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Sotera Health Co

Sotera Health CoSHCEarnings & Financial Report

Nasdaq · Health Care · Services-Misc Health & Allied Services, NEC

Sotera Health Co is a global provider of end-to-end medical safety solutions. It offers sterilization services, analytical laboratory testing, and regulatory advisory support for medical device manufacturers, pharmaceutical firms, and food and consumer product companies, helping clients meet industry standards and ensure product safety for end users worldwide.

What changed in Sotera Health Co's 10-K — 2022 vs 2023

Top changes in Sotera Health Co's 2023 10-K

574 paragraphs added · 613 removed · 466 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

75 edited+8 added−5 removed89 unchanged
We offer customers a comprehensive selection of advisory services in design, testing, production and supply chain management for sterile healthcare products before, 7 Table of Contents during and after the sterilization process to ensure and improve a product’s speed to market and compliance with regulatory requirements. • Pharmaceuticals .
We offer customers a comprehensive selection of advisory services in design, testing, production and supply chain management for sterile healthcare products before, during and after the sterilization process to ensure and improve a product’s speed to market and compliance with regulatory requirements. 7 Table of Contents • Pharmaceuticals .
Co-60 is produced by placing cobalt-59 (“Co-59”), the most common form of cobalt, into a nuclear power reactor to be activated. The Co-60 production process requires high purity Co-59. Co-59 is produced globally, primarily as a byproduct of nickel and copper mining, and is used in a variety of industrial applications.
Co-60 is produced by placing cobalt-59 (“Co-59”), the most common form of cobalt, into a nuclear power reactor to be activated. The Co-60 production process requires high purity Co-59. Co-59 is produced globally, primarily as a byproduct of nickel and copper mining, and used in a variety of industrial applications.
For additional information, please see Item 1A, “ “ Risk Factors ” —Risks Related to the Company—We are subject to extensive regulatory requirements and routine regulatory audits in our operations. We must receive permits, licenses and/or regulatory clearance or approval for our operations.
For additional information, please see Item 1A, “ Risk Factors ” —Risks Related to the Company. We are subject to extensive regulatory requirements and routine regulatory audits in our operations. We must receive permits, licenses and/or regulatory clearance or approval for our operations.
Nordion provides Co-59 targets to its Canadian and Russian reactor suppliers, manufactured to proprietary specifications customized for each supplier. In addition, we also acquire a portion of our Co-60 supply from reactors that produce Co-60 in Argentina, China and India.
Nordion provides Co-59 targets to its Canadian and Russian reactor suppliers, manufactured to proprietary specifications customized for each supplier. We also acquire a portion of our Co-60 supply from reactors that produce Co-60 in Argentina, China and India.
In addition to selling Co-60 sources for sterilization purposes, Nordion also sells high specific activity Co-60 (“HSA Co-60” or “medical Co-60”) used in stereotactic radiosurgery as a radiation source for oncology applications, specifically in the Gamma Knife ® and other similar applications.
In addition to selling Co-60 sources for sterilization purposes, Nordion also sells high specific activity Co-60 (“HSA Co-60” or “medical Co-60”) used in stereotactic radiosurgery as a radiation source for oncology applications, specifically in Gamma Knife ® and other similar applications.
Our products and services compete on the basis of the quality of services offered, breadth of services, level of expertise in each testing method, delivery time, level of expertise in the applicable regulatory requirements and our reputation with customers and regulators.
Our products and services compete on the basis of the quality of services offered, breadth of services, level of expertise in each testing method, delivery time, level of expertise in the applicable regulatory requirements, our reputation with customers and regulators and the cost of services.
These include tests that assist the client in: ◦ Product design ◦ Material selection ◦ Biological safety evaluation ◦ Toxicological risk assessment ◦ Sterilization modality selection and sterilization validation ◦ Cleaning and disinfection validation (for reusable devices) ◦ Package barrier properties ◦ Distribution simulation ◦ Filtration efficiency and physical functionality of PPE (including surgical facemasks, N95 respirators, gowns, drapes and other PPE) We provide sterilization modality selection and sterilization validation services for a variety of sterilization modalities, including the three major modalities offered by Sterigenics—gamma irradiation, EO processing and E-beam—allowing us to serve our customers in multiple areas. • Expert Advisory .
These include tests that assist the client in: ◦ Product design ◦ Material selection ◦ Biological safety evaluation ◦ Toxicological risk assessment ◦ Sterilization modality selection and sterilization validation ◦ Cleaning and disinfection validation (for reusable devices) ◦ Package barrier properties ◦ Distribution simulation ◦ Filtration efficiency and physical functionality of PPE (including surgical facemasks, N95 respirators, gowns, drapes and other PPE) We provide sterilization modality selection and sterilization validation services for a variety of sterilization modalities, including the three major modalities offered by Sterigenics—gamma irradiation, EO processing and E-beam—allowing us to serve our customers in multiple areas. 12 Table of Contents • Expert Advisory .
Sterigenics We are a leading global provider of outsourced terminal sterilization and irradiation services and have provided sterilization services for over 90 years. We offer a globally integrated platform for our customers in the medical device, pharmaceutical, food safety, and advanced applications markets, with facilities strategically located to be convenient to their manufacturing sites or distribution hubs.
Sterigenics We are a leading global provider of outsourced terminal sterilization and irradiation services and have provided sterilization services for over 90 years. We offer a globally integrated platform for our customers in the medical device, pharmaceutical, food safety, and advanced applications markets, with facilities strategically located to be convenient to our customers’ manufacturing sites or distribution hubs.
All facilities are either ISO 13485 certified, ISO 9001 certified, or both, as well as licensed and registered in all necessary jurisdictions to comply with government required regulations.
All our facilities are either ISO 13485 certified, ISO 9001 certified, or both, as well as licensed and registered in all necessary jurisdictions to comply with government required regulations.
See “ “ Risk Factors ” —Risks Related to the Company—Safety risks associated with the use, storage and disposal of potentially hazardous materials, such as EO and Co-60, may result in accidents or liabilities that materially affect our results of operations. ” Nordion Products Co-60 is sold to customers by its level of radioactivity, measured in curies.
See Item 1A, “ Risk Factors ” —Risks Related to the Company—Safety risks associated with the use, storage and disposal of potentially hazardous materials, such as EO and Co-60, may result in accidents or liabilities that materially affect our results of operations. ” Nordion Products Co-60 is sold to customers by its level of radioactivity as measured in curies.
We estimate that the cost to replicate the facilities in our network alone could be as high as $1.9 billion or more, in addition to investments required to meet the technical and regulatory requirements. Our global facility network, built and expanded over several decades, is strategically located convenient to customers’ manufacturing sites and distribution hubs or routes.
We estimate that the cost to replicate the facilities in our network alone could be as high as $1.9 billion, in addition to investments required to meet associated technical and regulatory requirements. Our global facility network, built and expanded over several decades, is strategically located convenient to customers’ manufacturing sites and distribution hubs or routes.
We have established credibility and trust with regulators and standards writing organizations which helps us educate customers about the continually-changing testing requirements in a complex and evolving regulatory landscape. Our regulatory and scientific expertise in laboratory testing allows us to serve as thought leaders within the industry and provide high-quality service to our customers.
We have established credibility and trust with regulators and standards writing organizations which helps us educate customers about the continually changing testing requirements in a complex and evolving regulatory landscape. Our regulatory and scientific expertise in laboratory testing allows us to serve as a thought leader within the industry and provide high-quality service to our customers.
Depending on the type of reactor and the location of the Co-59 in the reactor, the conversion process can take between 18 months and five years.
Depending on the type of reactor and the location of the Co-59 in the reactor, the conversion process can take between 18 months to five years.
Our access to Co-60 tends to vary on a quarterly basis, due primarily to the nuclear reactor maintenance schedule, length of time required to convert Co-59 into Co-60, the limited number of facilities that can generate Co-60 in an economically efficient manner, and the timing of the removal of Co-60 from reactors.
Our access to Co-60 tends to vary on a quarterly basis, due primarily to nuclear reactor maintenance schedules, the length of time required to convert Co-59 into Co-60, the limited number of facilities that can generate Co-60 in an economically efficient manner, and the timing of the removal of Co-60 from reactors.
Nordion Competition Nordion’s two main competitors in the industrial LSA Co-60 sources supply market include a Russian Co-60 sources producer, which historically has supplied certain regions in Europe and Asia, and a China-based producer, which supplies the domestic Chinese market. In addition, certain regional competitors have the capability to produce Co-60.
Nordion Competition Nordion’s two main competitors in the industrial LSA Co-60 sources supply market are a Russian Co-60 sources producer, which historically has supplied certain regions in Europe and Asia, and a China-based producer, which supplies the domestic Chinese market. In addition, certain regional competitors have the capability to produce Co-60.
Nordion currently has access to Co-60 supply at multiple nuclear reactors pursuant to multi-year contracts with three operators that cover 13 reactors at five generating stations, that extend to dates between 2024 and 2064, with our largest supplier under contract until 2064.
Nordion currently has access to Co-60 supply at multiple nuclear reactors pursuant to multi-year contracts with three operators that cover 13 reactors at five generating stations, that extend to dates between 2025 and 2064, with our largest supplier under contract until 2064.
We have a proactive environmental health and safety (“EH&S”) program and a culture of safety and quality across all business units, and employ a Senior Vice President of Environmental, Health and Safety who reports directly to the Chief Executive Officer and has a team of more than 30 employees.
We have a proactive environmental health and safety (“EH&S”) program and a culture of safety and quality across all business units, and employ a Senior Vice President of Environmental, Health and Safety who reports directly to the Chief Executive Officer and has a team of more than 45 employees.
Such additional regulations include specific requirements for permissible employee exposure limits, process safety programs, approved EO containers and their transportation, facility security, quality system programs, emission control systems and emission limits and products allowed to be treated with EO.
These additional regulations include specific requirements for permissible employee exposure limits, process safety programs, approved EO containers and their transportation, facility security, quality system programs, emission control systems and emission limits and products allowed to be treated with EO.
By leveraging a global operating system, we drive operational excellence across our network of facilities in order to achieve high levels of safety, quality, operating efficiency and customer satisfaction to provide a uniform customer experience.
By leveraging a global operating system, we drive operational excellence across our network of facilities to achieve high levels of safety, quality, operating efficiency and customer satisfaction to provide a uniform customer experience.
For many products, our customers are required to include the specific facility used to validate a product’s listing in the Food and Drug Administration (“FDA”) (or foreign equivalent) product registration and are typically required to re-register if they switch facilities, making switching locations for a particular product a difficult and expensive process for our customers.
For many products, our customers are required to include the specific facility used to validate a product’s listing in the Food and Drug Administration (“FDA”) (or foreign equivalent) product registration and are typically required to re-register if they switch facilities, which makes switching locations for a particular product a difficult and expensive process for our customers.
We serve many of our sterilization customers at more than one facility, with approximately 80% of Sterigenics’ net revenues attributable to customers using more than one of our facilities and more than 50% of Sterigenics’ net revenues attributable to customers using five or more of our facilities in 2022.
We serve many of our sterilization customers at more than one facility, with approximately 80% of Sterigenics’ net revenues attributable to customers using more than one of our facilities and more than 50% of Sterigenics’ net revenues attributable to customers using five or more of our facilities in 2023.
We believe that the complementary capabilities and expertise in our Nelson Labs business make Sterigenics an attractive sterilization partner to customers in the pharmaceutical industry. We can provide a full suite of services to help them throughout key stages in the lifecycle of these complex products. • Food and agricultural products .
We believe that the complementary capabilities and expertise in our Nelson Labs business make Sterigenics an attractive sterilization partner to customers in the pharmaceutical industry. We can provide a full suite of services across the Company to help our customers throughout key stages in the lifecycle of these complex products. • Food and agricultural products .
Sterilization services are an essential element in our customers’ manufacturing processes but generally represent a small fraction of the total end-product cost of medical devices. We believe this means that our customers choose our services based on quality and consistency of service rather than solely on the cost.
Although sterilization services are an essential element in our customers’ manufacturing processes, they generally represent a small fraction of the total end-product cost of medical devices. We believe this means that our customers choose our services based on quality and consistency of service rather than solely on the cost.
We employ approximately 600 scientists, technicians and service specialists, creating a substantial competitive advantage in terms of expertise. Our experts serve in predominant roles on a number of standards writing organizations, including the United States Pharmacopeia, AAMI, American Society of Testing and Materials and ISO.
We employ approximately 600 scientists, technicians and service specialists, creating a substantial 13 Table of Contents competitive advantage in terms of expertise. Our experts serve in predominant roles on a number of standards writing organizations, including the United States Pharmacopeia, AAMI, American Society of Testing and Materials and ISO.
We support our customers with handling and processing of Co-60, recycling of depleted sources and global logistics enabled by our licensed container fleet. We also provide regulatory and technical service expertise to improve the risk profiles and enhance effectiveness of gamma processing operations.
We support our customers with handling and processing of Co-60, recycling of depleted sources and global logistics enabled by our licensed container fleet. We also provide regulatory and technical service expertise to improve the risk profiles 9 Table of Contents and enhance effectiveness of gamma processing operations.
Without this radioactive material, gamma sterilization would not be 9 Table of Contents possible on the global scale at which it is used today. We are integral to our customers’ operations due to highly coordinated and complex installation processes. Nordion has a long history in gamma technologies. Nordion designs, installs and maintains gamma irradiation systems.
Without this radioactive material, gamma sterilization would not be possible on the global scale at which it is used today. We are integral to our customers’ operations due to highly coordinated and complex installation processes. Nordion has a long history in gamma technologies. Nordion designs, installs and maintains gamma irradiation systems.
BioScience is a provider of outsourced topical antimicrobial product testing in the pharmaceutical, medical device, and consumer industries. BioScience’s expertise in analytical testing and clinical trial services complements Nelson Labs’ existing strengths in antimicrobial and virology testing. 14 Table of Contents On November 4, 2021 we acquired Regulatory Compliance Associates Inc. (“RCA”) headquartered in Pleasant Prairie, Wisconsin.
BioScience is a provider of outsourced topical antimicrobial product testing in the pharmaceutical, medical device, and consumer industries. BioScience’s expertise in analytical testing and clinical trial services complements Nelson Labs’ existing strengths in antimicrobial and virology testing. On November 4, 2021, we acquired Regulatory Compliance Associates Inc. (“RCA”), which is headquartered in Pleasant Prairie, Wisconsin.
These barriers prohibit us from managing a pricing strategy across our Sterigenics and Nordion segments with regard to customers. We are a leading global supplier of HSA Co-60 used in oncology-related stereotactic radiosurgery devices, including the Gamma Knife ® , which use directed gamma rays for certain oncology applications.
These barriers prohibit us from managing a customer pricing strategy across our Sterigenics and Nordion segments. We are a leading global supplier of HSA Co-60 used in oncology-related stereotactic radiosurgery devices, including the Gamma Knife ® , which use directed gamma rays for certain oncology applications.
Nordion also has NRC licenses to distribute radioactive material within the United States, which permit Nordion to install and remove Co-60 sources and provide other services to its customers, as well as a license to export radioactive material from the United States to Canada. The NRC recently implemented new security requirements for our U.S. gamma facilities.
Nordion also has NRC licenses to distribute radioactive material within the United States, which permit Nordion to install and remove Co-60 sources and provide other services to its customers, as well as a license to export radioactive material from the United States to Canada. The NRC periodically updates and issues new security requirements for our U.S. gamma facilities.
Nordion also competes indirectly with other developing modalities of sterilization, such as X-ray technology, that can sterilize similar products as gamma sterilization, which use electricity to generate radiation and therefore do not require Co-60 sources. 11 Table of Contents Nordion’s main competitors in the HSA Co-60 industry include suppliers in China, Sweden and North America that have capability to produce medical Co-60.
Nordion also 11 Table of Contents competes indirectly with other developing modalities of sterilization, such as X-ray technology, that use electricity to generate radiation and therefore do not require Co-60 sources. Nordion’s main competitors in the HSA Co-60 industry include suppliers in China, Sweden and North America that have capability to produce medical Co-60.
Our customers include more than 40 of the top 50 medical device companies and nine of the top ten global pharmaceutical companies (based on revenue). 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.
Our customers include over 40 of the top 50 medical device companies and nine of the top ten global pharmaceutical companies (based on revenue). Our services are an essential aspect of our customers’ manufacturing processes and supply chains, helping to ensure sterilized medical products reach healthcare practitioners and patients.
While short-term variability in Co-60 supplier delivery timing can result in variability in our financial performance in one or more fiscal quarters, we work with multiple reactor sites that operate on consistent and predictable discharge and harvest schedules over the long-term.
While short-term variability in Co-60 supplier delivery timing can sometimes result in variability in our financial performance across fiscal quarters, we work with multiple reactor sites that operate on consistent and predictable discharge and harvest schedules over the long-term.
See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Trends and Key Factors Affecting Our Results of Operations.” Currently, approximately 9% of nuclear reactors worldwide are the type of reactors that have been capable of producing commercial quantities of Co-60.
See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Trends and Key Factors Affecting Our Results of Operations.” Currently, approximat ely 9% o f nuclear reactors worldwide are the type of reactors that have been capable of producing commercial quantities of Co-60.
Nordion Facilities Nordion’s operations are supported by a facility in Kanata, Canada dedicated to processing and shipping cobalt, as well as a European distribution facility in Milton, United Kingdom. Lab Testing and Advisory Services Nelson Labs Lab testing and advisory services are necessary across the medical device and pharmaceutical product lifecycles to evaluate and ensure a product’s safety and effectiveness.
