7 million for RSUs) of share-based compensation expense for these awards for the three months ended June 30, 2023 and 2022, respectively. We recognized $14.7 million ($6.8 million for stock options and $7.9 million for RSUs) and $9.2 million ($3.7 million for stock options and $5.5 million for RSUs) for the six months ended June 30, 2023 and 2022, respectively, in our Consolidated Statements of Operations and Comprehensive Income (Loss), in “Selling, general and administrative ~~expenses.~~expenses,” for the three months ended March 31, 2024 and 2023, respectively.

2017

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Sotera Health Company

Notes to Consolidated Financial Statements

Stock Options

Stock options generally vest ratably over a period of two to four years. They have an exercise price equal to the fair market value of a share of common stock on the date of grant, and a contractual term of 10 years. The following table summarizes our stock option activity for the ~~six~~three months ended ~~June 30, 2023:~~March 31, 2024:

Number of
Shares
Weighted-average
Exercise Price
At December 31, 2022 5,990,470 $ 14.84
Granted 1,059,769 17.55
Forfeited (61,571) 20.93
Exercised — —
At June 30, 2023 6,988,668 $ 15.20


	Number of Shares	Weighted- average Exercise Price
Outstanding stock options at December 31, 2023	6,972,661	$	15.17
Granted	1,570,336	14.59
Forfeited	(43,652)	20.77

Outstanding stock options at March 31, 2024	8,499,345	$	15.04

As of ~~June 30, 2023,~~March 31, 2024, there were ~~1.4~~3.5 million vested and exercisable stock options.

RSUs

RSUs generally vest ratably over a period of one to four years and are valued based on our market price on the date of grant. The following table summarizes our unvested RSUs activity for the ~~six~~three months ended ~~June 30, 2023:~~March 31, 2024:


		Number of Shares	Weighted-average Grant Date Fair Value
Unvested at December 31, 2022		2,482,435	$	13.09
	Number of Shares				Number of Shares	Weighted- average Grant Date Fair Value
Unvested at December 31, 2023
Granted	Granted	821,673	16.97
Forfeited	Forfeited	(112,634)	12.47
Vested	Vested	(280,557)	20.48
Unvested at June 30, 2023		2,910,917	$	13.50
Unvested at March 31, 2024

~~14.~~13.Earnings Per Share

Basic earnings per share represents the amount of income attributable to each common share outstanding. Diluted earnings per share represents the amount of income attributable to each common share outstanding adjusted for the effects of potentially dilutive common shares. Potentially dilutive common shares include stock options and other stock-based awards. In the periods where the effect would be antidilutive, potentially dilutive common shares are excluded from the calculation of diluted earnings per share.

In periods in which the Company has net income, earnings per share is calculated using the two-class method. This method is required as unvested restricted stock distributed in respect of pre-IPO Class B-1 and B-2 awards have the right to receive non-forfeitable dividends or dividend equivalents if the Company were to declare dividends on its common stock. Pursuant to the two-class method, earnings for each period are allocated on a pro-rata basis to common stockholders and unvested pre-IPO Class B-1 and B-2 restricted stock awards. As of March 4, 2024, the performance threshold applicable to all Class B-2 restricted stock awards were fully satisfied, thereby releasing the vesting and forfeiture restrictions on these common shares. Beginning on that date, B-2 restricted stock was not included in the earnings allocation. Diluted earnings per share is computed using the more dilutive of (a) the two-class method, or (b) treasury stock method, as applicable, to the potentially dilutive instruments.

Our basic and diluted earnings per common share are calculated as follows:

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Sotera Health Company

Notes to Consolidated Financial Statements

~~Our basic and diluted earnings per common share are calculated as follows:~~


		Three Months Ended				Six Months Ended
	Three Months Ended												Three Months Ended
in thousands of U.S. dollars and share amounts (except per share amounts)	in thousands of U.S. dollars and share amounts (except per share amounts)	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022		in thousands of U.S. dollars and share amounts (except per share amounts)	March 31, 2024	March 31, 2023
Earnings:	Earnings:
Net income
Net income
Net income	Net income	$	23,513	$	30,418	$	26,355	$	61,059
Less: Allocation to participating securities	Less: Allocation to participating securities	137		308		159		645
Net income attributable to Sotera Health Company common shareholders	Net income attributable to Sotera Health Company common shareholders	$	23,376	$	30,110	$	26,196	$	60,414
Weighted Average Common Shares:	Weighted Average Common Shares:
Weighted-average common shares outstanding - basic	Weighted-average common shares outstanding - basic	280,893		279,990		280,793		279,910
Weighted-average common shares outstanding - basic
Weighted-average common shares outstanding - basic
Dilutive effect of potential common shares	Dilutive effect of potential common shares	2,254		181		2,247		128
Weighted-average common shares outstanding - diluted	Weighted-average common shares outstanding - diluted	283,147		280,171		283,040		280,038
Earnings per Common Share:	Earnings per Common Share:
Net income per common share attributable to Sotera Health Company common shareholders - basic		$	0.08	$	0.11	$	0.09	$	0.22
Net income per common share attributable to Sotera Health Company common shareholders - diluted		0.08		0.11		0.09		0.22
Net income attributable to Sotera Health Company common shareholders - basic
Net income attributable to Sotera Health Company common shareholders - basic
Net income attributable to Sotera Health Company common shareholders - basic
Net income attributable to Sotera Health Company common shareholders - diluted

Diluted earnings per share does not consider the following potential common shares as the effect would be anti-dilutive:


		Three Months Ended		Six Months Ended
	Three Months Ended								Three Months Ended
in thousands of share amounts	in thousands of share amounts	June 30, 2023	June 30, 2022	June 30, 2023	June 30, 2022	in thousands of share amounts	March 31, 2024	March 31, 2023
Stock options	Stock options	4,283	3,780	3,928	3,337	Stock options	4,720	3,570
RSUs	RSUs	1,308	11	1,138	17	RSUs	150	492
Total anti-dilutive securities	Total anti-dilutive securities	5,591	3,791	5,066	3,354	Total anti-dilutive securities	4,870	4,062

~~15.~~14.Commitments and Contingencies

From time to time, we may be subject to various lawsuits and other claims, as well as gain contingencies, in the ordinary course of our business. In addition, from time to time, we receive communications from government or regulatory agencies concerning investigations or allegations of noncompliance with laws or regulations in jurisdictions in which we operate. We assess these regulatory and legal actions to determine if a contingent liability should be recorded. In making these determinations, we may, depending on the nature of the matter, consult with internal and external legal counsel and technical experts.

We establish reserves for specific liabilities in connection with regulatory and legal actions that we determine to be both probable and reasonably estimable. AsThe outcomes of ~~June 30, 2023 no material amounts have been accrued~~regulatory and legal actions can be difficult to predict and are often resolved over long periods of time, making our probability and estimability determinations highly judgmental. Probability determinations require the analysis of various possible outcomes, assessments of potential damages and the impact of multiple factors beyond our control, including potential actions by others, interpretations of the law, and changes and developments in ~~our consolidated financial statements with respect to any loss contingencies.~~relevant facts, circumstances, regulations and other laws. If a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability is disclosed, together with an estimate of the range of possible loss if the range is determinable and ~~material, would be disclosed.~~material. In certain of the matters described below, we are not able to ~~make a reasonable~~ estimate ~~of any~~potential liability because of the uncertainties related to the ~~outcome~~outcome(s) and/or the ~~amount~~amount(s) or ~~range~~range(s) of loss. ~~While it is not possible to determine the ultimate disposition of each of these matters, we do not expect that the~~The ultimate resolution of pending regulatory and legal matters in future periods, including the matters described below, ~~will~~may have a material adverse effect on our financial condition, results of operations and/or liquidity. ~~Despite the above, the~~The Company may also incur material defense and settlement costs, diversion of management resources and other adverse effects on our business, financial condition, and/or results of operations.

Ethylene Oxide Tort Litigation

Sterigenics U.S., LLC (“Sterigenics”) and other medical supply sterilization companies have been subjected to tort lawsuits alleging various injuries caused by low-level environmental exposure to EO ~~emissions~~used at or emitted from sterilization facilities. Those lawsuits, as detailed further below, are individual claims, as opposed to class actions.

2219

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Sotera Health Company

Notes to Consolidated Financial Statements

Illinois

More than 854 plaintiffs filed lawsuits, and approximately 28 individuals threatened to file lawsuits, against subsidiaries of the Company and other parties, alleging personal injuries (including cancer and other diseases) or wrongful death resulting from purported emissions and releases of EO from Sterigenics’ former Willowbrook facility. Additional derivative claims were alleged on behalf of relatives of some of these personal injury plaintiffs. The lawsuits were consolidated for pre-trial purposes by the Circuit Court of Cook County, Illinois (the “Consolidated Case”). Jury trials were conducted during 2022 in two of the individual cases included in the Consolidated Case, and 12 individual cases were scheduled for trials in 2023. The first trial began on August 12, 2022, and on September 19, 2022, the jury rendered a verdict in favor of the plaintiff and awarded damages in the amount of $358.7 million, including $36.1 million of compensatory damages, $320.0 million of punitive damages and $2.6 million of prejudgment interest against Sterigenics and Sotera Health LLC (the “Defendant Subsidiaries”). Post-judgment interest accrued on the compensatory and punitive damages awards from September 20, 2022, the date of the judgment order. The Defendant Subsidiaries filed a Motion for Post Trial Relief, which was denied on December 19, 2022. On January 9, 2023 the Defendant Subsidiaries filed a Notice of Appeal to the First District Appellate Court in Illinois, appealing the September 20, 2022 adverse judgment. The deadline for posting an appellate bond for the appeal was extended to February 8, 2023. The second individual trial began on October 6, 2022, and on November 18, 2022, the jury returned a defense verdict on all counts. On January 4, 2023, the plaintiff in the second trial filed a motion for post-trial relief seeking an order reversing and/or vacating the verdict, granting a new trial, and/or entering judgment in the plaintiff’s favor notwithstanding the verdict.

On November 1, 2022 certain plaintiffs in the Consolidated Case filed a lawsuit in the Circuit Court of Cook County against the Company and certain affiliates, subsidiaries and current and former officers, alleging that certain transfers of assets occurring after December 2016 were intended to make assets unavailable to satisfy judgments the plaintiffs might win in future trials in their individual personal injury cases included in the Consolidated Case (the “Asset Transfer Case”). On November 10, 2022, the Asset Transfer Case was removed to the United States District Court for the Northern District of Illinois and all defendants filed answers and affirmative defenses.

On January 9, 2023, the Defendant Subsidiaries (the “Settling Defendants”) entered into binding term sheets (the “Term Sheets”) with the “Plaintiffs’ Executive Committee” (the “PEC”) appointed to act on behalf of the more than 20 law firms (“Plaintiffs’ Counsel”) representing the plaintiffs in the Consolidated Case, the Asset Transfer Case, and other clients with personal injury claims that had not yet been filed (each an “Eligible Claimant” and collectively, the “Eligible Claimants”). Upon entering into the Term Sheets, and based on our assessment that it was probable that the conditions to the Term Sheets would be satisfied or waived, we recorded a charge of $408.0 million for the year ended December 31, 2022. The Term Sheets provided an agreed path to final settlement of the Eligible Claimants’ claims, subject to the satisfaction or waiver of certain conditions, including but not limited to the negotiation and execution of full settlement agreements in accordance with the Term Sheets.

On January 11, 2023 and January 13, 2023, the Circuit Court of Cook County entered orders staying all proceedings and deadlines and vacating all trial dates in the Consolidated Case, and staying all enforcement proceedings relating to the September 20, 2022 adverse judgment. On January 16, 2023 the United States District Court for the Northern District of Illinois entered an order staying all proceedings in the Asset Transfer Case. On January 23, 2023 the First District Appellate Court in Illinois entered an order staying the Settling Defendants’ appeal of the September 20, 2022 adverse judgment.

On March 28, 2023, the Settling Defendants and the PEC entered into full settlement agreements (the “Settlement Agreements”). The Settlement Agreements provided a pathway to resolve the claims that were or could have been alleged by 882 Eligible Claimants related to or arising from alleged emissions of EO from Sterigenics’ operations in or around Willowbrook and related claims that were or could have been alleged by Eligible Claimants seeking to challenge any transfer of assets to or from the Company, its subsidiaries and certain affiliates to any other entity or person (the “Covered Claims”). The Company and Settling Defendants deny any liability for the Covered Claims and, per their express terms, the Settlement Agreements are not to be construed as an admission of liability or that the Company or Settling Defendants engaged in any wrongful, tortious, or unlawful activity or that use and/or emissions of EO from Sterigenics’ operations in or around Willowbrook posed any safety hazard to the surrounding communities.

~~Table of Contents~~

~~Sotera Health Company~~

~~Notes to Consolidated Financial Statements~~

The Settlement Agreements provided that final settlement was conditioned, among other things, on successful completion of a claims administration process and satisfaction (or waiver by the Settling Defendants) of specific participation requirements, the dismissal with prejudice of the Covered Claims of all Eligible Claimants participating in the settlement, and court approval of the settlement as a good faith settlement under the Illinois Joint Contribution Among Tortfeasors Act.

On May 1, 2023, Sterigenics contributed $408.0 million to settlement escrow funds (the “Settlement Funds”) to be used, if the conditions of the Settlement Agreements were satisfied or waived, to pay all settlement fees and expenses and cash payments to the Eligible Claimants participating in the settlement.

The claims administration process concluded with 879 of 882 Eligible Claimants providing opt-in consent to participate in the settlement (the “Settling Claimants”). Pursuant to the Settlement Agreements, the three Eligible Claimants who did not opt in (each a “Non-Settling Claimant,” and collectively the “Non-Settling Claimants”) created an option for the Settling Defendants to exercise walkaway rights. On June 22, 2023, after evaluating the available information about the claims of the Non-Settling Claimants, the Settling Defendants waived their walkaway rights and chose to proceed to final settlement with the Settling Claimants (the “Willowbrook Settlement”).

On June 23, 2023 the Circuit Court of Cook County entered an order confirming that the Willowbrook Settlement was a good-faith settlement under the Illinois Contribution Among Joint Tortfeasors Act. On June 30, 2023, the Settlement Funds were released from escrow to the PEC’s Qualified Settlement Funds. The amounts allocated by the PEC to the Non-Settling Claimants represent an immaterial fraction of the Settlement Funds and will remain in escrow until December 31, 2023, at which point, absent an opt-in election by a Non-Settling Claimant, the funds allocated to that Non-Settling Claimant will revert to Sterigenics. On July 6, 2023, the claims of the Settling Claimants against the Settling Defendants were dismissed with prejudice, with the Circuit Court of Cook County retaining jurisdiction to adjudicate disputes over liens on the settlement proceeds to be paid to the Settling Claimants and to oversee the administration of the settlements of the wrongful death cases.

The three Non-Settling Claimants’ cases will proceed in the Circuit Court of Cook County, Illinois. In June 2023, six new personal injury lawsuits relating to the Willowbrook facility were filed in the Circuit Court of Cook County against Sterigenics, Sotera Health Services, LLC and other parties (the “Post-Settlement Cases”). One Post-Settlement Case has been removed to the United States District Court for the Northern District of Illinois, and a motion to remand is pending. The remaining Post-Settlement Cases will proceed in the Circuit Court of Cook County.

~~Georgia~~

Subsidiaries of the Company and other parties are defendants in approximately 25 lawsuits in Illinois in which plaintiffs allege personal injuries or wrongful death resulting from purported use, emissions and releases of EO from or at Sterigenics’ former Willowbrook facility (the “Willowbrook Cases”). The Willowbrook Cases are pending in the ~~State~~Circuit Court of ~~Cobb~~Cook County ~~Georgia~~ and have been assigned to a single judge for coordinated discovery and pretrial proceedings. We intend to vigorously defend the ~~State Court of Gwinnett County,~~Willowbrook Cases.

Georgia

Sterigenics, Sotera Health, LLC and other parties are defendants in lawsuits in Georgia in which plaintiffs allege personal ~~injury~~injuries, wrongful death and property devaluation resulting from use, emissions orand releases of EO from or at Sterigenics’ Atlanta facility ~~and seek damages and other forms of relief.~~(the “Atlanta Cases”).

~~One~~Approximately 255 personal injury ~~lawsuit~~and wrongful death claims are pending in ~~Gwinnett~~the State Court of Cobb County ~~is scheduled for trial in October 2023. Approximately 300 personal injury lawsuits pending in Cobb County~~and have been consolidated for pretrial purposes (the “Consolidated Personal Injury Cases”). The Consolidated Personal Injury Cases are proceeding under a case management order pursuant to which a “pool” of ~~ten personal injury~~eight cases will proceed to judicial determination of general causation issues in Phase 1 and specific causation issues in Phase 2; the first trial of any “pool” case that survives Phases 1 and 2 is not expected to begin before September 2025. The remaining Consolidated Personal Injury Cases ~~are stayed. One personal injury lawsuit pending in Cobb County has not been consolidated and is proceeding independently. Nine lawsuits pending in Cobb County~~(including nine cases that include both personal injury and property ~~claims (the “Dual Injury Cases”). By agreement~~claims) are stayed. Two additional personal injury lawsuits pending in Cobb County have not been consolidated. The parties have jointly asked the court to stay one of these cases along with the ~~parties, the Dual Injury Cases will be included~~stayed cases in the Consolidated Personal Injury ~~Cases~~Cases. In the other case, employees of a sterilization customer of Sterigenics allege they were injured by exposure while working at the customer’s distribution facility to residual EO allegedly emanating from products of the customer that had been sterilized at Sterigenics’ Atlanta facility; discovery is underway and, ~~stayed.~~pursuant to the customer’s contract with Sterigenics, the customer is indemnifying Sterigenics against this lawsuit.

