Company Quick10K Filing
Avantor
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 569 $10,557
10-K 2020-02-14 Annual: 2019-12-31
10-Q 2019-11-05 Quarter: 2019-09-30
10-Q 2019-08-06 Quarter: 2019-06-30
S-1 2019-02-08 Public Filing
8-K 2020-02-07 Earnings, Exhibits
8-K 2020-01-24 Enter Agreement, Exhibits
8-K 2019-11-05 Earnings, Exhibits
8-K 2019-09-18 Officers
8-K 2019-08-06 Earnings, Exhibits
8-K 2019-06-18 Enter Agreement, Exhibits
8-K 2019-05-23 Officers
8-K 2019-05-21 Enter Agreement, Shareholder Rights, Officers, Amend Bylaw, Other Events, Exhibits
AVTR 2019-12-31
Part I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Control and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Part IV
Item 15. Exhibits, Financial Statement Schedules
Item 16. Form 10-K Summary
EX-4.1 a2019q4ex41.htm
EX-10.28 a2019q4ex1028.htm
EX-10.29 a2019q4ex1029.htm
EX-10.30 a2019q4ex1030.htm
EX-21 a2019q4ex21.htm
EX-23 a2019q4ex23.htm
EX-24 a2019q4ex24.htm
EX-31.1 a2019q4ex311.htm
EX-31.2 a2019q4ex312.htm
EX-32.1 a2019q4ex321.htm
EX-32.2 a2019q4ex322.htm

Avantor Earnings 2019-12-31

AVTR 10K Annual Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
CRCW 12,197 0 1 -1 1 -17 -16 12,198 -77% -758.6 -5,751%
PINS 12,072 2,387 314 463 284 -1,201 -1,189 10,637 61% -8.9 -50%
CHWY 11,715 814 1,176 2,262 526 -112 -105 11,564 23% -109.6 -14%
WYN 10,755 7,466 8,026 3,975 1,877 464 887 15,704 47% 17.7 6%
AVTR 10,557 10,018 7,607 1,532 491 -49 168 15,861 32% 94.7 -0%
ITC 10,383 9,730 7,652 1,269 0 340 876 15,796 0% 18.0 3%
ICGL 10,171 0 1 -0 0 -4 -4 10,171 -2% -2,544.7
ATK 9,838 1,125 295 492 235 53 88 9,787 48% 111.2 5%
BYND 9,802 397 65 107 34 -16 -11 9,555 31% -902.3 -4%
TW 9,176 5,072 618 190 0 25 65 8,861 0% 135.5 0%

10-K 1 a2019q4annualreport.htm 10-K Document


 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number: 001-38912
 
avantorlogo.jpg
Avantor, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
82-2758923
(State or other jurisdiction of incorporation or organization)
(I.R.S. employer identification no.)
Radnor Corporate Center, Building One, Suite 200
100 Matsonford Road
Radnor, Pennsylvania 19087
(Address of principal executive offices) (zip code)
(610) 386-1700
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading symbol
 
Exchange on which registered
Common Stock, $0.01 par value
 
AVTR
 
New York Stock Exchange
6.250% Series A Mandatory Convertible Preferred Stock, $0.01 par value
 
AVTR PRA
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
 




Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ☐ Large Accelerated Filer ☐ Accelerated Filer ☒ Non-accelerated Filer ☐ Smaller reporting company ☐ Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
The aggregate market value of common stock held by our non-affiliates at June 30, 2019 was $10,857,025,862.
On January 31, 2020, 572,905,391 shares of common stock, $0.01 par value per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our definitive proxy statement for our 2020 annual meeting of stockholders will be filed with the SEC on or before 120 days after our 2019 fiscal year-end and are incorporated by reference into Part III of this report.



Avantor, Inc. and subsidiaries
Form 10-K for the fiscal year ended December 31, 2019
Table of contents
 
 
Page
 
 
 
 
 

i


Glossary
 
Description
we, us, our
Avantor, Inc. and its subsidiaries
Legacy Avantor Plan
the Avantor Funding, Inc. (f/k/a Avantor, Inc.) Equity Incentive Plan
Vail Plan
the Avantor, Inc. (f/k/a Vail Holdco Corp) Equity Incentive Plan
2019 Plan
the Avantor, Inc. 2019 Equity Incentive Plan
AMEA
Asia, Middle-East and Africa
AOCI
accumulated other comprehensive income or loss
APAC
Asia Pacific
BIS
the Bureau of Industry and Security
CERCLA
the Comprehensive Environmental Response Compensation and Liability Act
cGMP
Current Good Manufacturing Practice
DDTC
Directorate of Defense Trade controls
DEA
Drug Enforcement Administration
DHHS
Department of Health and Human Service
EMA
European Medicines Agency
EPA
the U.S. Environmental Protection Agency
ERP
enterprise resource planning system
EU
European Union
EURIBOR
the basic rate of interest used in lending between banks on the European Union interbank market
FASB
the Financial Accounting Standards Board of the United States
FCPA
the United States Foreign Corrupt Practices Act
FDA
United States Food and Drug Administration
GAAP
United States generally accepted accounting principles
GDPR
the General Data Protection Regulation
Goldman Sachs
an investment banking firm and its affiliates
high single-digit
7 - 9%
IPO
initial public offering
ISO
International Organization for Standardization or international equivalents
ITAR
the International Traffic In Arms Regulations

ii


 
Description
LIBOR
the basic rate of interest used in lending between banks on the London interbank market
low double-digit
10 - 19%
low single-digit
1 - 3%
Management EBITDA
earnings before interest, income taxes, depreciation, amortization and certain other items, our segment profitability measurement under GAAP
MCPS
6.250% Series A Mandatory Convertible Preferred Stock
mid single-digit
4 - 6%
NCI
noncontrolling interest
New Mountain Capital
a private equity investor and its affiliates
NuSil
NuSil Acquisition Corp, NuSil Investments LLC and subsidiaries, a business organization with which we merged in 2016
NuSil Investors
NuSil LLC and NuSil 2.0 LLC, former owners of NuSil that are controlled by its former management
NYSE
the New York Stock Exchange
OFAC
the U.S. Department of The Treasury’s Office of Foreign Assets Control
OSHA
the U.S. Occupational Safety & Health Administration
PSP Investments
a pension investment manager and its affiliates
Registration Statement
our registration statement on Form S-1 (File No. 333-229578), as amended
RSU
restricted stock unit
SAR
stand alone appreciation right
SEC
the United States Securities and Exchange Commission
SG&A expenses
selling, general and administrative expenses
specialty procurement
product sales related to customer procurement services
VWR
VWR Corporation and its subsidiaries, a company we acquired in November 2017

iii


Cautionary factors regarding forward-looking statements
This report contains forward-looking statements. All statements other than statements of historical fact included in this report are forward-looking statements. Forward-looking statements discuss our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. These statements may be preceded by, followed by or include the words “aim,” “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “intend,” “likely,” “outlook,” “plan,” “potential,” “project,” “projection,” “seek,” “can,” “could,” “may,” “should,” “would,” “will,” the negatives thereof and other words and terms of similar meaning.
Forward-looking statements are inherently subject to risks, uncertainties and assumptions; they are not guarantees of performance. You should not place undue reliance on these statements. We have based these forward-looking statements on our current expectations and projections about future events. Although we believe that our assumptions made in connection with the forward-looking statements are reasonable, we cannot assure you that the assumptions and expectations will prove to be correct.
You should understand that the following important factors, in addition to those discussed under Item 1A, “Risk Factors,” could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in our forward-looking statements:
disruptions to our operations;
competition from other industry providers;
our ability to implement our growth strategy;
our ability to anticipate and respond to changing industry trends;
adverse trends in consumer, business, and government spending;
our dependence on sole or limited sources for some essential materials and components;
our ability to successfully value and integrate acquired businesses;
our products’ satisfaction of applicable quality criteria, specifications and performance standards;
our ability to maintain our relationships with key customers;
our ability to maintain our relationships with distributors;
our ability to maintain consistent purchase volumes under purchase orders;
our ability to maintain and develop relationships with drug manufacturers and contract manufacturing organizations;

iv


the impact of new laws, regulations, or other industry standards;
changes in the interest rate environment that increase interest on our borrowings;
adverse impacts from currency exchange rates or currency controls imposed by any government in major areas where we operate or otherwise;
our ability to implement and improve processing systems and prevent a compromise of our information systems;
our ability to protect our intellectual property and avoid third-party infringement claims;
exposure to product liability and other claims in the ordinary course of business;
our ability to develop new products responsive to the markets we serve;
the availability of raw materials;
our ability to avoid negative outcomes related to the use of chemicals;
our ability to maintain highly skilled employees;
adverse impact of impairment charges on our goodwill and other intangible assets;
fluctuations and uncertainties related to doing business outside the United States;
our ability to obtain and maintain required regulatory clearances or approvals may constrain the commercialization of submitted products;
our ability to comply with environmental, health and safety laws and regulations, or the impact of any liability or obligation imposed under such laws or regulations;
our substantial indebtedness could adversely affect our financial condition and prevent us from fulfilling our debt or contractual obligations;
our ability to generate sufficient cash flows or access sufficient additional capital to meet our debt obligations or to fund our other liquidity needs; and
our ability to maintain an adequate system of internal control over financial reporting.
All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. In addition, all forward-looking statements speak only as of the date of this report. We undertake no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise other than as required under the federal securities laws.

v


PART I
Item 1.
Business
Our mission is to set science in motion to create a better world.
We are a leading global provider of mission critical products and services to customers in the biopharma, healthcare, education & government, and advanced technologies & applied materials industries. Our comprehensive offerings, which include materials & consumables, equipment & instrumentation and services & specialty procurement, are relied upon by our customers, often on a recurring basis, because they are frequently specified into their research, development and production processes. These processes are commonly organized into “workflows” that define the activities our customers perform each day. We collaborate closely with our customers to enable them to develop new innovative products, lower their development and production costs, improve product or process performance characteristics, and enhance the safety and reliability of the drugs, devices and other products they produce. In addition to relying on our products, many customers depend upon our services. Our local presence combined with our global infrastructure enable and promote successful relationships with our customers and connect us to over 225,000 of their locations in over 180 countries.
Our 115-year legacy began in 1904 with the founding of the J.T. Baker Chemical Company. In 2010, we were acquired by New Mountain Capital from Covidien plc. Since then, we have expanded through a series of global acquisitions. In 2016, we merged with NuSil, a leading supplier of high-purity silicone products for the medical device and aerospace industries that was founded in 1985. In 2017, we acquired VWR, a global manufacturer and distributor of laboratory and production products and services founded in 1852. VWR now represents the primary ordering platform for our customers.
Avantor, Inc. was incorporated in Delaware in May 2017 in anticipation of the VWR acquisition. We completed our initial public offering through Avantor, Inc. and listed its shares on the New York Stock Exchange in May 2019.