Nordion Facilities Nordion’s operations are supported by a facility in Kanata, Canada dedicated to processing and shipping cobalt, and a European distribution facility in Milton, United Kingdom. Lab Testing and Advisory Services Nelson Labs Lab testing and advisory services are necessary across the medical device and pharmaceutical product lifecycles to evaluate and ensure the safety and effectiveness of healthcare products.
Our primary terminal sterilization technologies include: 6 Table of Contents We provide gamma irradiation services at 23 of our facilities, EO processing services at 17 of our facilities and electron beam (“E-beam”) irradiation services at eight of our facilities. In addition to the three major technologies, we invest in alternative modalities to serve our customers.
Our primary terminal sterilization technologies include: 6 Table of Contents We provide gamma irradiation services at 23 of our facilities, EO processing services at 17 of our facilities and electron beam (“E-beam”) irradiation services at eight of our facilities. We also invest in alternative modalities to serve our customers.
Nelson Labs offers these services on a standalone basis or as a combined offering with our lab testing services, which 12 Table of Contents creates opportunities for cross-selling with our existing customers for both services.
Nelson Labs offers these services on a standalone basis or as a combined offering with our lab testing services, which creates opportunities for cross-selling with our existing customers for both services.
X-ray irradiation is a process in which products such as medical devices and labware are exposed to machine-generated radiation in the form of X-rays for the purpose of sterilization and decontamination. X-rays are similar in performance to gamma rays and are useful for processing certain materials due to the high penetration capabilities of X-ray.
X-ray irradiation is a process in which products such as medical devices and lab ware are exposed to machine-generated radiation in the form of X-rays for the purpose of sterilization and decontamination. X-rays are similar in performance to gamma rays and are useful for processing certain materials by virtue of the high penetration capabilities of X-ray.
This dynamic contributes to low customer churn and long-term relationships within our business. In addition, Sterigenics has achieved high historical customer retention and renewal rates—Sterigenics has 100% renewal rates of its top ten customers over the last five years, and an average tenure of over a decade with its top 25 customers over the last five years—and minimal customer concentration.
This dynamic contributes to low customer churn and long-term relationships. In addition, Sterigenics has achieved high historical customer retention and renewal rates—Sterigenics has 100% renewal rates of its top ten customers for more than five consecutive years, and an average tenure of over a decade with its top 25 customers over the last five years—and minimal customer concentration.
We face liability and reputational risks even if we comply with all laws and regulations” and Item 3, “Legal Proceedings.” EO Regulatory Overview In addition to general environmental laws and regulations, EO plants and the EO sterilization process are subject to specific regulatory requirements under federal laws in the United States as well as the laws of many of the countries in which we operate.
We face liability and reputational risks even if we comply with all laws and regulations” and Item 3, “Legal Proceedings.” EO Regulatory Overview In addition to general environmental laws and regulations, EO facilities and the EO sterilization process are subject to specific regulatory requirements under federal laws in the United States and the laws of the countries in which we operate, including European Union regulations.
This database allows us to provide analytical data that differentiates our capabilities from our competitors. 13 Table of Contents We provide microbiological and analytical chemistry laboratory tests across the medical device and pharmaceutical industries.
This database allows us to provide analytical data that differentiates our capabilities from our competitors’. We provide microbiological and analytical chemistry laboratory tests across the medical device and pharmaceutical industries.
We utilize X-ray irradiation at one of our sterilization facilities for bio-hazard reduction for the United States Postal Service, or USPS. In addition, we are also investing in NO2-based sterilization, which has been effective in the sterilization of prefilled syringes, drug-device combination products and custom implants.
We utilize X-ray irradiation at one of our sterilization facilities for bio-hazard reduction for the United States Postal Service, or USPS. We are also investing in NO2-based sterilization, which has been effective in sterilizing of prefilled syringes, drug-device combination products and custom implants. Sterilization Applications Sterigenics primarily provides sterilization services for medical device manufacturers and the pharmaceutical industry.
Because we provide product development and validation testing services to clients launching new products or altering existing products, this business benefits from the ongoing technological advances and increasing complexity of medical and pharmaceutical products. Nelson Labs Customers During the year ended December 31, 2022, Nelson Labs served more than 3,000 customers, including many leading medical device manufacturers and pharmaceutical companies.
Because we provide product development and validation testing services to clients launching new products or altering existing products, this business benefits from the ongoing technological advances and increasing complexity of medical and pharmaceutical products. Nelson Labs Customers Nelson Labs serves approximately 3,000 customers, including many leading medical device manufacturers and pharmaceutical companies.
We also have facilities in Fairfield, New Jersey; Itasca, Illinois; Leuven, Belgium; Bozeman, Montana; Pleasant Prairie, Wisconsin; Wiesbaden, Germany, and seven other laboratories embedded in our Sterigenics sterilization facilities in North America, Europe and Asia. Nelson Labs Recent Acquisitions On March 8, 2021, we acquired BioScience Laboratories, LLC (“BioScience”) with one location in Bozeman, Montana.
We also have facilities in Itasca, Illinois; Leuven, 14 Table of Contents Belgium; Bozeman, Montana; Pleasant Prairie, Wisconsin; Wiesbaden, Germany, and seven other laboratories embedded in our Sterigenics sterilization facilities in North America, Europe and Asia. Nelson Labs Recent Acquisitions On March 8, 2021, we acquired BioScience Laboratories, LLC (“BioScience”) located in Bozeman, Montana.
Extensive capital, technical expertise and regulatory knowledge are required to build and maintain facilities like ours. We estimate that one new facility can cost over $40 million to build, on average, and require extensive and complex licensing approval and regulatory compliance processes.
Extensive capital, technical expertise and regulatory knowledge are required to build and maintain facilities like ours. We estimate that building a new facility can cost over $50 million on average, in addition to requiring extensive and complex licensing approval and regulatory compliance processes.
Medical device sterilization is a regulatory requirement in many jurisdictions and an important and last step in the manufacturing of healthcare products such as medical protective barriers, including PPE, procedure kits and trays, implants, syringes, catheters and wound care products.
In most cases, customers are serviced from more than one facility. • Medical device sterilization . Medical device sterilization is a regulatory requirement in many jurisdictions and an important and last step in the manufacturing of healthcare products such as medical protective barriers, including PPE, procedure kits and trays, implants, syringes, catheters and wound care products.
More than 90% of our sterilization services revenues for the year ended December 31, 2022 were from customers under multi-year contracts. 8 Table of Contents Sterigenics Competition We compete globally with Applied Sterilization Technologies, a segment of STERIS plc, as well as other smaller or regional outsourced sterilization companies.
More than 90% of Sterigenics’ revenues for the year ended December 31, 2023 were from customers under multi-year contracts. 8 Table of Contents Sterigenics Competition We compete globally with Applied Sterilization Technologies, a segment of STERIS plc, as well as other smaller or regional outsourced sterilization companies. In addition, some manufacturers have invested or are investing in in-house sterilization capabilities.
Nordion’s customers include both outsourced contract sterilizers, including Sterigenics, as well as medical device manufacturers that sterilize their products in-house. We provide our customers with high quality, reliable, safe and secure Co-60 source supply at each stage of the source’s life cycle.
Nordion’s customers include both outsourced contract sterilizers, including Sterigenics, and medical device manufacturers that sterilize their products in-house. More than 90% of Nordion’s revenues for the year ended December 31, 2023 were from customers under multi-year contracts. We provide our customers with high quality, reliable, safe and secure Co-60 source supply at each stage of the source’s life cycle.
Nordion Nordion is the 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.
Nordion Nordion is the 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. Co-60 is a radioactive isotope that emits gamma radiation that sterilizes items by killing contaminating micro-organisms.
We are a global leader in outsourced microbiological and analytical chemistry testing services for the medical device and pharmaceutical industries. In addition to our testing services, our customers often call upon our experts for technical assistance and our advisory services. We go to market leveraging our global footprint and an extensive range of services under our Nelson Labs brand.
We are a global leader in outsourced microbiological and analytical chemistry testing services for the medical device and pharmaceutical industries. In addition to our testing services, our customers often call upon our experts for technical assistance, regulatory consulting and our advisory services.
We expect to be able to satisfy any changes to applicable regulatory requirements as they evolve and are committed to doing so.
We expect to be able to satisfy any changes to applicable regulatory requirements as they evolve and are committed to doing so, although there can be no assurance that we will always be able to do so.
We have developed a consultative approach with medical device manufacturers that expands our service offerings beyond core product sterilization, as we believe they want value-added solutions from their outsourced sterilization partners that reach beyond the traditional scope of sterilization.
Products must therefore be treated before shipment, either in-house by the manufacturer or by an outsourced sterilization provider such as Sterigenics. We have developed a consultative approach with medical device manufacturers that expands our service offerings beyond core product sterilization, as we believe they want value-added solutions from their outsourced sterilization partners that reach beyond the traditional scope of sterilization.
Specifically, these operations include some of our sterilization and product testing activities that may constitute “manufacturing” activities and are subject to FDA requirements. These requirements include site, contract drug manufacturer and supplier of active pharmaceutical ingredients registration and listing and manufacturing requirements. Regulations issued by the Occupational Safety and Health Administration (“OSHA”), the U.S.
We are also regulated by other health regulatory authorities in other countries. Specifically, these operations include some of our sterilization and product testing activities that may constitute “manufacturing” activities and are subject to FDA requirements. These requirements include site, contract drug manufacturer and supplier of active pharmaceutical ingredients registration and listing and manufacturing requirements.
In addition to government regulation, there are standards, guidelines and requirements established by industry organizations and other non-governmental bodies that may impact our operations, such as the ISO’s limit on the permissible levels of residual EO on sterilized medical devices. 16 Table of Contents Gamma Irradiation Regulatory Overview In the United States, Sterigenics is subject to NRC and state regulations that govern operations involving radioactive materials at gamma irradiation plants.
In addition to government regulation, there are standards, guidelines and requirements established by industry organizations and other non-governmental bodies that may impact our operations, such as the ISO’s limit on the permissible levels of residual EO on sterilized medical devices.
Co-60 is a radioactive isotope that emits gamma radiation that sterilizes items by killing contaminating micro-organisms. Gamma irradiation systems are the units that house the Co-60 sources within a gamma sterilization facility. We estimate that gamma sterilization, which is a critical component of the global infection control supply chain, represents approximately 30% of single-use medical device sterilization worldwide.
In addition, Nordion is a leading global provider of gamma irradiation systems, which are the units that house the Co-60 sources within a gamma sterilization facility. We estimate that gamma sterilization, which is a critical component of the global infection control supply chain, accounts for approximately 30% of single-use medical device sterilization worldwide.
Our Nuclear Substance Processing Facility Operating License, CNSC Export license and CNSC Device servicing licenses for our Kanata facility were renewed in October 2015 for a 10-year period. Our facilities hold various International Organization for Standardization’s (“ISO”) certifications including ISO 9002, 9001, 13485 and 17025.
Our Nuclear Substance Processing Facility Operating License, CNSC Export license and CNSC Device servicing licenses for our Kanata facility were renewed in October 2015 for a 10-year period.
Terminal sterilization is the process of sterilizing a product in its final packaging; it is an essential, and often government-mandated, last step in the manufacturing process of healthcare products before they are shipped to end-users. These products include procedure kits and trays, implants, syringes, catheters, wound care products, medical protective barriers, including personal protective equipment (“PPE”), laboratory products and pharmaceuticals.
Terminal sterilization is the process of sterilizing a product in its final packaging; it is an essential, and often government-mandated, last step in the manufacturing process of healthcare products before they are shipped to end-users.
We have established ourselves as a critical partner for our customers through our delivery of high quality services, quick testing turnaround times, responsiveness, high-touch support and easy accessibility to our science and service teams. We have an industry-leading brand recognized for the quality and comprehensiveness of service, both of which can take many years to build.
We go to market leveraging our global footprint and an extensive range of services under our Nelson Labs brand. We have established ourselves as a critical partner for our customers through our delivery of high-quality services, quick testing turnaround times, responsiveness, high-touch support and easy accessibility to our science and service teams.
We have device, facility, and specific product registrations with North American (Health Canada and the FDA) and European Drug and Device health regulators. These regulators exert oversight through requirements for a product registration and direct audit of our operations.
We have device, facility, and specific product registrations with North American (Health Canada and the FDA) and European Drug and Device health regulators.
In addition to the nuclear aspect of our products, many of the products that we process or manufacture are medical devices directed for human use or products used in the manufacture of medical devices that are directed for human use.
In addition to the nuclear aspect of our products, many of the products that we process are medical devices directed for human use or products used in the manufacture of medical devices that are directed for human use. Our facilities hold various International Organization for Standardization’s (“ISO”) certifications including ISO 9002, 9001, 13485, 14001, 45001 and 17025.
See Item 1A, “ “ Risk Factors ” —Risks Related to the Company—We depend on a limited number of counterparties to provide the materials and resources we need to operate our business.” The substantial majority of our Co-60 material has historically been produced under multi-year contracts with nuclear reactor operators in Canada and Russia.
See Item 1A, “ Risk Factors ” —Risks Related to the Company—We depend on a limited number of counterparties to provide the materials and resources we need to operate our business.
Additionally, our operations in the United States and the majority of our facilities outside the United States (to the extent we are processing a product in that facility that will end up in the U.S. market) are regulated by the FDA. We are also regulated by other health regulatory authorities in other countries.
These regulators exert oversight through requirements for a product registration and direct audit of our operations. 15 Table of Contents Additionally, our operations in the United States and the majority of our facilities outside the United States (to the extent we are processing or testing a product that will end up in the U.S. market) are regulated by the FDA.
Across our 65 facilities worldwide, we have over 3,000 employees who are dedicated to safety and quality. We are a trusted partner to more than 5,000 customers in over 50 countries. Sotera Health Company was incorporated in Delaware in November 2017 as the parent company for Sterigenics, Nordion and Nelson Labs.
With our industry-recognized scientific and technological expertise, we help to ensure the safety of millions of patients and healthcare practitioners around the world. Across our 63 facilities worldwide, we have over 3,000 employees who are dedicated to safety and quality. Sotera Health Company was incorporated in Delaware in November 2017 as the parent company for Sterigenics, Nordion and Nelson Labs.
In certain U.S. states, including California, additional regulatory requirements and obligations exist, including requirements for the provision of notices regarding the release of or exposure to EO. Regulators in California and other states are considering changes that would impose new requirements for EO commercial sterilization facilities. Bills have been introduced in the U.S. Congress to further regulate EO sterilization activity.
Some states are considering changes that would impose new requirements for EO commercial sterilization facilities. For example, in December 2023, regulators in California imposed a number of new requirements with which our EO sterilization facilities will need to comply. Bills have been introduced in the U.S. Congress to further regulate EO sterilization activity.
These NRC and state regulations specify the requirements for, among other things, maximum radiation doses, system designs, safety features, alarms, employee and area monitoring, testing and reporting. Each of our U.S. gamma plants has a radioactive materials license from the NRC or the state in which it operates.
Gamma Irradiation Regulatory Overview In the United States, Sterigenics is subject to NRC and state regulations that govern operations involving radioactive materials at gamma irradiation plants. These NRC and state regulations specify the requirements for, among other things, maximum radiation doses, system designs, safety features, alarms, employee and area monitoring, testing and reporting.
We have not historically experienced any supply disruptions and our U.S. supplier has redundant production facilities to help ensure reliable EO supply. We also have a license in the United States to distribute EO to self-supply should the need arise and we determine the need to make the necessary investments.
There is more than one supplier of EO in most of the countries in which we operate; however, in the United States, there is a single supplier for EO to our industry. We have not historically experienced any supply disruptions and our U.S. supplier has redundant production facilities to help ensure reliable EO supply.
Nuclear Regulatory Commission (the “NRC”) and other agencies also require that equipment used at our facilities be designed and operated in a manner that is safe and with proper safety precautions and practices when handling, monitoring and storing EO and Co-60. 15 Table of Contents While we strive to comply with these regulatory requirements, we may not at all times be in full compliance and, as a result, could be subject to significant civil and criminal fines and penalties.
Regulations issued by the Occupational Safety and Health Administration (“OSHA”), the U.S. Nuclear Regulatory Commission (the “NRC”) and other agencies also require that equipment used at our facilities be designed and operated in a manner that is safe and with proper safety precautions and practices when handling, monitoring and storing EO and Co-60.
Sterilization Applications Sterigenics primarily provides sterilization services for medical device manufacturers and the pharmaceutical industry. Sterigenics also provides decontamination services for the food industry. Additionally, Sterigenics provides various advanced applications for other organizations and companies including the USPS and semiconductor manufacturers.
Sterigenics also provides decontamination services for the food industry. Additionally, Sterigenics provides various advanced applications for other organizations and companies including the USPS and semiconductor manufacturers. Our customers select the sterilization method that meets the needs of their products and requirements of regulators and we deliver sterilization services according to their customer-specific protocols.
Our services generally compete on the basis of the quality of technology and services offered, level of expertise in each of the major sterilization methods, level of expertise in the applicable regulatory requirements and proximity to customers. Sterigenics Suppliers Sterigenics primarily purchases its supply of Co-60 sources, the key input into the gamma sterilization process, from Nordion.
We also face competition from other technologies, such as chemical cross-linking of polymers. Our services generally compete on the basis of the quality of technology and services offered, level of expertise in each of the major sterilization methods, level of expertise in the applicable regulatory requirements, proximity to customers and the cost of services.