~~Our subsidiaries~~Sterigenics and Sotera Health LLC are also defendants in approximately ~~366~~365 property devaluation ~~lawsuits. One property lawsuit is~~lawsuits pending in ~~Gwinnett County and~~ the ~~parties are conducting discovery. The remaining property lawsuits are pending in~~State Court of Cobb County ~~and~~that have been consolidated for pretrial purposes (the “Consolidated Property Cases”). ~~The~~Ten of the Consolidated Property Cases are proceeding under a case management ~~order pursuant to which ten cases will proceed with dispositive motions and discovery, and~~orders while the remaining cases are stayed. Discovery in five of the cases is underway; dispositive motions remain pending in the other five.

We intend to vigorously defend the Atlanta Cases.

California

In March 2024 and April 2024, two lawsuits were filed against the Company, Sterigenics, other subsidiaries of the Company and other parties in Los Angeles County Superior Court for personal injuries and wrongful death allegedly resulting from emissions and releases of EO from Sterigenics’ Vernon facilities (the “Vernon Cases”). Plaintiffs in these cases allege that 18 cases of cancer and other illnesses were caused by exposure to EO at locations in close proximity to the Vernon facilities, including residences located in Maywood, California, and a commercial facility located next door to Sterigenics’ Vernon facilities. The lawsuits remain in preliminary stages and case management orders have yet to be entered.

We intend to vigorously defend the Vernon Cases.

New Mexico

The Company and certain subsidiaries are defendants in a lawsuit in the Third Judicial District Court, Doña Ana County, New Mexico in which the New Mexico Attorney General ( “NMAG”) alleges that emissions and releases of EO from Sterigenics’ facility in Santa Teresa have deteriorated the air quality in surrounding communities and materially contributed to increased health risks for residents of those communities. In April 2024, the Court of Appeals of the State of New Mexico denied the NMAG’s petition for leave to file an interlocutory appeal of the August 2023 order granting Sterigenics’ motion for summary judgment on strict liability, the Unfair Practices Act claim, and the claims for decreased property values, increased healthcare costs and medical monitoring costs. The case has been remanded to the District Court of Doña Ana County for further

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~~New Mexico~~

~~On December 22, 2020,~~proceedings on the New Mexico Attorney General filed a lawsuit in the Third Judicial District Court, Doña Ana County, New Mexico against the Company and certain subsidiaries alleging that emissions and releases of EO from Sterigenics’ facility in Santa Teresa, New Mexico have deteriorated the air quality in Santa Teresa and surrounding communities and materially contributed to increased health risks suffered by residents of those communities. The Complaint asserts claims for public nuisance, negligence, strict liability, violations of New Mexico’s Public Nuisance Statute and Unfair Practices Act and seeks various forms of relief including a temporary restraining order, preliminary injunctive relief and damages. On June 29, 2021, the Court entered an Order Granting Preliminary Injunction (the “Order”) prohibiting Sterigenics from allowing any uncontrolled emission or release of EO from the facility. On December 20, 2021 the Court entered an order establishing a protocol to monitor Sterigenics’ compliance with the Order. Operations at the facility continue to be in compliance with the June 2021 and December 2021 orders.remaining claims. A defense motion challenging the Court’s jurisdiction over Sotera Health Company and another defendant ~~and a motion for summary judgment by Sterigenics and Sotera Health LLC are~~also remains pending. A Scheduling Order was entered on September 13, 2022, including a June 3, 2024 trial date. The Company expects the Court to issue rulings on the pending motions and address the schedule for the remainder of the case in August 2023.

~~On April 24, 2023, a lawsuit was filed in the Third Judicial District Court, Doña Ana County, New Mexico against the~~The Company, Sterigenics and certain other subsidiaries are also defendants in a lawsuit pending in the United States District Court for the District of New Mexico alleging wrongful death ~~caused by~~resulting from purported exposure to ~~emissions~~EO used, emitted and ~~releases of EO~~released from Sterigenics’ facility in Santa Teresa, New Mexico while the decedent was working at a different company’s facility approximately one mile away. ~~Sterigenics removed~~The case is set for trial in October 2025.

We intend to vigorously defend the ~~case~~lawsuits relating to the ~~United States District Court for the District of New Mexico on April 27, 2023, and filed a partial motion to dismiss on June 2, 2023.~~Santa Teresa facility.

* * *

Additional EO tort lawsuits may be filed in the future against the Company and/or its subsidiaries relating to Sterigenics’ Willowbrook, Atlanta, Santa Teresa, Vernon or other EO facilities. ~~The Company denies allegations~~Based on our view of the strength of the science and related evidence that ~~its~~emissions of EO from Sterigenics’ operations have not caused and could ornot have caused the harms alleged in such lawsuits, ~~and does not~~we believe that ~~the facts and law justify the September 20, 2022 adverse judgment~~losses in the ~~first trial in Illinois~~remaining or ~~that~~future EO cases are not probable. Although the ~~verdict and damage awards in that case or the Willowbrook Settlement are predictive of potential future verdicts in other EO tort cases in Illinois or other jurisdictions. The~~ Company intends to defend itself vigorously on the merits, future settlements of EO tort lawsuits are reasonably possible. The Willowbrook and Atlanta Settlements (as previously defined in ~~all~~Note 20, Commitments and Contingencies of our 2023 10-K) were driven by dynamics unique to the cases that were settled and thus should not give rise to presumptions that the Company will settle additional EO tort lawsuits and/or that any such ~~litigation, which~~settlements will be for comparable amounts.

Potential trial and settlement outcomes can vary widely based a host of factors. EO tort lawsuits will be presided over by different judges, tried by different counsel presenting different evidence and ~~fact and expert witness testimony at trial, and~~ decided by different juries. The substantive and procedural laws of jurisdictions vary and can meaningfully impact the litigation process and outcome of a case. Each plaintiff’s claim involves unique facts and evidence including ~~but not limited to,~~ the circumstances of the plaintiff’s alleged exposure, the type and severity of the plaintiff’s disease, ~~and~~ the plaintiff’s medical history and course of ~~treatment.~~treatment, the location of and other factors related to the plaintiff’s real property, and other circumstances. The outcomes of trials before juries are rarely certain and a judgment rendered or settlement reached in one case is not necessarily representative of potential outcomes of other seemingly comparable cases. As a result, ~~we believe that losses in such subsequent cases are not probable and that~~ it is not possible to estimate ~~the~~a reasonably possible loss or range of ~~loss. Due~~loss with respect to ~~the uncertainties associated with the amount of~~ any ~~such liability and/~~future EO tort lawsuit, trial or the nature of any other remedy which may be imposed in such litigation, any potential liability determined to be attributable to the Company or any of its subsidiaries arising out of such litigation may have a material adverse effect on the Company’s results of operations, liquidity or financial condition. An estimate of the potential impact on the Company’s results of operations, liquidity or financial condition cannot be made to a reasonable or meaningful degree of certainty due to the aforementioned uncertainties.settlement.

Insurance Coverage for Environmental Liabilities

~~Our~~An environmental liability insurance policy under which we have received coverage for ~~litigation related to alleged environmental liabilities, like~~ the ~~litigation pending~~EO tort lawsuits in Illinois, Georgia and New Mexico described above ~~has~~had limits of $10.0 million per occurrence and $20.0 million in the aggregate. ~~The~~Those per occurrence ~~limit related to the Willowbrook, Illinois litigation was~~and aggregate limits were fully utilized ~~by June 30, 2020. The remaining $10.0 million was fully utilized by March 31, 2023 for occurrences related to~~in the ~~EO litigation in~~defense of the Illinois, Georgia and New Mexico ~~described above.~~litigation. Our insurance for future alleged environmental liabilities excludes coverage for EO claims.

~~In addition, we~~We are pursuing ~~other~~additional insurance coverage for our legal expenses related to ~~litigation~~EO tort lawsuits like the Illinois, Georgia and New Mexico matters described above. In 2021, Sterigenics filed an insurance coverage lawsuit in the U.S. District Court for the Northern District of Illinois relating to two commercial general liability policies issued in the 1980s (the ~~“No. Dist.~~“Northern District of ILIllinois Coverage Lawsuit”). The court ~~has~~ issued ~~orders~~an order declaring that the defendant insurer owes Sterigenics and another insured party a duty to defend the ~~EO tort litigation relating~~Willowbrook Cases (the “Duty to Defend Order”) and entered judgment for Sterigenics in January 2024 in the amount of $110.2 million for certain defense costs incurred in the Willowbrook ~~facility~~Cases as of August 2022 (the “Defense Costs Judgment”). The defendant insurer has appealed the Duty to Defend Order and ~~owes Sterigenics approximately $75.5 million in defense costs through September 30, 2022.~~Defense Costs Judgment. Sterigenics is also a party in insurance coverage lawsuits pending in the Circuit Court of Cook County, Illinois and the Delaware Superior Court relating to insurance coverage from various historical commercial general liability policies for certain EO litigation settlement amounts and defense costs that the insurer in the Northern District of Illinois Coverage Lawsuit may fail to fund. The Delaware Superior Court has granted Sterigenics’ motion to stay the case pending resolution of the same and similar issues in the coverage lawsuit pending in the Circuit Court of Cook County, Illinois. It is not possible to predict how much, if any, of the insurance proceeds sought will ultimately be recovered.

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in the Delaware Superior Court and the Circuit Court of Cook County, seeking insurance coverage from various historical commercial general liability policies for certain EO litigation settlement amounts and defense costs the insurer in the No. Dist. of IL Coverage Lawsuit may fail to fund. It is unknown how much, if any, of the insurance proceeds sought will be recovered.

Sotera Health Company Securities Litigation & Related Matters

OnIn January ~~24,~~ 2023, a ~~putative~~ stockholder class action was filed in the U.S. District Court for the Northern District of Ohio against the Company, ~~its~~certain past and present directors ~~certain~~and senior executives, the Company’s private equity stockholders and the underwriters of the Company’s initial public offering (“IPO”) in November 2020 and the Company’s secondary public offering (“SPO”) in March 2021 (the “Michigan Funds Litigation”). OnIn April ~~17,~~ 2023, the court appointed the Oakland County Employees’ Retirement System, Oakland County Voluntary Employees’ Beneficiary Association, and Wayne County Employees’ Retirement System (the “Michigan Funds”) to serve as lead plaintiff to prosecute claims on behalf of a proposed class of stockholders who acquired shares of the Company in connection with our IPO or SPO or between November 20, 2020 and September 19, 2022 (the “Proposed Class”). The Michigan Funds allege that statements made regarding the safety of the Company’s use of EO and/or ~~the litigation~~its EO tort lawsuits and other risks of its EO operations violated Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (when made in the registration statements for the IPO and SPO) and ~~violated~~ Sections 10(b), Section 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934 (when made in subsequent securities filings and other contexts). ~~On June 1, 2023 the Michigan Funds filed an Amended Complaint seeking damages and other relief on behalf of the Proposed Class. Defendants’ motion~~Defendants have moved to dismiss the Amended Complaint ~~was filed on August 2, 2023.~~ and that motion remains pending.

In ~~addition, on~~ May ~~15,~~2023, July 2023 and ~~July 25, 2023~~April 2024, the Company received demands pursuant to 8 Del. C. §220 for ~~inspection~~inspections of its books and records from ~~individual~~ shareholders purporting to be investigating the Company’s internal operations, disclosure practices and other matters alleged and at issue in the Michigan Funds Litigation ~~(the “220 Demands”).~~ and related to the Company’s March 2024 Secondary Public Offering. The Company is producing documents in response to the 220 Demands.

The Company believes that the allegations and claims byin the Michigan Funds Litigation and ~~in the~~ 220 Demands are without merit and plans to vigorously defend the Michigan Funds ~~Litigation.~~Litigation.

~~16.~~15.Financial Instruments and Financial Risk

Derivative Instruments

We do not use derivatives for trading or speculative purposes and are not a party to leveraged derivatives.

Derivatives Designated in Hedge Relationships

From time to time, the Company utilizes interest rate derivatives designated in hedge relationships to manage interest rate risk associated with our variable rate borrowings. These instruments are measured at fair value with changes in fair value recorded as a component of “Accumulated other comprehensive income (loss)” on our Consolidated Balance Sheets.

In March 2023, we entered into an interest rate swap agreement with a notional amount of $400.0 million. The interest rate swap ~~has a forward start date of~~was effective on August 23, 2023 and expires on August 23, 2025. We have designated the interest ~~rate~~ swap as a cash flow hedge designed to hedge the variability of cash flows attributable to changes in the SOFR benchmark interest rate of our 2023 Term ~~Loan.~~Loan (or any successor thereto). We receive interest at the one-month Term SOFR rate and pay a fixed interest rate under the terms of the swap agreement.

In May 2022, we entered into two interest rate cap agreements with a combined notional amount of $1,000.0 million for a total option premium of $4.1 million. The interest rate caps ~~have a forward start date~~became effective as of July 31, 2023 and expire on July 31, 2024. We have designated these interest rate caps as cash flow hedges designed to hedge the variability of cash flows attributable to changes in the benchmark interest rate of our Term ~~Loan.~~Loan (or any successor thereto). Under the current terms of the loan agreement, the benchmark interest rate index transitioned from LIBOR to Term SOFR on June 30, 2023. Accordingly, the interest rate cap agreements hedge the variability of cash flows attributable to changes in SOFR by limiting our cash flow exposure related to Term SOFR under a portion of our variable rate borrowings to 3.5%.

In October 2021, we entered into two interest rate cap agreements with a combined notional amount of $1,000.0 million for a total option premium of $1.8 million. Both interest rate caps were effective on December 31, 2022 and ~~expire~~expired on July 31, 2023. These interest rate caps ~~are~~were designated as cash flow hedges ~~and are~~ designed to hedge the variability of cash flows attributable

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to changes in LIBOR (or its successor), the benchmark interest rate being hedged, by limiting our cash flow exposure related to the LIBOR base rate under a portion of our variable rate borrowings to 1.0%.

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Derivatives Not Designated in Hedge Relationships

Additionally, from time to time, the Company enters into interest rate derivatives to manage economic risks associated with our variable rate borrowings that are not designated in hedge relationships. These instruments are recorded at fair value on the Consolidated Balance Sheets, with any changes in ~~the~~ value recorded in “Interest expense, net” in the Consolidated Statements of Operations and Comprehensive Income (Loss).

The Company also routinely enters into foreign currency forward contracts to manage foreign currency exchange rate risk of our intercompany loans in certain of our international ~~subsidiaries.~~subsidiaries and non-functional currency assets and liabilities. The foreign currency forward contracts expire on a monthly basis.

Embedded Derivatives

We have embedded derivatives in certain of our customer and supply contracts as a result of the currency of the contract being different from the functional currency of the parties involved. Changes in the fair value of the embedded derivatives are recognized in “Other expense (income), net” in the Consolidated Statements of Operations and Comprehensive Income (Loss).

The following table provides a summary of the notional and fair values of our derivative instruments:


		June 30, 2023							December 31, 2022
	March 31, 2024																		March 31, 2024			December 31, 2023
(in U.S. Dollars; notional in millions, fair value in thousands)	(in U.S. Dollars; notional in millions, fair value in thousands)				Fair Value						Fair Value				(in U.S. Dollars; notional in millions, fair value in thousands)		Fair Value						Fair Value
		Notional Amount			Derivative Assets		Derivative Liabilities		Notional Amount		Derivative Assets		Derivative Liabilities
	Notional Amount															Notional Amount		Derivative Assets		Derivative Liabilities	Notional Amount			Derivative Assets	Derivative Liabilities
Derivatives designated as hedging instruments	Derivatives designated as hedging instruments
Interest rate caps
Interest rate caps
Interest rate caps	Interest rate caps	$	2,000.0	(a)	$	20,939	$	—	$	2,000.0	$	34,764	$	—
Interest rate swaps	Interest rate swaps	400.0		(b)	4,777		—		—		—		—
Derivatives not designated as hedging instruments	Derivatives not designated as hedging instruments

Foreign currency forward contracts

Foreign currency forward contracts

Foreign currency forward contracts	Foreign currency forward contracts	$	157.3		$	24	$	14	$	151.5	$	—	$	272
Embedded derivatives	Embedded derivatives	167.9		(c)	1,551		1,613		179.9		2,721		3,508
Total	Total	$	2,325.6		$	27,291	$	1,627	$	2,331.4	$	37,485	$	3,780

(a)~~$1,000.0 million notional amount of interest rate caps designated as hedging instruments have a forward start date beginning on July 31, 2023.~~

~~(b)The notional amount of interest rates swaps designated as hedging instruments reflected in the table above has a forward start date beginning on August 23, 2023.~~

~~(c)~~Represents the total notional amounts for certain of the Company’s supply and sales contracts accounted for as embedded derivatives.