1


Business segments
We report financial results in three geographic segments based on customer location: the Americas, Europe and AMEA. The following chart presents net sales for each of those segments during 2019:
chart-e8d93859ba11a14ef34.jpg
Within each of our geographic segments, we sell materials & consumables, equipment & instrumentation and services & specialty procurement to customers in the biopharma, healthcare, education & government and advanced technologies & applied materials industries. We work with customers across these sophisticated, science-driven industries that require innovation and adherence to the most demanding technical and regulatory requirements. The following charts present the approximate mix of net sales for each of these groups during 2019:
chart-f8a199e4bcd39bab56ea06.jpgchart-7c066cf0d4f1bd068d7.jpg

2


Products and services
Our portfolio includes a comprehensive range of products and services that allows us to create customized and integrated solutions for our customers. Approximately 85% of our net sales were from product and service offerings that we consider to be recurring in nature. Our products and services are as follows:
Materials & consumables include ultra-high purity chemicals and reagents, lab products and supplies, highly specialized formulated silicone materials, customized excipients, customized single-use assemblies, process chromatography resins and columns, analytical sample prep kits and education and microbiology and clinical trial kits. Some of these are proprietary products that we make while others are created by third-parties.
Equipment & instrumentation include filtration systems, virus inactivation systems, incubators, analytical instruments, evaporators, ultra-low-temperature freezers, biological safety cabinets and critical environment supplies; and
Services & specialty procurement include onsite lab and production, clinical, equipment, procurement and sourcing and biopharmaceutical material scale-up and development services.
In aggregate, we provide approximately six million products, including products we make as well as products from core suppliers across the globe. We manufacture products that meet or exceed the demanding requirements of our customers across a number of highly-regulated industries. Our high-purity and ultra-high purity products, such as our J.T.Baker brand chemicals, are trusted by life sciences and electronic materials customers around the world and can be manufactured at purity levels as stringent as one part-per-trillion. Similarly, our NuSil brand of high-purity, customized silicones has been trusted for more than thirty years by leading medical device manufacturers and aerospace companies.
We complement our products with a range of value-added services. Each day, our onsite service associates work side-by-side with our customers to support their workflows. Our traditional service offerings focus on the needs of laboratory scientists and include procurement, logistics, chemical and equipment tracking and glassware autoclaving. In addition, we offer more complex and value-added scientific research support services such as DNA extraction, bioreactor servicing, clinical and biorepository services and compound management. We deliver these services in part through over 1,300 associates who are co-located with customers, working side-by-side with their scientists every day.
Customers
We benefit from longstanding customer relationships, and approximately 36% of our 2019 net sales came from customers that have had relationships with us for 15 years or more. We also have a diverse customer base with no single end customer comprising more than 4% of net sales.

3


Suppliers
We sell proprietary products we make and third-party products sourced from approximately 4,000 product suppliers located across the globe. Our supplier relationships are based on contracts that vary in geographic scope, duration, product and service type, and some include exclusivity provisions. Those relationships may include distribution, sales and marketing support as well as servicing of instruments and equipment. Many of our supplier relationships have been in place for more than twenty years.
Sales channels
We serve customers throughout the Americas, Europe and AMEA. We reach our customers in these regions through a well-trained global sales force, comprehensive websites and targeted catalogs. Our sales force is comprised of approximately 3,600 sales and sales support professionals, including over 300 sales specialists selected for their in-depth industry and product knowledge. Our sales professionals include native speakers for each of the countries in which we operate, allowing us to have high impact interactions with our customers across the globe.
Our online customer portal plays a vital role in how we conduct business with our customers. In 2019, approximately 51% of our net sales came from our digital channels. Our websites utilize search analytics and feature personalized search tools, customer specific web solutions and enhanced data that optimize our customers’ online purchasing experience and better integrate our customers’ processes with our own. Our websites are designed to integrate acquisitions, drive geographical expansion and serve segmented market needs with relative ease.
Infrastructure
We have over 200 facilities strategically located throughout the globe that include manufacturing, distribution, service, research & technology and sales centers.
We operate 28 global manufacturing facilities, including 13 facilities that are cGMP compliant and 12 facilities that have been registered with the FDA or comparable foreign regulatory authorities. Our facilities are strategically located in North America, Europe and the AMEA region to facilitate supply chain efficiency and proximity to customers. Our manufacturing capabilities include: (i) an ability to quickly change specifications depending on customer needs; (ii) our flexible unit operations, which allow for production scalability, from laboratory pre-clinical development to large-volume commercialization; (iii) proprietary purification technologies designed to ensure lot-to-lot consistency through ultra-low impurity levels; (iv) rigorous analytical quality control testing; and (v) robust regulatory and quality control procedures.
Information technology
We have a highly automated suite of ERP systems that promote standardization and provide business insight. Our global web infrastructure provides seamless integration with our customers and suppliers. These ERP platforms support rapid development and deployment of enhancements

4


so that we may quickly adapt to meet the technology needs of our customers and seamlessly integrate new acquisitions. We have made significant investments to implement common ERP and online platforms that enhance the customer experience and employ network and data security architecture. Since the launch of our online customer portal through December 31, 2019, we had approximately 25.5 million user sessions across 1.5 million registered users.
Competition
We operate in a highly competitive environment with a diverse and fragmented base of competitors, many of whom focus on specific regions, customers, and/or segments. We focus on service and delivery, breadth of product line, customization capabilities, price, customer support, online capabilities and the ability to meet the special and local needs of our customers.
Competition is driven not only by the product quality and purity across each of these industries, but also by the adaptability of the supplier as a developmental and commercial partner. We rely on our scale, expertise, deep customer access, depth of product and value-added service offerings, marketing strategies and sales force, acquisition strategy, financial profile and management team to deliver superior solutions to our customers and provide extensive market channel access to our suppliers.
Employees
As of December 31, 2019, we had approximately 12,000 employees. We believe that our relations with our employees are good. As of December 31, 2019, approximately 6% of our employees in North America were represented by unions, and a majority of our employees in Europe were represented by workers’ councils or unions.
Intellectual property
We rely on intellectual property rights, nondisclosure and other contractual provisions and technical measures to protect our offerings, services and intangible assets. Much of our intellectual property is know-how and asset configurations that we treat as trade secrets. These proprietary rights are important to our ongoing operations. In some instances, we may license our technology to third parties or may elect to license intellectual property from others. We have applied in the United States and certain foreign countries for registration of a number of trademarks, service marks and patents, some of which have been registered and issued. We also hold common law rights in various trademarks and service marks. Other than our Avantor, VWR, J.T.Baker and NuSil trademarks, we do not consider any particular patent, trademark, license, franchise or concession to be material to our overall business.
Working capital
We maintain adequate levels of working capital to support our business needs. There are no unusual industry practices or requirements relating to working capital items. In addition, our sales and payment terms are generally similar to those of our competitors.

5


Backlog
We do not maintain a significant order backlog because we ordinarily manufacture and fulfill product and service orders quickly.
Seasonality
Our business is not seasonal, but some of our proprietary products have exhibited cyclical customer demand in prior periods. We believe that this is caused by factors unique to those particular product markets such as customer manufacturing schedules, inventory levels in the supply chain and government approval processes. As a result, we may see fluctuations across periods as the timing of our customers’ demand for these products may change.
Government contracts
We conduct business with various government agencies and government contractors. As such, we are subject to certain laws and regulations applicable to companies doing business with the government, as well as with those concerning government contracts. Failure to address or comply with these laws and regulations could harm our business by leading to a renegotiation of profits or termination of the contract at the election of the government agency. We believe we are in compliance in all material respects with such laws and regulations, and no government contract is of such a magnitude as to have a material adverse effect on our financial results.
Government regulation
Our facilities that engage in the manufacturing, packaging, distribution and other biopharmaceutical and biomaterials product lines, as well as many of our products themselves, are subject to extensive ongoing regulation by U.S. governmental authorities, the EMA and other global regulatory authorities. Certain of our subsidiaries are required to register with these agencies, or to apply for permits and/or licenses with, and must comply with the operating, cGMP, quality and security standards of applicable domestic and foreign regulators, including the FDA, the DEA, the Bureau of Alcohol, Tobacco, Firearms and Explosives, DHHS, the equivalent agencies of European Union member states, and comparable foreign, state and local agencies, as well as various accrediting bodies, each depending upon the type of operation and the locations of storage or sale of the products manufactured or services provided by those subsidiaries.
In order to maintain certain certifications of quality and safety standards for our manufacturing facilities and operations, we must comply with numerous regulatory systems, standards, guidance and other requirements, as appropriate, including, but not limited to, ICH Q7, the guidelines of the International Pharmaceutical Excipients Council, European in vitro diagnostic medical device directives, United States Pharmacopeia / National Formulary, as well as the European, British, Japan, India and Chinese Pharmacopeia, the Food Chemicals Codex and controlled substances regulations.