Most of these services are necessary for our customers to satisfy applicable government requirements. We give our customers confidence that their products meet regulatory, safety and effectiveness requirements. With our industry-recognized scientific and technological expertise, we help to ensure the safety of millions of patients and healthcare practitioners around the world every year.
Most of our services are necessary for our customers to satisfy applicable government requirements. We are a trusted partner to approximately 5,000 customers in over 50 countries. We give our customers confidence that their products meet regulatory, safety and effectiveness requirements.
Sterilization Services We offer our customers a complete range of terminal sterilization services, primarily using the three major commercial terminal sterilization technologies: gamma irradiation, EO processing and E-beam irradiation. We continue to invest in and develop our capabilities and our current methods of sterilization, as well as explore new alternative modalities and technologies.
We continue to invest in and develop our capabilities and our current methods of sterilization and we continue to explore new alternative modalities and technologies.
Sterigenics Facilities With 48 facilities in 13 countries, our global network of sterilization facilities represents a significant competitive advantage.
We also have a license in the United States to distribute EO to self-supply should the need arise and we determine the need to make the necessary investments. Sterigenics Facilities With 48 facilities in 13 countries, our global network of sterilization facilities represents a significant competitive advantage.
For 2023, we expect capital expenditures of approximately $33.2 million related to environmental facility enhancements across all facilities within our business, and we anticipate similar investments in subsequent years. We consistently meet and outperform regulatory emissions control requirements, although we have experienced instances of emissions exceeding applicable standards or other non-compliance, none of which we believe were material.
We 16 Table of Contents consistently meet and outperform regulatory emissions control requirements, although we have periodically experienced isolated instances of emissions exceeding applicable standards or other non-compliance, none of which we believe were material.
Many of our business names are the subject of trademark registrations or applications in the United States or certain other jurisdictions, or part of registered domain names. Human Capital Resources As of December 31, 2022, we employed over 3,000 employees worldwide. None of our U.S. employees are represented by unions.
Many of our business names are the subject of trademark registrations or applications in the United States or certain other jurisdictions, or part of registered domain names. Human Capital Resources One of our values is People. We value a global team that is talented, experienced, diverse, respectful, passionate and collaborative.
Our supply of Co-60 sources is at times impacted by the global availability of Co-60. Our supply of EO is sourced from various suppliers around the world. There is more than one supplier of EO in most of the countries in which we operate; however, in the United States, there is a single supplier for EO to our industry.
Sterigenics Suppliers Sterigenics primarily purchases its supply of Co-60 sources, the key input into the gamma sterilization process, from Nordion. Our supply of Co-60 sources is at times impacted by the global availability of Co-60. Our supply of EO is sourced from various suppliers around the world.
These competitors could potentially increase their global competition capabilities in the future.
For example, a producer in Argentina supplies certain regions in Central and South America and an Indian producer supplies India and certain parts of Southeast Asia. These competitors could potentially increase their global competition capabilities in the future.
Removed
Our customers select the sterilization method that meets the needs of their products and requirements of regulators and we deliver sterilization services according to their customer-specific protocols. In most cases, customers are serviced from more than one facility. • Medical device sterilization .
Added
The products that we sterilize include procedure kits and trays, implants, syringes, catheters, wound care products, medical protective barriers, including personal protective equipment (“PPE”), laboratory products and pharmaceuticals. Sterilization Services We offer our customers a complete range of terminal sterilization services, primarily using the three major commercial terminal sterilization technologies: gamma irradiation, EO processing and E-beam irradiation.
Removed
Products must be treated as part of the production process before shipment to customers, either in-house by the manufacturer or by an outsourced sterilization provider, such as Sterigenics.
Added
Any disruption in the availability of, or increases in the price of, EO, Co-60 or our other direct materials, services and supplies, including as a result of geopolitical instability and sanctions against Russia by the United States, Canada, United Kingdom and European Union, may have a material adverse effect on our operating results.” The substantial majority of our Co-60 material has historically been produced under multi-year contracts with nuclear reactor operators in Canada and Russia.
Removed
In addition, some manufacturers have invested or are investing in in-house sterilization capabilities. We also face competition from other technologies, such as chemical cross-linking of polymers.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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If we are the subject of future lawsuits, regardless of the merits of the claims at issue or the ultimate outcome of a case, any litigation could be costly to defend, could result in an increase of our insurance premiums, and exhaust any available insurance coverage.
If we are the subject of future lawsuits, regardless of the merits of the claims at issue or the ultimate outcome of a case, any litigation could be costly to defend, result in an increase of our insurance premiums, and exhaust any available insurance coverage.
Claims against us that result in entry of a judgment or we settle that are not covered or not sufficiently covered by insurance policies, or which fall within retained liability under our policies, could have a material adverse impact on our business, prospects, financial condition or results of operations.
Claims against us that result in entry of a judgment or that we settle that are not covered or not sufficiently covered by insurance policies, or which fall within retained liability under our policies, could have a material adverse impact on our business, prospects, financial condition or results of operations.
We could also face claims that we performed erroneous or out-of-specification testing or data integrity complaints, any of which could require retesting, and could result in claims of economic or other loss or personal injury.
We could also face claims that we performed erroneous or out-of-specification testing or data integrity complaints, any of which could require retesting and result in claims of economic or other loss or personal injury.
An incident in the transportation of our raw materials, products and by-products or our failure to comply with laws and regulations applicable to the transfer of such products could lead to injuries or significant property damage, regulatory repercussions or could make it difficult to fulfill our obligations to our customers, any of which could have a material adverse effect on our business, prospects, financial condition or results of operations.
An incident in the transportation of our raw materials, products and by-products or our failure to comply with laws and regulations applicable to the transfer of such products could lead to injuries or significant property damage, regulatory repercussions or make it difficult to fulfill our obligations to our customers, any of which could have a material adverse effect on our business, prospects, financial condition or results of operations.
Department of the Treasury’s Office of Foreign Assets Control and other relevant agencies of the U.S. government administer certain laws and regulations that restrict U.S. persons and, in some instances, non-U.S. persons, from conducting activities, transacting business with or making investments in certain countries, or with governments, entities and individuals subject to U.S. economic sanctions.
Department of the Treasury’s Office of Foreign Assets Control and other relevant agencies of the U.S. government administer laws and regulations that restrict U.S. persons and, in some instances, non-U.S. persons, from conducting activities, transacting business with or making investments in certain countries, or with governments, entities and individuals subject to U.S. economic sanctions.
These provisions include: • limiting the liability of, and providing indemnification to, our directors and officers; • establishing a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors; • providing that directors may be removed only for cause by the affirmative vote of the holders of at least 75% of the voting power of our outstanding common stock; provided that so long as investment funds and entities affiliated with either Warburg Pincus or GTCR, collectively, hold at least 50% of the outstanding shares of our common stock, a director designated by investment funds and entities affiliated with either Warburg Pincus or GTCR, respectively, may be removed with or without cause by the affirmative vote of the holders of at least a majority of the votes that all the stockholders would be entitled to cast in any annual election of directors or class of directors and with the consent of Warburg Pincus or GTCR, respectively; • limiting the determination of the number of directors on our board of directors and the filling of vacancies or newly created seats on the board to our board of directors then in office; provided that for so long as investment funds and entities affiliated with either Warburg Pincus or GTCR have the right to designate at least one director for election to our board of directors, (i) any vacancies will be filled in accordance with the designation provisions set forth in the Stockholders’ Agreement and (ii) the number of directors shall not exceed eleven without the consent of Warburg Pincus or GTCR; • advance notice requirements applicable to stockholders for matters to be brought before a meeting of stockholders and requirements as to the form and content of a stockholders’ notice; provided that no advance notice shall be required for nominations of candidates for election to our board of directors pursuant to the Stockholders’ Agreement; • requiring the affirmative vote of at least 66 2/3% of the voting power of our outstanding common stock to amend certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws; provided that so long as investment funds and entities affiliated with either Warburg Pincus or GTCR, collectively, hold at least a majority of our outstanding capital stock, only a majority stockholder vote requirement would apply to such matters; • providing that for so long as investment funds and entities affiliated with either Warburg Pincus or GTCR have the right (individually) to designate at least three directors for election to our board of directors, certain board approvals, including amendments to our amended and restated certificate of incorporation or amended and restated bylaws and certain specified corporate transactions, including certain acquisitions, mergers, other business combination transactions and dispositions, may be effected only with the affirmative vote of 75% of our board of directors, in addition to any other vote required by applicable law; • providing that for so long as investment funds and entities affiliated with Warburg Pincus have the right to designate at least one director for election to our board of directors and for so long as investment funds and entities affiliated with GTCR have the right to designate one director for election to our board of directors, in each case, a quorum of our board of directors (and committees of the board of directors on which a director designated by Warburg Pincus or GTCR will serve) will not exist without at least one director designee of each of Warburg Pincus and GTCR present at such meeting; provided that if a meeting of our board of directors (or a committee of the board of directors) fails to achieve a quorum due to the absence of a director designee of Warburg Pincus or GTCR, as applicable, the presence of a director designee of Warburg Pincus or GTCR, as applicable, will not be required in order for a quorum to exist at the next duly noticed meeting of our board of directors (or a committee thereof); • the right to issue blank check preferred stock without stockholder approval, which could be used to dilute the stock ownership of a potential hostile acquirer or adopt a stockholder rights plan; • a requirement that our stockholders may only take action at annual or special meetings of our stockholders and may not act by written consent; provided that, for so long as investment funds and entities affiliated with either Warburg Pincus or GTCR, collectively, beneficially own a majority of our outstanding capital stock, a meeting and vote of stockholders may be dispensed with, and the action may be taken without prior notice and without such meeting and 44 Table of Contents vote if a written consent is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at the meeting of stockholders; • limiting the ability of stockholders to call and bring business before special meetings; provided that for so long as investment funds and entities affiliated with either Warburg Pincus or GTCR, collectively, beneficially own a majority of our outstanding capital stock, special meetings of our stockholders may be called by the affirmative vote of the holders of a majority of our outstanding voting stock; and • limiting the forum to the Delaware Court of Chancery or Federal Court for certain types of actions and proceedings that may be initiated against us by stockholders.
These provisions include: • limiting the liability of, and providing indemnification to, our directors and officers; • establishing a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors; 42 Table of Contents • providing that directors may be removed only for cause by the affirmative vote of the holders of at least 75% of the voting power of our outstanding common stock; provided that so long as investment funds and entities affiliated with either Warburg Pincus or GTCR, collectively, hold at least 50% of the outstanding shares of our common stock, a director designated by investment funds and entities affiliated with either Warburg Pincus or GTCR, respectively, may be removed with or without cause by the affirmative vote of the holders of at least a majority of the votes that all the stockholders would be entitled to cast in any annual election of directors or class of directors and with the consent of Warburg Pincus or GTCR, respectively; • limiting the determination of the number of directors on our board of directors and the filling of vacancies or newly created seats on the board to our board of directors then in office; provided that for so long as investment funds and entities affiliated with either Warburg Pincus or GTCR have the right to designate at least one director for election to our board of directors, (i) any vacancies will be filled in accordance with the designation provisions set forth in the Stockholders’ Agreement and (ii) the number of directors shall not exceed eleven without the consent of Warburg Pincus or GTCR; • advance notice requirements applicable to stockholders for matters to be brought before a meeting of stockholders and requirements as to the form and content of a stockholders’ notice; provided that no advance notice shall be required for nominations of candidates for election to our board of directors pursuant to the Stockholders’ Agreement; • requiring the affirmative vote of at least 66 2/3% of the voting power of our outstanding common stock to amend certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws; provided that so long as investment funds and entities affiliated with either Warburg Pincus or GTCR, collectively, hold at least a majority of our outstanding capital stock, only a majority stockholder vote requirement would apply to such matters; • providing that for so long as investment funds and entities affiliated with either Warburg Pincus or GTCR have the right (individually) to designate at least three directors for election to our board of directors, certain board approvals, including amendments to our amended and restated certificate of incorporation or amended and restated bylaws and certain specified corporate transactions, including certain acquisitions, mergers, other business combination transactions and dispositions, may be effected only with the affirmative vote of 75% of our board of directors, in addition to any other vote required by applicable law; • providing that for so long as investment funds and entities affiliated with Warburg Pincus have the right to designate at least one director for election to our board of directors and for so long as investment funds and entities affiliated with GTCR have the right to designate one director for election to our board of directors, in each case, a quorum of our board of directors (and committees of the board of directors on which a director designated by Warburg Pincus or GTCR will serve) will not exist without at least one director designee of each of Warburg Pincus and GTCR present at such meeting; provided that if a meeting of our board of directors (or a committee of the board of directors) fails to achieve a quorum due to the absence of a director designee of Warburg Pincus or GTCR, as applicable, the presence of a director designee of Warburg Pincus or GTCR, as applicable, will not be required in order for a quorum to exist at the next duly noticed meeting of our board of directors (or a committee thereof); • the right to issue blank check preferred stock without stockholder approval, which could be used to dilute the stock ownership of a potential hostile acquirer or adopt a stockholder rights plan; • a requirement that our stockholders may only take action at annual or special meetings of our stockholders and may not act by written consent; provided that, for so long as investment funds and entities affiliated with either Warburg Pincus or GTCR, collectively, beneficially own a majority of our outstanding capital stock, a meeting and vote of stockholders may be dispensed with, and the action may be taken without prior notice and without such meeting and vote if a written consent is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at the meeting of stockholders; • limiting the ability of stockholders to call and bring business before special meetings; provided that for so long as investment funds and entities affiliated with either Warburg Pincus or GTCR, collectively, beneficially own a majority of our outstanding capital stock, special meetings of our stockholders may be called by the affirmative vote of the holders of a majority of our outstanding voting stock; and • limiting the forum to the Delaware Court of Chancery or Federal Court for certain types of actions and proceedings that may be initiated against us by stockholders.
See Item 3, Legal Proceedings and Note 20, “Commitments and Contingencies” to our consolidated financial statements and related Risk Factor “—Potential health risks associated with the use of EO may subject us to future liability claims and other adverse effects.” The failure to receive or maintain, or delays in the receipt of, relevant U.S. or international regulatory qualifications could have a material adverse effect on our business, prospects, financial condition or results of operations.
See Item 3, Legal Proceedings and Note 20, “Commitments and Contingencies” to our consolidated financial statements and related Risk Factor “—Potential health risks associated with the use of EO may subject us to future liability claims and associated adverse effects.” The failure to receive or maintain, or delays in the receipt of, relevant U.S. or international regulatory qualifications could have a material adverse effect on our business, prospects, financial condition or results of operations.
See related Risk Factors “—We are currently defending certain litigation, and we are likely to be subject to additional litigation in the future” and “—Potential health risks associated with the use of EO may subject us to future liability claims and other adverse effects.” Nordion contracts for the activation of Co-59 “targets” (cobalt pellets and slugs) into Co-60 in certain nuclear reactors in Canada and Russia.
See related Risk Factors “—We are currently defending certain litigation, and we are likely to be subject to additional litigation in the future” and “—Potential health risks associated with the use of EO may subject us to future liability claims and associated adverse effects.” Nordion contracts for the activation of Co-59 “targets” (cobalt pellets and slugs) into Co-60 in certain nuclear reactors in Canada and Russia.
Some of the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our common stock include those listed in the related Risk Factor “—Risks Related to the Company,” “—Risks Related to Our Indebtedness and Liquidity” and the following, some of which are beyond our control: • volatility or economic downturns in the markets in which we, our suppliers or our customers are located caused by pandemics, including the COVID-19 pandemic, and related policies and restrictions undertaken to contain the spread of such pandemics or potential pandemics; • developments in our litigation matters and governmental investigations or additional significant lawsuits or governmental investigations relating to our services or facilities, including our susceptibility as a publicly-traded company to enforcement proceedings and civil litigation alleging that our disclosures have not complied with federal and state securities laws and regulations; • regulatory or legal developments in the jurisdictions in which we operate; • adverse publicity about us or the industries in which we participate; • variations in our quarterly or annual results of operations, or in those of our competitors or of companies in the medical device and pharmaceutical industries; • the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; • sales of our common stock by us or our stockholders in the future or the perception that such sales may occur; • publication of research reports about the industries in which we participate; • changes in analysts’ estimates, investors’ perceptions, recommendations by securities analysts, our failure to achieve analysts’ estimates or failure of analysts to maintain coverage of us; • volatility in the trading prices and trading volumes of companies similar to us; • changes in operating performance and stock market valuations of companies in our industry; • changes in accounting principles, policies, guidance, interpretations or standards; and • general market conditions and other factors unrelated to our operating performance or the operating performance of our competitors.
Some of the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our common stock include those listed in the related Risk Factor “—Risks Related to the Company,” “—Risks Related to Our Indebtedness and Liquidity” and the following, some of which are beyond our control: • volatility or economic downturns in the markets in which we, our suppliers or our customers are located caused by pandemics, including the COVID-19 pandemic, and related policies and restrictions undertaken to contain the spread of such pandemics or potential pandemics; • developments in our litigation matters and governmental investigations or additional significant lawsuits or governmental investigations relating to our services or facilities, including our susceptibility as a publicly-traded company to enforcement proceedings and civil litigation alleging that our disclosures have not complied with federal and state securities laws and regulations; 39 Table of Contents • regulatory or legal developments in the jurisdictions in which we operate; • adverse publicity about us or the industries in which we participate; • variations in our quarterly or annual results of operations, or in those of our competitors or of companies in the medical device and pharmaceutical industries; • the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; • sales of our common stock by us or our stockholders in the future or the perception that such sales may occur; • publication of research reports about the industries in which we participate; • changes in analysts’ estimates, investors’ perceptions, recommendations by securities analysts, our failure to achieve analysts’ estimates or failure of analysts to maintain coverage of us; • volatility in the trading prices and trading volumes of companies similar to us; • changes in operating performance and stock market valuations of companies in our industry; • changes in accounting principles, policies, guidance, interpretations or standards; and • general market conditions and other factors unrelated to our operating performance or the operating performance of our competitors.