Embedded ~~derivatives~~derivative assets/liabilities and foreign currency forward contracts are included in “Prepaid expenses and other current assets” and “Accrued ~~liabilities”~~Liabilities” on our Consolidated Balance Sheets depending upon their position at period end. Interest rate swaps and interest rate caps are included in “Other ~~assets,”~~assets” and “Noncurrent liabilities”, respectively, on the Consolidated Balance Sheets depending upon their position at period end.

The following table summarizes the activities of our derivative instruments for the periods presented, and the line item in which they are recorded in the Consolidated Statements of Operations and Comprehensive Income (Loss):


(thousands of U.S. dollars)
Three Months Ended March 31,	2024	2023

Realized gain on interest rate derivatives recorded in interest expense, net(a)	(4,897)	(9,648)
Unrealized loss on embedded derivatives recorded in other expense (income), net	1,833	227
Realized loss on foreign currency forward contracts recorded in foreign exchange (gain) loss	4,008	449
Unrealized gain on foreign currency forward contracts recorded in foreign exchange (gain) loss	(580)	—

(a)For the three months ended March 31, 2024, amounts represent quarterly settlement of interest rate caps and swaps.

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The following tables summarize the activities of our derivative instruments for the periods presented, and the line item they are recorded in the Consolidated Statements of Operations and Comprehensive Income (Loss):

(thousands of U.S. dollars) Three Months Ended June 30, Six Months Ended June 30,
2023 2022 2023 2022
Unrealized gain on interest rate derivatives recorded in interest expense, net $ — $ (3,100) $ — $ (9,446)
Realized gain on interest rate derivatives recorded in interest expense, net(a)
(9,400) (1,279) (18,571) (1,279)
Unrealized loss (gain) on embedded derivatives recorded in other expense (income), net (973) 2,435 (747) 1,417
Realized loss (gain) on foreign currency forward contracts recorded in foreign exchange (gain) loss (2,393) 1,035 (1,944) (495)
Unrealized loss (gain) on foreign currency forward contracts recorded in foreign exchange (gain) loss — — (282) —
~~(a) For the three and six months ended June 30, 2023, amounts primarily represent quarterly settlement of interest rate caps.~~

We expect to reclassify approximately ~~$19.3~~$8.0 million of pre-tax net gains on derivative instruments from accumulated other comprehensive income (loss) to income during the next 12 months associated with our cash flow hedges. Refer to Note ~~12,“Other~~11, “Other Comprehensive Income (Loss)” for unrealized gains on interest rate derivatives, net of applicable tax, recorded in other comprehensive income (loss) and amounts reclassified from accumulated other comprehensive income to interest expense, net of applicable tax, during the three ~~and six~~ months ended ~~June 30, 2023.~~March 31, 2024.

Credit Risk

Certain of our financial assets, including cash and cash equivalents, are exposed to credit risk.

We are also exposed, in our normal course of business, to credit risk from our customers. As of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, accounts receivable was net of an allowance for uncollectible accounts of ~~$2.0~~$3.9 million and ~~$1.9~~$4.7 million, respectively.

Credit risk on financial instruments arises from the potential for counterparties to default on their contractual obligations to us. We are exposed to credit risk in the event of non-performance, but do not anticipate non-performance by any of the counterparties to our financial instruments. We limit our credit risk by dealing with counterparties that are considered to be of high credit quality. In the event of non-performance by counterparties, the carrying value of our financial instruments represents the maximum amount of loss that would be incurred.

Our credit team evaluates and regularly monitors changes in the credit risk of our customers. We routinely assess the collectability of accounts receivable and maintain an adequate allowance for uncollectible accounts to address potential credit losses. The process includes a review of customer financial information and credit ratings, current market conditions as well as the expected future economic conditions that may impact the collection of trade receivables. We regularly review our customers’ past due amounts through an analysis of aged accounts receivables, specific customer past due aging amounts, and the history of trade receivables written off. Upon concluding that a receivable balance is not collectible, the balance is written off against the allowance for uncollectible accounts.

Fair Value Hierarchy

The fair value of our financial instruments is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The valuation techniques we would use to determine such fair values are described as follows: Level 1—fair values determined by inputs utilizing quoted prices in active markets for identical assets or liabilities; Level 2—fair values based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable; Level 3—fair values determined by unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants.

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The following table discloses the fair value of our financial assets and liabilities:


As of June 30, 2023				Fair Value
As of March 31, 2024										As of March 31, 2024			Fair Value
(thousands of U.S. dollars)	(thousands of U.S. dollars)	Carrying Amount		Level 1		Level 2		Level 3		(thousands of U.S. dollars)	Carrying Amount	Level 1		Level 2	Level 3
Derivatives designated as hedging instruments(a)	Derivatives designated as hedging instruments(a)
Interest rate caps
Interest rate caps
Interest rate caps	Interest rate caps	$	20,939	$	—	$	20,939	$	—
Interest rate swaps	Interest rate swaps	4,777		—		4,777		—
Derivatives not designated as hedging instruments(b)	Derivatives not designated as hedging instruments(b)
Foreign currency forward contract assets	Foreign currency forward contract assets	24		—		24		—
Foreign currency forward contract liabilities		14		—		14		—
Foreign currency forward contract assets
Foreign currency forward contract assets

Embedded derivative assets
Embedded derivative assets
Embedded derivative assets	Embedded derivative assets	1,551		—		1,551		—
Embedded derivative liabilities	Embedded derivative liabilities	1,613		—		1,613		—
Current portion of long-term debt(c)	Current portion of long-term debt(c)
Term loan B, due 2026	Term loan B, due 2026	4,776		—		4,982		—
Other long-term debt(c)		449		—		449		—
Long-Term Debt(d)
Term loan B, due 2026
Term loan B, due 2026
Long-Term Debt(c)
Term loan, due 2026
Term loan, due 2026
Term loan, due 2026	Term loan, due 2026	1,749,176		—		1,710,207		—
Term loan B, due 2026	Term loan B, due 2026	472,811		—		493,169		—
Finance Lease Obligations (with current portion)(e)		69,888		—		69,888		—
Finance Lease Obligations (with current portion)(d)


As of December 31, 2022				Fair Value
As of December 31, 2023										As of December 31, 2023			Fair Value
(thousands of U.S. dollars)	(thousands of U.S. dollars)	Carrying Amount		Level 1		Level 2		Level 3		(thousands of U.S. dollars)	Carrying Amount	Level 1		Level 2	Level 3
Derivatives designated as hedging instruments(a)	Derivatives designated as hedging instruments(a)
Interest rate caps	Interest rate caps	$	34,764	$	—	$	34,764	$	—
Interest rate caps
Interest rate caps
Interest rate swaps
Derivatives not designated as hedging instruments(b)	Derivatives not designated as hedging instruments(b)
Foreign currency forward contracts		272		—		272		—
Foreign currency forward contracts assets
Foreign currency forward contracts assets
Foreign currency forward contracts assets
Foreign currency forward contracts liabilities
Embedded derivative assets	Embedded derivative assets	2,721		—		2,721		—
Embedded derivative liabilities	Embedded derivative liabilities	3,508		—		3,508		—
Current portion of long-term debt(c)	Current portion of long-term debt(c)
Revolving credit facility		196,672		—		$	196,672	—
Other long-term debt		447		—		$	447	—
Term loan B, due 2026
Term loan B, due 2026
Term loan B, due 2026
Long-Term Debt~~(d)~~(c)	Long-Term Debt~~(d)~~(c)
Term loan, due 2026	Term loan, due 2026	1,747,115		—		1,626,460		—
Finance Lease Obligations (with current portion)(e)		58,677		—		58,677		—
Term loan, due 2026
Term loan, due 2026
Term loan B, due 2026
Finance Lease Obligations (with current portion)(d)

(a)Derivatives designated as hedging instruments are measured at fair value with changes in fair value recorded as a component of accumulated other comprehensive income (loss). Interest rate caps and swaps are valued using pricing models that incorporate observable market inputs, including interest rate and yield curves.

(b)Derivatives that are not designated as hedging instruments are measured at fair value with gains or losses recognized immediately in the Consolidated Statements of Operations and Comprehensive Income (Loss). Embedded derivatives are valued using internally developed models that rely on observable market inputs, including foreign currency forward curves. Foreign currency forward contracts are valued by reference to changes in the ~~forward~~ foreign currency exchange rate over the life of the contract.

(c)Carrying ~~value~~amounts of ~~other~~current portion of long-term debt and ~~revolving credit facility approximates fair value.~~

~~(d)Carrying amounts of~~ long-term debt instruments are reported net of discounts and debt issuance costs. The estimated fair ~~value~~values of these instruments isare based onupon quoted prices for the term loans due in 2026 in inactive markets as provided by an independent fixed income security pricing service. ~~Fair value approximates carrying value for “Other long-term debt.”~~

~~(e)~~(d)Fair value approximates carrying value.

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~~17.~~16.Segment Information

We identify our operating segments based on the way we manage, evaluate and internally report our business activities for purposes of allocating resources and assessing performance. We have three reportable segments: Sterigenics, Nordion and Nelson Labs. We have determined our reportable segments based upon an assessment of organizational structure, service types, and internally prepared financial statements. Our chief operating ~~decision maker~~decision-maker evaluates performance and allocates resources based on net revenues and segment income after the elimination of intercompany activities. The accounting policies of our reportable segments are the same as those described in Note 1, “Significant Accounting Policies” of the ~~Company’s~~Company's annual consolidated financial statements and accompanying notes in our ~~2022 Form~~2023 10-K.

Sterigenics

Sterigenics provides outsourced terminal sterilization and irradiation services for the medical device, pharmaceutical, food safety and advanced applications markets using three major technologies: gamma irradiation, EO processing and E-beam irradiation.

Nordion

Nordion is a leading global provider of Co-60 used in the sterilization and irradiation processes for the medical device, pharmaceutical, food safety, and high-performance materials industries, as well as in the treatment of cancer. In addition, Nordion is a leading global provider of gamma irradiation systems.

Nelson Labs

Nelson Labs provides outsourced microbiological and analytical chemistry testing and advisory services for the medical device and pharmaceutical industries.

For the three months ended June 30, 2023, five customers reported within the Nordion segment individually represented 10% or more of the segment’s total net revenues. These customers represented 31.3%, 13.4%, 12.5%, 10.7%, and 10.7% of the total segment’s external net revenues for the three months ended June 30, 2023. For the three months ended June 30, 2022,March 31, 2024, four customers reported within the Nordion segment individually represented 10% or more of the segment’s total net revenues. These customers represented ~~21.7%~~18.9%, ~~15.4%~~18.8%, ~~13.2%,~~16.7% and ~~15.9%~~10.7% of the total segment’s external net revenues for the three months ended ~~June 30, 2022.~~

March 31, 2024. For the ~~six~~three months ended ~~June 30,~~March 31, 2023, ~~four~~two customers reported within the Nordion segment individually represented 10% or more of the ~~segment’s~~segment's total net revenues. These customers represented ~~26.3%, 17.5%, 10.7%,~~54.6% and 10.1% of the total segment’s external net revenues for the six months ended June 30, 2023. For the six months ended June 30, 2022, four customers reported within the Nordion segment individually represented 10% or more of the segment’s total net revenues. These customers represented 18.8%, 12.8%, 15.5%, and 10.6%11.3% of the total segment's external net revenues for the ~~six~~three months ended ~~June 30, 2022.~~

~~Table~~March 31, 2023. The high concentration of ~~Contents~~

~~Sotera Health Company~~

~~Notes to Consolidated Financial Statements~~

~~Financial information for each of our segments is presented~~revenues from these customers in the ~~following table:~~three months ended March 31, 2023 mainly stemmed from the low sales volume pattern during that period.


		Three Months Ended June 30,				Six Months Ended June 30,
(thousands of U.S. dollars)	(thousands of U.S. dollars)	2023		2022		2023		2022		(thousands of U.S. dollars)	Three Months Ended March 31,
	2024											2024	2023
Segment revenues(a)	Segment revenues(a)
Sterigenics
Sterigenics
Sterigenics	Sterigenics	$	166,590	$	157,792	$	326,587	$	307,254
Nordion	Nordion	31,975		50,478		40,526		84,480
Nelson Labs	Nelson Labs	56,717		58,369		108,759		111,659
Total net revenues	Total net revenues	$	255,282	$	266,639	$	475,872	$	503,393
Segment income(b)	Segment income(b)
Sterigenics	Sterigenics	$	91,450	$	85,098	$	174,290	$	164,501
Sterigenics
Sterigenics
Nordion	Nordion	17,784		29,982		19,310		48,885
Nelson Labs	Nelson Labs	19,251		21,055		33,353		38,098
Total segment income	Total segment income	$	128,485	$	136,135	$	226,953	$	251,484

(a)Revenues are reported net of intersegment sales. Our Nordion segment recognized ~~$14.7~~$10.0 million and ~~$15.8~~$2.9 million in revenues from sales to our Sterigenics segment for the three months ended ~~June 30,~~March 31, 2024 and 2023, ~~and 2022, respectively, and $17.6 million and $31.3 million in revenues from sales to our Sterigenics segment for the six months ended June 30, 2023 and 2022,~~ respectively, that is not reflected in net revenues in the table above. Intersegment sales for Sterigenics and Nelson Labs are immaterial for ~~these periods.~~both periods presented.

(b)Segment income is only provided on a net basis to the chief operating ~~decision maker~~decision-maker and is reported net of intersegment profits.

Table of Contents

Sotera Health Company

Notes to Consolidated Financial Statements

Corporate operating expenses for executive management, accounting, information technology, legal, human resources, treasury, investor relations, corporate development, tax, purchasing, and marketing not directly incurred by a segment are allocated to the segments based on total net revenue. Corporate operating expenses that are directly incurred by a segment are reflected in each segment’s income.

Capital expenditures by segment for the ~~six~~three months ended ~~June 30,~~March 31, 2024 and 2023 ~~and 2022~~ were as follows:


		Six Months Ended June 30,
(thousands of U.S. dollars)	(thousands of U.S. dollars)	2023		2022		(thousands of U.S. dollars)	Three Months Ended March 31,
	2024							2024	2023
Sterigenics	Sterigenics	$	73,725	$	55,065
Nordion	Nordion	16,283		10,741
Nelson Labs	Nelson Labs	8,126		5,836
Total capital expenditures	Total capital expenditures	$	98,134	$	71,642

Total assets and depreciation and amortization expense by segment are not readily available and are not reported separately to the chief operating ~~decision maker.~~

~~Table of Contents~~

~~Sotera Health Company~~

~~Notes to Consolidated Financial Statements~~

decision-maker.

A reconciliation of segment income to consolidated income before taxes is as follows:

(thousands of U.S. dollars) Three Months Ended June 30, Six Months Ended June 30,
2023 2022 2023 2022
Segment income $ 128,485 $ 136,135 $ 226,953 $ 251,484
Less adjustments:
Interest expense, net(a)
25,271 17,144 51,811 33,894
Depreciation and amortization(b)
39,490 36,939 79,028 72,988
Share-based compensation(c)
8,409 5,801 15,757 10,339
Gain on foreign currency and derivatives not designated as hedging instruments, net(d)
(409) (1,430) 126 (7,982)
Acquisition and divestiture related charges, net(e)
153 691 745 531
Business optimization project expenses(f)
3,322 470 5,856 574
Plant closure expenses(g)
129 478 (766) 1,149
Impairment of investment in unconsolidated affiliate(h)
— 9,613 — 9,613
Professional services and other expenses relating to EO sterilization facilities(i)
17,080 17,678 33,382 35,737
Accretion of asset retirement obligation(j)
555 598 1,127 1,118
COVID-19 expenses(k)
— 45 — 148
Consolidated income before taxes $ 34,485 $ 48,108 $ 39,887 $ 93,375


(thousands of U.S. dollars)	Three Months Ended March 31,
	2024		2023
Segment income	$	111,944	$	98,468
Less adjustments:
Interest expense, net(a)	41,771		28,870
Depreciation and amortization(b)	40,430		39,538
Share-based compensation(c)	8,657		7,348
Loss on foreign currency and derivatives not designated as hedging instruments, net(d)	1,230		535

Business optimization expenses(e)	54		2,231

Refinancing and secondary offering costs(f)	1,807		—
Professional services relating to EO sterilization facilities(g)	6,339		13,972
Accretion of asset retirement obligation(h)	642		572
Consolidated income before taxes	$	11,014	$	5,402

(a)~~The~~Interest expense, net presented in this reconciliation for the three ~~and six~~ months ended ~~June 30,~~March 31, 2023 ~~exclude $5.5 million and $7.8 million, respectively, of~~has been adjusted to conform to the current year presentation to include interest expense, net on Term Loan B attributable to the loan proceeds that were used to fund the ~~$408.0~~$408.0 million Illinois EO litigation settlement. ~~The three and six months ended June 30, 2022 exclude $3.1 million and $9.4 million, respectively, of unrealized gains on interest rate derivatives not designated as hedging instruments.~~

(b)Includes depreciation of Co-60 held at gamma irradiation sites.

(c)Represents share-based compensation expense to employees and ~~non-employee directors.~~Non-Employee Directors.

(d)Represents the effects of (i) fluctuations in foreign currency exchange rates and (ii) non-cash mark-to-fair value of embedded derivatives relating to certain customer and supply contracts at ~~Nordion, and (iii) unrealized gains on interest rate caps not designated as hedging instruments.~~Nordion.