6


In addition, our operations, and some of the products we offer, are subject to a number of complex and stringent laws and regulations governing the production, handling, transportation and distribution of chemicals, drugs and other similar products. We are subject to various federal, state, local, foreign and transnational laws, regulations and recommendations, both in the United States and abroad, relating to safe working conditions, good laboratory and distribution practices, and the safe and proper use, transportation and disposal of hazardous or potentially hazardous substances. In addition, U.S. and international import and export laws and regulations, including those enforced by the U.S. Departments of Commerce, State and Treasury, OFAC and BIS, require us to abide by certain standards relating to the cross-border transit of finished goods, raw materials and supplies and the handling of related information. Our logistics activities must comply with the rules and regulations of the Department of Transportation, the department of Homeland Security, Department of Commerce, Department of Defense, and the Federal Aviation Administration and similar foreign agencies. We are also subject to various other laws and regulations concerning the conduct of our foreign operations, including the Foreign Corrupt Practices Act and other anti-bribery laws as well as laws pertaining to the accuracy of our internal books and records.
The costs associated with complying with the various applicable federal, state, local, foreign and transnational regulations could be significant, and the failure to comply with such legal requirements could have an adverse effect on our reputation, results of operations and financial condition. See Item 1A, “Risk Factors—Risks Related to Regulation.” We are subject to audits by the FDA and other similar foreign regulatory bodies. To date, we have had no instances of noncompliance that have had a material impact on our operations.
In addition to the regulations described above, as part of our aerospace and military offerings, we are registered with the DDTC as a manufacturer and exporter of goods controlled by ITAR, and we are subject to strict export control and prior approval requirements related to these goods. In connection with our NuSil brand products, we have one ITAR site registration and one ITAR product registration, and we maintain control systems which enable ITAR compliance. With respect to our electronics materials products, we adhere to applicable industry guidelines which set stringent quality criteria for our products, and we are subject to import and export regulations and other restrictions regarding the safe use of these products as well.
Environmental matters
We are subject to various laws and governmental regulations concerning environmental, safety and health matters, including employee safety and health, in the United States and other countries. U.S. federal environmental legislation that affects us includes the Toxic Substances Control Act, the Resource Conservation and Recovery Act, the Clean Air Act, the Clean Water Act, the Safe Drinking Water Act, and CERCLA. These laws and regulations govern, among other things, air emissions, wastewater discharges, the use, handling and disposal of hazardous substances and wastes, soil and groundwater contamination and the general health and safety of our associates and the communities in which we operate. We are also subject to regulation by OSHA concerning employee safety and health matters. The EPA, OSHA, and other federal and

7


foreign or local agencies have the authority to promulgate regulations that may impact our operations.
Under CERCLA, and analogous statutes in local and foreign jurisdictions, current and former owners and operators of contaminated land are strictly liable for the investigation and remediation of the land and for natural resource damages that may result from releases of hazardous substances at or from the property. Liability under CERCLA and analogous laws is strict, unlimited, joint, several, retroactive, may be imposed regardless of fault and may relate to historical activities or contamination not caused by the current owner or operator. It is possible that facilities that we acquire or have acquired may expose us to environmental liabilities associated with historical site conditions that have not yet been discovered.
In addition to the federal environmental laws that govern our operations, various states have been delegated certain authority under the aforementioned federal statutes as well as having authority over these matters under state laws. Many state and local governments have adopted environmental and employee safety and health laws and regulations, some of which are similar to federal requirements.
A number of our operations involve, in varying degrees, the handling, manufacturing, use or sale of substances that are or could be classified as toxic or hazardous materials within the meaning of applicable laws. Consequently, some risk of environmental harm is inherent in our operations and products, as it is with other companies engaged in similar businesses. For additional information about environmental matters, see note 12 to our audited financial statements beginning on page F-1 of this report.
Available information
We file or furnish annual, quarterly and current reports, proxy statements and other documents with or to the SEC. The public can obtain any documents that we file with or furnish to the SEC at www.sec.gov.
You may also access our press releases, financial information and reports filed with or furnished to the SEC through our own website at www.avantorsciences.com. Copies of any documents on our website may be obtained free of charge, and reports filed with or furnished to the SEC will be available as soon as reasonably practicable after they are filed with or furnished to the SEC. The information found on our website is not part of this or any other report filed with or furnished to the SEC.

8


Item 1A.    Risk factors
Risks related to our business and our industry
Significant interruptions in our operations could harm our business, financial condition and results of operations.
Manufacturing, distribution, service and logistics problems can and do arise, and any such problems could have a significant impact on our operating results. Accordingly, any significant disruptions to the operations of our manufacturing or distribution centers or logistics providers for any reason, including labor relations issues, power interruptions, severe weather, fire or other circumstances beyond our control could cause our operating expenses to increase without coverage or compensation or seriously harm our ability to fulfill our customers’ orders or deliver products on a timely basis, or both. We must also maintain sufficient production capacity in order to meet anticipated customer demand, which carries fixed costs that we may not be able to offset if orders slow, which would adversely affect our operating margins. If we are unable to manufacture our products consistently, in sufficient quantities, and on a timely basis, our net sales, gross margins and our other operating results will be materially and adversely affected. Prompt shipment of our products is also very important to our business. We have experienced problems with or delays in our production, shipping and logistics capabilities that resulted in delays in our ability to ship finished products, and there can be no assurance that we will not encounter such problems in the future. If we experience significant delays in our manufacturing, shipping or logistics processes, we could damage our customer relationships, cause disruption to our customers and adversely affect our business, financial condition and operating results.
We compete in highly competitive markets. Failure to compete successfully could adversely affect our business, financial condition and results of operations.
We face competition across our products and the markets in which we operate. We compete on several fronts, both domestically and internationally, including competing with other companies that provide similar offerings. Competition is driven by proprietary technologies and know-how, capabilities, consistency of operational performance, quality, supply chain control, price, value and speed. Our competitors range from regional companies, which may be able to more quickly respond to customers’ needs because of geographic proximity, to large multinational companies, which may have greater financial, marketing, operational and research and development resources than we do. Such greater resources may allow our competitors to respond more quickly with new, alternative or emerging technologies.
In addition, consolidation trends in the biopharma and healthcare industries have served to create fewer customer accounts and to concentrate purchasing decisions for some customers, resulting in increased pricing pressures. The entry into the market by manufacturers in low-cost manufacturing locations also creates increased pricing and competitive pressures, particularly in developing markets, which may impede our goal to grow in those markets. Failure to anticipate and respond to competitors’ actions may adversely affect our results of operations and financial condition.

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It may be difficult for us to implement our strategies for improving growth.
We plan to continue expanding our commercial sales operations and scope and complexity of our business both domestically and internationally, while maintaining our commercial operations and administrative activities. For example, we intend to pursue the following growth strategies: (i) increase integration of our products and services into customers’ workflows; (ii) develop new products and services; (iii) expand in geographies expected to have outsized growth; (iv) continue to enhance our global online platform; (v) increase commercial excellence and operational efficiency to drive margin expansion; and (vi) pursue strategic acquisitions to expand our platform. However, our ability to manage our business and conduct our global operations while also pursuing the aforementioned growth strategies requires considerable management attention and resources and is subject to the challenges of supporting a rapidly growing business in an environment of multiple languages, cultures and customs, legal and regulatory systems, alternative dispute systems and commercial markets.
Our failure to implement these strategies in a cost-effective and timely manner could have an adverse effect on our business, results of operations and financial condition.
Part of our growth strategy is to pursue strategic acquisitions, which will subject us to a variety of risks that could harm our business.
As part of our business strategy, we intend to continue to review, pursue and complete selective acquisition opportunities. There can be no assurances that we will be able to complete suitable acquisitions for a variety of reasons, including the identification of and competition for acquisition targets, the need for regulatory approvals, the inability of the parties to agree to the structure or purchase price of the transaction and the inability to finance the transaction on commercially acceptable terms. In addition, any completed acquisition will subject us to a variety of other risks, including:
acquisitions may have an adverse effect on our business relationships with existing or future suppliers and other business partners, in particular, to the extent we consummate acquisitions that vertically integrate portions of our business;
we may assume substantial actual or contingent liabilities, known and unknown;
acquisitions may not meet our expectations of future financial performance;
we may experience delays or reductions in realizing expected synergies;
we may incur substantial unanticipated costs or encounter other problems associated with acquired businesses or devote time and capital investigating a potential acquisition and not complete the transaction;
we may be unable to achieve our intended objectives for the transaction; and
we may not be able to retain the key personnel, customers and suppliers of the acquired business.

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These factors related to our acquisition strategy, among others, could have an adverse effect on our business, financial condition and results of operations.
We may not be able to integrate mergers or acquisitions successfully into our existing business, or realize anticipated cost savings or synergies, if any, from those transactions, which could adversely affect our business.
Our ability to realize the benefits we anticipate from our mergers and acquisitions activities, including anticipated cost savings and additional sales opportunities, will depend in large part upon whether we are able to integrate such businesses efficiently and effectively. Integration is an ongoing process and we may not be able to fully integrate such businesses smoothly or successfully and the process may take longer than expected. Further, the integration of certain operations and the differences in operational culture following mergers and acquisitions activity will continue to require the dedication of significant management resources, which may distract management’s attention from day-to-day business operations. There may also be unasserted claims or assessments that we failed or were unable to discover or identify in the course of performing due diligence investigations of target businesses. If we are unable to successfully integrate the operations of acquired businesses into our business, we may be unable to realize the sales growth, cost synergies and other anticipated benefits we expect to achieve as a result of such transactions and our business, results of operations and cash flow could be adversely affected.
Our business, financial condition and results of operations may be harmed if our customers discontinue or spend less on research, development, production or other scientific endeavors.
Our customers include companies in the biopharma, healthcare, education & government and advanced technologies & applied materials industries. Many factors, including public policy spending priorities, available resources and product and economic cycles, have a significant effect on the capital spending policies of these entities. Fluctuations in the research and development budgets of our customers could have a significant effect on the demand for our products. Our customers determine their research and development budgets based on several factors, including the need to develop new products, continued availability of governmental and other funding, competition and the general availability of resources. If research and development budgets are reduced, the impact could eventually adversely affect our overall business.