Despite our extensive safety measures, a fire or explosion could occur at a sterilization facility where we use EO, which could interrupt our normal operations and result in the facility closures, workplace injuries, property damage, or otherwise adversely affect our business. Because Co-60 is radioactive, its containment and proper shielding is important in preventing contamination or improper exposure.
Despite our extensive safety measures, a fire or explosion could occur at a sterilization facility where we use EO, which could interrupt our normal operations and result in facility closures, workplace injuries, property damage, or otherwise adversely affect our business. Because Co-60 is radioactive, its containment and proper shielding is important in preventing contamination or improper exposure.
If in the future, we determine that there has been an impairment of long-lived assets or intangible assets subject to amortization, our financial results for the relevant period would be reduced by the amount of the non-cash impairment charge, net of any income tax effects, which could have an adverse effect on our financial condition or results of operations.
If we were to determine in the future that there has been an impairment of long-lived assets or intangible assets subject to amortization, our financial results for the relevant period would be reduced by the amount of the non-cash impairment charge, net of any income tax effects, which could have an adverse effect on our financial condition or results of operations.
In addition, under the Stockholders’ Agreement we have agreed, subject to certain exceptions, to indemnify the Sponsors, and various affiliated persons and indirect equity holders of the Sponsors from certain losses arising out of any threatened or actual litigation by reason of the fact that the indemnified persons is or was a holder of our common stock or of equity interests in Sotera Health Company.
In addition, under the Stockholders’ Agreement we have agreed, subject to certain exceptions, to indemnify the Sponsors, and various affiliated persons and indirect equity holders of the Sponsors, from losses arising out of any threatened or actual litigation by reason of the fact that the indemnified person is or was a holder of our common stock or of equity interests in Sotera Health Company.
Although we have attempted, and will continue to attempt, to match increases in the prices of direct materials or energy with corresponding increases in prices for our products and services, our ability to pass through increases in our input costs is highly dependent upon market conditions and we may not be able to immediately raise such prices, if at all.
Although we have attempted, and will continue to attempt, to match increases in the prices of direct materials or energy with corresponding increases in prices for our products and services, our ability to pass through increases in our input costs is highly dependent upon market conditions and we may not be able to immediately raise our prices, if at all.
If we are the subject of other lawsuits related to emissions and releases of EO, that litigation, regardless of the merits of the claims at issue or the ultimate outcome of the case, could result in a substantial cost to us and could have a material adverse effect on our business, prospects, financial condition or results of operations.
If we are the subject of other lawsuits related to use, emissions and releases of EO, that litigation, regardless of the merits of the claims at issue or the ultimate outcome of the case, could result in a substantial cost to us and could have a material adverse effect on our business, prospects, financial condition or results of operations.
As a result, capital appreciation, if any, of our common stock will be the sole source of potential gain for the foreseeable future, and stockholders will have to sell some or all of their common stock holdings to generate cash flow from their investment. Item 1B. Unresolved Staff Comments Not applicable.
As a result, capital appreciation, if any, of our common stock will be the sole source of potential gain for the foreseeable future, and stockholders will have to sell some or all of their common stock holdings to generate cash flow from their investment. Item 1B. Unresolved Staff Comments Not applicable. 44
Our ability to make timely payments of principal and interest on our debt obligations, including our obligations under the Senior Secured Credit Facilities, depends on our ability to generate positive cash flows from operations, which is subject to general economic conditions, competitive pressures and certain financial, business and other factors beyond our control.
Our ability to make timely payments of principal and interest on our debt obligations, including our obligations under the Combined Senior Secured Credit Facilities, depends on our ability to generate positive cash flows from operations, which is subject to general economic conditions, competitive pressures and certain financial, business and other factors beyond our control.
Relocating a facility involves significant expense in connection with the movement and installation of specialized equipment and any necessary recertification or licensing with regulatory authorities. Closing a facility, even briefly to relocate, would reduce the sales that such facility would have contributed to our revenues and could negatively impact our customer relations.
Relocating a facility involves significant expense in connection with the movement and installation of specialized equipment and any necessary recertification or licensing with regulatory authorities. Even briefly closing a facility to relocate would reduce the sales that the facility would have contributed to our revenues and could negatively impact our customer relations.
Defense of litigation may result in diversion of management attention from other priorities. We may well be subject to future claims in addition to those described above by or on behalf of similar groups of plaintiffs, including potentially our employees or former employees, relating to any of our current or former facilities or activities.
Defense of litigation may result in diversion of management attention from other priorities. We may be subject to future claims in addition to those described above by or on behalf of similar groups of plaintiffs, including potentially our employees or former employees, relating to any of our current or former facilities or activities.
To the extent Nordion in the future ceases to operate its facility in Kanata, Canada, Nordion will be responsible for the radiological decommissioning of such facility, including in respect of the portion leased by BWX Technologies, Inc. (“BWXT”) in connection with its 2018 acquisition of the Medical Isotopes business to the extent any contamination precedes such transaction.
To the extent Nordion in the future ceases to operate its facility in Kanata, Canada, Nordion will be responsible for the radiological decommissioning of such facility, including in respect of the portion leased by BWX Technologies, Inc. in connection with its 2018 acquisition of the Medical Isotopes business to the extent any contamination precedes such transaction.
For example, in September 2019, we were unable to reach an agreement to renew the lease on our EO processing facility in Willowbrook, following community pressure resulting from negative publicity surrounding our Willowbrook facility. If we are unable to renew our facility leases, we may be required to relocate or close a facility.
For example, in September 2019, we were unable to reach an agreement to renew the lease on our EO processing facility in Willowbrook, Illinois following community pressure resulting from negative publicity surrounding the facility. If we are unable to renew our facility leases, we may be required to relocate or close a facility.
A breach of any of these covenants could result in a default under each of our Senior Secured Credit Facilities. Upon the occurrence of an event of default, the lenders could elect to declare all amounts outstanding under the Senior Secured Credit Facilities immediately due and payable and terminate all commitments to extend further credit.
A breach of any of these covenants could result in a default under each of our Combined Senior Secured Credit Facilities. Upon the occurrence of an event of default, the lenders could elect to declare all amounts outstanding under the Combined Senior Secured Credit Facilities immediately due and payable and terminate all commitments to extend further credit.
We may be adversely affected by global and regional economic and political conditions. The uncertainty or deterioration of the global economic and political environment could adversely affect us. Russia’s invasion of Ukraine has significantly elevated global geopolitical tensions and has caused and continues to cause instability and volatility in global markets.
We may be adversely affected by global and regional economic and political conditions. The uncertainty or deterioration of the global economic and political environment could adversely affect us. Russia’s invasion of Ukraine has significantly elevated global geopolitical tensions and continues to cause instability and volatility in global markets.
Our high degree of leverage could have important consequences, including: • making it more difficult for us to satisfy our obligations; • increasing our vulnerability to general economic and industry conditions; • requiring a substantial portion of cash flow from operations to be used to pay off principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities; • exposing us to the risk of increased interest rates as our indebtedness is at variable interest rates; • restricting us from making strategic acquisitions or causing us to make non-strategic divestitures; • limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions, appellate litigation bonding expenses and general corporate or other purposes; • limiting our ability to adjust to changing market conditions and placing us at a disadvantage compared to our competitors that are less highly leveraged; and • causing us to pay higher rates if we need to refinance our indebtedness at a time when prevailing market interest rates are unfavorable.
Our high degree of leverage could have important consequences, including: • making it more difficult for us to satisfy our obligations; • increasing our vulnerability to general economic and industry conditions; • requiring a substantial portion of cash flow from operations to be used to pay off principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities; • exposing us to the risk of increased interest rates as our indebtedness is at variable interest rates; • restricting us from making strategic acquisitions or causing us to make non-strategic divestitures; • limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions, appellate litigation bonding expenses and general corporate or other purposes; 37 Table of Contents • limiting our ability to adjust to changing market conditions and placing us at a disadvantage compared to our competitors that are less highly leveraged; and • causing us to pay higher rates if we need to refinance our indebtedness at a time when prevailing market interest rates are unfavorable.
To the extent our insurance coverage is inadequate and we are not successful in identifying additional coverage for such claims, we would have to pay any costs or losses in excess of policy limits, including potentially costs to defend such claims, and the amount of any settlement or judgment.
To the extent our insurance coverage is inadequate and we are not successful in identifying additional coverage for such claims, we would have to pay any costs or losses in excess of policy limits, including costs to defend such claims, and the amount of any settlement or judgment.
Because we are exposed to interest rate risk through our variable-rate borrowings, we have entered into and may, in the future, enter into additional interest rate swaps that involve the exchange of floating for fixed rate interest payments in order to reduce interest rate volatility and interest rate cap agreements.
Because we are exposed to interest rate risk through our variable-rate borrowings, we have entered into and may, in the future, enter into additional interest rate swaps that involve the exchange of floating for fixed rate interest payments to reduce interest rate volatility and interest rate cap agreements.
If we were unable to repay those amounts, the lenders under the Senior Secured Credit Facilities could foreclose on the collateral granted to them to secure each such indebtedness. We have pledged substantially all of our assets as collateral under the Senior Secured Credit Facilities.
If we were unable to repay those amounts, the lenders under the Combined Senior Secured Credit Facilities could foreclose on the collateral granted to them to secure each such indebtedness. We have pledged substantially all of our assets as collateral under the Combined Senior Secured Credit Facilities.
Our operations and our supplier and customers’ operations are subject to business continuity hazards and risks that include explosions, fires, earthquakes, inclement weather and other natural disasters; utility, equipment or other mechanical failures; unscheduled downtime; labor difficulties; disruption of communications; security breach or other workplace violence events; changes in regulations, including sanctions, export and import controls and other trade restrictions; changes in the use of government-owned reactors, including repurposing nuclear facilities; other governmental action; and pandemics or other public health crises.
Our operations and our supplier and customers’ operations are subject to business continuity hazards and risks that include explosions, fires, earthquakes, inclement weather and other natural disasters; utility, equipment or other mechanical failures; unscheduled downtime; labor difficulties; disruption of communications; security breaches or other workplace violence events; changes in regulations, including sanctions, export and import controls and other trade restrictions; changes in the use of government-owned reactors, including repurposing nuclear facilities; other governmental action; and pandemics or other public health crises.
In addition, insurance coverage is subject to exclusions, which change from time to time based on industry developments. Our product and professional liability insurance does not cover matters related to EO emissions, for example.
In addition, insurance coverage is subject to exclusions, which change from time to time based on industry developments. Our current product and professional liability insurance does not cover matters related to EO emissions, for example.
Our Stockholders’ Agreement contains agreements among the parties with respect to certain matters, including the election of directors; mergers, consolidations and acquisitions; the sale of all or substantially all of our assets and other decisions affecting our capital structure; the amendment of our amended and restated certificate of incorporation and our amended and restated bylaws; the termination of our chief executive officer or designation of a new chief executive officer; changes in the composition of committees of our board of directors; entry into or changes to certain compensation agreements; and the issuance of additional shares of our common stock.
Our Stockholders’ Agreement contains agreements with respect to certain other matters, including the election of directors; mergers, consolidations and acquisitions; the sale of all or substantially all of our assets and other decisions affecting our capital structure; the amendment of our amended and restated certificate of incorporation and our amended and restated bylaws; the termination of our chief executive officer or designation of a new chief executive officer; changes in the composition of committees of our board of directors; entry into or changes to certain compensation agreements; and the issuance of additional shares of our common stock.
In addition, some manufacturers have or are developing in-house sterilization and lab testing and related capabilities, and further consolidation within our industry and within our customers’ industries could impact our ability to compete.
In addition, some manufacturers have developed or are developing in-house sterilization and lab testing and related capabilities, and further consolidation within our industry and within our customers’ industries could impact our ability to compete.
We are also subject to the export and import laws of those other foreign jurisdictions in which we operate, sell our products into and from which we source our materials, including Co-60.
We are also subject to the export and import laws of other foreign jurisdictions in which we operate, into which we sell our products and from which we source our materials, including Co-60.
Our ability to increase pollution liability insurance limits or replace any policies upon their expiration without exclusions for claims related to alleged EO exposure has been adversely impacted by claims against us, including current claims alleging that purported EO emissions from certain of our facilities have resulted in toxicological or health-related impacts on the environment and the communities that surround these facilities.
Our ability to increase pollution liability insurance limits or replace any policies upon their expiration without exclusions for claims related to alleged EO exposure has been adversely impacted by claims against us, including pending claims alleging that purported EO emissions from certain of our facilities have resulted in toxicological or health-related impacts on the environment and the communities that surround these facilities.
As part of our strategy, we have in the past and may in the future seek to grow our business through acquisitions, and any such acquisition may be significant.
As part of our strategy, we have in the past grown, and may in the future seek to grow our business through acquisitions, and any such acquisition may be significant.
In addition, under certain circumstances we are required to satisfy and maintain specified financial ratios and other financial condition tests under certain covenants in our Senior Secured Credit Facilities.
In addition, under certain circumstances we are required to satisfy and maintain specified financial ratios and other financial condition tests under certain covenants in our Combined Senior Secured Credit Facilities.
Under these rules, a company of which more than 50% of the voting power is held by another person or group of persons acting together is a “controlled company” and may elect not to comply with certain corporate governance requirements, including: • the requirement that a majority of our board of directors consist of independent directors; • the requirement that our director nominations be made, or recommended to the full board of directors, by our independent directors or by a nominations committee that is comprised entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; • the requirement that our compensation committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and 42 Table of Contents • the requirement that we conduct an annual performance evaluation of the nominating and corporate governance and compensation committees.
Under these rules, a company of which more than 50% of the voting power is held by another person or group of persons acting together is a “controlled company” and may elect not to comply with certain corporate governance requirements, including: • the requirement that a majority of our board of directors consist of independent directors; • the requirement that our director nominations be made, or recommended to the full board of directors, by our independent directors or by a nominations committee that is comprised entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; • the requirement that our compensation committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and • the requirement that we conduct an annual performance evaluation of the nominating and corporate governance and compensation committees.
In addition, our amended and restated certificate of incorporation contains a provision that provides us with protections similar to Section 203 of the Delaware General Corporation Law (“DGCL”), and prevents us from engaging in a business combination with a person (excluding the Sponsors and any of their respective direct or indirect transferees and any group as to which such persons are a party) who acquires at least 15% of our common stock for a period of three years from the date such person acquired such common stock, unless board or stockholder approval is obtained prior to the acquisition.
In addition, our amended and restated certificate of incorporation contains a provision that provides us with protections similar to Section 203 of the Delaware General Corporation Law (“DGCL”), and prevents us from engaging in a business combination with a person (excluding the Sponsors and any of their respective direct or indirect transferees and any group as to which such 43 Table of Contents persons are a party) who acquires at least 15% of our common stock for a period of three years from the date such person acquired such common stock, unless board or stockholder approval is obtained prior to the acquisition.
Thus, if the Defendant Subsidiaries are unable to meet collateral requirements to post an appellate bond to stay the enforceability of a judgment, absent judicial relief, we may be required to negotiate with our current lenders under our Senior Secured Credit Facilities and the success of such negotiations cannot be assured.
Thus, if the Defendant Subsidiaries are unable to meet collateral requirements to post an appellate bond to stay the enforceability of a judgment, absent judicial relief, we may be required to negotiate with our current lenders to avert a default under our senior secured credit facilities and the success of such negotiations cannot be assured.
In the United States, marijuana (all parts of the cannabis plant other than those parts that are exempt) is a Schedule I controlled substance under federal law. In other countries in which the cultivation and use of marijuana is legalized, most notably in Canada, our operations include irradiation services for recreational and medical marijuana.
In the United States, marijuana (all parts of the cannabis plant other than those parts that are exempt) presently remains a Schedule I controlled substance under federal law. In other countries in which the cultivation and use of marijuana is legalized, most notably in Canada, our operations include irradiation services for recreational and medical marijuana.
If in the future, we determine that there has been an impairment, our financial results for the relevant period would be reduced by the amount of the non-cash impairment charge, net of any income tax effects, which could have an adverse effect on our financial condition or results of operations.
If we were to determine in the future that there has been an impairment, our financial results for the relevant period would be reduced by the amount of the non-cash impairment charge, net of any income tax effects, which could have an adverse effect on our financial condition or results of operations.
Any inability of current or potential customers to purchase or pay for our products due to, such declining economic conditions or changes in spending patterns at medical device, pharmaceutical and biotechnology companies may have a negative impact on our business, prospects, financial condition or results of operations.
Any inability of current or potential customers to purchase or pay for our products because of such declining economic conditions or changes in spending patterns at medical device, pharmaceutical and biotechnology companies may have a negative impact on our business, prospects, financial condition or results of operations.
Breaches in security, system interruptions and unauthorized disclosure of data, whether perceived or actual, could adversely affect our businesses, assets, revenues, brands and reputation and result in fines, litigation, regulatory proceedings and investigations, increased insurance premiums, remediation efforts, indemnification expenditures, lost revenues and other potential liabilities.