(e)Represents (i) certain ~~direct and incremental~~ costs related to acquisitions and the ~~acquisitions~~integration of ~~RCA and BioScience Labs and certain related integration efforts as a result of those~~recent acquisitions, (ii) the earnings impact of fair value adjustments (excluding those recognized within amortization expense) resulting from the businesses acquired, ~~and~~ (iii) transition services income and non-cash deferred lease income associated with the terms of the divestiture of the Medical Isotopes business in ~~2018.~~

~~(f)Represents~~2018, (iv) professional fees ~~exit costs, severance and other payroll costs,~~ and other costs associated with business optimization, ~~and~~ cost ~~savings projects relating to the integration of acquisitions, operating structure realignment~~saving and other process enhancement ~~projects.~~

~~(g)Represents~~projects, and (v) professional fees, ~~severance and other~~ payroll costs, and other costs, including ongoing lease and utility expenses associated with the closure of the Willowbrook, Illinois facility. The ~~six~~three months ended ~~June 30,~~March 31, 2023 ~~also~~ includes a $1.0 million cancellation fee received from a tenant in connection with the termination of an office space lease at the Nordion facility.

~~(h)~~(f)~~Represents an impairment charge~~The three months ended March 31, 2024 includes $1.1 million of expenses incurred in connection with the secondary offering of our common stock that closed on ~~our equity method investment~~March 4, 2024 and write-off of unamortized debt issuance costs in ~~a joint venture. Refer~~connection with Amendment No. 3 to ~~Note 1, “Basis of Presentation”.~~the Revolving Credit Facility.

~~(i)~~Table of Contents

Sotera Health Company

Notes to Consolidated Financial Statements

(g)Represents litigation and other professional fees associated with our EO sterilization facilities. ~~This includes $5.5 million and $7.8 million of~~Amounts presented for the three months ended March 31, 2023 have been adjusted to exclude interest expense, net ~~for the three and six months ended June 30, 2023, respectively,~~ associated with Term Loan B attributable to the loan proceeds that ~~was issued~~were used to ~~finance~~fund the ~~$408.0~~$408.0 million ~~cost to settle approximately 880 pending and threatened~~ Illinois EO ~~claims against the Settling Defendants in Illinois under Settlement Agreements entered into on March 28, 2023. See Note 15, “Commitments and Contingencies.”~~litigation settlement.

~~(j)~~(h)Represents non-cash accretion of asset retirement obligations related to Co-60 and gamma processing facilities, which are based on estimated site remediation costs for any future decommissioning of these facilities ~~(without regard for whether the decommissioning services would be performed by employees of Nordion, instead of by a third party)~~ and are accreted over the life of the asset.

~~(k)Represents non-recurring costs associated with the COVID-19 pandemic, including incremental costs to implement workplace health and safety measures.~~

3228

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis in conjunction with our consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as the audited consolidated financial statements and notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our ~~2022~~2023 Form 10-K. This discussion and analysis contains forward-looking statements that are based on management’s current expectations, estimates and projections about our business and operations. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of various factors, including the factors we describe in the section entitled Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q, as well as Part I, Item 1A, “Risk Factors” in our ~~2022~~2023 Form 10-K.

OVERVIEW

We are a leading global provider of mission-critical end-to-end sterilization solutions, lab testing and advisory services for the healthcare industry. We are driven by our mission: Safeguarding Global Health®. We provide end-to-end sterilization as well as microbiological and analytical lab testing and advisory services to help ensure that medical, pharmaceutical and food products are safe for healthcare practitioners, patients and consumers in the United States and around the world. Our services are an essential aspect of our customers’ manufacturing process and supply chains, helping to ensure sterilized medical products reach healthcare practitioners and patients. Most of these services are necessary for our customers to satisfy applicable government requirements.

We serve our customers throughout their product lifecycles, from product design to manufacturing and delivery, helping to ensure the sterility, effectiveness and safety of their products for the end user. We operate across two core businesses: sterilization services and lab services. The combination of Sterigenics, our terminal sterilization business, and Nordion, our Co-60 supply business, makes us the only vertically integrated global gamma sterilization provider in the sterilization industry. For financial reporting purposes, our sterilization services business consists of two reportable segments, Sterigenics and Nordion, and our lab services business consists of one reportable segment, Nelson Labs.

For the three ~~and six~~ months ended ~~June 30, 2023, respectively,~~March 31, 2024, we recorded net revenues of ~~$255.3 million and $475.9~~$248.2 million, net income of ~~$23.5 million and $26.4~~$6.3 million, Adjusted Net Income of ~~$59.3 million and $97.3~~$35.6 million and Adjusted EBITDA of ~~$128.5 million and $227.0~~$111.9 million. For the definition of Adjusted Net Income and Adjusted EBITDA and the reconciliation of these non-GAAP measures from net income, please see “Non-GAAP Financial Measures.”

STRATEGIC DEVELOPMENTS AND KEY FACTORS AFFECTING OUR RESULTS OF OPERATIONS

The following summarizes strategic developments and key factors that have impacted our operating results for the three ~~and six~~ months ended ~~June 30, 2023~~March 31, 2024 and may continue to affect our performance and financial condition in future periods.

•Business and market conditions. ~~Consolidated revenue~~Net revenues and ~~net~~segment income for each of our three segments increased in the three ~~and six~~ months ended ~~June 30,~~March 31, 2024 compared to the three months ended March 31, 2023, ~~declined from the same periods~~which was primarily a result of ~~the prior year, mainly driven by expected~~an overall improvement in volume at Nordion ~~Co-60 harvest schedule timing combined with unfavorable volume~~ and ~~change in mix at~~ Nelson Labs and ~~Sterigenics. Notwithstanding these headwinds,~~sustained favorability in pricing at Sterigenics ~~sustained favorable revenue growth for~~and Nelson Labs. Nordion’s volume increased in the three ~~and six~~ months ended ~~June 30, 2023~~March 31, 2024 as compared to ~~the same periods~~unusually light volume in the ~~prior year, fueled mainly by~~three months ended March 31, 2023 due to the ~~benefits~~timing of ~~favorable pricing. As previously disclosed, we continue to expect Nordion~~ Co-60 harvest ~~schedules to improve in the second half of the year.~~schedules.

As discussed in more detail in our ~~2022~~2023 Form 10-K, a portion of our supply of Co-60 is generated by Russian nuclear

reactors. We continue to monitor the potential for disruption in the supply of Co-60 from Russian nuclear ~~reactors but~~

~~we do not expect a material~~reactors. There was no impact ~~for the remainder of 2023 on~~to our supply or ~~revenue.~~revenue during the three months ended March 31, 2024.

•Investment initiatives. We ~~remain focused on~~continue to advance our growth-related investments, including our three active capacity expansion projects within the Sterigenics segment and Co-60 development projects in ~~capacity expansions and facility improvements as well as in our~~the Nordion segment. In addition, Nelson Labs has progressed with expansion efforts to ~~strengthen our Co-60 supply chain. For the six months ended June 30, 2023, we increased capital expenditures by $26.5 million compared~~support pharma testing services alongside enhancements to ~~the six months ended June 30, 2022.~~its lab information management system.

•Disciplined and strategic M&A ~~activity~~activity.. We remain committed to our highly disciplined acquisition strategy and continue to seek suitable acquisition targets.

•Litigation costs. We are currently the subject of tort lawsuits alleging ~~personal~~ injury by purported exposure to EO used, emitted or released by current facilities in Atlanta, Georgia, Santa Teresa, New Mexico, and Los Angeles, California and our former facility in Willowbrook, ~~Illinois and our current facilities in Atlanta, Georgia and Santa Teresa, New Mexico.~~Illinois. In addition, we are defendants in a lawsuit brought by the State of New Mexico Attorney General alleging that emissions of EO from our Santa Teresa facility ~~constitute a public nuisance~~negatively impacted Santa Teresa and ~~materially contributed to increased health risks suffered by residents in the area.~~surrounding communities. We maintain that these facilities did not pose and do not pose any safety risk to their surrounding communities. We deny the allegations in these lawsuits and are vigorously defending against these ~~claims.~~

In connection with the ongoing litigation related to our Willowbrook, Illinois, Atlanta, Georgia and Santa Teresa, New Mexico facilities, as described in Note 15, “Commitments and Contingencies”, we recorded costs of $17.1 million and $33.4 million for the three and six months ended June 30, 2023, respectively. On January 9, 2023, Sterigenics U.S., LLC and Sotera Health LLC (the “Settling Defendants”) entered into binding term sheets and on March 28, 2023 the Settling Defendants entered into full agreements to settle 879 pending and threatened EO claims against the Defendant Subsidiaries in the Circuit Court of Cook County, Illinois, and U.S. District Court for the Northern District of Illinois (the “Settlement Agreements”). On May 1, 2023, pursuant to the Settlement Agreements, the Company paid $408.0 million into a settlement escrow fund to settle the claims, subject to the satisfaction or waiver of certain conditions, including but not limited to substantially all of the plaintiffs providing opt-in consents to their individual settlement allocations and dismissing their claims with prejudice.

On June 22, 2023, the opt-in process was completed for the January 2023 settlements of the EO claims against the Settling Defendants in the Circuit Court of Cook County, Illinois and the Settling Defendants elected to proceed with settlements with the 879 eligible claimants who opted in. On June 30, 2023, all but an immaterial fraction of the settlement funds were released from escrow. The claims of the Settling Claimants against the Settling Defendants were dismissed with prejudice. An immaterial fraction of the settlement funds remains in escrow with respect to three claimants who did not opt in; these funds will revert to Sterigenics U.S., LLC if these claimants do not opt in before December 31, 2023.

The Settlement Agreements provided a pathway to comprehensively resolve the claims pending and threatened against the Company in Illinois and thereby enable the Company to focus its attention on operating the business. The Company denies any liability and maintains that its Willowbrook, Illinois operations did not pose a safety risk to the community in which it operated and believes the evidence ultimately would have compelled the rejection of the plaintiffs’ claims. See Part II. Item 1., “Legal Proceedings” and Note ~~15,~~14, “Commitments and Contingencies” to our consolidated financial statements.

For the three months ended March 31, 2024 and 2023, we recorded costs of $6.3 million and $14.0 million, respectively, representing professional fees and other expenses related to litigation associated with our EO sterilization facilities.

With respect to the litigation related to our Atlanta, Georgia facility, in October 2023, Sterigenics, agreed to pay $35.0 million to settle 79 of the Atlanta Cases, including a personal injury case that was scheduled to begin trial in the State Court of Gwinnett County that month, and 78 other cases being pursued by the same Plaintiff’s counsel (previously referred to as the “Atlanta Settlement”). The Atlanta Settlement was completed in January 2024, with the settling plaintiffs agreeing to file the necessary dismissals and, where required, motions for court approval. The Company denies any liability and the Atlanta Settlement explicitly provides that the settlement is not to be construed as an admission of any liability or that emissions from Sterigenics’ Atlanta facility have ever posed any safety hazard to the surrounding communities.

•Borrowings, financing costs and financial leverage. On ~~February 23, 2023~~March 1, 2024, the Company ~~successfully closed on a~~entered into Amendment No. 3 to the First Lien Credit Agreement. Among other changes, the Amendment provides (i) for new ~~senior secured Term Loan B facility~~commitments under the existing Revolving Credit Facility to replace existing revolving commitments in an aggregate principal amount of ~~$500.0 million. The Company used~~$83 million, (ii) that certain of the ~~proceeds of this debt to pay down existing borrowings under the Company’s~~lenders providing revolving credit facility and fund the $408.0 million EO litigation settlement in Cook County, Illinois. In addition, the Company plans to use the remaining proceeds to further enhance liquidity and for other general corporate purposes.

~~On March 21, 2023, the Company~~commitments shall also entered into an Incremental Facility Amendment to the First Lien 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. The Revolving Credit Facility Amendment also providesprovide additional commitments for the issuance of letters of credit under the Revolving Credit Facility in an aggregate principal amount of ~~$165.1 million. After giving effect to~~$37.5 million, and (iii) for the extension of the maturity date of the Revolving Credit Facility to the earlier of (a) March 1, 2029, and (b) the date that is 91 days prior to the maturity date of the Company’s existing term loans. The Amendment does not give effect to any other material changes to the ~~aggregate~~terms and conditions of the Credit Agreement, including with respect to the amount of ~~the revolving~~ commitments under the Revolving Credit Facility iswhich remains $423.8 million.

CONSOLIDATED RESULTS OF OPERATIONS

Three Months Ended ~~June 30, 2023~~March 31, 2024, as compared to Three Months Ended ~~June 30, 2022~~March 31, 2023

The following table sets forth the components of our results of operations for the three months ended ~~June 30, 2023~~March 31, 2024 and ~~2022.~~2023:


(thousands of U.S. dollars)	(thousands of U.S. dollars)	2023		2022		$ Change		% Change		(thousands of U.S. dollars)		2024					2023						$ Change				% Change

Total net revenues
Total net revenues
Total net revenues	Total net revenues	$	255,282	$	266,639	$	(11,357)	(4.3)	%	$	248,176		$		$	220,590			$		$	27,586		12.5		12.5		%
Total cost of revenues	Total cost of revenues	115,694		116,243		(549)		(0.5)	%	Total cost of revenues		121,061		109,087				109,087		11,974				11,974	11.0				11.0	%
Total operating expenses	Total operating expenses	76,384		78,901		(2,517)		(3.2)	%	Total operating expenses		73,941		78,137				78,137		(4,196)				(4,196)	(5.4)				(5.4)	%
Operating income	Operating income	63,204		71,495		(8,291)		(11.6)	%	Operating income		53,174		33,366				33,366		19,808				19,808	59.4				59.4	%
Net income	Net income	23,513		30,418		(6,905)		(22.7)	%	Net income		6,323		2,842				2,842		3,481				3,481	122.5				122.5	%
Adjusted Net Income(a)	Adjusted Net Income(a)	59,295		75,825		(16,530)		(21.8)	%	Adjusted Net Income(a)		35,630		35,857				35,857		(227)				(227)	(0.6)				(0.6)	%
Adjusted EBITDA(a)	Adjusted EBITDA(a)	128,485		136,135		(7,650)		(5.6)	%	Adjusted EBITDA(a)		111,944		98,468				98,468		13,476				13,476	13.7				13.7	%

(a)Adjusted Net Income and Adjusted EBITDA are non-GAAP financial measures. For more information regarding our calculation of Adjusted Net Income and Adjusted EBITDA, including information about their limitations as tools for analysis and a reconciliation of net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted Net Income and Adjusted EBITDA, please see the reconciliation included below in “Non-GAAP Financial Measures.”

Total Net Revenues

The following table compares our revenues by type for the three months ended ~~June 30, 2023~~March 31, 2024 to the three months ended ~~June 30, 2022.~~March 31, 2023:


(thousands of U.S. dollars)	(thousands of U.S. dollars)
Net revenues for the three months ended June 30,		2023		2022		$ Change		% Change
Net revenues for the three months ended March 31,
Net revenues for the three months ended March 31,
Net revenues for the three months ended March 31,												2024						2023							$ Change						% Change

Service
Service
Service	Service	$	226,050	$	221,529	$	4,521	2.0	%	$	226,481			$		$	214,510			$			$	11,971			5.6			5.6		%
Product	Product	29,232		45,110		(15,878)		(35.2)	%	Product		21,695			6,080				6,080			15,615					15,615		256.8				256.8	%
Total net revenues	Total net revenues	$	255,282	$	266,639	$	(11,357)	(4.3)	%	Total net revenues		$	248,176		$			$	220,590		$				$	27,586		12.5				12.5	%

Net revenues were ~~$255.3~~$248.2 million in the three months ended ~~June 30, 2023, a decrease~~March 31, 2024, an increase of ~~$11.4~~$27.6 million, or ~~4.3%~~12.5%, as compared with the three months ended ~~June 30, 2022.~~March 31, 2023. Excluding the impact of foreign currency exchange rates, net revenues in the three months ended ~~June 30, 2023 decreased~~March 31, 2024 increased approximately ~~4.1%~~11.8% compared with the three months ended ~~June 30, 2022.~~March 31, 2023.

Service revenues

Service revenues increased ~~$4.5~~$12.0 million, or ~~2.0%~~5.6%, to ~~$226.1~~$226.5 million infor the three months ended ~~June 30, 2023~~March 31, 2024, as compared to ~~$221.5~~$214.5 million infor the three months ended ~~June 30, 2022.~~March 31, 2023. The growth in net service ~~revenue~~revenues was driven by favorable pricing of ~~$10.6~~$7.9 million and ~~$2.1~~$1.6 million in the Sterigenics and Nelson Labs segments, respectively, ~~coupled with~~favorable improvements in volume and mix of $3.9 million in the Nelson Labs segment and a ~~$1.0~~$1.4 million favorable impact from changes in foreign currency exchange rates across all segments. Partially offsetting these growth factors was ~~a decline in service revenue~~an unfavorable impact from volume and ~~change in~~ mix of ~~$4.1 million,~~ $2.7 ~~million, and $2.4~~ million in the ~~Nelson Labs,~~ Sterigenics ~~and Nordion segments, respectively.~~segment.