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The customers we serve have and will continue to experience significant industry-related changes that could adversely affect our business.
Many of the customers we serve have experienced significant industry-related changes in the last several years and are expected to continue to experience significant changes, including reductions in governmental payments for biopharmaceutical products, expirations of significant patents, adverse changes in legislation or regulations regarding the delivery or pricing of general healthcare services or mandated benefits, and increased requirements on quality. General industry changes include:
development of large and sophisticated group purchasing organizations and on-line auction sites that increase competition for and reduce spending on laboratory products;
consolidation of biopharmaceutical companies resulting in a rationalization of research expenditures;
increased regulatory scrutiny over drug production requiring safer raw materials;
customers’ purchasing the products that we supply directly from our suppliers; and
significant reductions in development and production activities.
Some of our customers have implemented or may in the future implement certain measures described above in an effort to control and reduce costs. The ability of our customers to develop new products to replace sales decreases attributable to expirations of significant patents, along with the impact of other past or potential future changes in the industries we serve, may result in our customers significantly reducing their purchases of products from us or the prices they are willing to pay for those products. While we believe we are able to adapt our business to maintain existing customer relationships and develop new customer relationships if we are unsuccessful or untimely in these efforts, our results of operations may suffer.
We may be adversely affected by global and regional economic and political conditions.
We conduct operations around the globe. The prospects, strength and sustainability of the current environment remain uncertain as does the possibility of an economic downturn in the United States and other countries. The uncertainty or deterioration of the global economic environment could adversely affect us. Customers or suppliers may experience cash flow problems, and as a result, customers may modify, delay or cancel plans to purchase our products and services. Suppliers may significantly and rapidly increase their prices or reduce their output. Any inability of current and/or potential customers to purchase and/or pay for our products due to, among other things, declining economic conditions as a result of inflation, rising interest rates, changes in spending patterns at biopharma, healthcare, education & government and advanced technologies & applied materials companies and the effects of governmental initiatives to manage economic conditions may have a negative impact on our consolidated results of operations, financial condition and cash flows. Overall demand for our products could be reduced as a result of a global economic recession or political unrest, especially in such areas as

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the biopharma, healthcare, education & government and advanced technologies & applied materials industries.
Sales and earnings could also be affected by our ability to manage the risks and uncertainties associated with the application of trade protection measures, regional political instability, war, terrorist activities, severe or prolonged adverse weather conditions and natural disasters as well as health epidemics and pandemics. For example, the ongoing coronavirus outbreak since the beginning of 2020 has resulted in increased travel restrictions and extended shutdown of certain businesses in the region, as well as reports of dramatically reduced economic activity in the region, which may impact our operations particularly in the AMEA region. These or any further political or governmental developments or health concerns in China or other countries in which we operate could result in social, economic and labor instability, which could have a material adverse effect on the continuity of our business, including with respect to the availability of raw materials for production, as well as our financial condition and results of operations.
The United Kingdom’s decision to leave the European Union (“Brexit”) could adversely affect our business.
During the second quarter of 2016, the United Kingdom voted by referendum to exit the European Union, commonly referred to as “Brexit.” On January 31, 2020, the United Kingdom ceased to be part of the European Union. The impact of the United Kingdom’s departure from, and future relationship with, the European Union are uncertain. Brexit has and continues to create general economic uncertainty in the United Kingdom and European Union. The effects of Brexit could have an adverse impact on our business, results of operations and financial condition. The withdrawal could, among other potential outcomes, adversely affect the tax, tax treaty, currency, operational, legal and regulatory regimes to which our business operations and suppliers in the region are subject. The withdrawal could also, among other potential outcomes, disrupt the free movement of goods, services and people between the United Kingdom and the European Union and significantly disrupt trade between the United Kingdom and the European Union and other parties. Further, uncertainty around and developments regarding these and related issues has contributed to deteriorating market conditions and could further adversely impact consumer and investor confidence and the economy of the United Kingdom and the economies of other countries in which we operate, and cause significant volatility in currency exchange rates.
Our offerings are highly complex, and, if our products do not satisfy applicable quality criteria, specifications and performance standards, we could experience lost net sales, delayed or reduced market acceptance of our products, increased costs and damage to our reputation.
The high-purity materials and customized solutions we offer are highly exacting and complex due to demanding customer specifications and stringent regulatory and industry requirements. Our operating results depend on our ability to execute and, when necessary, improve our global quality control systems, including our ability to effectively train and maintain our employees with respect to quality control. A failure of our global quality control systems could result in problems with facility operations or preparation or provision of defective or non-compliant

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products. In each case, such problems could arise for a variety of reasons, including equipment malfunction, failure to follow specific protocols and procedures, problems with raw materials, or environmental factors and damage to, or loss of, manufacturing operations. Although many of our products are tested prior to shipment, defects or errors nevertheless occur and we have product recalls from time to time. Such problems could affect production of a particular batch or series of batches of products, requiring the destruction of such products or a halt of facility production altogether. Nearly all of our products are subsequently incorporated into products sold to end users by our customers, and we have no control over the manufacture and production of such products.
Our success depends on our customers’ confidence that we can provide reliable, high-quality products. We believe that customers in our target markets are likely to be particularly sensitive to product defects and errors. Our reputation and the public image of our products and technologies may be impaired if our products fail to perform as expected or fail to meet applicable quality criteria, specifications or performance standards. If our products experience, or are perceived to experience, a material defect or error, this could result in loss or delay of net sales, damaged reputation, diversion of development resources, and increased insurance or warranty costs, any of which could harm our business. Such defects or errors could also result in our inability to timely deliver products to our customers, which in turn could cause disruption to our customers’ production of their products, narrowing the scope of the use of our products and ultimately hindering our or their success in relevant markets. Even after any underlying concerns or problems are resolved, any lingering concerns in our target markets regarding our technology, product defects or performance standards could continue to result in lost net sales, delayed market acceptance and damaged reputation, among other things. If problems in preparation or manufacture of a product or failures to meet required quality standards for that product or other product defects are not discovered before such product is released to our customers, we may be subject to adverse regulatory and legal actions, including recalls, product seizures, injunctions to halt manufacture and distribution, restrictions on our operations, civil sanctions, including monetary sanctions, and criminal actions. In addition, such problems or failures subject us to other litigation claims, including claims from our customers for reimbursement for the cost of lost or damaged raw materials or end products, disposal of defective products, production line clean out and consequential damages, the cost of which could be significant.
The loss of a significant number of customers or a reduction in orders from a significant number of customers could reduce our net sales and harm our operating results.
Our operating results could be negatively affected by the loss of revenue from a significant number of our customers, including direct distributors and end users. Though we often include pricing and volume incentives in our contracts, our customers are generally not obligated to purchase any fixed quantities of products, and they may stop placing orders with us at any time. If a significant number of customers purchase fewer of our products, defer orders or fail to place additional orders with us, our sales could decline, and our operating results may not meet our expectations. In addition, if those customers order our products, but fail to pay on time or at all, our liquidity and operating results could be adversely affected.

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Our contracts generally do not contain minimum purchase requirements, and we sell primarily on a purchase order basis. Therefore, our sales are subject to changes in demand from our customers, and these changes have been material in the past. The level and timing of orders placed by our customers vary for a number of reasons, including individual customer strategies, the introduction of new technologies, the desire of our clients to reduce their exposure to any single supplier and general economic conditions. If we are unable to anticipate and respond to the demands of our clients, we may lose clients because we have an inadequate supply of raw materials with which to manufacture our products or insufficient capacity in our sites. Alternatively, we may have excess inventory or excess capacity. Either of these factors may have a material adverse effect on our business, financial position and operating results.
Though we do generate a portion of our net sales from long-term contracts, the majority of these contracts are non-exclusive and do not require a minimum purchase volume. This makes it difficult to estimate our customers’ demand for our products and our raw material needs. In addition, though we believe customers in our markets display a significant amount of loyalty to their supplier of a particular product, we may not be able to renew a contract on favorable pricing terms if our competitors reduce their prices in order to procure business, or if a customer insists that we lower the price charged under the contract being renewed in order to retain the contract. The loss of sales obtained through long-term contracts or the reduced profitability of such sales could adversely affect our results of operations, cash flows and liquidity.
We are subject to risks associated with doing business globally, which may harm our business.
We have global operations and derive a portion of our net sales from customers outside the United States. Accordingly, our international operations or those of our international customers could be substantially affected by a number of risks arising with operating an international business, including:
limitations on repatriation of earnings;
taxes on imports;
the possibility that unfriendly nations or groups could boycott our products;
general economic and political conditions in the markets we operate in;
foreign currency exchange rate fluctuations;
potential increased costs associated with overlapping tax structures;
potential increased reliance on third parties within less developed markets;
potential trade restrictions, tariffs and exchange controls;
more limited protection for intellectual property rights in some countries;
difficulties and costs associated with staffing and managing foreign operations;

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unexpected changes in regulatory requirements;
difficulties in complying with a wide variety of foreign laws and regulations;
the risk that certain governments may adopt regulations or take other actions that would have a direct adverse impact on our business and market opportunities, including nationalization of private enterprise;
violations of anti-bribery and anti-corruption laws, such as the FCPA;
violations of economic sanctions laws, such as the regulations enforced by OFAC;
longer accounts receivable cycles in certain foreign countries, whether due to cultural differences, exchange rate fluctuation or other factors;
the credit risk of local customers and distributors;
limitations on our ability to enforce legal rights and remedies with third parties or partners outside the United States;
import and export licensing requirements and other restrictions, such as those imposed by OFAC, BIS, DDTC and comparable regulatory agencies and policies of foreign governments; and
changes to our distribution networks.
Changes in exchange rates can adversely affect our net sales, profits and cash flows.
We report our consolidated financial results in U.S. dollars. Approximately 45% of net sales for the year ended December 31, 2019 were generated from operations outside the United States and denominated in foreign currencies (principally the euro, the British pound sterling and the Canadian dollar). Fluctuations in the relative values of currencies occur from time to time and could adversely affect our operating results. Specifically, during times of a strengthening U.S. dollar, our reported international sales and earnings will be reduced because the local currency will convert into fewer U.S. dollars. In addition, currency fluctuations may affect the comparability of our results of operations between financial periods.
Further, we have a substantial amount of euro denominated indebtedness. Fluctuations in the exchange rate between U.S. dollars and euros may have a material adverse effect on our ability to repay such indebtedness. See Item 7A. “Quantitative and qualitative disclosures about market risk.”