Breaches in security, system interruptions and unauthorized disclosures of data, whether perceived or actual, could adversely affect our businesses, assets, revenues, brands and reputation and result in fines, litigation, regulatory proceedings and investigations, increased insurance premiums, remediation efforts, indemnification expenditures, lost revenues and other potential liabilities.
Compliance with multiple, and potentially conflicting, international laws and regulations, including anti-corruption laws and exchange controls may be difficult, burdensome or expensive. While our employees and agents are required to comply with these laws, our internal policies and procedures may not always prevent violations.
Compliance with multiple, and potentially conflicting, international laws and regulations, including anti-corruption laws and exchange controls, at times may be difficult, burdensome or expensive. While our employees and agents are required to comply with these laws, our internal policies and procedures may not always prevent violations.
Our ability to pay dividends on our common stock is limited by the terms of the Senior Secured Credit Facilities.
Our ability to pay dividends on our common stock is limited by the terms of the Combined Senior Secured Credit Facilities.
If we are unable to conclude that our 34 Table of Contents internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of shares of our common stock could decline and we could be subject to sanctions or investigations by the Nasdaq, the SEC or other regulatory authorities.
If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of shares of our common stock could decline and we could be subject to sanctions or investigations by the Nasdaq, the SEC or other regulatory authorities.
Changes in environmental, health and safety regulations or preferences may negatively impact our business. Federal, state and international authorities regulate all operations within our three business units, including the operation of our gamma irradiation and EO processing plants, as well as the operations of our customers.
Changes in environmental, health and safety regulations or preferences may negatively impact our business. Federal, state, local and international authorities regulate operations within our three business units, including the operation of our gamma irradiation and EO processing plants, as well as the operations of our customers.
Pursuant to the Sarbanes-Oxley Act, we furnished a report by our management on the effectiveness of our internal control over financial reporting as of December 31, 2022. This assessment is required to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting.
Pursuant to the Sarbanes-Oxley Act, we furnished a report by our management on the effectiveness of our internal control over financial reporting as of December 31, 2023. This assessment is required to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting.
We cannot be assured that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition or results of operations.
We cannot be certain that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition or results of operations.
These include: • difficulties associated with compliance with numerous, potentially conflicting and frequently complex and changing laws in multiple jurisdictions, e.g., with respect to environmental matters, intellectual property, privacy and data protection, corrupt practices, embargoes, trade sanctions, competition, employment and licensing; • general economic, social and political conditions in countries where we operate, including international and U.S. trade and sanctions policies and currency exchange rate fluctuations; • tax and other laws that restrict our ability to use tax credits, offset gains or repatriate funds; • currency restrictions, transfer pricing regulations and adverse tax consequences, which may affect our ability to transfer capital and profits; • inflation, deflation and stagflation in any country in which we have a manufacturing facility; • foreign customers with longer payment cycles than customers in the United States; and • imposition of or increases in customs duties and other tariffs.
These include: • difficulties associated with compliance with numerous, potentially conflicting and frequently complex and changing laws in multiple jurisdictions relating to environmental matters, intellectual property, privacy and data protection, corrupt practices, embargoes, trade sanctions, competition, employment and licensing, among other things; • general economic, social and political conditions in countries where we operate, including international and U.S. trade and sanctions policies and currency exchange rate fluctuations; • tax and other laws that restrict our ability to use tax credits, offset gains or repatriate funds; • currency restrictions, transfer pricing regulations and adverse tax consequences, which may affect our ability to transfer capital and profits; • inflation, deflation and stagflation in any country in which we have a manufacturing facility; • foreign customers with longer payment cycles than customers in the United States; and • the imposition of or increases in customs duties and other tariffs.
The commercial recreational cannabis industry is a relatively new industry in Canada and Canada’s Cannabis Regulations have been in effect in its current form since only October 2018. Likewise, laws and regulations governing cannabis in European countries have evolved rapidly over recent years.
The commercial recreational cannabis industry is a relatively new industry in Canada and Canada’s Cannabis Regulations have been in effect in their current form since only October 2018. Likewise, laws and regulations governing cannabis in European countries have evolved rapidly over recent years.
On February 23, 2023, SHH entered into the First Lien 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 per annum rate equal to either (x) the Term Secured Overnight Financing Rate (“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%.
On February 23, 2023, SHH entered into the First Lien 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 per annum rate equal to either (x) the Term Secured Overnight Financing Rate (“Term SOFR”) (as defined in the 2023 Credit Agreement) plus an applicable margin of 3.75% or (y) an alternative base rate (“ABR”) plus an applicable margin of 2.75%.
In addition, FDA regulations dictate the acceptable amount of EO residue on different types of sterilized products. In most jurisdictions, we are required to maintain and operate pollution control equipment to minimize emissions and releases of EO.
In addition, FDA and comparable foreign regulations dictate the acceptable amount of EO residue on different types of sterilized products. In most jurisdictions, we are required to maintain and operate pollution control equipment to minimize emissions and releases of EO.
In addition, in the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies, and a putative class action of this kind is currently pending against us.
In addition, in the past, following periods of volatility in the overall market and the market price of companies’ securities, securities class action litigation has often been instituted against these companies, and a putative class action of this kind is currently pending against us.
In connection with our initial public offering (“IPO”), we entered into a stockholders’ agreement with certain holders of our common stock, including investment funds and entities affiliated with either Warburg Pincus or GTCR and members of our management team, which we refer to as the “Stockholders’ Agreement.” Under the Stockholders’ Agreement, individual stockholders who were members of our management before the IPO, and other persons related to these individuals, are subject to contractual restrictions on transfer of shares of our common stock.
In connection with our initial public offering (“IPO”), we entered into a stockholders’ agreement with certain holders of our common stock, including investment funds and entities affiliated with either Warburg Pincus or GTCR and members of our management team, which we refer to as the “Stockholders’ Agreement.” Under the Stockholders’ Agreement, individual stockholders who were members of our management before the IPO, and other persons related to these individuals, are subject to contractual restrictions on transfer of shares of our common stock until November 19, 2026.
Further, as a result of our global operations, we generate a significant portion of our revenue and incur a significant portion of our expenses in currencies other than the U.S. dollar, including the euro, the Brazilian real, the British pound sterling, the Chinese yuan, the Thai baht, the Mexican peso, the Danish krone, the Costa Rica colon and the Canadian dollar.
Further, as a result of our global operations, we generate a significant portion of our revenue and incur a significant portion of our expenses in currencies other than the U.S. dollar, including the euro, the Brazilian real, the British pound sterling, the 31 Table of Contents Chinese yuan, the Thai baht, the Mexican peso, the Danish krone, the Costa Rica colon and the Canadian dollar.
We source a substantial portion of our Co-60 supply from three nuclear reactor operators and five reactor sites in Canada and Russia under contracts that extend to between 2024 and 2064.
We source a substantial portion of our Co-60 supply from three nuclear reactor operators and five reactor sites in Canada and Russia under contracts that extend to between 2025 and 2064.
Any decisions to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, among 45 Table of Contents other things, our results of operations, financial condition, cash requirements, contractual restrictions, restrictions imposed by applicable law and other factors that our board of directors may deem relevant.
Any decisions to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions, restrictions imposed by applicable law and other factors that our board of directors may deem relevant.
We purchase certain direct materials, equipment and services necessary for the provision of our specialized products and services from a limited number of suppliers and subcontractors, and, in certain cases, purchase large quantities of product from a sole supplier.
We purchase certain direct materials, equipment and services necessary for our specialized products and services from a limited number of suppliers and subcontractors, and, in certain cases, we purchase large quantities of product from a sole supplier.
For more information, see Risk Factor 27 Table of Contents “— Severe health events, such as the ongoing COVID-19 pandemic, or environmental events, including impacts from climate change, and natural disasters, could have adverse effects on our business, financial condition and results of operations, which could be material.” Demand for our products and services may also be affected by changes from time to time in the laws and regulations that govern our operations and industry, including the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, which in turn may impact industry trends.
For more information, see Risk Factor “— Severe health events or environmental events, including impacts from climate change, and natural disasters, could have adverse effects on our business, financial condition and results of operations, which could be material.” Demand for our products and services may also be affected by changes from time to time in the laws and regulations that govern our operations and industry, including the Patient Protection and Affordable Care Act, as amended by the Health Care and Education 27 Table of Contents Reconciliation Act, which in turn may impact industry trends.
Although we maintain product and professional liability insurance coverage in amounts we believe are customary, there can be no assurance that this level of coverage is adequate or that we will be able to continue to maintain our existing insurance or obtain comparable insurance at a reasonable cost, if at all.
Although we maintain product and professional liability insurance coverage in amounts we believe are customary for a company of our size, there can be no assurance that this level of coverage is adequate or that we will be able to continue to maintain our existing insurance or obtain comparable insurance at a reasonable cost, if at all.
Any injuries or damage to persons, equipment or property or other disruption in the disposal, production, processing or distribution of products could result in a significant decrease in operating revenue, a significant increase in costs to replace or repair and insure our assets and substantial reputational harm, which could materially adversely affect our business, prospects, financial condition or results of operations, and could have legal consequences that affect our ability to continue to operate the affected facility.
Any injuries or damage to people, equipment or property or other disruptions in the disposal, production, processing or distribution of products could result in a significant decrease in operating revenue, a significant increase in costs to replace or repair and insure our assets and substantial reputational harm, which could materially adversely affect our business, prospects, financial condition or results of operations, and could have legal consequences that affect our ability to continue to operate the affected facility.
In addition, if Sterigenics in the future ceases to operate any of its irradiation facilities, it will be responsible for decommissioning costs in respect of such facilities. We currently provide financial assurance for approximately $54 million of such decommissioning liabilities in the aggregate in the form of letters of credit, surety bonds or other surety.
In addition, if Sterigenics in the future ceases to operate any of its irradiation facilities, it will be responsible for decommissioning costs in respect of such facilities. We currently provide financial assurance for approximately $48.2 million of such decommissioning liabilities in the aggregate in the form of letters of credit, surety bonds or other surety.
Further, in connection with past and future acquisitions by us, there is a risk of successor liability relating to such laws in connection with prior actions or alleged actions of an acquired company.
Further, in connection with past and future acquisitions by us, there is a risk of successor liability relating to such laws in connection with prior actions of an acquired company.
Outside of the United States, United Kingdom and the European Union, many jurisdictions have adopted or are adopting new data privacy laws that impose 35 Table of Contents further onerous compliance requirements, such as data localization, which prohibit companies from storing outside the jurisdiction data relating to resident individuals.
Outside of the United States, United Kingdom and the European Union, many jurisdictions have adopted or are adopting new data privacy laws that impose further onerous compliance requirements, such as data localization, which prohibit companies from storing outside the jurisdiction data relating to resident individuals.
While we make efforts to protect our interests through contractual provisions, quality assurance programs and the nature of our commercial relationships, there is no assurance that any of these measures will prove effective in shielding us from liability, and any such liability or consequences could have a material adverse impact on our business, results of operation and financial condition.
While we make efforts to protect our interests through contractual provisions, quality assurance programs and the nature of our commercial relationships, there is no assurance that any of these measures or liability channeling laws or conventions will always prove effective in shielding us from liability, and any such liability or consequences could have a material adverse impact on our business, results of operation and financial condition.
Certain of the acquisition agreements by which we have acquired companies require the former owners to indemnify us against certain liabilities related to the operation of the company before we acquired it. In most of these agreements, however, the liability of the former owners is limited, and certain former owners may be unable to meet their indemnification responsibilities.
Certain of the acquisition agreements by which we have acquired companies require the former owners to indemnify us against certain liabilities related to the operation of the companies before we acquired them. In most of these agreements, however, the liability of the former owners is limited, and certain former owners may be unable to meet their indemnification responsibilities.
Furthermore, legal proceedings to protect or enforce our intellectual property rights could result in narrowing the scope of our intellectual property rights or substantial cost to us, and they may be time consuming and divert resources and the attention of management and key personnel, and the outcomes of such actions may be unpredictable.
Furthermore, legal proceedings to protect or enforce our intellectual property rights could result in narrowing the scope of our 34 Table of Contents intellectual property rights or substantial cost to us, and they may be time consuming and divert resources and the attention of management and key personnel, and the outcomes of such actions may be unpredictable.
Thus, holders of our common stock bear the risk that our future offerings may reduce the market price of our common stock and dilute their stockholdings in us. A sale of a substantial number of shares of our common stock, or the perception that such sales might occur, may cause the price of our common stock to decline.
Thus, holders of our common stock bear the risk that our future offerings may reduce the market price of our common stock and dilute their stockholdings in us. 40 Table of Contents A sale of a substantial number of shares of our common stock, or the perception that such sales might occur, may cause the price of our common stock to decline.
In addition, awards against and settlements by us or our competitors or publicity associated with our current litigation could incentivize parties to bring additional claims against us. The financial impact of litigation, particularly class action and mass action lawsuits, is difficult to assess or quantify.
In addition, awards against and settlements by us or our competitors or publicity associated with EO-related litigation could incentivize parties to bring additional claims against us. The financial impact of litigation, particularly class action and mass action lawsuits, is difficult to assess or quantify.
In our Nelson Labs business, through the acquisition of BioScience in March 2021, we periodically engage in clinical trials or studies and are subject to additional regulatory requirements, including those relating to human subject protection, good clinical 24 Table of Contents practices and data privacy.
In our Nelson Labs business, through the acquisition of BioScience in March 2021, we periodically engage in clinical trials or studies and are subject to additional regulatory requirements, including those relating to human subject protection, good clinical practices and data privacy.
If we fail to process a customer’s product in accordance with the cycle parameters, dosage specifications or testing requirements prescribed by the customer, our standard contract requires us to inform our customer of the nonconformance, to reprocess or retest the product if that is a feasible alternative and to reimburse the customer (subject to a maximum) for the cost of any such product which is damaged as a result of the nonconformance.
If we fail to process a customer’s product in accordance with the cycle parameters, dosage specifications or testing requirements prescribed by the customer, our standard contract requires us to inform our customer of the nonconformance, to reprocess or retest the product if that is a feasible alternative and to reimburse the customer (subject to a maximum) for the cost of any products that are damaged as a result of the nonconformance.
For example, during the pandemic, there has been an increase in deferred elective procedures, which negatively impacts demand for some of our products and services as a result of a decrease in the need for sterilized single-use medical devices used in these procedures.
For example, during the pandemic, there was an increase in deferred elective procedures, which negatively impacts demand for some of our products and services as a result of a decrease in the need for sterilized single-use medical devices used in these procedures.
Any settlement or judgment against us arising out of pending or future EO litigation would likely exceed the remaining insurance recoveries available to us and could have a material adverse effect on our business, prospects, financial condition or results of operations. See Note 20 “Commitments and Contingencies” to our consolidated financial statements for more detail on our pending litigation.
Any settlement or judgment against us arising out of pending or future claims related to EO would likely exceed any insurance recoveries available to us and could have a material adverse effect on our business, prospects, financial condition or results of operations. See Note 20, “Commitments and Contingencies” to our consolidated financial statements for more detail on our pending litigation.
However, such insurance may not cover all risks associated with the potential hazards of our business and is subject to limitations, including deductibles and maximum liabilities covered. We may incur losses beyond the limits, or outside the coverage, of our insurance policies. Additionally, our insurance for future alleged environmental liabilities excludes coverage for EO claims.
But this insurance may not cover all risks associated with the potential hazards of our business and is subject to limitations, including deductibles and maximum liabilities covered. We may incur losses beyond the limits, or outside the coverage, of our insurance policies. Additionally, our insurance for future alleged environmental liabilities excludes coverage for EO claims.
New US EPA standards based on the 2016 IRIS Assessment for commercial EO sterilization may also make it more difficult and expensive to raise capital for future investments in EO sterilization facilities. In the United States, our gamma irradiation facilities are heavily regulated, including by the NRC and state regulations.
New standards for commercial EO sterilization, such as new US EPA standards based on the 2016 IRIS Assessment, could also make it more difficult and expensive to raise capital for future investments in EO sterilization facilities. In the United States, our gamma irradiation facilities are heavily regulated, including by the NRC and state regulations.
We could be held liable in the future for personal injury, contractual or other damages that are alleged to result from improper or incorrect processing, cycle parameters or dosage specifications, testing or product damage. Even where processing occurred within cycle parameters, we have faced in the past and may face in the future claims of personal injury resulting from processing.
We could be held liable for personal injury, contractual or other damages that are alleged to result from improper or incorrect processing, cycle parameters or dosage specifications, testing or product damage. Even where processing occurred within cycle parameters, we have faced and may face future claims resulting from processing.
We expect to incur capital costs for enhancements to our equipment and to implement process automation and emission control enhancements to comply with these and other changing requirements. If future regulations differ from our current expectation, they may require additional modifications and capital costs beyond what we have budgeted for, which could be material.
We expect to incur capital costs for enhancements to our equipment and to implement process automation and emission control enhancements to comply with these and other evolving requirements. If future regulations differ from our current expectations, they may require additional modifications and capital costs beyond what we have budgeted for, which could be material.
Regulatory agencies may refuse to grant approval or clearance or may require the provision of additional data, and regulatory processes may be time consuming and costly, and their outcome may be uncertain in certain of the countries in 26 Table of Contents which we operate.
Regulatory agencies may refuse to grant approval or clearance or may require the provision of additional data, and regulatory processes may be time consuming and costly, and their outcome may be uncertain in certain of the countries in which we operate.