Product revenues

Product revenues ~~decreased $15.9~~increased $15.6 million, or ~~35.2%~~256.8%, to ~~$29.2~~$21.7 million infor the three months ended ~~June 30, 2023~~March 31, 2024, as compared to ~~$45.1~~$6.1 million infor the three months ended ~~June 30, 2022.~~March 31, 2023. The ~~decrease~~increase in product revenues was ~~mainly~~ driven almost entirely by ~~expected~~improvements in volume ~~decline~~ and ~~change in~~ mix ~~of $17.2 million due~~at Nordion, which was largely attributable to a more favorable Co-60 harvest schedule timing in the ~~Nordion segment and an unfavorable impact from changes in foreign currency exchange rates of $1.6 million. Partially offsetting this decline was a favorable pricing impact of $2.9 million.~~three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Total Cost of Revenues

The following table compares our cost of revenues by type for the three months ended ~~June 30, 2023~~March 31, 2024 to the three months ended ~~June 30, 2022.~~March 31, 2023:


(thousands of U.S. dollars)	(thousands of U.S. dollars)
Cost of revenues for the three months ended June 30,		2023		2022		$ Change		% Change
Cost of revenues for the three months ended March 31,
Cost of revenues for the three months ended March 31,
Cost of revenues for the three months ended March 31,												2024						2023							$ Change						% Change

Service
Service
Service	Service	$	103,900	$	98,407	$	5,493	5.6	%	$	110,852			$		$	104,210			$			$	6,642			6.4			6.4		%
Product	Product	11,794		17,836		(6,042)		(33.9)	%	Product		10,209			4,877				4,877			5,332					5,332		109.3				109.3	%
Total cost of revenues	Total cost of revenues	$	115,694	$	116,243	$	(549)	(0.5)	%	Total cost of revenues		$	121,061		$			$	109,087		$				$	11,974		11.0				11.0	%

Total cost of revenues accounted for approximately ~~45.3%~~48.8% and ~~43.6%~~49.5% of our consolidated net revenues for the three months ended ~~June 30,~~March 31, 2024 and 2023, ~~and 2022,~~ respectively.

Cost of service revenues

Cost of service revenues increased ~~$5.5~~$6.6 million, or ~~5.6%~~6.4%, for the three months ended ~~June 30, 2023~~March 31, 2024, as compared to the three months ended ~~June 30, 2022.~~March 31, 2023. The growth in cost of service revenues was ~~partially~~primarily driven by ~~$3.6~~higher employee compensation costs of $3.7 million coupled with an increase of $1.3 million in repairs and maintenance costs, $1.0 million of depreciation related to capital assets recently placed in service, and ~~higher energy costs. In addition, cost of service revenue increased by $2.1~~a $0.7 million ~~as a result of higher labor costs, largely stemming~~unfavorable impact from ~~both the addition of new personnel and higher compensation costs.~~changes in foreign currency exchange rates.

Cost of product revenues

Cost of product revenues ~~decreased $6.0~~increased $5.3 million, or ~~33.9%~~109.3%, for the three months ended ~~June 30, 2023~~March 31, 2024, as compared to the three months ended ~~June 30, 2022.~~March 31, 2023. The ~~decrease~~increase was primarily a result of ~~lower~~higher volumes of Co-60 shipments, which resulted in increases in direct material and material transportation costs of ~~$5.5 million due to expected Co-60 harvest schedule timing in the Nordion segment coupled with a $0.7 million impact due to changes in foreign currency exchange rates.~~$4.9 million.

Operating Expenses

The following table compares our operating expenses for the three months ended ~~June 30, 2023~~March 31, 2024 to the three months ended ~~June 30, 2022:~~March 31, 2023:


(thousands of U.S. dollars)	(thousands of U.S. dollars)
Operating expenses for the three months ended June 30,		2023		2022		$ Change		% Change
Operating expenses for the three months ended March 31,
Operating expenses for the three months ended March 31,
Operating expenses for the three months ended March 31,											2024			2023			$ Change				% Change

Selling, general and administrative expenses	Selling, general and administrative expenses	$	60,287	$	63,132	$	(2,845)	(4.5)	%
Selling, general and administrative expenses
Selling, general and administrative expenses											$	58,209		$	61,910		$	(3,701)			(6.0)	%
Amortization of intangible assets	Amortization of intangible assets	16,097		15,769		328		2.1	%	Amortization of intangible assets	15,732		16,227		16,227	(495)			(495)	(3.1)			(3.1)	%

Total operating expenses	Total operating expenses	$	76,384	$	78,901	$	(2,517)	(3.2)	%
Total operating expenses
Total operating expenses											$	73,941		$	78,137		$	(4,196)			(5.4)	%

Operating expenses accounted for approximately ~~29.9%~~29.8% and ~~29.6%~~35.4% of our consolidated net revenues for the three months ended ~~June 30,~~March 31, 2024 and 2023, ~~and 2022,~~ respectively.

~~Selling, general and administrative expenses (“~~SG~~&A”)~~&A

SG&A decreased ~~$2.8~~$3.7 million, or ~~4.5%~~6.0%, for the three months ended ~~June 30, 2023~~March 31, 2024, as compared to the three months ended ~~June 30, 2022.~~March 31, 2023. The decrease was driven primarily by a ~~$6.0~~$7.6 million ~~decrease~~decline in litigation and other professional services expense associated with EO sterilization ~~facilities. Partially offsetting this decrease was~~facilities, partially offset by a ~~$2.6~~$2.8 million increase in selling, general and administrative compensation-related costs and a $1.3 million increase in share-based compensation ~~expense attributable to awards granted under the 2020 Omnibus Incentive Plan and $1.0 million in incremental SG&A personnel in support of various business enhancement and compliance efforts.~~expense.

Amortization of intangible assets

Amortization of intangible assets ~~increased $0.3 million to $16.1~~decreased $0.5 million, or ~~2.1%,~~3.1% for the three months ended ~~June 30, 2023~~March 31, 2024, as compared to the three months ended ~~June 30, 2022~~March 31, 2023 due ~~mainly~~ to changes in foreign currency exchange rates.

Interest Expense, Net

Interest expense, net increased ~~$16.7~~$12.9 million, or ~~118.8%~~44.7%, for the three months ended ~~June 30, 2023~~March 31, 2024, as compared to the three months ended ~~June 30, 2022. The variance~~March 31, 2023. Approximately $8.4 million of this change was ~~driven by an increase~~attributable to a combination of higher variable benchmark interest rates and changes in principal balances outstanding. A decline in the ~~variable~~benefit from interest rate ~~driving increased interest expense~~derivatives of ~~$16.7~~$4.3 million ~~on borrowings previously outstanding in~~also contributed to the same period of the prior year coupled with interest expense of $11.1 million on incremental borrowings. Partially offsetting the increase was a $6.8 million increase in interest income on cash and cash equivalents on deposit at financial institutions and a $5.0 million net favorable change due to interest rate derivative activity.increase. The weighted average interest rate on our outstanding debt was ~~8.20%~~8.39% and ~~3.81%~~7.85% at ~~June 30,~~March 31, 2024 and 2023, ~~and 2022,~~ respectively.

~~Impairment of Investment in Unconsolidated Affiliate~~

During the three months ended June 30, 2022, we recorded an impairment charge of $9.6 million related to a joint venture investment in Auralux Enterprises Ltd. (“Auralux”) which was acquired as part of the 2020 Iotron acquisition. Due to a shift in business strategy, the joint venture will not proceed, and our joint venture partner will continue to rely on our other existing operating facilities. Based on these facts and circumstances, we concluded that the investment was impaired as of June 30, 2022.

Foreign Exchange (Gain) Loss ~~(Gain)~~

Foreign exchange ~~loss~~gain was ~~$0.5~~$0.6 million for the three months ended ~~June 30, 2023 as~~March 31, 2024 compared to a ~~gain~~loss of ~~$0.8~~$0.3 million infor the three months ended ~~June 30, 2022.~~March 31, 2023. The change in foreign exchange loss ~~(gain) in our Consolidated Statements of Operations and Comprehensive Income (Loss)~~ mainly relates to short-term gains and losses ~~(offset by short-term gains)~~ on ~~sales~~transactions denominated in currencies other than the functional currency of our operating entities. As described in Note ~~16,~~15, “Financial Instruments and Financial Risk”, we enter into monthly U.S. dollar-denominated foreign currency forward contracts to manage foreign currency exchange rate risk related to our international subsidiaries.

Other Expense (Income), Net

Other ~~income,~~expense, net was ~~$2.5~~$1.0 million for the three months ended ~~June 30, 2023~~March 31, 2024 compared to other ~~expense~~income of ~~$0.5~~$1.3 million for the three months ended ~~June 30, 2022.~~March 31, 2023. The ~~majority~~variance was primarily a result of ~~the variance stemmed from an increase~~$1.6 million of changes in the fair value of embedded derivatives in Nordion’s ~~embedded derivative assets~~purchase contracts as well as $0.7 million of refinancing costs incurred in connection with Amendment No. 3 to the ~~three months ended June 30, 2023, resulting in an increase in other income of $3.4 million from the three months ended June 30, 2023.~~Revolving Credit Facility.

Provision for Income Taxes

Provision for income ~~tax decreased $6.7~~taxes increased $2.1 million to a net provision of ~~$11.0~~$4.7 million for the three months ended ~~June 30, 2023~~March 31, 2024, as compared to ~~$17.7~~$2.6 million infor the three months ended ~~June 30, 2022.~~March 31, 2023. The change was primarily attributable to ~~lower~~higher pre-tax income for the three months ended ~~June 30, 2023~~March 31, 2024 compared to the three months ended ~~June 30, 2022, partially offset by~~March 31, 2023 combined with an increase in the valuation allowance ~~which~~against our excess interest expense carryforward balance and the foreign rate differential. The increase in the valuation allowance was a direct result of the ~~$408.0 million Illinois~~ EO litigation ~~settlement as described~~settlements in ~~Note 15, “Commitments~~Illinois and ~~Contingencies”. This expense will eliminate a current deduction~~Georgia. Both payments eliminated the deductibility of ~~2023~~ U.S. interest in the current year and the year ended December 31, 2023, which resulted in an increase to the valuation allowance against our excess interest expense carryforward balance.

Provision for income taxes for the three months ended ~~June 30, 2023~~March 31, 2024 differed from the statutory rate primarily due to an increase in the valuation allowance against our excess interest expense carryforward balance and the impact of the foreign rate differential, ~~the valuation allowance attributable to the limitation on the deductibility of interest expense, and global intangible low-tax~~partially offset by a benefit for state income ~~(“GILTI”)~~.taxes. Provision for income taxes for the three months ended ~~June 30, 2022~~March 31, 2023 differed from the statutory rate primarily due to ~~a net~~an increase in the valuation allowance ~~attributable to the limitation on the deductibility of~~against our excess interest expense carryforward balance, the impact of the foreign rate differential and ~~GILTI.~~non-deductible compensation.

Net Income, Adjusted Net Income and Adjusted EBITDA

Net income for the three months ended ~~June 30, 2023~~March 31, 2024 was ~~$23.5~~$6.3 million, as compared to ~~net income of $30.4~~$2.8 million for the three months ended ~~June 30, 2022~~March 31, 2023. Adjusted Net Income was $35.6 million for the three months ended March 31, 2024, as compared to $35.9 million for the three months ended March 31, 2023, due to the factors described above. Adjusted ~~Net Income~~EBITDA was ~~$59.3~~$111.9 million for the three months ended ~~June 30, 2023,~~March 31, 2024, as compared to ~~$75.8~~$98.5 million for the three months ended ~~June 30, 2022, and Adjusted EBITDA was $128.5 million for~~March 31, 2023, due to the ~~three months ended June 30, 2023, as compared to $136.1 million for the three months ended June 30, 2022.~~factors described above. Please see “Non-GAAP Financial Measures” below for a reconciliation of Adjusted Net Income and Adjusted EBITDA to their most directly comparable financial measure calculated and presented in accordance with GAAP.

~~Six Months Ended June 30, 2023 as compared to Six Months Ended June 30, 2022~~

~~The following table sets forth the components of our results of operations for the six months ended June 30, 2023 and 2022.~~

(thousands of U.S. dollars) 2023 2022 $ Change % Change
Total net revenues $ 475,872 $ 503,393 $ (27,521) (5.5) %
Total cost of revenues 224,781 224,122 659 0.3 %
Total operating expenses 154,521 154,284 237 0.2 %
Operating income 96,570 124,987 (28,417) (22.7) %
Net income 26,355 61,059 (34,704) (56.8) %
Adjusted Net Income(a)
97,340 136,079 (38,739) (28.5) %
Adjusted EBITDA(a)
226,953 251,484 (24,531) (9.8) %

~~(a)~~Adjusted Net Income and Adjusted EBITDA are non-GAAP financial measures. For more information regarding our calculation of Adjusted Net Income and Adjusted EBITDA, including information about their limitations as tools for analysis and a reconciliation of net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted Net Income and Adjusted EBITDA, please see the reconciliation included below in “Non-GAAP Financial Measures.”

~~Total Net Revenues~~

~~The following table compares our revenues by type for the six months ended June 30, 2023 to the six months ended June 30, 2022.~~

(thousands of U.S. dollars)
Net revenues for the six months ended June 30, 2023 2022 $ Change % Change
Service $ 440,560 $ 427,747 $ 12,813 3.0 %
Product 35,312 75,646 (40,334) (53.3) %
Total net revenues $ 475,872 $ 503,393 $ (27,521) (5.5) %

Net revenues were $475.9 million in the six months ended June 30, 2023, a decrease of $27.5 million, or 5.5%, as compared with the six months ended June 30, 2022. Excluding the impact of foreign currency exchange rates, net revenues in the six months ended June 30, 2023 decreased approximately 4.6% compared with the six months ended June 30, 2022.

~~Service revenues~~

Service revenues increased $12.8 million, or 3.0%, to $440.6 million in the six months ended June 30, 2023 as compared to $427.7 million in the six months ended June 30, 2022. The growth in net service revenues was driven by favorable pricing of $19.8 million and $4.2 million in the Sterigenics and Nelson Labs segments, respectively. Partially offsetting the favorable price increases was a decline in service revenue volume and change in mix of $6.9 million and $3.3 million in the Nelson Labs and Nordion segments, respectively, coupled with a $1.2 million unfavorable impact from changes in foreign currency exchange rates across all segments.

~~Product revenues~~

Product revenues decreased $40.3 million, or 53.3%, to $35.3 million in the six months ended June 30, 2023 as compared to $75.6 million in the six months ended June 30, 2022. The decrease in product revenues was mainly driven by expected volume decline and change in mix of $40.3 million due to Co-60 harvest schedule timing in the Nordion segment and an unfavorable impact from changes in foreign currency exchange rates of $2.9 million. Partially offsetting this decline was a favorable pricing impact of $2.9 million.

~~Total Cost of Revenues~~

~~The following table compares our cost of revenues by type for the six months ended June 30, 2023 to the six months ended June 30, 2022.~~

(thousands of U.S. dollars)
Cost of revenues for the six months ended June 30, 2023 2022 $ Change % Change
Service $ 208,110 $ 192,983 $ 15,127 7.8 %
Product 16,671 31,139 (14,468) (46.5) %
Total cost of revenues $ 224,781 $ 224,122 $ 659 0.3 %

~~Total cost of revenues accounted for approximately 47.2% and 44.5% of our consolidated net revenues for the six months ended June 30, 2023 and 2022, respectively.~~

~~Cost of service revenues~~

Cost of service revenues increased $15.1 million, or 7.8%, for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022. The growth in cost of service revenues was partially driven by $8.7 million of higher energy costs and depreciation related to capital assets recently placed in service. In addition, cost of service revenue increased by $6.2 million and $1.0 million, respectively, as a result of higher employee compensation and professional service costs. Partially offsetting this increase was a $1.0 million impact from changes in foreign currency exchange rates.

~~Cost of product revenues~~

Cost of product revenues decreased $14.5 million, or 46.5%, for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022. The decrease was primarily a result of lower direct material and material transportation costs of $12.5 million due to expected Co-60 harvest schedule timing in the Nordion segment coupled with a $1.6 million impact due to changes in foreign currency exchanges rates.

~~Operating Expenses~~

~~The following table compares our operating expenses for the six months ended June 30, 2023 to the six months ended June 30, 2022:~~

(thousands of U.S. dollars)
Operating expenses for the six months ended June 30, 2023 2022 $ Change % Change
Selling, general and administrative expenses $ 122,197 $ 122,674 $ (477) (0.4) %
Amortization of intangible assets 32,324 31,610 714 2.3 %
Total operating expenses $ 154,521 $ 154,284 $ 237 0.2 %

~~Operating expenses accounted for approximately 32.5% and 30.6% of our consolidated net revenues for the six months ended June 30, 2023 and 2022, respectively.~~

~~SG&A~~

SG&A decreased $0.5 million, or 0.4%, for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022. The decrease was driven primarily by a $10.0 million decrease in litigation and other professional services expense associated with EO sterilization facilities. This decrease was partially offset by the following factors:

•~~$5.4 million increase in share-based compensation expense attributable to awards granted under the 2020 Omnibus Incentive Plan;~~

•~~$2.5 million in professional fees and other costs associated with business optimization and cost savings projects relating to the integration of recent acquisitions; and~~

•~~$1.7 million of incremental SG&A personnel costs in support of various business enhancement and compliance efforts.~~

~~Amortization of intangible assets~~

Amortization of intangible assets increased $0.7 million to $32.3 million, or 2.3%, for the six months ended June 30, 2023 as compared to the three months ended June 30, 2022 due mainly to changes in foreign currency exchange rates.