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Our business depends on our ability to use and access information systems, and any failure to successfully maintain these systems or implement new systems to handle our changing needs could materially harm our operations.
We depend on standardized procedures and multiple information systems, including our online customer portal and distribution and enterprise resource systems, for our operations, customer service and quality and safety procedures. Furthermore, we rely on information technology systems to process, transmit, store and protect electronic information, including confidential customer, supplier, employee or other business information. Through our online customer portal, we collect and store confidential information that customers provide in order to, among other things, purchase products and services and register on our website.
We utilize commercially available third-party technology solutions, software and software systems with some proprietary configurations. We also store data using third-party cloud services. Our information systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, security breaches, vandalism, catastrophic events, natural disasters, terrorist attacks, hackers and other security issues as well as human error. If our information systems are damaged, fail to work properly or otherwise become unavailable, we may incur substantial costs to repair or replace them, and we may experience a loss of critical information, customer disruption and interruptions or delays in our ability to perform essential functions and implement new and innovative services. If the cloud service providers we use were to experience unplanned downtime, delays or other issues delivering data to our information technology systems, this could significantly and adversely impact business operations. A compromise of our information systems or those with which we interact could harm our reputation and expose us to regulatory actions and claims from customers and other persons, any of which could adversely affect our business, financial position and results of operations.
In addition, we may not have the necessary resources to enhance existing information systems or implement new systems where necessary to handle our increasing volume and changing needs, and may experience unanticipated delays, complications and expenses in implementing and integrating our systems. Any interruptions in operations would adversely affect our ability to properly allocate resources and timely deliver our products, which could result in customer dissatisfaction. The failure to successfully implement and maintain information systems could have an adverse effect on our ability to obtain new business, retain existing business and maintain or increase our sales and profit margins.
In recent years, information security risks have generally increased because of the proliferation of new technologies and the increased sophistication and activities of perpetrators of cyberattacks. In addition to exploiting technical vulnerabilities, the perpetrators of cyberattacks may seek to gain access to user credentials through “phishing” and “spear phishing” attacks. A failure in or breach of our operational or information systems, or those of our third-party service providers, as a result of cyberattacks or information security breaches, regardless of whether the failure or breach is attributable to a vulnerability in our systems, could disrupt our business and/or our supply chain, result in the improper disclosure or misuse of our or our customers’

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confidential or proprietary information, damage our reputation, subject us to claims and/or increase our costs. We may be required to expend additional resources to continue to enhance our information security measures and/or to investigate and remediate any information security vulnerabilities.
The GDPR, which went into effect in the EU on May 25, 2018, applies to the collection, use, retention, security, processing, and transfer of personally identifiable information of residents of countries in the European Economic Area. The GDPR created a range of new compliance obligations, and imposes significant fines and sanctions for violations. It is possible that the GDPR may be interpreted or applied in a manner that is adverse to us or otherwise inconsistent with our practices; or that the EU authorities may hold that we are not in full compliance with the GDPR’s requirements.
Any failure, or perceived failure, by us to comply with the GDPR, or with any applicable regulatory requirements or orders, including but not limited to privacy, data protection, information security, or consumer protection-related privacy laws and regulations, in one or more jurisdictions within the EU or elsewhere, could: result in proceedings or actions against us by governmental entities or individuals; subject us to significant fines, penalties, and/or judgments; require us to change our business practices; limit access to our products and services in certain countries, incur substantial costs (even if we ultimately prevail) or otherwise adversely affect our business.
Our inability to protect our intellectual property could adversely affect our business. In addition, third parties may claim that we infringe their intellectual property, and we could suffer significant litigation or licensing expenses as a result.
We rely on a variety of intellectual property rights, including patents, trademarks, copyrights and trade secrets, to protect our proprietary technology and products. We place considerable emphasis on obtaining patent or maintaining trade secret protection for significant new technologies, products and processes because of the length of time and expense associated with bringing new products and processes through the development process and to the market. Our success depends, in part, on our ability to develop and maintain trade secrets, or obtain and enforce patent protection, for our products and processes both in the United States and internationally.
We rely on trade secrets and proprietary know-how to protect our products and processes, in part, by confidentiality agreements with our customers, collaborators, employees and consultants. We cannot be certain, however, that these agreements will not be breached, including a breach by a customer or collaborator involving reverse-engineering of our products or the use or disclosure of our trade secrets or know-how, or that adequate remedies will be available in the event of any breach. We cannot guarantee that our trade secrets and other proprietary and confidential information will not be disclosed or that competitors will not otherwise gain access to or independently develop our trade secrets. If a competitor lawfully obtained or independently developed any of our trade secrets, we would have no right to prevent such competitor from using that technology or information to compete with us. Monitoring unauthorized uses and disclosures is difficult, and we do not know whether the steps we have taken to protect our

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proprietary technologies will be effective. Furthermore, enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable, in part because some courts both within and outside the United States may be less willing or unwilling to protect trade secrets. Any misappropriation, disclosure or independent development of our trade secrets could harm our competitive position.
We own numerous U.S. and foreign patents and patent applications, and we expect to file additional applications, as appropriate, for patents covering certain of our products and processes. Patents may not be issued for any pending or future patent applications owned by or licensed to us, and the claims allowed under any issued patents may not be sufficiently broad to protect our technology. Any issued patents owned by or licensed to us may be challenged, invalidated or circumvented, and the rights under these patents may not provide us with competitive advantages. In addition, competitors may design around our technology or develop competing technologies. Intellectual property rights may also be unavailable or limited in some foreign countries, which could make it easier for competitors to capture increased market position. Moreover, pursuing patent protection in all jurisdictions would be prohibitively expensive, and we will not have the benefit of any such protection in jurisdictions where we do not pursue and obtain patents. We could incur substantial costs to defend ourselves in suits brought against us or in suits in which we may assert our patent rights against others. An unfavorable outcome of any such litigation could adversely affect our business and results of operations.
We may need to spend significant resources monitoring and enforcing our intellectual property rights and we may not be able to prove infringement by third parties. Our competitive position may be harmed if we cannot enforce our intellectual property rights. In some circumstances, we may choose to not pursue enforcement for business reasons. In addition, competitors might avoid infringement by designing around our intellectual property rights or by developing non-infringing competing technologies. Intellectual property rights and our ability to enforce them may be unavailable or limited in some countries, which could make it easier for competitors to capture market share and could result in lost revenues.
We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as an inventor or co-inventor, or that an employee, consultant, or other third party performed work for us that conflicts with that person’s obligations to a third party. While it is generally our policy to require our employees and contractors who may be involved in the creation, conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, creates, conceives or develops intellectual property that we regard as our own, or a court may determine that such agreement was insufficient to assign such intellectual property to us. In some cases, when we perform certain services for a customer, the customer may own rights in resulting intellectual property, if any, generated in the course of performing those services. Disputes may arise with respect to such arrangements and our, and the customer’s, rights in such intellectual property. Litigation may be necessary to defend against any of these and other claims challenging inventorship or ownership. If we fail in defending or asserting any such claims, in addition to

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paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Even if we are successful in defending or asserting such claims, litigation could result in substantial costs and be a distraction to management and other employees.
We cannot be certain that our products and our business do not or will not infringe the intellectual property rights of a third party. Third parties may assert claims against us to the effect that we are infringing on their intellectual property rights. Such claims are costly, regardless of their merit, divert the attention of management, and outcomes are uncertain, all of, which could adversely affect our business, financial condition and results of operations. In addition, parties making these claims could secure a judgment awarding substantial damages, as well as injunctive or other equitable relief against us and those to whom we have sold the allegedly infringing products, which could require us to design around the infringement, and/or effectively block our ability to make, use, sell, distribute, or market our products in the United States or other countries. In the event that a claim relating to intellectual property is asserted against us, or third parties not affiliated with us hold pending or issued patents that relate to our products or technology, we may seek licenses to such intellectual property or challenge those patents. However, we may be unable to obtain these licenses on commercially reasonable terms, if at all, and our challenge of the patents may be unsuccessful. Our failure to obtain the necessary licenses or other rights could prevent the sale, manufacture, or distribution of our products and, therefore, could adversely affect our business, financial condition and results of operations.
Our trademarks are valuable assets and if we are unable to protect them from infringement our business prospects may be harmed.
Our brands, particularly our J.T.Baker, NuSil and VWR brands, are valuable assets. Therefore, we actively manage our trademark portfolio, including by maintaining registrations for long-standing trademarks and applying to obtain trademark registrations for new brands. We also police our trademark portfolio against infringement. Our efforts to protect and defend our trademarks may fall short or be unsuccessful against competitors or other third parties for a variety of reasons. To the extent that third parties or distributors sell products that are counterfeit versions of our branded products, our customers could inadvertently purchase products that are inferior. This could cause them to refrain from purchasing our brands in the future and in turn could impair our brand equity and adversely affect our sales.
We are subject to product liability and other claims in the ordinary course of business.
Our business involves risk of product liability, intellectual property claims and other claims in the ordinary course of business arising from the products that we source from various manufacturers or produce ourselves. Furthermore, there may be product liability risks that are unknown or which become known in the future. Substantial, complex or extended litigation on any claim could cause us to incur significant costs and distract our management. For example, lawsuits by governmental authorities, employees, shareholders, suppliers, collaborators, distributors, customers, competitors or others with protected intellectual property could be very costly and substantially disrupt our business. Our exposure to such claims may increase as we seek to increase the geographic scope of our sourcing and sales activities and to the extent that

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we expand our manufacturing operations. We maintain insurance policies and in some cases, our suppliers, customers and predecessors of acquired companies have indemnified us against certain claims. We cannot assure you that our insurance coverage or indemnification agreements will be available in all pending or any future cases brought against us. Furthermore, our ability to recover under any insurance or indemnification arrangements is subject to the terms and conditions of such insurance or indemnification agreement, as well as the financial viability of our and such third parties’ insurers, as well as legal enforcement under the local laws governing these arrangements. Insurance coverage in general or coverage for certain types of liabilities, such as product liability in developing markets, may not be readily available for purchase or cost-effective for us to purchase. Furthermore, many of our insurance policies are subject to high deductibles and retentions. Accordingly, we could be subject to uninsured and unindemnified future liabilities requiring us to provide additional reserves to address such liabilities. An unfavorable result in a case for which adequate insurance or indemnification is not available could adversely affect our business, financial condition and results of operations.
We are also involved in various disputes, litigation and regulatory matters incidental to and in the ordinary course of our business, including employment matters, commercial disputes, government compliance matters, environmental matters, and other matters arising out of the normal conduct of our business. We intend to vigorously defend ourselves in such matters. While the impact of this litigation has or may be immaterial, there can be no assurance that the impact of the pending and any future claims will not be material to our business, financial condition or results of operations in the future.
We must develop new products, adapt to rapid and significant technological change and respond to introductions of new products by competitors to remain competitive.
We sell our products in industries that are characterized by significant technological changes, frequent new product and technology introductions and enhancements and evolving industry standards. As a result, our customers’ needs are rapidly evolving. If we do not appropriately innovate and invest in new technologies, our offerings may become less desirable in the markets we serve, and our customers could move to new technologies offered by our competitors or make products themselves. Though we believe customers in our markets display a significant amount of loyalty to their supplier of a particular product, we also believe that because of the initial time investment required by many of our customers to reach a purchasing decision for a new product, it may be difficult to regain that customer once the customer purchases a product from a competitor. Without the timely introduction of new products, services and enhancements, our offerings will likely become less competitive over time, in which case our competitive position, net sales and operating results could suffer. Accordingly, we focus significant efforts and resources on the development and identification of new technologies, products and services that are attractive to and gain acceptance in the markets we serve and further broaden our offerings. To the extent we fail to timely introduce new and innovative products or services, adequately predict our customers’ needs or fail to obtain desired levels of market acceptance, our business may suffer.