Companies, businesses or operations acquired or joint ventures created may not be profitable or may not achieve revenue and profitability levels that would justify the investments made. Recent and future acquisitions could also result in the incurrence of indebtedness, subject to the restrictions contained in the documents governing our then-existing indebtedness.
Companies, businesses or operations acquired or joint ventures created may not be profitable or may not achieve revenue and profitability levels sufficient to justify the investments made. Recent and future acquisitions could also result in the incurrence of additional indebtedness subject to the restrictions contained in the documents governing our then-existing indebtedness.
Certain broad market and industry factors may decrease the market price of our common stock, regardless of our actual operating performance. The stock market in general has from time to time experienced extreme price and volume fluctuations, including in recent months.
Certain broad market and industry factors may decrease the market price of our common stock, regardless of our actual operating performance. The stock market in general has from time to time experienced extreme price and volume fluctuations.
See Note 20, “Commitments and Contingencies” to our consolidated financial statements under the heading “Stockholder Lawsuit.” Litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources. The future issuance of additional common stock in connection with our incentive plans, acquisitions or otherwise will dilute all other stockholdings.
See Note 20, “Commitments and Contingencies” to our consolidated financial statements under the heading “Stockholder Lawsuit.” Such litigation could result in substantial costs and a diversion of our management’s attention and resources. The future issuance of additional common stock in connection with our incentive plans, acquisitions or otherwise will dilute all other stockholdings.

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Item 2. Properties

Properties — owned and leased real estate

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Segment (1) Owned Facilities Owned/Leased Facilities (2) Leased Facilities Sterigenics 29 3 16 Nelson Labs 5 1 9 Nordion 1 — 1 (1) Seven of our Sterigenics and Nelson Labs facilities are located at the same address but are considered separate facilities because they require separate infrastructure.
Segment (1) Owned Facilities Owned/Leased Facilities (2) Leased Facilities Sterigenics 29 3 16 Nelson Labs 5 1 7 Nordion 1 — 1 (1) Seven of our Sterigenics and Nelson Labs facilities are located at the same address but are considered separate facilities because they require separate infrastructure.
Item 2. Properties Our corporate headquarters is in Broadview Heights, Ohio, our Sterigenics headquarters is in Oakbrook, Illinois, our Nordion headquarters is in Kanata, Ontario and our Nelson Labs headquarters is in Taylorsville, Utah. As of December 31, 2022, we operated 65 facilities in North America, South America, Europe and Asia.
Item 2. Properties Our corporate headquarters is in Broadview Heights, Ohio, our Sterigenics headquarters is in Oakbrook, Illinois, our Nordion headquarters is in Kanata, Ontario and our Nelson Labs headquarters is in Taylorsville, Utah. As of December 31, 2023, we operated 63 facilities in North America, South America, Europe and Asia.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Legal Proceedings Described in Note 20 “Commitments and Contingencies” of Our Consolidated Financial Statements Note 20 “Commitments and Contingencies” t o our consolidated financial statements for the year ended December 31, 2022 contained in this Annual Report on Form 10-K 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.
Legal Proceedings Described in Note 20, “Commitments and Contingencies” of Our Consolidated Financial Statements Note 20, “Commitments and Contingencies” t o our consolidated financial statements for the year ended December 31, 2023 contained in this Annual Report on Form 10-K 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.
Information regarding our material legal proceedings is included below.
Information regarding our legal proceedings is included below.
This item should be read in conjunction with Note 20 “Commitments and Contingencies” for information regarding the following legal proceedings, which information is incorporated into this item by reference: • Ethylene Oxide Tort Litigation – Illinois and Georgia • Georgia Facility Operations Litigation • New Mexico Attorney General Litigation; and • Stockholder Lawsuit 46 Table of Contents Legal Proceedings That Are Not Described in Note 20 “Commitments and Contingencies” to Our Consolidated Financial Statements In addition to the matters that are identified in Note 20 “Commitments and Contingencies” to our consolidated financial statements for the year ended December 31, 2022 contained in this Annual Report on Form 10-K, and incorporated into this item by reference, the following matter also constitutes a pending legal proceeding, other than ordinary course litigation incidental to our business, to which we are or any of our subsidiaries is a party.
Legal Proceedings That Are Not Described in Note 20, “Commitments and Contingencies” to Our Consolidated Financial Statements In addition to the matters identified in Note 20, “Commitments and Contingencies” to our consolidated financial statements for the year ended December 31, 2023 contained in this Annual Report on Form 10-K, and incorporated into this item by reference, the following matters also constitute material pending legal proceedings, other than ordinary course litigation incidental to our business, to which we are or any of our subsidiaries is a party.
The Public Prosecution Service estimates the illegally obtained advantage by DEROSS to be €0.6 million (US$0.6 million). In February 2018, DEROSS and the two individuals received favorable judgments from the trial court, which did not hold any of them responsible for the alleged criminal offenses. In March 2018, the Public Prosecutor filed an appeal against the favorable judgments.
In February 2018, DEROSS and the two individuals received favorable judgments from the trial court, which did not hold any of them responsible for the alleged criminal offenses. In March 2018, the Public Prosecutor filed an appeal. In May 2023, the Public Prosecutor agreed to a resolution of the proceedings against DEROSS and the two individuals.
While we have received letters from a small number of individuals claiming to live or work in the vicinity of our former 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.
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.
In November 2010, the Public Prosecution Service also started a criminal financial investigation against DEROSS to determine whether it obtained illegal advantages by committing the alleged criminal offenses noted above. Any illegally obtained advantage could then be recovered from DEROSS in subsequent confiscation proceedings.
We agreed to defend and indemnify the two individuals overseeing environmental compliance during the time period of the alleged claims by the Public Prosecutor. In November 2010, the Public Prosecution Service also 47 Table of Contents started a criminal financial investigation against DEROSS to determine whether it obtained illegal advantages by committing the alleged criminal offenses noted above.
Removed
On the basis of the final indictment issued in April 2017, assuming a rarely applied increasing mechanism is not applied in this case, fines in the amount of €0.8 million (US$0.9 million) may be imposed.
Added
This item should be read in conjunction with Note 20, “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 and New Mexico; • Insurance Coverage for Environmental Liabilities; and • Sotera Health Company Securities Litigation and Related Matters.
Removed
We have also agreed to defend and indemnify the two individuals overseeing environmental compliance during the time period of the alleged claims by the Public Prosecutor. Assuming a rarely applied increasing mechanism is not applied in this case, the possible monetary penalties relating to the individuals currently are estimated at a maximum of €0.2 million (US$0.2 million).
Added
The resolution was completed in December 2023, with the Public Prosecutor not appealing further against the 2018 favorable judgments of the trial court, and DEROSS making a contribution of €990,000 to a charity, which was funded from an escrow established in 2011 to satisfy indemnity claims for losses related to this matter.
Removed
The appeal procedure remains pending and will likely take several years to resolve. An escrow account was established in 2011 to satisfy indemnity claims for losses related to this matter.
Added
There can be no assurance that individuals living in the vicinity of the Zoetermeer facility will not file civil claims at some time in the future.
Removed
The balance of the special escrow as of December 31, 2022, was approximately $1.8 million and additional cash collateral held by ABN Amro to provide security for the claims was approximately €2.4 million (US$2.6 million) as of December 31, 2022.
Added
Notice of Violation at Queensbury, New York Ethylene Oxide Sterilization Facility In late May 2023, Sterigenics’ Queensbury, New York facility experienced a power outage that resulted in a failure to restart the facility’s scrubber system (part of the facility’s emission control systems). The disruption of the facility’s scrubber lasted for approximately 48 hours.
Removed
At this time, we believe the indemnification receivable continues to be recoverable and plan to ensure escrow funds remain in place to cover outcomes of an appeal.
Added
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 EO over a period of 48 hours from the 78-foot stack at the facility.
Removed
We have not provided for a contingency reserve in connection with any such potential 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. Item 4. Mine Safety Disclosures Not applicable. 47 Part II
Added
Sterigenics promptly notified the New York State Department of Environmental Conservation (“DEC”) and US EPA about the failure of the scrubber system and resulting releases of 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.
Added
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 continuing.
Added
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.
Added
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 emissions. Sterigenics disputes the allegations.
Added
In December 2023, Sterigenics offered to settle the NOVs for an immaterial amount. Settlement negotiations are continuing. Item 4. Mine Safety Disclosures Not applicable. 48 Part II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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The returns shown are based on historical results and are not intended to suggest future performance. 48 The graph and other information furnished under this Part II Item 5 of this annual report on Form 10-K shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C under, or to the liabilities of Section 18 of, the Exchange Act.
The returns shown are based on historical results and are not intended to suggest future performance. 49 The graph and other information furnished under this Part II Item 5 of this annual report on Form 10-K shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C under, or to the liabilities of Section 18 of, the Exchange Act.
In addition, Delaware law may impose requirements that may restrict our ability to pay dividends. Stock Performance Graph The following graph compares the cumulative total return to stockholders on our common stock relative to the cumulative total returns of the Nasdaq Composite Index and the Standard and Poors (“S&P”) 500 Global Health Care Index.
In addition, Delaware law imposes requirements that may restrict our ability to pay dividends. Stock Performance Graph The following graph compares the cumulative total return to stockholders on our common stock relative to the cumulative total returns of the Nasdaq Composite Index and the Standard and Poors (“S&P”) 500 Global Health Care Index.
An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock and in each index on November 20, 2020, the date our common stock began trading on the Nasdaq, and its relative performance is tracked through December 31, 2022.
An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock and in each index on November 20, 2020, the date our common stock began trading on the Nasdaq, and its relative performance is tracked through December 31, 2023.
Future cash dividends, if any, will be at the discretion of our board of directors and will depend upon, among other things, our financial condition, earnings, capital requirements, level of indebtedness, statutory and contractual restrictions applicable to the payment of dividends and other considerations that our board of directors deems relevant.
Future cash dividends, if any, will be at the discretion of our board of directors and will depend upon, among other things, our financial condition, earnings, capital requirements, level of indebtedness, statutory and contractual restrictions applicable to the payment of dividends and other considerations that our board of directors may deem relevant.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information for Common Stock The Company’s common stock is listed on the Nasdaq under the ticker symbol “SHC.” Holders As of February 23, 2023, we had approximately 84 holders of record of our common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information for Common Stock The Company’s common stock is listed on the Nasdaq under the ticker symbol “SHC.” Holders As of February 20, 2024, we had approximately 83 holders of record of our common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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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 Item 1A, “ “ Risk Factors ” ” and elsewhere in this Annual Report on Form 10-K.
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 Item 1A, “ Risk Factors ” and elsewhere in this Annual Report on Form 10-K.
OVERVIEW We are a leading global provider of mission-critical end-to-end sterilization solutions and lab testing and advisory services for the healthcare industry. We are driven by our mission: Safeguarding Global Health ® .
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 ® .
Provision for income taxes for the year ended December 31, 2022 differed from the statutory rate of 21% primarily due to an increase in the partial valuation allowance against our excess interest expense carryforward balance, $8.0 million of state tax attributes, the impact of the foreign rate differential, partially offset by state taxes (net of federal benefit).
The provision for income taxes for the year ended December 31, 2022 differed from the statutory rate of 21% primarily due to an increase in the partial valuation allowance against our excess interest expense carryforward balance, $8.0 million of state tax attributes, the impact of the foreign rate differential, partially offset by state taxes (net of federal benefit).
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.
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.
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.
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.
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 in an aggregate principal amount of $500.0 million and bears interest, at the Company’s option, at a per annum rate 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%.
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 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) 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%.
If we are unable to generate sufficient future taxable income in certain tax jurisdictions, or if there is a material change in the effective income tax rates or 68 time period within which the underlying temporary differences become taxable or deductible, we could be required to increase our valuation allowance, which would increase our effective income tax rate and could result in an adverse impact on our consolidated financial position or results of operations.
If we are unable to generate sufficient future taxable income in certain tax jurisdictions, or if there is a material change in the effective income tax rates or time period within which the underlying temporary differences become taxable or deductible, we could be required to increase our valuation allowance, which would increase our effective income tax rate and could result in an adverse impact on our consolidated financial position or results of operations.
See Note 16, “Share-Based Compensation” for further information. (b) Represents the effects of (i) fluctuations in foreign currency exchange rates, (ii) non-cash mark-to-fair value of embedded derivatives relating to certain customer and supply contracts at Nordion, and (iii) unrealized gains and losses on interest rate caps not designated as hedging instruments.
See Note 16, “Share-Based Compensation” for further information. (b) Represents the effects of (i) fluctuations in foreign currency exchange rates, (ii) non-cash mark-to-fair value of embedded derivatives relating to certain customer and supply contracts at Nordion, and (iii) unrealized gains and losses on interest rate derivatives not designated as hedging instruments.
We do not capitalize sales commissions as substantially all of our sales commission programs have an amortization period of one year or less. Furthermore, costs to fulfill a contract are not material. Provisions for discounts, rebates to customers, and other adjustments are provided for as reductions in net revenues in the period the related sale was recorded.
We do not capitalize sales commissions because substantially all of our sales commission programs have an amortization period of one year or less. Furthermore, costs to fulfill a contract are not material. Provisions for discounts, rebates to customers, and other adjustments are provided for as reductions in net revenues in the period the related sale was recorded.
When we evaluate assets for impairment, we make certain judgments and estimates, including interpreting current economic indicators and market valuations, evaluating our strategic plans with regards to operations, historical and anticipated performance of operations, and other factors. If we incorrectly anticipate these factors, or 67 unexpected events occur, our operating results could be materially affected.
When we evaluate assets for impairment, we make certain judgments and estimates, including interpreting current economic indicators and market valuations, evaluating our strategic plans with regards to operations, historical and anticipated performance of operations, and other factors. If we incorrectly anticipate these factors, or unexpected events occur, our operating results could be materially affected.
Changes in our judgment related to the measurement of deferred tax assets and liabilities could materially impact our results of operations. We determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of related appeals or litigation processes, based on the technical merits of the position.
Changes in our judgment related to the measurement of deferred tax assets and liabilities could materially impact our results of operations. 67 We determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of related appeals or litigation processes, based on the technical merits of the position.
Our chief operating decision maker evaluates performance and allocates resources within our business based on segment income, which excludes certain items which are 59 included in income (loss) 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 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 (loss) 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.
Refunds, returns, warranties and other related obligations are not material to any of our business units, nor do we incur material incremental costs to secure customer contracts. The Sterigenics segment provides outsourced terminal sterilization and irradiation services for the medical device, pharmaceutical, food safety and advanced applications markets.
Refunds, returns, warranties and other related obligations are not material to any of our business units and we do not incur material incremental costs to secure customer contracts. The Sterigenics segment provides outsourced terminal sterilization and irradiation services for the medical device, pharmaceutical, food safety and advanced applications markets.
On March 11, 2021, we purchased the 15% noncontrolling interest that remained from the August 2018 acquisition of Gibraltar Laboratories, Inc. (now known as Nelson Laboratories Fairfield, Inc.) (“Nelson Labs Fairfield”). As the purchase of this noncontrolling interest was mandatorily redeemable, no earnings were allocated to this noncontrolling interest.
On March 11, 2021, we purchased the 15% noncontrolling interest that remained from the August 2018 acquisition of Gibraltar Laboratories, Inc. (known as Nelson Laboratories Fairfield, Inc.) (“Nelson Labs Fairfield”). As the purchase of this noncontrolling interest was mandatorily redeemable, no earnings were allocated to this noncontrolling interest.
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 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; • 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 ethylene oxide sterilization facilities, including those in Willowbrook, Illinois, Atlanta, Georgia and Santa Teresa, New Mexico, 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.
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 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; • loss on extinguishment of debt incurred in connection with refinancing or early extinguishment of long-term debt; 58 • expenses and charges related to the litigation, settlement agreements, and other activities associated with our EO sterilization facilities, including those in Willowbrook, Illinois, Atlanta, Georgia and Santa Teresa, New Mexico, 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 addition, interest payments include the impact of existing interest rate caps described in Note 21, “Financial Instruments and Financial Risk” in the notes to consolidated financial statements. (b) Consists of payments under our finance leases for various equipment and facilities.
In addition, interest payments include the impact of existing interest rate caps and interest rate swap described in Note 21, “Financial Instruments and Financial Risk” in the notes to consolidated financial statements. (b) Consists of payments under our finance leases for various facilities and equipment.
Direct material costs relating to product revenues also include the costs associated with acquiring Co-60 in finished or semi-finished form, acquiring Co-59 in a form ready for insertion into reactors for conversion into Co-60, the reactor time and associated services to convert Co-59 into Co-60, and parts and equipment associated with building and maintaining gamma irradiation systems. 51 Operating Expenses SG&A Expenses SG&A primarily consists of compensation and benefits costs and general operating and administrative expenses, including professional service fees (which include finance and legal costs), travel and entertainment expenses, and other general and administrative expenses.
Direct material costs relating to product revenues also include the costs associated with acquiring Co-60 in finished or semi-finished form, acquiring Co-59 in a form ready for insertion into reactors for conversion into Co-60, the reactor time and associated services to convert Co-59 into Co-60, and parts and equipment associated with building and maintaining gamma irradiation systems. 52 Operating Expenses SG&A Expenses SG&A primarily consists of compensation and benefits costs and general operating and administrative expenses, including professional service fees (which include finance and legal costs), travel and entertainment expenses, and other general and administrative expenses.
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 (loss), 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 year ended December 31, 2022 to the year ended December 31, 2021.
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 (loss), 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 year ended December 31, 2023 to the year ended December 31, 2022.