~~Interest Expense, Net~~

Interest expense, net increased $35.2 million, or 143.8%, for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022. The variance was driven by an increase in the variable interest rate driving increased interest expense of $33.5 million on borrowings previously outstanding in the same period of the prior year coupled with interest expense of $17.7 million on incremental borrowings. Partially offsetting the increase was a $9.4 million increase in interest income on cash and cash equivalents on deposit at financial institutions and a $7.9 million net favorable change due to interest rate derivative activity. The weighted average interest rate on our outstanding debt was 8.20% and 3.81% at June 30, 2023 and 2022, respectively.

~~Impairment of Investment in Unconsolidated Affiliate~~

During the six months ended June 30, 2022, we recorded an impairment charge of $9.6 million related to a joint venture investment in Auralux, which was acquired as part of the 2020 Iotron acquisition. Due to a shift in business strategy, the joint venture will not proceed, and our joint venture partner will continue to rely on our other existing operating facilities. Based on these facts and circumstances, we concluded that the investment was impaired as of June 30, 2022.

~~Foreign Exchange Loss~~

Foreign exchange loss was $0.8 million for the six months ended June 30, 2023 as compared to an immaterial loss in the six months ended June 30, 2022. The change in foreign exchange loss in our Consolidated Statements of Operations and Comprehensive Income (Loss) mainly relates to short-term losses (offset by short-term gains) on sales denominated in currencies other than the functional currency of our operating entities. As described in Note 16, “Financial Instruments and Financial Risk”, we enter into monthly U.S. dollar-denominated foreign currency forward contracts to manage foreign currency exchange rate risk related to our international subsidiaries.

~~Other Expense (Income), Net~~

Other income, net was $3.7 million for the six months ended June 30, 2023 compared to $2.5 million for the six months ended June 30, 2022. The majority of the variance stemmed from an increase in the fair value of Nordion’s embedded derivatives in the six months ended June 30, 2023, resulting in an increase in other income of $2.2 million compared to the same the period in the prior year.

~~Provision for Income Taxes~~

Provision for income taxes decreased $18.8 million to a net provision of $13.5 million for the six months ended June 30, 2023 as compared to $32.3 million in the six months ended June 30, 2022. The change was primarily attributable to lower pre-tax income for the six months ended June 30, 2023 compared to the six months ended June 30, 2022, partially offset by an increase in the the foreign rate differential and valuation allowance against our excess interest expense carryforward balance. The increase in the valuation allowance was a direct result of the $408.0 million Illinois EO litigation settlement, as described in Note 15, “Commitments and Contingencies”. This expense will eliminate a current deduction of 2023 U.S. interest and increases the valuation allowance against our excess interest expense carryforward balance.

~~Provision for income taxes for the six months ended June 30, 2023 differed from the statutory rate due to~~ the impact of the foreign rate differential, the valuation allowance attributable to the limitation on the deductibility of interest expense and global GILTI, partially offset by a benefit for state income taxes~~. Provision for income taxes for the six months ended June 30, 2022~~ ~~differed from the statutory rate primarily due to a net increase in the foreign differential, and GILTI~~.

~~Net Income, Adjusted Net Income and Adjusted EBITDA~~

Net income for the six months ended June 30, 2023 was $26.4 million, as compared to net income of $61.1 million for the six months ended June 30, 2022 due to the factors described above. Adjusted Net Income was $97.3 million for the six months ended June 30, 2023, as compared to $136.1 million for the six months ended June 30, 2022, and Adjusted EBITDA was $227.0 million for the six months ended June 30, 2023, as compared to $251.5 million for the six months ended June 30, 2022. Please see “Non-GAAP Financial Measures” below for a reconciliation of Adjusted Net Income and Adjusted EBITDA to their most directly comparable financial measure calculated and presented in accordance with GAAP.

~~SEGMENT RESULTS OF OPERATIONS~~

We have three reportable segments: Sterigenics, Nordion and Nelson Labs. Our chief operating decision maker evaluates performance and allocates resources within our business based on Segment Income, which excludes certain items which are included in income before tax as determined in our Consolidated Statements of Operations and Comprehensive Income (Loss). The accounting policies for our reportable segments are the same as those for the consolidated Company.

~~Our Segments~~

~~Sterigenics~~

Our Sterigenics business provides outsourced terminal sterilization and irradiation services for the medical device, pharmaceutical, food safety and advanced applications markets using three major technologies: gamma irradiation, EO processing and E-beam irradiation.

~~Nordion~~

As a result of the time required to meet regulatory and logistics requirements for delivery of radioactive products, combined with accommodations made to our customers to minimize disruptions to their operations during the installation of Co-60, Nordion sales patterns can often vary significantly from one quarter to the next. However, timing-related impacts on our sales performance tend to be resolved within several quarters, resulting in more consistent performance over longer periods of time. In addition, sales of gamma irradiation systems occur infrequently and tend to be for larger amounts.

~~Results for our Nordion segment are also impacted by Co-60 mix, harvest schedules, as well as customer, product and service mix.~~

~~Nelson Labs~~

~~Our Nelson Labs business provides outsourced microbiological and analytical chemistry testing and advisory services for the medical device and pharmaceutical industries.~~

~~For more information regarding our reportable segments please refer to Note 17, “Segment Information” to our consolidated financial statements.~~

~~Segment Results for the Three Months Ended June 30, 2023 and 2022~~

~~The following tables compare segment net revenue and segment income for the three months ended June 30, 2023 to the three months ended June 30, 2022:~~

Three Months Ended June 30,
(thousands of U.S. dollars) 2023 2022 $ Change % Change
Net Revenues
Sterigenics $ 166,590 $ 157,792 $ 8,798 5.6 %
Nordion 31,975 50,478 (18,503) (36.7 %)
Nelson Labs 56,717 58,369 (1,652) (2.8) %
Segment Income
Sterigenics $ 91,450 $ 85,098 $ 6,352 7.5 %
Nordion 17,784 29,982 (12,198) (40.7) %
Nelson Labs 19,251 21,055 (1,804) (8.6) %
Segment Income margin
Sterigenics 54.9 % 53.9 %
Nordion 55.6 % 59.4 %
Nelson Labs 33.9 % 36.1 %

~~Net Revenues by Segment~~

Sterigenics net revenues were $166.6 million for the three months ended June 30, 2023, an increase of $8.8 million, or 5.6%, as compared to the three months ended June 30, 2022. The increase reflects favorable impacts from pricing of 6.7% as well as favorable changes in foreign currency exchange rates. The increase in segment revenue was partially offset by an unfavorable impact from volume and change in mix compared to the same period in the prior year.

Nordion net revenues were $32.0 million for the three months ended June 30, 2023, a decrease of $18.5 million, or 36.7%, as compared to the three months ended June 30, 2022. The decrease was driven by an expected volume decline and change in mix of 38.8%, due mainly to Co-60 harvest schedule timing, and an unfavorable impact of 3.6% from changes in foreign currency exchange rates. Partially offsetting this decrease was a favorable impact from pricing of 5.7%.

Nelson Labs net revenues were $56.7 million for the three months ended June 30, 2023, a decrease of $1.7 million, or 2.8%, as compared to the three months ended June 30, 2022. The decrease was attributable to volume decline and change in mix of 6.9%. Partially offsetting this decline was a favorable impact from pricing and foreign currency exchange rates of 3.6% and 0.5%, respectively.

~~Segment Income~~

Sterigenics segment income was $91.5 million for the three months ended June 30, 2023, an increase of $6.4 million, or 7.5%, as compared to the three months ended June 30, 2022. The increase in segment income and segment income margin was primarily a result of favorable customer pricing, partially offset by unfavorable volume and change in mix, as well as inflation.

Nordion segment income was $17.8 million for the three months ended June 30, 2023, a decrease of $12.2 million, or 40.7%, as compared to the three months ended June 30, 2022. The decrease in segment income and segment income margin was driven by expected volume decline and change in mix stemming from Co-60 harvest schedule timing, partially offset by favorable pricing.

Nelson Labs segment income was $19.3 million for the three months ended June 30, 2023, a decrease of $1.8 million, or 8.6%, as compared to the three months ended June 30, 2022. The decrease in segment income and segment income margin was primarily a result of volume decline and change in mix as well as inflation, partially offset by favorable pricing, as referenced above.

~~Segment Results for the Six Months Ended June 30, 2023 and 2022~~

~~The following tables compare segment net revenue and segment income for the six months ended June 30, 2023 to the six months ended June 30, 2022:~~

Six Months Ended June 30,
(thousands of U.S. dollars) 2023 2022 $ Change % Change
Net Revenues
Sterigenics $ 326,587 $ 307,254 $ 19,333 6.3 %
Nordion 40,526 84,480 (43,954) (52.0 %)
Nelson Labs 108,759 111,659 (2,900) (2.6) %
Segment Income
Sterigenics $ 174,290 $ 164,501 $ 9,789 6.0 %
Nordion 19,310 48,885 (29,575) (60.5) %
Nelson Labs 33,353 38,098 (4,745) (12.5) %
Segment Income margin
Sterigenics 53.4 % 53.5 %
Nordion 47.6 % 57.9 %
Nelson Labs 30.7 % 34.1 %

~~Net Revenues by Segment~~

Sterigenics net revenues were $326.6 million for the six months ended June 30, 2023, an increase of $19.3 million, or 6.3%, as compared to the six months ended June 30, 2022. The increase was primarily attributable to the favorable impacts from pricing of 6.4%, partially offset by unfavorable impacts from changes in foreign currency exchange rates of 0.2%.

Nordion net revenues were $40.5 million for the six months ended June 30, 2023, a decrease of $44.0 million, or 52.0%, as compared to the six months ended June 30, 2022. The decrease was driven by an expected volume decline and change in mix of 51.6% due to Co-60 harvest schedule timing, and an unfavorable impact of 3.8% from changes in foreign exchange rates. Partially offsetting this decrease was a favorable impact from pricing of 3.4%.

Nelson Labs net revenues were $108.8 million for the six months ended June 30, 2023, a decrease of $2.9 million, or 2.6%, as compared to the six months ended June 30, 2022. The decrease was attributable to volume decline and change in mix of 6.2% coupled with a 0.2% impact from changes in foreign currency exchanges rates. Partially offsetting this decline was a favorable impact from pricing of 3.8%.

~~Segment Income~~

Sterigenics segment income was $174.3 million for the six months ended June 30, 2023, an increase of $9.8 million, or 6.0%, as compared to the six months ended June 30, 2022. The increase in segment income was fueled mainly by favorable customer pricing, as referenced above, partially offset by unfavorable volume and change in mix, as well as inflation.

Nordion segment income was $19.3 million for the six months ended June 30, 2023, a decrease of $29.6 million, or 60.5%, as compared to the six months ended June 30, 2022. The decrease in segment income and segment income margin was driven by expected volume decline and change in mix stemming from Co-60 harvest schedule timing, as referenced above.

Nelson Labs segment income was $33.4 million for the six months ended June 30, 2023, a decrease of $4.7 million, or 12.5%, as compared to the six months ended June 30, 2022. The decrease in segment income and segment income margin was primarily a result of volume decline and change in mix as well as inflation, partially offset by favorable pricing, as referenced above.

NON-GAAP FINANCIAL MEASURES

To supplement our consolidated financial statements presented in accordance with GAAP, we consider Adjusted Net Income and Adjusted EBITDA, financial measures that are not based on any standardized methodology prescribed by GAAP.

We define Adjusted Net Income as net income before amortization and certain other adjustments that we do not consider in our evaluation of our ongoing operating performance from period to period as discussed further below. We define Adjusted EBITDA as Adjusted Net Income before interest expense, depreciation (including depreciation of Co-60 used in our operations) and income tax provision applicable to Adjusted Net Income.

We use Adjusted Net Income and Adjusted EBITDA, non-GAAP financial measures, as the principal measures of our operating performance. Management believes Adjusted Net Income and Adjusted EBITDA are useful because they allow management to more effectively evaluate our operating performance and compare the results of our operations from period to period without the impact of certain non-cash items and non-routine items that we do not expect to continue at the same level in the future and other items that are not core to our operations. We believe that these measures are useful to our investors because they provide a more complete understanding of the factors and trends affecting our business than could be obtained absent this disclosure. In addition, we believe Adjusted Net Income and Adjusted EBITDA will assist investors in making comparisons to our historical operating results and analyzing the underlying performance of our operations for the periods presented. Our management also uses Adjusted Net Income and Adjusted EBITDA in ~~their~~its financial analysis and operational decision-making, and Adjusted EBITDA serves as the basis for the metric we utilize to determine attainment of our primary annual incentive program. Adjusted Net Income and Adjusted EBITDA may be calculated differently from, and therefore may not be comparable to, a similarly titled measure used by other companies.

Adjusted Net Income and Adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. There are a number of limitations related to the use of Adjusted Net Income

and Adjusted EBITDA rather than net income, the nearest GAAP equivalent. For example, Adjusted Net Income and Adjusted EBITDA primarily exclude:

•certain recurring non-cash charges such as depreciation of fixed assets, although these assets may have to be replaced in the future, as well as amortization of acquired intangible assets and asset retirement obligations;

•costs of acquiring and integrating businesses, which will continue to be a part of our growth strategy;

•non-cash gains or losses from fluctuations in foreign currency exchange rates and the mark-to-fair value of derivatives not designated as hedging instruments, which includes ~~the~~ embedded derivatives relating to certain customer and supply contracts at Nordion;

•impairment charges on long-lived assets, intangible assets and investments accounted for under the equity method;

•refinancing costs and loss on extinguishment of debt incurred in connection with refinancing or early extinguishment of long-term debt;

•expenses and charges related to the litigation, settlement agreements, and other activities associated with our EO sterilization facilities, including those inrelated to Willowbrook, Illinois, Atlanta, Georgia, ~~and~~ Santa Teresa, New Mexico and Los Angeles, California, even though that litigation remains ongoing;

•in the case of Adjusted EBITDA, interest expense or the cash requirements necessary to service interest or principal payments on our indebtedness; and

•share-based compensation expense, which has been, and will continue to be for the foreseeable future, a significant recurring expense and an important part of our compensation strategy.

In evaluating Adjusted Net Income and Adjusted EBITDA, you should be aware that in the future, we will incur expenses similar to the adjustments in the table below. Our presentations of Adjusted Net Income and Adjusted EBITDA should not be construed as suggesting that our future results will be unaffected by these expenses or any unusual or non-recurring items. When evaluating our performance, you should consider Adjusted Net Income and Adjusted EBITDA alongside other financial performance measures, including our net income and other GAAP measures.

The following table presents a reconciliation of net income, the most directly comparable financial measure calculated and presented in accordance with GAAP to Adjusted Net Income and Adjusted EBITDA, for each of the periods indicated:

Three Months Ended June 30, Six Months Ended June 30,
(thousands of U.S. dollars) 2023 2022 2023 2022
Net income $ 23,513 $ 30,418 $ 26,355 $ 61,059
Amortization of intangibles 20,502 21,195 41,109 41,377
Share-based compensation(a)
8,409 5,801 15,757 10,339
Loss (gain) on foreign currency and derivatives not designated as hedging instruments, net(b)
(409) (1,430) 126 (7,982)
Acquisition and divestiture related charges, net(c)
153 691 745 531
Business optimization project expenses(d)
3,322 470 5,856 574
Plant closure expenses(e)
129 478 (766) 1,149
Impairment of investment in unconsolidated affiliate(f)
— 9,613 — 9,613
Professional services and other expenses relating to EO sterilization facilities(g)
17,080 17,678 33,382 35,737
Accretion of asset retirement obligations(h)
555 598 1,127 1,118
COVID-19 expenses(i)
— 45 — 148
Income tax benefit associated with pre-tax adjustments(j)
(13,959) (9,732) (26,351) (17,584)
Adjusted Net Income 59,295 75,825 97,340 136,079
Interest expense, net(k)
25,271 17,144 51,811 33,894
Depreciation(l)
18,988 15,744 37,919 31,611
Income tax provision applicable to Adjusted Net Income(m)
24,931 27,422 39,883 49,900
Adjusted EBITDA(n)
$ 128,485 $ 136,135 $ 226,953 $ 251,484


	Three Months Ended March 31,
(thousands of U.S. dollars)	2024		2023
Net income	$	6,323	$	2,842
Amortization of intangible assets	20,124		20,607
Share-based compensation(a)	8,657		7,348
Loss on foreign currency and derivatives not designated as hedging instruments, net(b)	1,230		535

Business optimization expenses(c)	54		2,231

Refinancing and secondary offering costs(d)	1,807		—
Professional services relating to EO sterilization facilities(e)	6,339		13,972
Accretion of asset retirement obligations(f)	642		572
Income tax benefit associated with pre-tax adjustments(g)	(9,546)		(12,250)
Adjusted Net Income	35,630		35,857
Interest expense, net(h)	41,771		28,870
Depreciation(i)	20,306		18,931
Income tax provision applicable to Adjusted Net Income(j)	14,237		14,810
Adjusted EBITDA(k)	$	111,944	$	98,468

(a) Represents share-based compensation expense to employees and ~~non-employee directors.~~Non-Employee Directors.

(b) Represents the effects of (i) fluctuations in foreign currency exchange rates and (ii) non-cash mark-to-fair value of embedded derivatives relating to certain customer and supply contracts at ~~Nordion, and (iii) unrealized gains on interest rate caps not designated as hedging instruments.~~Nordion.