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Our business, financial condition and results of operations depend upon the availability of raw materials.
Our operations depend upon our ability to obtain high-quality raw materials meeting our specifications and other requirements at reasonable prices, including various active pharmaceutical ingredients, components, compounds, excipients and other raw materials, many of which are sole-sourced due to market or customer demands. Our ability to maintain an adequate supply of such materials and components could be impacted by the availability and price of those raw materials and maintaining relationships with key suppliers. While we may seek to minimize the impact of price increases and potential shortages by, among other things, entering into long-term supply agreements, increasing our own prices and implementing cost-saving measures, our earnings and cash flows could be adversely affected in the event these measures are insufficient to cover our costs. Our dependency upon regular deliveries from particular suppliers of components and raw materials means that interruptions or stoppages in such deliveries could adversely affect our operations until arrangements with alternate suppliers, to the extent any alternate suppliers acceptable to us and, if applicable, to our customers, even exist. If this occurs, we could expend substantial expense and time in re-establishing relationships with third-party suppliers that meet the appropriate quality, cost and regulatory requirements needed for commercially viable manufacture of our products or in re-designing our products to incorporate different components and raw materials that are available from third-party suppliers. If we are unable to obtain the materials we need at reasonable prices or at all, we may not be able to produce certain of our products at a marketable price or at all. If our supply of raw materials and key components is adversely affected, we could impact our customers’ ability to produce their products, damage our relationship with current and prospective customers and our operating results and financial condition could be adversely affected.
Moreover, we are dependent upon the ability of our suppliers to provide materials and components that meet our specifications, quality standards, other applicable criteria, and delivery schedules. Our suppliers’ failure to provide expected raw materials or components that meet such criteria could adversely affect production schedules and contract profitability.
The continued supply of materials from our suppliers is subject to a number of risks including:
the destruction of or damage to our suppliers’ facilities or their distribution infrastructure;
work stoppages or strikes by our suppliers’ employees;
the failure of our suppliers to provide materials of the requisite quality or in compliance with strict specifications;
the failure of essential equipment at our suppliers’ plants;
the failure of our suppliers to satisfy U.S. and international import and export control laws for goods that we purchase from them;

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the failure of our suppliers to meet regulatory standards, including cGMP, where applicable;
the failure, shortage or delay in the delivery of raw materials to our suppliers;
contractual amendments and disputes with our suppliers; and
inability of our suppliers to perform as a result of the weakened global economy or otherwise.
If we experience problems with suppliers, we may not be able to find acceptable alternatives, and any such alternatives could result in increased costs for us and possible forward losses on certain contracts. Even if acceptable alternatives are found, the process of locating and securing such alternatives might be disruptive to our business, might lead to termination of our supply agreements with our customers, and might disrupt the operations of our customers leading to potential claims.
Our business, financial condition and results of operations depend upon maintaining our relationships with suppliers.
We offer products from a wide range of suppliers. While there is generally more than one source of supply for most of the categories of third-party materials & consumables and equipment & instrumentation that we sell, we currently do not manufacture the majority of our products and are dependent on these suppliers for access to those products.
Our ability to sustain our gross margins has been, and will continue to be, dependent in part upon our ability to obtain favorable terms from our suppliers. These terms may change from time to time, and such changes could adversely affect our gross margins over time. In addition, our results of operations and cash flows could be adversely impacted by the acceleration of payment terms to our suppliers and/or the imposition of more restrictive credit terms and other contractual requirements.
Some of our competitors are increasing their manufacturing operations both internally and through acquisitions of manufacturers, including manufacturers that supply products to us. In addition, we manufacture certain products that may compete directly with products we source from our suppliers. To date, we have not experienced an adverse impact on our ability to continue to source products from manufacturers that have been vertically integrated or otherwise compete with us, although there is no assurance that we will not experience such an impact in the future.
The loss of one or more of our large suppliers, including as a result of consolidation, a material reduction in their supply of products or provision of services to us, extended disruptions or interruptions in their operations or material changes in the terms we obtain from them, could have a material adverse effect on our business, financial condition and results of operations.

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Our use of chemicals and chemical processes is subject to inherent risk.
We use chemical ingredients in the manufacture of certain of our products. Due to the nature of the manufacturing process itself, there is a risk of incurring liability for damages caused by or during the storage or manufacture of both the chemical ingredients and the finished products. The processes used in certain of our facilities typically involve large volumes of solvents and chemicals, creating the potential for fires, spills and other safety or environmental impacts. If any of these risks materialize, it could result in significant remediation and other costs, potential adverse regulatory actions and liabilities, any of which could have an adverse effect on our business, results of operations and financial condition.
In addition, the manufacturing, use, storage, and distribution of chemicals are subject to threats including terrorism. We have several high-risk chemical facilities that possess materials that could be stolen and used to make weapons. We could also be subject to an attack on our high-risk facilities that could cause a significant number of deaths and injuries. As a result, many people, including our employees, could be harmed. Such an occurrence could also harm the environment, our reputation and disrupt our operations.
We are highly dependent on our senior management and key employees. Competition for our employees is intense, and we may not be able to attract and retain the highly skilled employees that we need to support our business and our intended future growth.
Our success largely depends on the skills, experience and continued efforts of our management, including our Chief Executive Officer and our senior leadership. The replacement of any member of our management team would likely involve the expenditure of significant time and financial resources, and the loss of any such individual may significantly delay or prevent the achievement of our business objectives. As we continue to grow, our success also depends on our ability to attract, motivate and retain highly qualified individuals. Competition for senior management and other key personnel in our industry is intense, and the pool of suitable candidates is limited. If qualified personnel become scarce or difficult to attract or retain in our industry for compensation-related or other reasons, we could experience higher labor, recruiting or training costs. Further, new hires may require significant training and time before they achieve full productivity and may not become as productive as we expect. The failure to attract, retain and properly motivate members of our senior management team and other key employees, or to find suitable replacements for them in the event of death, illness or their desire to pursue other professional opportunities, could have a negative effect on our operating results.
We may incur impairment charges on our goodwill, other intangible assets or other assets that would reduce our earnings.
We are required under generally accepted accounting principles to test goodwill and indefinite-lived intangible assets for impairment at least annually and to review our finite-lived intangible assets, including other assets acquired through merger and acquisition activity, for impairment when events or changes in circumstance indicate the carrying value may not be recoverable.

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Factors that could lead to impairment of goodwill, indefinite-lived intangible assets, and finite-lived intangible assets in the future (including goodwill or assets acquired via acquisitions) include significant adverse changes in the business climate and actual or projected operating results and declines in the financial condition of our business. We have recorded and may be required in the future to record additional charges to earnings if our goodwill, other intangible assets or other assets become impaired. Any such charge would adversely impact our financial results.
Our reputation, ability to do business and financial statements may be impaired by improper conduct by any of our employees, agents or business partners.
We cannot provide assurance that our internal controls and compliance systems will always protect us from acts committed by employees, agents or business partners of ours (or of businesses we acquire or partner with) that would violate U.S. and/or non-U.S. laws, including the laws governing payments to government officials, bribery, fraud, kickbacks and false claims, pricing, sales and marketing practices, conflicts of interest, competition, export and import compliance, money laundering and data privacy. In particular, the FCPA, the U.K. Bribery Act and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments for the purpose of obtaining or retaining business, and we operate in many parts of the world that have experienced corruption to some degree. Any such improper actions or allegations of such acts could damage our reputation and subject us to civil or criminal investigations in the United States and in other jurisdictions and related shareholder lawsuits, could lead to substantial civil and criminal, monetary and nonmonetary penalties and could cause us to incur significant legal and investigatory fees. In addition, the government may seek to hold us liable as a successor for violations committed by companies in which we invest or that we acquire. We also rely on our suppliers to adhere to our supplier standards of conduct, and material violations of such standards of conduct could occur that could have a material effect on our business, reputation and financial statements.
The indemnification provisions of acquisition agreements by which we have acquired companies may not fully protect us and as a result we may face unexpected liabilities.
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. We cannot assure you that these indemnification provisions will protect us fully or at all, and as a result we may face unexpected liabilities that adversely affect our financial statements.
Government or private civil antitrust actions could harm our business, results of operations, financial condition and cash flows.
The antitrust laws prohibit, among other things, any joint conduct among competitors that would lessen competition in the marketplace. We believe that we are in compliance with the legal requirements imposed by the antitrust laws. However, a governmental or private civil action alleging the improper exchange of information, or unlawful participation in price maintenance or

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other unlawful or anticompetitive activity, even if unfounded, could be costly to defend and could harm our business, results of operations, financial condition and cash flows.
Changes in tax law relating to multinational corporations could adversely affect our tax position.
The U.S. Congress, government agencies in non-U.S. jurisdictions where we and our affiliates do business, and the Organisation for Economic Cooperation and Development, or OECD, have recently focused on issues related to the taxation of multinational corporations. One example is in the area of “base erosion and profit shifting,” where profits are claimed to be earned for tax purposes in low-tax jurisdictions, or payments are made between affiliates from a jurisdiction with high tax rates to a jurisdiction with lower tax rates. The OECD has released several components of its comprehensive plan to create an agreed set of international rules for addressing base erosion and profit shifting.
Due to the potential for changes to tax laws and regulations or changes to the interpretation thereof (including regulations and interpretations pertaining to recent tax reform in the United States), the ambiguity of tax laws and regulations, the subjectivity of factual interpretations, the complexity of our intercompany arrangements, uncertainties regarding the geographic mix of earnings in any particular period, and other factors, our estimates of effective tax rate and income tax assets and liabilities may be incorrect and our financial statements could be adversely affected. The impact of the factors referenced in the first sentence of this paragraph may be substantially different from period-to-period.
In addition, the amount of income taxes we pay is subject to ongoing audits by U.S. federal, state and local tax authorities and by non-U.S. tax authorities. If audits result in payments or assessments different from our reserves, our future results may include unfavorable adjustments to our tax liabilities and our financial statements could be adversely affected. Any further significant changes to the tax system in the United States or in other jurisdictions (including changes in the taxation of international income as further described below) could adversely affect our financial statements.
Certain of our businesses rely on relationships with collaborative partners and other third parties for development, supply and marketing of certain products and potential products, and such collaborative partners or other third parties could fail to perform sufficiently.
We believe that for certain of our businesses, success in penetrating target markets depends in part on their ability to develop and maintain collaborative relationships with other companies. Relying on collaborative relationships is risky because, among other things, our collaborative partners may (i) not devote sufficient resources to the success of our collaborations; (ii) fail to obtain regulatory approvals necessary to continue the collaborations in a timely manner; (iii) be acquired by other companies and terminate our collaborative partnership or become insolvent; (iv) compete with us; (v) disagree with us on key details of the collaborative relationship; (vi) have insufficient capital resources; and (vii) decline to renew existing collaborations on acceptable terms. Because these and other factors may be beyond our control, the development or commercialization of our products involved in collaborative partnerships may be delayed or