The estimated fair value of Sterigenics, Nordion and Nelson Labs each exceeded its carrying amount (including goodwill) by an adequate margin to support a positive assertion that goodwill is not impaired as of October 1, 2022. No factors were identified that would result in the potential impairment to the indefinite-lived intangible assets.
The estimated fair value of Sterigenics, Nordion and Nelson Labs each exceeded its carrying amount (including goodwill) by an adequate margin to support a positive assertion that goodwill is not impaired as of October 1, 2023. No factors were identified that would result in the potential impairment to the indefinite-lived intangible assets.
Debt Facilities Senior Secured Credit Facilities On December 13, 2019, Sotera Health Holdings, LLC (“SHH”), our wholly owned subsidiary, entered into senior secured first lien credit facilities (the “Senior Secured Credit Facilities”), consisting of both a prepayable senior secured first lien term loan (the “Term Loan”) and a senior secured first lien revolving credit facility (the “Revolving Credit Facility”) pursuant to a first lien credit agreement (the “2019 Credit Agreement”).
Debt Facilities Senior Secured Credit Facilities On December 13, 2019, Sotera Health Holdings, LLC (“SHH”), our wholly owned subsidiary, entered into senior secured first lien credit facilities (the “Senior Secured Credit Facilities”), consisting of both a prepayable senior secured first lien term loan (the “Term Loan”) and a senior secured first lien revolving credit facility (the “Revolving Credit Facility”) pursuant to a first lien credit agreement (the “Credit Agreement”).
In the second quarter of 2021, we purchased the outstanding noncontrolling interests of 15% and 33% in our two 52 China subsidiaries.
In the second quarter of 2021, we purchased the outstanding noncontrolling interests of 15% and 33% in our two China subsidiaries.
(c) Represents minimum lease payments under our operating leases for several of our facilities and other property and equipment, net of sublease payments. (d) Consists of our best estimate of our obligations under various supply and service agreements, primarily Co-60, that are enforceable and legally binding on us.
(c) Represents minimum lease payments under our operating leases for several of our facilities and other property and equipment. (d) Consists of our best estimate of our obligations under various supply and service agreements, primarily Co-60, that are enforceable and legally binding on us.
The asset or asset group would be considered impaired when the future net undiscounted cash flows generated by the asset or asset group are less than its carrying value. An impairment loss would be recognized based on the amount by which the carrying value of the asset or asset group exceeds its estimated fair value.
The asset or asset group would be considered impaired when the future net undiscounted cash flows generated by the asset or asset group are less than its carrying value. 66 An impairment loss is recognized based on the amount by which the carrying value of the asset or asset group exceeds its estimated fair value.
Nordion Our Nordion business 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.
Nordion Our Nordion business 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 and for the treatment of cancer. In addition, Nordion is a leading global provider of gamma irradiation systems.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Consolidated Results of Operations.” Year Ended December 31, 2022 as compared to Year Ended December 31, 2021 The following table sets forth the components of our results of operations for the years ended December 31, 2022 and 2021.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Consolidated Results of Operations.” Year Ended December 31, 2023 as compared to Year Ended December 31, 2022 The following table sets forth the components of our results of operations for the years ended December 31, 2023 and 2022.
All obligations under the Senior Secured Credit Facilities, and the guarantees of such obligations, are secured by substantially all assets of the borrower and guarantors, subject to permitted liens and other exceptions and exclusions, as outlined in the Senior Secured Credit Facilities.
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.
The discussion of the segment results for the years ended December 31, 2021 and 2020 are presented within our Annual Report on Form 10-K for the year ended December 31, 2021 under “Item 7.
The discussion of the segment results for the years ended December 31, 2022 and 2021 are presented within our Annual Report on Form 10-K for the year ended December 31, 2022 under “Item 7.
Provision (Benefit) for Income Taxes Provision (benefit) for income taxes consists primarily of income taxes in foreign jurisdictions and U.S. federal and state income taxes. Net Income (Loss) Attributable to Noncontrolling Interests We conduct our operations through our subsidiaries. As of December 31, 2022, our consolidated subsidiaries were wholly owned by us.
Provision (Benefit) for Income Taxes Provision (benefit) for income taxes consists primarily of income taxes in foreign jurisdictions and U.S. federal and state income taxes. 53 Net Income (Loss) Attributable to Noncontrolling Interests We conduct our operations through our subsidiaries. As of December 31, 2023, our consolidated subsidiaries were wholly owned by us.
(n) Includes depreciation of Co-60 held at gamma irradiation sites. (o) Represents the difference between income tax expense or benefit as determined under U.S. GAAP and the income tax benefit associated with pre-tax adjustments described in footnote (l).
(n) Includes depreciation of Co-60 held at gamma irradiation sites. (o) Represents the difference between the income tax provision/benefit as determined under U.S. GAAP and the income tax benefit associated with pre-tax adjustments described in footnote (l).
In evaluating whether a tax position has met the more likely-than-not recognition threshold, we presume that the position will be examined by the appropriate taxing authority and that the taxing authority will have full knowledge of all relevant information.
In evaluating whether a tax position meets the more likely-than-not recognition threshold, we presume that the position will be examined by the appropriate taxing authority and that the taxing authority will have full knowledge of all relevant information.
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.
As a result of the time required to meet regulatory and logistics requirements for delivery of radioactive products, combined with accommodations that we make 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.
The Senior Secured Credit Facilities also contain certain customary affirmative covenants and events of default, including upon a change of control.
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.
We review long-lived assets, including finite-lived intangibles for impairment whenever events or circumstances indicate that the carrying amount of the assets may be impaired. Events or circumstances which would result in an impairment assessment include operating losses, a significant change in the use of an asset, or the planned disposal or sale of the asset.
We review long-lived assets, including finite-lived intangible assets, for impairment whenever events or circumstances indicate that the carrying amount of the assets may be impaired. Events or circumstances which would prompt an impairment assessment include operating losses, a significant change in the use of an asset, or the planned disposal or sale of the asset.
Adjusted EBITDA was $506.2 million for the year ended December 31, 2022, as compared to $481.2 million for the year ended December 31, 2021, due to the 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.
Adjusted EBITDA was $528.0 million for the year ended December 31, 2023, as compared to $506.2 million for the year ended December 31, 2022, due to the 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.
“Business” and Note 22, “Segment and Geographic Information” to our consolidated financial statements. 60 Segment Results for the Years Ended December 31, 2022 and 2021 The following section summarizes the segment results for the years ended December 31, 2022 and 2021.
“Business” and Note 22, “Segment and Geographic Information” to our consolidated financial statements. Segment Results for the Years Ended December 31, 2023 and 2022 The following section summarizes the segment results for the years ended December 31, 2023 and 2022.
Our customers include more than 40 of the top 50 medical device companies and nine of the top ten global pharmaceutical companies (based on revenue). 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.
Our customers include over 40 of the top 50 medical device companies and nine of the top ten global pharmaceutical companies (based on revenue). Our services are an essential aspect of our customers’ manufacturing processes and supply chains, helping to ensure sterilized medical products reach healthcare practitioners and patients.
(p) $83.6 million and $85.3 million of the adjustments for the year ended December 31, 2022 and 2021 , 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.
(p) $94.1 million and $83.6 million of the adjustments for the year ended December 31, 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.
As described in Note 20 “Commitments and Contingencies”, the Company reached agreements to settle more than 870 pending and threatened EO claims against the Defendant Subsidiaries in the Circuit Court of Cook County, Illinois, and US District Court for the Northern District of Illinois on January 9, 2023.
As described in Note 20, “Commitments and Contingencies”, the Company reached agreements to settle approximately 880 pending and threatened EO claims against the Defendant Subsidiaries in the Circuit Court of Cook County, Illinois, and US District Court for the Northern District of Illinois on January 9, 2023.
At December 31, 2022 and 2021, we had $101.5 million and $144.7 million, respectively, of standby letters of credit, surety bonds and other bank guarantees outstanding, primarily in favor of local and state licensing authorities for future decommissioning costs, and to support the unfunded portion of our pension obligation.
At December 31, 2023 and 2022, we had $67.3 million and $101.5 million, respectively, of standby letters of credit, surety bonds and other bank guarantees outstanding, primarily in favor of local and state licensing authorities for future decommissioning costs, and to support the unfunded portion of our pension obligation.
These customer relationship intangibles were initially assigned a weighted average useful life of ten years and have a remaining useful life of approximately three years. These customer relationship intangible assets account for $48.9 million of our current annual amortization expense and are expected to be fully amortized in 2025.
These customer relationship intangibles were initially assigned a weighted average useful life of ten years and have a remaining useful life of approximately two years. These customer relationship intangible assets account for $49.0 million of our current annual amortization expense and are expected to be fully amortized in 2025.
We typically have multi-year service contracts with our significant customers, and these sales contracts are primarily based on a customer’s purchase order. Given the relatively short turnaround times, performance obligations are generally satisfied at a point-in-time upon the completion of sterilization or irradiation processing once approved by our quality assurance process, at which time the service is complete.
We typically have multi-year service contracts with our significant customers, and these sales contracts are primarily based on customers’ purchase orders. Given the relatively short turnaround times, performance obligations are generally satisfied at a point-in-time upon the completion of sterilization or irradiation processing and the approval of our quality assurance process, at which time the service is complete.
At December 31, 2022 and 2021, $54.1 million and $50.5 million, respectively, of the standby letters of credit and surety bonds referenced above were outstanding in favor of the various local and state licensing authorities in the event we defaulted on our decommissioning obligation.
At December 31, 2023 and 2022, $48.2 million and $54.1 million, respectively, of the standby letters of credit and surety bonds referenced above were outstanding in favor of the various local and state licensing authorities in the event we defaulted on our decommissioning obligation.
All of SHH’s obligations under the Senior Secured Credit Facilities are unconditionally guaranteed by the Company and each existing and subsequently acquired or organized direct or indirect wholly-owned domestic restricted subsidiary of the Company, with customary exceptions including, among other things, where providing such guarantees is not permitted by law, regulation or contract or would result in material adverse tax consequences.
As of December 31, 2023, we were in compliance with all the Senior Secured Credit Facilities and 2023 Credit Agreement covenants. 63 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.
Net Income (Loss), Adjusted Net Income and Adjusted EBITDA Net loss for the year ended December 31, 2022 was $233.6 million, as compared to net income of $117.1 million for the year ended December 31, 2021 largely driven by the Illinois EO litigation settlement reserve.
Net Income (Loss), Adjusted Net Income and Adjusted EBITDA Net income for the year ended December 31, 2023 was $51.4 million, as compared to net loss of $233.6 million for the year ended December 31, 2022 driven largely by the Illinois EO litigation settlement reserve.
Cash Flow Information The following section summarizes cash flow information for the years ended December 31, 2022 and 2021. Cash flow information for the years ended December 31, 2021 and 2020 are presented within our Annual Report on Form 10-K for the year ended December 31, 2021 under “Item 7.
Cash flow information for the years ended December 31, 2022 and 2021 are presented within our Annual Report on Form 10-K for the year ended December 31, 2022 under Item 7.,.
The discussion of the consolidated results of operation for the years ended December 31, 2021 and 2020 are presented within our Annual Report on Form 10-K for the year ended December 31, 2021 under “Item 7.
CONSOLIDATED RESULTS OF OPERATIONS The following section summarizes the consolidated results of operations for the years ended December 31, 2023 and 2022. The discussion of the consolidated results of operation for the years ended December 31, 2022 and 2021 are presented within our Annual Report on Form 10-K for the year ended December 31, 2022 under “Item 7.
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 Note 20 “Commitments and Contingencies” to our consolidated financial statements.
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.
For the year ended December 31, 2022, capital expenditures increased by $80.2 million compared to the year ended December 31, 2021. • Disciplined and strategic M&A activity . We remain committed to our highly disciplined acquisition strategy and continue to seek suitable acquisition targets. • Litigation related costs and exit activities .
For the year ended December 31, 2023, capital expenditures increased by $32.6 million compared to the year ended December 31, 2022. • Disciplined and strategic M&A activity . We remain committed to our highly disciplined acquisition strategy and continue to seek suitable acquisition targets. • Litigation costs .
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 December 31, 2022, the Company had $66.0 million of letters of credit issued against the Revolving Credit Facility, resulting in total availability under the Revolving Credit Facility of $81.5 million.
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 December 31, 2023, the Company had $23.7 million of letters of credit issued against the Revolving Credit Facility, resulting in total availability under the Revolving Credit Facility of $400.1 million.
Adjusted Net Income was $270.2 million for the year ended December 31, 2022, as compared to $245.8 million for the year ended December 31, 2021, due to the factors described above.
Adjusted Net Income was $230.1 million for the year ended December 31, 2023, as compared to $270.2 million for the year ended December 31, 2022, due to the factors described above.
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, inclusive of debt service on our long-term debt, and capital expenditures including investments in fixed assets to build and/or expand existing facilities.
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 (inclusive of debt service on our long-term 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.
We are currently the subject of tort lawsuits alleging personal injury by purported exposure to EO emitted by our former facility in Willowbrook, Illinois and current facility in Atlanta, Georgia.
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 and Santa Teresa, New Mexico and our former facility in Willowbrook, Illinois.
This provides us with additional insights and allows us to better serve our customers. 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.
This provides us with additional insights and allows us to better serve our customers. For financial reporting purposes, our sterilization services business breaks out into two reportable segments, Sterigenics and Nordion, and our lab services business constitutes a third reportable segment, Nelson Labs.
The change was attributable to a pre-tax loss of $243.1 million (driven by the $408.0 million Illinois EO litigation settlement accrual) in the year ended December 31, 2022 compared to pretax income of $175.7 million for the year ended December 31, 2021.
The change was primarily attributable to the recognition of pre-tax income of $106.0 million in the year ended 57 December 31, 2023 compared to pretax loss of $243.1 million for the year ended December 31, 2022, which was driven by the $408.0 million Illinois EO litigation settlement accrual.
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 and materially contributed to increased health risks suffered by residents in the area.
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 have deteriorated the air quality in Santa Teresa and surrounding communities and materially contributed to increased health risks suffered by residents of those communities.
Net revenues in the year ended December 31, 2022 increased approximately 10.2% compared with the same period in 2021 on a constant currency basis. Service revenues Service revenues increased $59.3 million, or 7.4%, to $864.8 million in 2022 as compared to $805.5 million in 2021.
Net revenues in the year ended December 31, 2023 increased approximately 4.2% compared with the same period in 2022 on a constant currency basis. Service revenues Service revenues increased $40.8 million, or 4.7%, to $905.6 million in 2023 as compared to $864.8 million in 2022.
Impairment of investment in unconsolidated affiliate During the year ended December 31, 2022, we recorded an impairment charge of $9.6 million related to a joint venture investment, which was acquired as part of the 2020 Iotron acquisition.
Under the terms of the agreement, the Company paid $35.0 million in January 2024 to settle the claims. Impairment of investment in unconsolidated affiliate During the year ended December 31, 2022, we recorded an impairment charge of $9.6 million related to a joint venture investment, which was acquired as part of the 2020 Iotron acquisition.
An event of default under the Senior Secured Credit Facilities would occur if the Company or certain of its subsidiaries received one or more enforceable judgments for payment in an aggregate amount in excess of $100.0 million, which judgment or judgments are not stayed or remain undischarged for a period of sixty consecutive days or if, in order to enforce such a judgment, a judgment creditor attached or levied upon assets that are material to the business and operations, taken as a whole, of the Company and certain of its subsidiaries.
An event of default under the Senior Secured Credit Facilities would occur if the Company or certain of its subsidiaries were subject to one or more enforceable judgments in an aggregate amount in excess of $100.0 million and the judgments were not stayed or remained undischarged for sixty consecutive days or, if, such judgments, judgment creditors were to attach liens on assets that are material to the Company’s business and operations taken as a whole.
Cost of product revenues Cost of product revenues increased $0.2 million, or 0.4%, for the year ended December 31, 2022 as compared to the prior year.
Cost of product revenues Cost of product revenues decreased $2.3 million, or 4.1%, for the year ended December 31, 2023 as compared to the prior year.
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.
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 December 31, 2023 and 2022, total borrowings under the Term Loan were $1,763.1 million.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.” Year Ended December 31, 2022 compared to the Year Ended December 31, 2021 (thousands of U.S. dollars) 2022 2021 Net Cash Provided by (Used in): Operating activities $ 277,961 $ 281,545 Investing activities (181,896) (159,833) Financing activities 197,761 (117,286) Effect of foreign currency exchange rate changes on cash and cash equivalents (4,456) 44 Net increase in cash and cash equivalents, including restricted cash, during the period $ 289,370 $ 4,470 Operating activities Cash flows provided by operating activities decreased $3.6 million to net cash provided of $278.0 million in the year ended December 31, 2022 compared to $281.5 million for the prior year.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.” Year Ended December 31, 2023 compared to the Year Ended December 31, 2022 (thousands of U.S. dollars) 2023 2022 Net Cash Provided by (Used in): Operating activities $ (147,732) $ 277,961 Investing activities (214,906) (181,896) Financing activities 265,959 197,761 Effect of foreign currency exchange rate changes on cash and cash equivalents 2,039 (4,456) Net (decrease) increase in cash and cash equivalents, including restricted cash, during the period $ (94,640) $ 289,370 Operating activities Cash flows provided by operating activities decreased $425.7 million to net cash used of $147.7 million for the year ended December 31, 2023 compared to net cash provided of $278.0 million for the prior year.