(c) Represents (i) certain ~~direct and incremental~~ costs related to acquisitions and the ~~acquisitions~~integration of ~~RCA and BioScience Labs and certain related integration efforts as a result of those~~recent acquisitions, (ii) the earnings impact of fair value adjustments (excluding those recognized within amortization expense) resulting from the businesses acquired, ~~and~~ (iii) transition services income and non-cash deferred lease income associated with the terms of the divestiture of the Medical Isotopes business in ~~2018.~~

~~(d) Represents~~2018, (iv) professional fees ~~exit costs, severance and other payroll costs,~~ and other costs associated with business optimization, ~~and~~ cost ~~savings projects relating to the integration of acquisitions, operating structure realignment~~saving and other process enhancement ~~projects.~~

~~(e) Represents~~projects, and (v) professional fees, ~~severance and other~~ payroll costs, and other costs, including ongoing lease and utility expenses associated with the closure of the Willowbrook, Illinois facility. The ~~six~~three months ended ~~June 30,~~March 31, 2023 ~~also~~ includes a $1.0 million cancellation fee received from a tenant in connection with the termination of an office space lease at the Nordion facility.

~~(f) Represents an impairment charge on our equity method investment in a joint venture. Refer to Note 1, “Basis of Presentation”.~~

~~(g)~~ (d) The three months ended March 31, 2024 includes $1.1 million of expenses incurred in connection with the secondary offering of our common stock that closed on March 4, 2024 and write-off of unamortized debt issuance costs in connection with Amendment No. 3 to the Revolving Credit Facility.

(e) Represents litigation and other professional fees associated with our EO sterilization facilities. ~~This includes $5.5 million and $7.8 million of~~Amounts presented for the three months ended March 31, 2023 have been adjusted to exclude interest expense, net ~~for the three and six months ended June 30, 2023, respectively,~~ associated with Term Loan B attributable to the loan proceeds that ~~was issued~~were used to ~~finance~~fund the ~~$408.0~~$408.0 million ~~cost to settle approximately 880 pending and threatened~~ Illinois EO ~~claims against the Settling Defendants in Illinois under Settlement Agreements entered into on March 28, 2023. See Note 15, “Commitments and Contingencies.”~~litigation settlement.

~~(h)~~ (f) Represents non-cash accretion of asset retirement obligations related to Co-60 and gamma processing facilities, which are based on estimated site remediation costs for any future decommissioning of these facilities ~~(without regard for whether the decommissioning services would be performed by employees of Nordion, instead of by a third party)~~ and are accreted over the life of the asset.

~~(i) Represents non-recurring costs associated with the COVID-19 pandemic, including incremental costs to implement workplace health and safety measures.~~

~~(j)~~(g) Represents the income tax impact of adjustments calculated based on the tax rate applicable to each item. We eliminate the effect of tax rate changes as applied to tax assets and liabilities and unusual items from our presentation of adjusted net income.

~~(k)~~(h) ~~The~~Interest expense, net presented in this reconciliation for the three ~~and six~~ months ended ~~June 30,~~March 31, 2023 ~~exclude $5.5 million and $7.8 million, respectively, of~~has been adjusted to conform to the current year presentation to include interest expense, net on Term Loan B attributable to the loan proceeds that were used to fund the ~~$408.0~~$408.0 million Illinois EO litigation settlement. ~~The three and six months ended June 30, 2022 exclude $3.1 million and $9.4 million, respectively, of unrealized gains on interest rate derivatives not designated as hedging instruments.~~

~~(l)~~ (i) Includes depreciation of Co-60 held at gamma irradiation sites.

~~(m)~~(j) Represents the difference between ~~the~~ income tax provision or benefit as determined under U.S. GAAP and the income tax provision or benefit associated with pre-tax adjustments described in footnote ~~(j)~~(g).

~~(n) $24.4~~(k) $23.8 million and ~~$20.9~~$22.9 million of the adjustments for the three months ended ~~June 30,~~March 31, 2024 and 2023, ~~and 2022, respectively, and $47.2 million and $40.7 million of the adjustments for the six months ended June 30, 2023 and 2022,~~ respectively, are included in cost of revenues, primarily consisting of amortization of intangible assets, depreciation, and accretion of asset retirement obligations.

SEGMENT RESULTS OF OPERATIONS

We have three reportable segments: Sterigenics, Nordion and Nelson Labs. Our chief operating decision-maker evaluates performance and allocates resources within our business based on segment income, which excludes certain items which are included in income before tax as determined in our Consolidated Statements of Operations and Comprehensive Income (Loss). The accounting policies for our reportable segments are the same as those for the consolidated Company.

Our Segments

Sterigenics

Nordion

Results for our Nordion segment are also impacted by Co-60 mix, harvest schedules, as well as customer, product and service mix.

Nelson Labs

Nelson Labs provides outsourced microbiological and analytical chemistry testing and advisory services for the medical device and pharmaceutical industries.

For more information regarding our reportable segments, please refer to Note 16, “Segment Information” to our consolidated financial statements.

Segment Results for the Three Months Ended March 31, 2024 and 2023

The following tables compare segment net revenue and segment income for the three months ended March 31, 2024 to the three months ended March 31, 2023:


	Three Months Ended March 31,
(thousands of U.S. dollars)	2024			2023			$ Change		% Change

Net Revenues
Sterigenics	$	166,497		$	159,997		$	6,500	4.1	%
Nordion	24,007			8,551			15,456		180.8	%
Nelson Labs	57,672			52,042			5,630		10.8	%
Segment Income
Sterigenics	$	85,818		$	82,840		$	2,978	3.6	%
Nordion	10,785			1,526			9,259		606.7	%
Nelson Labs	15,341			14,102			1,239		8.8	%
Segment Income margin
Sterigenics	51.5		%	51.8		%
Nordion	44.9		%	17.8		%
Nelson Labs	26.6		%	27.1		%

Net Revenues by Segment

Sterigenics net revenues were $166.5 million for the three months ended March 31, 2024, an increase of $6.5 million, or 4.1%, as compared to the three months ended March 31, 2023. The increase reflects a benefit from pricing and changes in foreign currency exchange rates of 4.9% and 0.8%, respectively, partially offset by an unfavorable impact from volume and mix of 1.6%.

Nordion net revenues were $24.0 million for the three months ended March 31, 2024, an increase of $15.5 million, or 180.8%, as compared to the three months ended March 31, 2023. Revenue growth was driven almost entirely by volume and mix, which was largely attributable to a more favorable Co-60 harvest schedule timing for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Nelson Labs net revenues were $57.7 million for the three months ended March 31, 2024, an increase of $5.6 million, or 10.8%, as compared to the three months ended March 31, 2023. The increase was primarily driven by volume and mix of 7.4% and a favorable pricing impact of 3.1%.

Segment Income

Sterigenics segment income was $85.8 million for the three months ended March 31, 2024, an increase of $3.0 million, or 3.6%, as compared to the three months ended March 31, 2023. Segment income increased primarily due to the benefit of pricing, partially offset by the impacts of volume/mix and inflation.

Nordion segment income was $10.8 million for the three months ended March 31, 2024, an increase of $9.3 million, or 606.7%, as compared to the three months ended March 31, 2023. The increase in segment income and segment income margin was driven almost entirely by improvements in volume and mix, mainly stemming from favorable Co-60 harvest schedule timing, as referenced above.

Nelson Labs segment income was $15.3 million for the three months ended March 31, 2024, an increase of $1.2 million, or 8.8%, as compared to the three months ended March 31, 2023. The increase in segment income was primarily a result of volume and mix improvements as well as favorable pricing.

LIQUIDITY AND CAPITAL RESOURCES

Sources of Cash

The primary sources of liquidity for our business are cash flows from operations and borrowings under our credit facilities. As of ~~June 30, 2023,~~March 31, 2024, we had ~~$270.5~~$261.1 million of unrestricted cash and cash equivalents. This is a decrease of ~~$125.8~~$35.3 million from the balance at December 31, ~~2022.~~2023. The decrease in cash and cash equivalents was mainly attributable to the ~~release of approximately $408.0~~$35.0 million ~~to settle the EO claims against the Settling Defendants in Cook County, Illinois and a $200.0 million paydown~~payment of the ~~outstanding balance on the Revolving Credit Facility. Partially offsetting this decrease was $500.0 million~~Atlanta settlement in ~~proceeds from the issuance of Term Loan B on February 23, 2023.~~January 2024. Our foreign subsidiaries held cash of approximately ~~$152.8~~$249.6 million at ~~June 30,~~

~~2023~~March 31, 2024 and ~~$158.3~~$224.1 million at December 31, ~~2022, to meet their liquidity needs.~~2023. No material restrictions exist to accessing cash held by our foreign subsidiaries notwithstanding any potential tax consequences.

OnAs described in more detail below, on March 1, 2024, the Company and SHH entered into Amendment No. 3 to the Revolving Credit Facility. The Amendment did not materially change to the terms and conditions of the Credit Agreement, including with respect to the amount of commitments under the Revolving Credit Facility, which remains $423.8 million.

As also described in more detail below, on February 23, 2023, we entered into the ~~First Lien~~2023 Credit Agreement, ~~(the “2023 Credit Agreement”),~~ which provides for, among other things, a new Term Loan B facility 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 SOFR Rate (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.million. The Company used the proceeds of this debt to fund a previously announced $408.0 million EO litigation settlement in Cook County, Illinois on May 1, 2023 and pay down existing borrowings under the Company’s ~~revolving credit facility.~~Revolving Credit Facility. In addition, the Company ~~plans to use~~used the remaining proceeds ~~to further enhance liquidity and~~ for other general corporate purposes.

Uses of Cash

We expect that cash on hand, operating cash flows and amounts available under our credit facilities will provide sufficient working capital to operate our business, meet foreseeable liquidity requirements ~~including~~(inclusive of debt service on our long-term ~~debt,~~debt), make expected capital expenditures including investments in fixed assets to build and/or expand existing facilities, and meet litigation costs that we expect to continue to incur for at least the next twelve months. Our primary long-term liquidity requirements beyond the next 12 months will be to service our debt, make capital expenditures, and fund suitable business acquisitions. As of ~~June 30, 2023,~~March 31, 2024, there were no outstanding borrowings on the Revolving Credit Facility. We expect any excess cash provided by operations will be allocated to fund capital expenditures, potential acquisitions, or for other general corporate purposes. Our ability to meet future working capital, capital expenditures and debt service requirements will depend on our future financial performance, which will be affected by a range of macroeconomic, competitive and business factors, including interest rate changes and changes in our industry, many of which are outside of our control. As of ~~June 30, 2023,~~March 31, 2024, our interest rate ~~caps and swap~~derivatives limit our cash flow exposure of our variable rate borrowings under the Term Loans. Refer to Note ~~16,~~15, “Financial Instruments and Financial Risk”~~, “Derivative Instruments~~” under the heading “Derivative Instruments” for additional information ~~regarding the~~about changes in interest rate ~~caps used to manage economic risks associated with our variable rate borrowings.~~risk.

Capital Expenditures

Our capital expenditure program is a component of our long-term strategy. This program includes, among other things, investments in new and existing facilities, business expansion projects, Co-60 used by Sterigenics at its gamma irradiation facilities, cobalt development projects and information technology enhancements. During the ~~six~~three months ended ~~June 30, 2023,~~March 31, 2024, our capital expenditures amounted to ~~$98.1~~$34.9 million, compared to ~~$71.6~~$45.0 million for the ~~six~~three months ended ~~June 30, 2022.~~March 31, 2023.

Cash Flow Information

(thousands of U.S. dollars) Six Months Ended June 30,
2023 2022
Net Cash Provided by (Used in):
Operating activities $ (302,704) $ 108,256
Investing activities (98,102) (71,192)
Financing activities 273,206 (1,083)
Effect of foreign currency exchange rate changes on cash and cash equivalents 1,796 (2,287)
Net increase (decrease) in cash and cash equivalents, including restricted cash $ (125,804) $ 33,694
Three Months Ended March 31, 2024 compared to the Three Months Ended March 31, 2023


(thousands of U.S. dollars)	2024		2023
Net Cash Provided by (Used in):
Operating activities	$	9,699	$	33,871
Investing activities	(34,853)		(44,968)
Financing activities	(11,941)		273,916
Effect of foreign currency exchange rate changes on cash and cash equivalents	(1,739)		1,067
Net (decrease) increase in cash and cash equivalents, including restricted cash, during the period	$	(38,834)	$	263,886

Operating activities

Cash flows ~~from~~provided by operating activities decreased ~~$411.0~~$24.2 million to net cash ~~used~~provided of ~~$302.7~~$9.7 million infor the ~~six~~three months ended ~~June 30, 2023~~March 31, 2024 compared to ~~$108.3~~$33.9 million ~~provided by operating activities~~ for the ~~six~~three months ended ~~June 30, 2022.~~March 31, 2023. The decrease in cash flows from operating activities in the ~~six~~three months ended ~~June 30, 2023~~March 31, 2024 compared to the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 was driven primarily ~~due to~~by the ~~release~~$35.0 million payment of the Atlanta settlement, ~~funds~~partially offset by changes in working capital of approximately ~~$408.0 million on June 30, 2023 in connection with the settlements of the EO claims in Cook County, Illinois.~~

$12.1 million.

Investing activities

Cash used byin investing activities ~~increased $26.9~~decreased $10.1 million to net cash used of ~~$98.1 million in the six months ended June 30, 2023 compared to $71.2~~$34.9 million for the ~~six~~three months ended ~~June 30,~~March 31, 2024 compared to $45.0 million for the three months ended March 31, 2023. The variance was ~~primarily~~ driven by ~~an increase~~a decrease in capital expenditures of ~~$26.5~~$10.1 million in the ~~six~~three months ended ~~June 30, 2023~~March 31, 2024 compared to the ~~six~~three months ended ~~June 30, 2022.~~March 31, 2023.

Financing activities

Cash used in financing activities was $11.9 million for the three months ended March 31, 2024 compared to cash provided by financing activities ~~increased $274.3 million to net cash provided~~ of ~~$273.2~~$273.9 million for the ~~six~~three months ended ~~June 30, 2023 compared to $1.1 million of cash used for financing activities for the six months ended June 30, 2022.~~March 31, 2023. The difference was mainly attributable to $500.0 million in proceeds from the issuance of Term Loan B on February 23, 2023 ~~partially offset by~~and the $200.0 million paydown of the outstanding balance on the ~~revolving credit facility and~~Revolving Credit Facility in February 2023. Additionally, the ~~payment of $24.7~~Company paid $24.5 million of debt issuance costs ~~incurred~~during the three months ended March 31, 2023 in connection with the issuance of Term Loan B ~~and~~compared to $1.3 million of issuance costs paid for Amendment No. 3 to the ~~revolving credit facility amendment during~~Revolving Credit Facility in the ~~six~~three months ended ~~June 30, 2023,~~March 31, 2024, as described in “Debt Facilities” below. ~~Financing activities for~~In addition, the Company paid $6.7 million in the three months ended ~~June 30, 2022 were insignificant.~~March 31, 2024 to acquire certain facilities through the settlement of a finance lease.

Debt ~~Facilities~~

~~Senior Secured Credit~~ Facilities

On December 13, 2019, ~~Sotera Health Holdings, LLC (“SHH”),~~SHH, our ~~wholly owned~~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~~matures on June 13, ~~2026 and December 13, 2026, respectively. After giving effect to the Revolving Credit Facility Amendment (defined below), the~~2026. 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 ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, 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 ~~June 30,~~March 31, 2024 and March 31, 2023 was 8.26% and ~~June 30, 2022 was 7.89%~~7.44%, 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 ~~SOFR~~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 onby 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 ~~this debt~~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 ~~this loan~~the 2023 Term Loan on

February 23, 2023. ~~In addition, the~~The Company ~~plans to use~~utilized the remaining proceeds to further enhance liquidity and for general corporate purposes. The weighted average interest rate on borrowings under the 2023 Term Loan B for the three months ended ~~June 30,~~March 31, 2024 and the three months ended March 31, 2023 was 9.09% and 8.82%.

, respectively.

On March 21, 2023, the Company entered into an Incremental Facility Amendment to the First Lien Credit Agreement (“Revolving Credit Facility ~~Amendment,~~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 ~~have~~ 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 ~~LIBOR-based~~ reference interest rate option for ~~revolving loans with a reference rate option based upon the Term~~Revolving Loans from London Interbank Offered Rate (“LIBOR”) to Secured Overnight Financing Rate (“~~Term SOFR”) or Daily Simple SOFR (“Daily~~ SOFR”) plus an applicable credit spread adjustment of ~~0.1%~~0.10% (subject to a minimum floor of ~~0.0%~~0%). After giving effect to the Revolving Credit Facility Amendment, the aggregate amount of the ~~Lenders'~~lenders' revolving commitments is $423.8 ~~million and the aggregate amount of letter of credit commitments is $361.3~~ million. ~~Letter of credit commitments are part of and not in addition to the aggregate revolving commitments. The maturity date of the Revolving Credit Facility remains June 13, 2026.~~ As of ~~June 30, 2023~~March 31, 2024 there were no borrowings outstanding onunder the Revolving Credit Facility. ~~The Company borrowed $200.0 million on the Revolving Credit Facility during the fourth quarter of 2022, which was repaid in the first quarter of 2023, as noted above.~~

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~~and the judgments ~~are~~were not stayed or ~~remain~~remained undischarged for a period of 60sixty consecutive days or if, ~~in order~~ to enforce such ~~a judgment,~~judgments, a judgment creditor ~~attached or levied~~were to attach liens upon assets that are material to the business and operations ~~taken as a whole,~~ of the Company and certain of its ~~subsidiaries.~~subsidiaries as a whole. As of ~~June 30, 2023,~~March 31, 2024, we were in compliance with all of the Senior Secured Credit Facilities and 2023 Credit Agreement covenants.