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otherwise adversely affected. If we or any of our collaborative partners terminate a collaborative arrangement, we may be required to devote additional resources to product development and commercialization or we may need to cancel some development programs, which could adversely affect our business and financial statements.
Risks related to regulation
We are required to comply with a wide variety of laws and regulations, and are subject to regulation by various federal, state and foreign agencies, and our failure to comply with existing and future regulatory requirements could adversely affect our results of operations and financial condition.
We compete in markets in which we and our customers are subject to federal, state, local, international and transnational laws and regulations, including the operating, quality and security standards of the FDA, various state health departments, the DHHS, similar bodies of the EU and its member states and other comparable agencies around the world, and, in the future, any changes to such laws and regulations could adversely affect us. We develop, configure and market our products to meet customer needs driven by those regulations. Among other rules affecting us, we are subject to laws and regulations concerning cGMP and product safety. Our subsidiaries may be required to register for permits and/or licenses with, and may be required to comply with, the laws and regulations of the FDA, the DHHS, the DEA, foreign agencies including the EMA, and other various state health departments and/or comparable state and foreign agencies as well as certain accrediting bodies depending upon the types of operations and locations of distribution and sale of the products manufactured or services provided by those subsidiaries. Any significant change in regulations could reduce demand for our products or increase our expenses. For example, many of our products are marketed to the biopharma industry for use in discovering, developing and manufacturing drugs, or are sold as raw materials or components to drug device manufacturers or for use in the manufacture of implantable devices. Changes in the domestic or foreign regulation of drug discovery, development or manufacturing processes or medical device manufacturing processes, or adverse findings concerning any health effects associated with these products, could have an adverse effect on the demand for these products and could also result in legal liability and claims.
Our operations are subject to a broad array of regulatory requirements globally. In particular, certain portions of our business must satisfy domestic and international standards in the medical, biopharmaceutical and other health sciences areas involving products and technologies which impact human health and safety. In addition, some of our operations must meet governmental requirements in terms of contracting, sourcing, financial accounting standards, product testing and reporting. We are required to comply with economic sanctions laws, which may affect our transactions with certain customers, business partners and other persons and entities. There are also business operations that produce products regulated by import/export regulations because their actual or potential use is considered sensitive and involves substantial licensing and record-keeping obligations. In addition, we are registered with the DDTC, as a manufacturer and exporter of goods controlled by ITAR, and we are subject to strict export control and prior approval requirements related to these goods. Our failure to comply with ITAR and other export

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control laws and regulations, as well as economic sanctions, could result in penalties, loss, or suspension of contracts or other consequences. Any of these could adversely affect our operations and financial condition. Failure by us or by our customers to meet one or more of these various regulatory obligations could have adverse consequences in the event of material non-compliance. Compliance with relevant sanctions and export control laws could restrict our access to, and increase the cost of obtaining, certain products and at times could interrupt our supply of imported inventory or our ability to service certain customers. Conversely, compliance with these regulatory obligations may require us to incur significant expenses.
Although we believe that we comply in all material respects with applicable laws and regulations, there can be no assurance that a regulatory agency or tribunal would not reach a different conclusion concerning the compliance of our operations with applicable laws and regulations. In addition, there can be no assurance that we will be able to maintain or renew existing permits, licenses or other regulatory approvals or obtain, without significant delay, future permits, licenses or other approvals needed for the operation of our businesses. Any noncompliance by us with applicable laws and regulations or the failure to maintain, renew or obtain necessary permits and licenses could have an adverse effect on our results of operations and financial condition. Furthermore, loss of a permit, license or other approval in any one portion of our business may have indirect consequences in other portions of our business if regulators or customers, for example cease doing business with such other portion due to fears that such loss is a sign of broader concerns about our ability to deliver products or services of sufficient quality.
Violation of government regulations or quality programs could harm demand for our products or services.
Some of our testing procedures and products, as well as some of the products manufactured by our customers which incorporate our products, are regulated by the FDA, the EMA and other comparable local, state, federal, foreign and transnational regulatory authorities. As applicable, we and our customers may be required to comply with laws and regulations enforced by the FDA and comparable state and foreign agencies. Failure to comply with these laws and regulations can lead to agency action, including warning letters, product recalls, product seizures, monetary sanctions, injunctions to halt manufacturing or distribution, restrictions on our operations, withdrawal of existing or denial of pending approvals, permits or registrations, including those relating to products or facilities, debarment consent decrees and civil and criminal sanctions. To the extent these agencies were to take enforcement action, such action may be publicly available, and such publicity could harm our ability to sell these regulated products globally and may harm our reputation. In addition, such actions could limit the ability of our customers to obtain regulatory clearance or approval for their products in the United States or abroad and/or our customers may incur significant costs in obtaining or maintaining such regulatory clearances or approvals in the United States or abroad. In addition, any such failure relating to the products we provide exposes us to direct and third-party product liability claims as well as contractual claims from our customers, including claims for reimbursement for lost or damaged products, as well as potential recall liability, which costs could be significant. Customers may also claim loss of profits due to lost or delayed sales, although our direct contracts with end customers typically

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place limits on such claims. There can be no assurance that any such contractual limitation will be applicable or sufficient or fully enforced in any given situation.
Additionally, some of our customers use our products in the manufacturing or testing processes for their drug and medical device products, and such end-products may be regulated by the FDA under pharmaceutical cGMP for drugs and Quality System Regulations for medical devices, or by the Centers for Medicare and Medicaid Services under the Clinical Laboratory Improvement Amendments. The customer is ultimately responsible for all compliance requirements relating to the manufacture and sale of their end-products; however, our customers rely on us to provide products in compliance with laws and regulations enforced by the FDA and comparable state and foreign agencies. Should any non-compliance be related to the products we sell, we could lose sales and customers and be exposed to liability claims.
Many of our facilities are either FDA-registered or the international equivalent or cGMP manufacturing sites. As such, these facilities are subject to periodic inspections by the FDA and/or foreign regulatory authorities to determine compliance with applicable regulations. Any failure to comply with these regulations could require us to implement costly remedial measures, institute product recalls, cease manufacturing products or commence manufacturing at an alternative facility, if available, until such issues are remediated. In addition, certain of our facilities are certified to ISO, including ISO 13485, ISO 9001, AS9100, ISO 22000 and/or ISO 14001. These standards are voluntary quality management system standards, the maintenance of which indicates to customers certain quality and operational norms. Customers may rely on contractual assurances that we make with respect to ISO certificates to transact business. Failure to comply with these ISO standards can lead to observations of non-compliance or even suspension of ISO or AS certifications or EC Declarations of Conformity Certificates by the registrar. If we were to lose ISO or AS certifications or EC Declarations of Conformity, we could lose sales and customers to competitors or other suppliers. We are also subject to periodic inspections or audits by our customers. If these audits or inspections identify issues or the customer perceives there are issues, the customer may decide to cease purchasing products from us which could adversely affect our business.
If we violate a government-mandated or voluntary quality program, we may incur additional expense to come back into compliance with such government mandated or voluntary standards. That expense may be material and we may not have anticipated that expense in our financial forecasts. Our financial results could suffer as a result of such increased expenses.
We are subject to environmental, health and safety laws and regulations, and costs to comply with such laws and regulations, or any liability or obligation imposed under such laws or regulations, could negatively impact our business, financial condition and results of operations.
We are subject to a broad range of foreign, federal, state and local environmental, health and safety laws and regulations, including those of the EPA, OSHA and equivalent local, state, and foreign regulatory agencies in each of the jurisdictions in which we operate. These laws and regulations govern, among other things: air emissions; wastewater discharges; the manufacturing, handling, disposal and transport of hazardous materials and solid waste; the

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manufacturing, processing and selling of chemical substances; the investigation and remediation of soil and groundwater contamination and otherwise relating to health and safety of our employees; and the protection of the environment and natural resources. Further, as our global operations have involved and continue to involve the manufacturing, handling, transport and distribution of materials that are, or could be classified as toxic or hazardous, there is a risk of contamination and environmental damage inherent in our operations and the products we manufacture, handle, transport and distribute. Our environmental, health and safety liabilities and obligations may result in significant capital expenditures and other costs, which could negatively impact our business, financial condition and results of operations. We may be fined or penalized by regulators for failing to comply with environmental, health and safety laws and regulations. For example, the EPA inspected our Phillipsburg, New Jersey facility in March 2017 and June 2017, and in April 2018 notified us of potential liabilities under the Toxic Substances Control Act and the Emergency Planning and Community Right to Know Act, and proposed that we pay civil penalties. See Item 3, “Legal Proceedings.” In addition, contamination resulting from our current or past operations or from past uses of land that we own or operate may trigger investigation or remediation obligations, which may have an adverse effect on our business, financial condition and results of operations. We cannot be certain that identification of presently unidentified environmental, health and safety conditions, new regulations, more vigorous enforcement by regulatory authorities or other unanticipated events will not arise in the future and give rise to additional environmental liabilities, business interruptions, compliance costs or penalties which could have an adverse effect on our business, financial condition and results of operations. In addition, environmental, health and safety laws and regulations are constantly evolving and it is not possible to predict accurately the effect they, or any new regulations or legislation may have in future periods.
We currently incur costs and may incur additional costs related to remediation of alleged environmental damage associated with past or current waste disposal practices or other hazardous materials handling at property that we currently own or operate, or formerly owned or operated, or facilities to which we arranged for the disposal of hazardous substances. Our liabilities arising from past or future releases of, or exposures to, hazardous substances may exceed our estimates or adversely affect our financial statements and reputation and we may be subject to additional claims for cleanup or other environmental claims in the future based on our past, present or future business activities, or that we will be able to recover any costs under any indemnifications that we have. For additional information regarding environmental matters, see note 12 to the consolidated financial statements beginning on page F-1 of this report.
Risks related to our indebtedness
Our substantial indebtedness could adversely affect our financial condition and prevent us from fulfilling our debt or contractual obligations.
Through our subsidiaries, we have a substantial amount of indebtedness, which requires us to make significant interest and principal payments. As of December 31, 2019, we had indebtedness of $5,249.4 million and $416.7 million of additional borrowing capacity under our credit