The following table presents a reconciliation of net income (loss), 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: Year Ended December 31, (in thousands) 2022 2021 Net income (loss) $ (233,570) $ 117,121 Amortization of intangibles 81,554 86,742 Share-based compensation (a) 21,211 13,870 Loss (gain) on foreign currency and derivatives not designated as hedging instruments, net (b) 3,150 (58) Acquisition and divestiture related charges, net (c) 1,398 (6,018) Business optimization project expenses (d) 2,226 948 Plant closure expenses (e) 4,730 2,327 Impairment of investment in unconsolidated affiliate (f) 9,613 — Loss on extinguishment of debt (g) — 20,681 Professional services relating to EO sterilization facilities (h) 72,639 45,656 Illinois EO litigation settlement (i) 408,000 — Accretion of asset retirement obligations (j) 2,194 2,252 COVID-19 expenses (k) 155 761 Income tax benefit associated with pre-tax adjustments (l) (103,081) (38,500) Adjusted Net Income 270,219 245,782 Interest expense, net (m) 78,490 74,192 Depreciation (n) 64,000 64,160 Income tax provision applicable to Adjusted Net Income (o) 93,540 97,095 Adjusted EBITDA (p) $ 506,249 $ 481,229 58 (a) Represents non-cash share-based compensation expense.
The following table presents a reconciliation of net income (loss), 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: Year Ended December 31, (in thousands) 2023 2022 Net income (loss) $ 51,376 $ (233,570) Amortization of intangibles 81,348 81,554 Share-based compensation (a) 32,364 21,211 Loss (gain) on foreign currency and derivatives not designated as hedging instruments, net (b) (1,552) 3,150 Acquisition and divestiture related charges, net (c) 937 1,398 Business optimization project expenses (d) 7,310 2,226 Plant closure expenses (e) (585) 4,730 Impairment of investment in unconsolidated affiliate (f) — 9,613 Professional services relating to EO sterilization facilities (g) 72,122 72,639 Illinois EO litigation settlement (h) — 408,000 Georgia EO litigation settlement (i) 35,000 — Accretion of asset retirement obligations (j) 2,413 2,194 COVID-19 expenses (k) — 155 Income tax benefit associated with pre-tax adjustments (l) (50,617) (103,081) Adjusted Net Income 230,116 270,219 Interest expense, net (m) 116,068 78,490 Depreciation (n) 76,577 64,000 Income tax provision applicable to Adjusted Net Income (o) 105,268 93,540 Adjusted EBITDA (p) $ 528,029 $ 506,249 (a) Represents share-based compensation expense to employees and non-employee directors.
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 Item 1.
Results for our Nordion segment are impacted by Co-60 mix, harvest schedules, and customer, product and service mix. 60 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 Item 1.
For the year ended December 31, 2022, we recorded net revenues of $1,003.7 million, net loss of $233.6 million, Adjusted Net Income of $270.2 million and Adjusted EBITDA of $506.2 million. Adjusted Net Income and Adjusted EBITDA are financial measures not based on any standardized methodology prescribed by U.S. Generally Accepted Accounting Principles (“GAAP”).
For the year ended December 31, 2023, we recorded net revenues of $1,049.3 million, net income of $51.4 million, Adjusted Net Income of $230.1 million and Adjusted EBITDA of $528.0 million. Adjusted Net Income and Adjusted EBITDA are financial measures not based on any standardized methodology prescribed by U.S. Generally Accepted Accounting Principles (“GAAP”).
No unamortized debt issuance costs associated with the Revolving Credit Facility were written off and direct fees and costs incurred in connection with the amendment were immaterial. 63 The Senior Secured Credit Facilities contain additional covenants that, among other things, restrict, subject to certain exceptions, our ability and the ability of our restricted subsidiaries to engage in certain activities, such as incur indebtedness or permit to exist any lien on any property or asset now owned or hereafter acquired, as specified in the Senior Secured Credit Facilities.
The Senior Secured Credit Facilities 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 Company maintains that its former Willowbrook, Illinois operations and current Atlanta, Georgia and Santa Teresa, New Mexico operations did not pose and do not pose any safety risk to their surrounding communities. We deny these allegations and are vigorously defending against these claims. See Item 3, “Legal Proceedings” and Note 20 “Commitments and Contingencies” to our consolidated financial statements.
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. See Item 3, “Legal Proceedings” and Note 20, “Commitments and Contingencies” to our consolidated financial statements.
Illinois EO litigation settlement On January 9, 2023, the Company reached agreements to settle more than 870 pending and threatened EO claims against the Defendant Subsidiaries in the Circuit Court of Cook County, Illinois, and US District Court for the Northern District of Illinois.
Illinois EO litigation settlement On January 9, 2023, the Company reached agreements to settle approximately 880 pending and threatened EO claims against the Settling Defendants in the Circuit Court of Cook County, Illinois, and US District Court for the Northern District of Illinois. Under the terms of the agreements, the Company paid $407.7 million to settle the claims.
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 the Term Loan due to changes in LIBOR (or its successor).
Term Loan Interest Rate Risk Management The Company utilizes interest rate derivatives to reduce the variability of cash flows in the interest payments associated with our variable rate debt due to changes in LIBOR (up to June 22, 2023) and Term SOFR.
The provision for income taxes for the year ended December 31, 2021 differed from the statutory rate of 21% primarily due to an increase in the partial valuation allowance against our excess interest expense carryforward balance, the addition of valuation allowances against certain foreign net operating loss carryforward balances, the impact of the foreign rate differential, and tax on GILTI.
Provision for income taxes for the year ended December 31, 2023 differed from the statutory rate of 21% primarily due to an increase in the partial valuation allowance against our excess interest expense as well as federal and state net operating loss carryforward balances, the impact of the foreign rate differential and nondeductible equity compensation, partially offset by state taxes (net of federal benefit).
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 impacted by Co-60 mix, harvest schedules, as well as customer, product and service mix.
In most cases, 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.
Our management also uses Adjusted Net Income and Adjusted EBITDA in their 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. 57 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.
Our management also uses Adjusted Net Income and Adjusted EBITDA in their 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.
In addition, we believe the following trends and key factors have underpinned our recent operating results and may continue to affect our performance and financial condition in future periods. • Business and market conditions. During the year ended December 31, 2022, Sterigenics and Nordion continued to see sustained demand for sterilization services.
In addition, we believe the following trends and key factors have underpinned our recent operating results and may continue to affect our performance and financial condition in future periods. • Business and market conditions.
These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not measures of performance presented in accordance with U.S. GAAP.
Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not measures of performance presented in accordance with U.S. GAAP. Adjusted Net Income and Adjusted EBITDA (Non-GAAP) We use Adjusted Net Income and Adjusted EBITDA, non-GAAP financial measures, as the principal measures of our operating performance.
The Revolving Credit Facility and Term Loan mature on June 13, 2026, and December 13, 2026, respectively. The total borrowing capacity under the Revolving Credit Facility is $347.5 million.
The Revolving Credit Facility and Term Loan mature on June 13, 2026, and December 13, 2026, respectively. After giving effect to the Revolving Credit Facility Amendment (defined below), the total borrowing capacity under the Revolving Credit Facility is $423.8 million.
The increase reflects organic volume growth of 6.2%, a favorable impact from pricing of 5.8%, partially offset by unfavorable impacts from changes in foreign currency exchange rates of 2.4%. Nordion net revenues were $153.6 million for the year ended December 31, 2022, an increase of $13.1 million, or 9.3%, as compared to the prior year.
The increase was attributable to favorable pricing and changes in foreign currency exchange rates of 6.2% and 0.9%, respectively, partially offset by unfavorable sales volume and mix of 0.6%. Nordion net revenues were $160.5 million for the year ended December 31, 2023, an increase of $6.8 million, or 4.4%, as compared to the prior year.
Goodwill is assigned to our segments at December 31, 2022 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 We performed a quantitative assessment of all reporting units (Sterigenics, Nordion and Nelson Labs) as of October 1, 2022.
Goodwill is assigned to our segments at December 31, 2023 as follows: (thousands of U.S. dollars) Sterigenics Nordion Nelson Labs Total Goodwill at December 31, 2023 $ 659,888 $ 276,929 $ 174,373 $ 1,111,190 We performed a quantitative assessment of all reporting units (Sterigenics, Nordion and Nelson Labs) as of October 1, 2023.
The Company plans to use proceeds of this debt, along with available cash, to a) fund a previously announced $408.0 million EO litigation settlement in Cook County, Illinois, subject to the satisfaction or waiver by the Company of the various conditions for the settlement, b) pay down existing borrowings under the Company’s revolving credit facility, c) further enhance liquidity, and d) for general corporate purposes.
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. The Company used the remaining proceeds to further enhance liquidity and for general corporate purposes.
Illinois EO litigation settlement On January 9, 2023, the Company reached agreements to settle more than 870 pending and threatened EO claims against the Defendant Subsidiaries in the Circuit Court of Cook County, Illinois, and US District Court for the Northern District of Illinois.
Illinois EO litigation settlement On January 9, 2023, the Company reached agreements to settle approximately 880 pending and threatened EO claims against the Settling Defendants in the Circuit Court of Cook County, Illinois, and US District Court for the Northern District of Illinois. Under the binding Term Sheets, the Company paid $407.7 million to settle the claims.
The preparation of consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, estimates and assumptions at a specific 66 point in time and in certain circumstances that affect amounts reported in the accompanying consolidated financial statements.
Our accounting policies are more fully described in Note 1, “Significant Accounting Policies” to our consolidated financial statements. 65 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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Most of our Sterigenics customer contracts contain provisions that permit us to pass all or a portion of our supply price increases to our customers, though some of our contracts do not contain these provisions.
Most of our Sterigenics customer contracts contain provisions that permit us to pass through all or a portion of our supply price increases to our customers, though some of our contracts do not contain these provisions.
These interest rate caps are designated as cash flow hedges and are designed to hedge the variability of cash flows attributable 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%.
These interest rate caps were designated as cash flow hedges and were designed to hedge the variability of cash flows attributable 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%.
Quantitative and Qualitative Disclosures About Market Risk We are exposed to market risks, primarily from changes in commodity prices, interest rates and foreign currency exchange, in the ordinary course of business. 69 Commodity Price Risk We purchase our supply of EO gas from various suppliers around the world, but in the United States there is a sole supplier for EO gas used for applications relevant to our business.
Quantitative and Qualitative Disclosures About Market Risk We are exposed to market risks in the ordinary course of business, primarily changes in commodity prices, interest rates and foreign currency exchange rates and regulatory risk. 68 Commodity Price Risk We purchase our supply of EO gas from various suppliers around the world, but in the United States there is a sole supplier for EO gas used for applications relevant to our business.
Regulatory agencies may also change policies, adopt additional regulations or revise existing regulations, each of which could impact our ability to provide our services. Our failure to comply with the regulatory requirements of these agencies may subject us to administratively or judicially imposed sanctions.
Regulatory agencies may also change policies, adopt additional regulations or revise existing regulations, any of which could impact our ability to provide our services. Our failure to comply with the regulatory requirements of these agencies may subject us to administratively or judicially imposed sanctions.
Regulatory Risk We are subject to extensive regulatory requirements and routine regulatory audits, and we must receive permits, licenses, and/or regulatory clearance or approval for our operations.
Regulatory Risk We are subject to extensive regulatory requirements and routine regulatory audits, and we must receive permits, licenses, and/or regulatory clearance or approval for numerous aspects of our operations.
The fair value of the outstanding foreign currency forward contracts was $0.3 million and $0 as of December 31, 2022 and 2021. Approximately 42.3% of our revenues and 43.2% of our consolidated total assets as of December 31, 2022 are derived from operations outside the United States.
The fair value of the outstanding foreign currency forward contracts was $0.1 million and $0.3 million as of December 31, 2023 and 2022. Approximately 43.7% of our revenues and 48.0% of our consolidated total assets as of December 31, 2023 are derived from operations outside the United States.
Holding other variables constant (such as interest rates and debt levels), if the U.S. dollar had appreciated by 10% against the foreign currencies used by our operations in the year ended December 31, 2022, revenues would have been reduced by approximately $42.5 million and gross profit by approximately $22.8 million. 71
Holding other variables constant (such as interest rates and debt levels), if the U.S. dollar had appreciated by 10% against the foreign currencies used by our operations in the year ended December 31, 2023, revenues would have been reduced by approximately $45.8 million and gross profit by approximately $25.3 million.
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 have a forward start date beginning on December 31, 2022 and expire on July 31, 2023.
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 expired on July 31, 2023.
Consequently, increases or decreases in the value of the U.S. dollar relative to the non-U.S. dollar functional currencies of the countries in which we operate may affect the value of these in our consolidated financial statements, even if their value has not changed in their local currency.
Consequently, increases or decreases in the value of the U.S. dollar relative to the non-U.S. dollar functional currencies of the countries in which we operate may affect the value of assets, liabilities, revenues, expenses and other figures presented in our consolidated financial statements, even if their value has not changed in their local currencies.
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.
The interest rate caps 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.
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 the term SOFR under a portion of our variable rate borrowings to 3.5%.
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%.
Our results of operations are impacted by currency exchange rate fluctuations to the extent that we are unable to match net revenues received in foreign currencies with expenses incurred in the same currency.
Translation adjustments are recorded as a component of accumulated other comprehensive income (loss) within equity. 69 Our results of operations are impacted by currency exchange rate fluctuations to the extent that we are unable to match net revenues received in foreign currencies with expenses incurred in the same currency.
The amended and new interest rate caps limit our cash flow exposure related to the LIBOR base rate under a portion of our variable rate borrowings to 0.5%. 70 Based on our indebtedness outstanding as of February 28, 2023, the interest rate under our Term Loans that was in effect on February 28, 2023, and after applying the effects of interest rate caps referenced above, a 1.0% increase in the interest rate under our outstanding debt obligations as of February 28, 2023, would increase interest expense by approximately $12.6 million per year.
Based on our indebtedness outstanding as of December 31, 2023, the interest rate under our Term Loans that was in effect on December 31, 2023, and after applying the effects of interest rate caps and the swap referenced above, a 1.0% increase in the interest rate under our outstanding debt obligations as of December 31, 2023, would increase interest expense by approximately $8.6 million per year.
These translations could significantly affect the comparability of our results between financial periods and/or result in significant changes to the carrying value of our assets and liabilities. Translation adjustments are recorded as a component of accumulated other comprehensive income (loss) within equity.
These translations could significantly affect the comparability of our results between financial periods and/or result in significant changes to the carrying value of our assets and liabilities.
Even for contracts that do contain these provisions, there could be at least a brief lag between when we incur increased costs for supplies and when we can pass through these costs to our customers. In addition, even when we are contractually permitted to pass on price increases, we may decide not to do so to preserve our sales volumes.
Even for contracts that do contain these provisions, there is often at least a brief lag between when we incur increased costs for supplies and when we can pass through these costs to our customers.
These sanctions include, among others, warning letters, fines, civil penalties, criminal penalties, injunctions, debarment, product seizure or detention and total or partial suspension of operations. The failure to receive or maintain, or delays in the receipt of, relevant U.S. or international regulatory qualifications could have a material adverse effect on our business, prospects, financial condition or results of operations.
The failure to receive or maintain, or delays in the receipt of, relevant U.S. or international regulatory qualifications could have a material adverse effect on our business, prospects, financial condition or results of operations. 70
Beginning in the fourth quarter of 2020, the Company began entering into monthly U.S. dollar-denominated foreign currency forward contracts to manage foreign currency exchange rate risk of our intercompany loans in certain of our international subsidiaries. The foreign currency forward contracts expire on a monthly basis.
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 and non-functional currency assets and liabilities. The foreign currency forward contracts expire on a monthly basis.
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 of July 31, 2023 and expire on July 31, 2024.
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.
Interest Rate Risk We are subject to interest rate risk on borrowings that bear interest at floating rates. From time to time, the Company utilizes interest rate derivatives to reduce the variability of cash flows in the interest payments associated with our variable rate borrowings.
From time to time, the Company utilizes interest rate derivatives to reduce the variability of cash flows in the interest payments associated with our variable rate borrowings. In March 2023, we entered into an interest rate swap agreement with a notional amount of $400.0 million.
Removed
Under the current terms of the loan agreement, the benchmark interest rate index is expected to transition from LIBOR to term SOFR at the earlier of June 30, 2023 or the Company’s election to “early opt-in” to SOFR.
Added
In addition, even when we are contractually permitted to pass on price increases, we may decide not to do so to preserve our sales volumes or for other reasons. Interest Rate Risk We are subject to interest rate risk on borrowings that bear interest at floating rates.
Removed
In June 2020, we entered into two interest rate cap agreements with notional amounts of $1,000.0 million and $500.0 million, respectively, for a total option premium of $0.3 million. These terminated on August 31, 2021 and February 28, 2022, respectively.
Added
The interest rate swap’s effective date began 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.
Removed
The interest rate caps limit our cash flow exposure related to the LIBOR base rate under a portion of our variable rate borrowings to 1.0%.
Added
These sanctions could include, among others, warning letters, fines, civil penalties, criminal penalties, injunctions, debarment, product seizure or detention and total or partial suspension of operations.
Removed
In February 2021, we amended the two interest rate cap agreements referenced above to reduce the strike rate from 1.0% to 0.5%, and extend the termination date of the $1,000.0 million notional cap to September 30, 2021.
Removed
We also entered into two additional interest rate cap agreements in February 2021 with a combined notional amount of $1,000.0 million, for a total option premium of $0.4 million. These instruments were effective September 30, 2021, and terminated on December 31, 2022.

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