~~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 SOFR. For additional information on the derivative instruments described above, refer to Note 16, “Financial Instruments and Financial Risk”, ~~“Derivatives 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 replaces 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%).

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of consolidated financial statements and related disclosures in conformity with GAAP requires management to make judgments, estimates and assumptions at a specific point in time and in certain circumstances that affect amounts reported in the accompanying consolidated financial statements. In preparing these consolidated financial statements, management has made its best estimates and judgments of certain amounts, giving due consideration to materiality. The application of accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.

A comprehensive discussion of the Company’s critical accounting policies and management estimates made in connection with the preparation of the financial statements is included in Item 7 of ~~2022~~our 2023 Form 10-K. There have been no significant changes in critical accounting policies, management estimates or accounting policies since the year ended December 31, ~~2022.~~2023.

NEW ACCOUNTING PRONOUNCEMENTS

For a description of recent accounting pronouncements applicable to our business, see Note 2, “Recent Accounting Standards” to our consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risks are described within “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of our ~~2022~~2023 Form 10-K. These market risks have not materially changed for the three ~~and six~~ months ended ~~June 30, 2023.~~March 31, 2024.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer ~~(“CEO”~~("CEO") and Chief Financial Officer ~~(“CFO”~~("CFO"), has evaluated the effectiveness of the Company’s “disclosure controls and procedures,” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)). Based upon their evaluation, the CEO and CFO concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (“SEC”), and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control

During the three ~~and six~~ months ended ~~June 30, 2023,~~March 31, 2024, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

4940

Part II—OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we may be subject to various legal proceedings arising in the ordinary course of our business, including claims relating to personal injury, property damage, workers’ compensation, employee safety, corporate governance and our disclosures as a Nasdaq-listed, publicly-traded company. In addition, from time to time, we receive communications from government or regulatory agencies concerning investigations or allegations of noncompliance with laws or regulations in jurisdictions in which we operate. At this time, and except as is noted herein, we are unable to predict the outcome of, and cannot reasonably estimate the impact of, any pending litigation matters, matters concerning allegations of non-compliance with laws or regulations and matters concerning other allegations of other improprieties, or the incidence of any such matters in the future. Information regarding our material legal proceedings is included below.

Legal Proceedings Described in Note 1514 “Commitments and Contingencies” of Our Consolidated Financial Statements

Note ~~15,~~14, “Commitments and Contingencies” to our consolidated financial statements for the three ~~and six~~ months ended ~~June 30, 2023~~March 31, 2024 contained in this Quarterly Report on Form 10-Q includes information on legal proceedings that constitute material contingencies for financial reporting purposes that could have a material effect on our financial condition or results of operations. This item should be read in conjunction with Note 1514 “Commitments and Contingencies” ~~“Commitments and Contingencies”~~ for information regarding the following legal proceedings, which information is incorporated into this item by reference:

•Ethylene Oxide Tort Litigation – Illinois, Georgia, California and New Mexico;

•Insurance Coverage for Environmental Liabilities; and

•Sotera Health Company Securities Litigation and Related Matters.

Legal Proceedings That Are Not Described in Note 1514 “Commitments and Contingencies” to Our Consolidated Financial Statements

In addition to the matters that are identified in Note 1514 “Commitments and Contingencies” to our consolidated financial statements for the three ~~and six~~ months ended ~~June 30, 2023~~March 31, 2024 contained in this Quarterly Report on Form 10-Q, and incorporated into this item by reference, the following ~~matter~~matters also ~~constitutes a~~constitute material pending legal ~~proceeding,~~proceedings, other than ordinary course litigation incidental to our business, to which we are or any of our subsidiaries is a party.

~~Zoetermeer, Holland Criminal Proceedings~~ SEC regulations require disclosure of environmental proceedings that involve a government authority and ~~Criminal Financial Investigation~~

~~In 2010,~~potential monetary sanctions that the ~~Dutch Public Prosecution Service started criminal proceedings against our subsidiary DEROSS Holding B.V. (“DEROSS”),~~Company reasonably believes will exceed a specified threshold. Effective January 1, 2024, except for the previously disclosed Notices of Violation issued to Sterigenics’ facilities in ~~relation to alleged environmental permit violations for EO emissions in~~Queensbury, New York, Los Angeles, California and Ontario, California, the ~~period from 2004 to 2009 at its Zoetermeer processing facility. We agreed to defend and indemnify the two individuals overseeing environmental compliance during the time period~~Company uses a threshold of ~~the alleged claims by the Public Prosecutor. In November 2010, the Public Prosecution Service also started a criminal financial investigation against DEROSS~~$1 million to determine whether ~~it obtained illegal advantages by committing~~ the ~~alleged criminal offenses noted above.~~

~~In February 2018, DEROSS and the two individuals received favorable judgments from the trial court, which did not hold~~disclosure of any of them responsible for the alleged criminal offenses. In March 2018, the Public Prosecutor filed an appeal against the favorable judgments. In May 2023, the Public Prosecutor agreed to a resolution of thesuch proceedings against DEROSS and the two individuals. Pursuant to this agreed resolution, the Public Prosecutor has withdrawn the appeals against the 2018 judgments in the cases of the two individuals. In addition, the Public Prosecutor has agreed to terminate the proceedings against DEROSS on the condition that DEROSS fulfills its obligations under the agreed resolution, including a contribution of €990,000 to a charity. The resolution of proceedings against DEROSS is ~~further conditioned on approval by the Dutch courts.~~

An escrow was established in 2011 to satisfy indemnity claims for losses related to this matter. The balance of special escrow funds as of June 30, 2023, was approximately US$1.8 million and the cash collateral held by ABN Amro to provide security for the claims against us was approximately €2.4 million (US$2.6 million) as of June 30, 2023. At this time, there can be no assurance that the agreed resolution of this matter will be completed. If resolution is unsuccessful, we expect that the appeal of this matter could take several years to resolve; however,required because we believe matters under this threshold are not material to the ~~indemnification receivable continues to be recoverable and plan to ensure escrow funds remain in place to cover the agreed resolution described above or outcomes of an appeal.~~

While we have received letters in past years from a small number of individuals claiming to live or work in the vicinity of the Zoetermeer facility, no civil claims have been filed against DEROSS or us. It is possible that these or other individuals living in

the vicinity of the Zoetermeer facility may file civil claims at some time in the future. We have not provided for a contingency reserve in connection with any civil claims as we are unable to determine the probability of an unfavorable outcome and no reasonable estimate of a loss or range of losses, if any, can be made.

Company.

Notice of Violation ~~for~~at Queensbury, New York Ethylene Oxide ~~Emissions from Our~~Sterilization Facility ~~in Queensbury, New York~~

In late May 2023, Sterigenics’ Queensbury, NYNew York facility experienced a power outage that resulted in a failure to restart the facility’s scrubber system ~~which is part~~(part of the facility’s emission control ~~systems.~~systems). The disruption of the facility’s scrubber lasted for approximately 48 hours. Upon discovering the disruption, the facility restarted the scrubber to control emissions within the system and then ceased operations. Operating without the scrubber resulted in nine intermittent releases of ~~ethylene oxide~~EO over a period of 48 hours from the 78-foot stack at the facility.

Sterigenics promptly notified the New York State Department of Environmental Conservation (“DEC”) and ~~the~~ US ~~Environmental Protection Agency (“US EPA”)~~EPA about the failure of the scrubber system and resulting releases of ~~ethylene oxide.~~EO. Sterigenics implemented remedial measures to prevent a recurrence in the event of future power outages and, with the DEC’s approval, resumed operations at the Queensbury facility 12 days after ceasing operations. In May 2023, Sterigenics received a Notice of Violation (“NOV”) from the DEC. In September 2023, the DEC offered to settle the NOV for an immaterial amount plus proposed requirements to implement additional emissions monitoring and back-up power capabilities at the facility. Settlement negotiations are ongoing.

Notices of Violation at Vernon and Ontario, California Ethylene Oxide Sterilization Facilities

In 2022, the South Coast Air Quality Management District (“SCAQMD”) in Southern California initiated an investigation into EO sterilization facilities located in the SCAQMD region, including Sterigenics’ facilities in Vernon and Ontario, California. In connection with this investigation, SCAQMD issued NOVs to the Vernon and Ontario facilities alleging violations of SCAQMD operational, maintenance, permitting and reporting requirements and that levels of ambient EO detected by SCAQMD during 2022 caused a public nuisance for off-site workers around the facilities in violation of general prohibitions on ~~May 30, 2023 and expects~~emissions. Sterigenics disputes the allegations. Sterigenics has offered to ~~be fined in~~settle the NOVs for an ~~amount to be determined by the DEC.~~immaterial amount. Settlement negotiations are ongoing.

Item 1A. Risk Factors.

The risk factor titled “We are subject to extensive regulatory requirements and routine regulatory audits in our ~~operations.~~operations …” included in Part I, Item 1A, “Risk Factors” of our ~~2022~~Annual Report on Form 10-K for the year ended December 31, ~~2022, as amended by our Quarterly Report on Form 10-Q for the quarter ended March 31,~~ 2023 is hereby updated by ~~deleting~~adding at the ~~final paragraph thereof and substituting~~end of that risk factor the ~~paragraph~~paragraphs immediately ~~below in its place.~~below. Other than ~~such substitution,~~this addition, the text of the risk ~~factor~~factors is unchanged.

~~In April 2023,~~On March 14, 2024, the US EPA ~~proposed stricter EO regulations based on the 2016 IRIS Assessment, including (1) a proposed interim decision under FIFRA that sets forth measures designed~~announced final NESHAP rules to ~~mitigate EO exposure, in particular for workers exposed to EO in occupational settings, and (2) proposed amendments to the NESHAP governing commercial~~govern EO sterilization facilities ~~like ours that would require these~~in the United States. The final regulation, which was published in the Federal Register on April 5, 2024, requires EO sterilization facilities to implement additional air pollution ~~control~~ technologies, practices and procedures designed to further reduce EO emissions. For facilities like ours, the final NESHAP regulation imposes new requirements such as higher efficiencies for EO emission controls, implementation of permanent total enclosure capture technology, and use of continuous emissions ~~from~~monitoring systems (or, CEMS). Our operations are required to comply with the final NESHAP EO ~~facilities. These~~sterilizer regulation by April ~~2023 proposals contain a number~~6, 2026 and to demonstrate compliance within 180 days after that date. The US EPA has not yet issued an ID in the FIFRA re-registration process. The issuance of ~~proposed~~an ID remains expected by the third quarter of 2024, although US EPA could issue the ID sooner.

We believe that our investments in emission control enhancements at our EO facilities have positioned us to be able to comply with the updated NESHAP requirements ~~that are inconsistent with existing industry practices and set forth proposed implementation timelines that would be difficult to meet at existing facilities for some~~within the timeframes specified by the final rule, but the requirements of the ~~proposed requirements. The public comment period on these proposals closed in late June 2023,~~final rule represent significant changes from historical requirements and are challenging for existing EO sterilization facilities like ours, and therefore we cannot provide certainty that we will be able to comply with ~~thousands~~the requirements of ~~comments received by the US EPA, which may lead to clarifications and revisions in~~ the final ~~US EPA regulations. Although we have been implementing enhancements~~rule at our EO facilities within the time required. The FIFRA ID for EO also will apply to our EO sterilization facilities in the United States, and certain requirements proposed for the ID in 2023 would require practices that ~~we expect will facilitate our ability to meet many of the proposed requirements, certain facets of the proposed requirements are~~remain untested or not widely adopted at existing EO sterilization ~~facilities.~~facilities and could be inconsistent with meeting the requirements of the final NESHAP rule. Compliance with the ~~proposals in the form proposed in April 2023 will~~final NESHAP and ID may ultimately require additional facility modifications, ~~as well as added~~ capital expenditures and operational costs ~~and some requirements (if adopted as proposed) could be unachievable at our EO facilities and at existing EO facilities throughout~~beyond what the industry. The US EPA has stated it plans to adopt final requirements by the first half of 2024 and its April 2023 proposals contemplate that existing facilities will be required to comply with many of the requirements as soon as 18 months following adoption.Company is presently anticipating.

Item 5. Other Information.

Rule 10b5-1 Trading Plans

During the three months ended ~~June 30, 2023,~~March 31, 2024, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement” (as ~~those terms are~~that term is defined in Regulation S-K, Item 408).

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Item 6. Exhibits.

The exhibits listed in the following Exhibit Index are filed, furnished, or incorporated by reference as part of this Quarterly Report on Form 10-Q.

Incorporated by Reference

Exhibit No

Description of Exhibits

Form

File No.

Exhibit

Filing Date

Furnished/Filed
Herewith

Exhibit No

Description of Exhibits

Form

File No.

Exhibit

Filing Date

Furnished/Filed
Herewith

31.1

Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certifications of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.1

Certifications of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

10.1

Amendment, dated as of June 22, 2023, to the First Lien Credit Agreement dated as of December 13, 2019 by and among Sotera Health Company, Sotera Health Holdings, LLC, certain subsidiaries of Sotera Health Company, JPMorgan Chase Bank, N.A., as First Lien Administrative Agent and the lenders and issuing banks party thereto.

8-K

001-39729

10.1

2023-06-22

10.2

Executed Employment Offer by Sotera Health Company and Jonathan M. Lyons dated as of May 31, 2023

10.3

Executed Restrictive Covenants Agreement by and between Sotera Health Company and Jonathan M. Lyons dated as of June 26, 2023

10.2

101.INS

Inline XBRL Instance Document - The XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Label Linkbase Document

101.LAB

Inline XBRL Taxonomy Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed Herewith

** Furnished Herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SOTERA HEALTH COMPANY

By:

/s/ Jonathan M. Lyons

Name:

Jonathan M. Lyons

Title:

Senior Vice President and Chief Financial Officer

(Principal Financial Officer)

Date: ~~August 3, 2023~~May 2, 2024

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	Three Months Ended June 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 March 31, 2022	282,930	$	2,860	$	(33,536)	$	1,177,097	$	(441,605)	$	(62,686)	$	642,130
Share-based compensation plans	(28)	—		882		4,898		—		—		5,780
Comprehensive income (loss):
Pension and post-retirement plan adjustments, net of tax	—	—		—		—		—		532		532
Foreign currency translation	—	—		—		—		—		(46,038)		(46,038)
Interest rate derivatives, net of tax	—	—		—		—		—		3,178		3,178
Net income	—	—		—		—		30,418		—		30,418
Balance at June 30, 2022	282,902	$	2,860	$	(32,654)	$	1,181,995	$	(411,187)	$	(105,014)	$	636,000


	Six Months Ended June 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	(83)	—		891		9,402		—		—		10,293
Comprehensive income (loss):
Pension and post-retirement plan adjustments, net of tax	—	—		—		—		—		258		258
Foreign currency translation	—	—		—		—		—		(31,063)		(31,063)
Interest rate derivatives, net of tax	—	—		—		—		—		9,357		9,357
Net income	—	—		—		—		61,059		—		61,059
Balance at June 30, 2022	282,902	$	2,860	$	(32,654)	$	1,181,995	$	(411,187)	$	(105,014)	$	636,000


(thousands of U.S. dollars)
2023	$	2,950
2024	5,000
2025	5,000
2026	2,250,600
2027	—
Thereafter	—
Total	$	2,263,550


	Restricted Stock - Pre- IPO B-1	Restricted Stock - Pre- IPO B-2
Unvested at December 31, 2022	716,091	1,098,415

Forfeited	(5,378)	(80,051)
Vested	(172,654)	—
Unvested at June 30, 2023	538,059	1,018,364


	Number of Shares	Weighted-average Exercise Price
At December 31, 2022	5,990,470	$	14.84
Granted	1,059,769	17.55
Forfeited	(61,571)	20.93
Exercised	—	—
At June 30, 2023	6,988,668	$	15.20


(thousands of U.S. dollars)
Net revenues for the six months ended June 30,	2023		2022		$ Change		% Change

Service	$	440,560	$	427,747	$	12,813	3.0	%
Product	35,312		75,646		(40,334)		(53.3)	%
Total net revenues	$	475,872	$	503,393	$	(27,521)	(5.5)	%


(thousands of U.S. dollars)
Cost of revenues for the six months ended June 30,	2023		2022		$ Change		% Change

Service	$	208,110	$	192,983	$	15,127	7.8	%
Product	16,671		31,139		(14,468)		(46.5)	%
Total cost of revenues	$	224,781	$	224,122	$	659	0.3	%


(thousands of U.S. dollars)
Operating expenses for the six months ended June 30,	2023		2022		$ Change		% Change

Selling, general and administrative expenses	$	122,197	$	122,674	$	(477)	(0.4)	%
Amortization of intangible assets	32,324		31,610		714		2.3	%
Total operating expenses	$	154,521	$	154,284	$	237	0.2	%