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facilities. Our high level of debt could have important consequences to us including the following:
making it more difficult for us to satisfy our debt or contractual obligations;
exposing us to the risk of increased interest rates as certain of our borrowings, including borrowings under our senior secured credit facilities, are at variable rates of interest;
restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;
requiring us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, which would reduce the funds available for working capital, capital expenditures, investments, acquisitions and other general corporate purposes;
limiting our flexibility in planning for, or reacting to, changes in our business, future business opportunities and the industry in which we operate;
placing us at a competitive disadvantage compared to any of our less leveraged competitors;
increasing our vulnerability to a downturn in our business and both general and industry-specific adverse economic conditions; and
limiting our ability to obtain additional financing at a favorable cost of borrowing, or at all, or to dispose of assets to raise funds, to fund future working capital, capital expenditures, investments, acquisitions or other general corporate requirements.
Any of the above-listed factors could have an adverse effect on our business, financial condition and results of operations and our ability to meet our payment obligations.
Our debt agreements contain restrictions on our ability to operate our business and to pursue our business strategies, and our failure to comply with, cure breaches of, or obtain waivers for covenants could result in an acceleration of the due date of our indebtedness.
The agreements governing our senior secured credit facilities, the notes and the receivables facility contain, and agreements governing future debt issuances may contain, covenants that restrict our ability to finance future operations or capital needs, to respond to changing business and economic conditions or to engage in other transactions or business activities that may be important to our growth strategy or otherwise important to us. The agreements governing our existing indebtedness restrict, subject to certain exceptions, among other things, Avantor Funding, Inc.’s ability and the ability of its subsidiaries to:
incur additional indebtedness and guarantee indebtedness;
create or incur liens;

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make investments and loans;
engage in mergers, consolidations or sales of all or substantially all of our assets;
pay dividends or make other distributions, in respect of, or repurchase or redeem, capital stock;
prepay, redeem or repurchase certain debt;
engage in certain transactions with affiliates;
sell or otherwise dispose of assets;
sell stock of our subsidiaries;
enter into agreements restricting our and our subsidiaries ability to pay dividends; and
amend, modify, waive or supplement certain subordinated indebtedness to the extent such amendments would be materially adverse to lenders.
In addition, any future financing arrangements entered into by us or any of our subsidiaries may contain similar restrictions. As a result of these covenants and restrictions, through our subsidiaries we are and will be limited in how we conduct our business, and we may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities. In addition, Avantor Funding, Inc. is required to maintain specified financial ratios and satisfy other financial condition tests. See Item 7, “Management’s discussion and analysis of financial condition and results of operations — Liquidity and capital resources — Indebtedness.” The terms of any future indebtedness we or our subsidiaries may incur could include more restrictive covenants. We cannot assure you that we will be able to maintain compliance with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders and/or amend the covenants.
Our or our subsidiaries’ failure to comply with the restrictive covenants described above as well as others contained in our or our subsidiaries’ future debt instruments from time to time could result in an event of default, which, if not cured or waived, could result in our being required to repay these borrowings before their maturity. If we are forced to refinance these borrowings on less favorable terms or cannot refinance these borrowings, our results of operations and financial condition could be adversely affected. If we were unable to repay or otherwise refinance these borrowings, the lenders under our senior secured credit facilities and/or the collateral agent under our senior secured notes could proceed against the collateral granted to them to secure such indebtedness, which could force us into bankruptcy or liquidation. Any such acceleration may also constitute a termination event under our receivables facility, which could result in the amount outstanding under that facility becoming due and payable. Any acceleration of amounts due under our debt agreements, or the exercise by the applicable lenders or agent of their rights under the related security documents, would likely have a material adverse effect on our business.

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Despite our current level of indebtedness, we and our subsidiaries may still be able to incur substantially more debt.
We and our subsidiaries may be able to incur significant additional indebtedness in the future. Although our credit agreement and indentures contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the additional indebtedness incurred in compliance with these restrictions could be substantial. If new debt is added to our current debt levels, the related risks that we now face could intensify.
We may be unable to generate sufficient cash flow to satisfy our significant debt service obligations, which could have a material adverse effect on our business, financial condition and results of operations.
Our ability to service our indebtedness and to refinance our indebtedness will depend on our ability to generate cash in the future and is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. If our business does not generate sufficient cash flow from operations, in the amounts projected or at all, or if future borrowings are not available to us in amounts sufficient to fund our other liquidity needs, our business, financial condition and results of operations could be materially adversely affected.
If we cannot generate sufficient cash flow from operations to service our indebtedness in the future, we may need to refinance all or a portion of our indebtedness on or before maturity, sell assets, delay capital expenditures or seek additional equity. The terms of our existing or future debt agreements may also restrict us from effecting any of these alternatives. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. Further, changes in the credit and capital markets, including market disruptions and interest rate fluctuations, may increase the cost of financing, make it more difficult to obtain favorable terms, or restrict our access to these sources of future liquidity. In addition, any failure to make required payments on our outstanding indebtedness would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness on commercially reasonable terms or at all. Our inability to generate sufficient cash flow to satisfy our debt service obligations, or to refinance or restructure our obligations on commercially reasonable terms or at all, could have a material adverse effect on our business, financial condition and results of operations, as well as on our ability to satisfy our obligations in respect of our indebtedness.
An increase in interest rates may negatively impact our operating results and financial condition.
Certain of our borrowings, including borrowings under our senior secured credit facilities and our receivables facility, to the extent the interest rate is not fixed, are at variable rates of interest. An increase in interest rates would have a negative impact on our results of operations by causing an increase in interest expense.
Our total interest expense was $440.0 million in 2019 and $523.8 million in 2018.

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Our ability to repay our indebtedness is affected by the cash flow generated by our subsidiaries.
Our subsidiaries own substantially all of our assets and conduct substantially all of our operations. Accordingly, repayment of our indebtedness will be dependent on the generation of cash flow by our subsidiaries and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us or Avantor Funding, Inc. to make payments in respect of our indebtedness. Each subsidiary is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. While our credit agreement and indentures limit the ability of our subsidiaries to incur consensual restrictions on their ability to pay dividends or make other intercompany payments to us, these limitations are subject to certain qualifications and exceptions.
Risks related to ownership of our stock
Our stock price may be volatile or may decline regardless of our operating performance, and you may not be able to resell shares of our common stock at or above the price you paid or at all, and you could lose all or part of your investment as a result.
You may not be able to resell your shares at or above the price at which you purchased them due to a number of factors such as those listed in “—Risks related to our business” and the following:
results of operations that vary from the expectations of securities analysts and investors;
results of operations that vary from those of our competitors;
changes in expectations as to our future financial performance, including financial estimates and investment recommendations by securities analysts and investors;
changes in economic conditions for companies in our industry;
changes in market valuations of, or earnings and other announcements by, companies in our industry;
declines in the market prices of stocks generally, particularly those of companies in our industry;
additions or departures of key management personnel;
strategic actions by us or our competitors;
announcements by us, our competitors or our suppliers of significant contracts, price reductions, new products or technologies, acquisitions, joint marketing relationships, joint ventures, other strategic relationships or capital commitments;
changes in preference of our customers;

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changes in general economic or market conditions or trends in our industry or the economy as a whole;
changes in business or regulatory conditions;
future sales of our common stock or other securities;
investor perceptions of or the investment opportunity associated with our common stock relative to other investment alternatives;
the public’s response to press releases or other public announcements by us or third parties, including our filings with the SEC;
announcements relating to litigation or governmental investigations;
guidance, if any, that we provide to the public, any changes in this guidance or our failure to meet this guidance;
the development and sustainability of an active trading market for our stock;
changes in accounting principles; and
other events or factors, including those resulting from informational technology system failures and disruptions, natural disasters, war, acts of terrorism or responses to these events.
Furthermore, the stock market may experience extreme volatility that, in some cases, may be unrelated or disproportionate to the operating performance of particular companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our actual operating performance. In addition, price volatility may be greater if the public float and trading volume of our common stock is low.
In the past, following periods of market volatility, stockholders have instituted securities class action litigation. If we were to become involved in securities litigation, it could have a substantial cost and divert resources and the attention of executive management from our business regardless of the outcome of such litigation.
The outstanding shares of MCPS may adversely affect the market price of our common stock.
The market price of our common stock is likely to be influenced by the outstanding shares of MCPS. For example, the market price of our common stock could become more volatile and could be depressed by:
investors’ anticipation of the potential resale in the market of a substantial number of additional shares of our common stock received upon conversion of the MCPS;

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possible sales of our common stock by investors who view the MCPS as a more attractive means of equity participation in us than owning shares of our common stock; and
hedging or arbitrage trading activity that may develop involving the MCPS and our common stock.
Certain rights of the holders of the MCPS could delay or prevent an otherwise beneficial takeover or takeover attempt of us.
Certain rights of the holders of the MCPS could make it more difficult or more expensive for a third party to acquire us. For example, if a fundamental change, as defined in the Registration Statement, were to occur on or prior to May 15, 2022, holders of the MCPS may have the right to convert their MCPS, in whole or in part, at an increased conversion rate and will also be entitled to receive a make-whole amount equal to the present value of all remaining dividend payments on their MCPS as described in the certificate of designations governing the MCPS. These features of the MCPS could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management.
Our common stock ranks junior to the MCPS with respect to the payment of dividends and amounts payable in the event of our liquidation, dissolution or winding-up of our affairs.
Our common stock ranks junior to the MCPS with respect to the payment of dividends and amounts payable in the event of our liquidation, dissolution or winding-up of our affairs. This means that, unless accumulated and unpaid dividends have been declared and paid, or set aside for payment, on all outstanding shares of the MCPS for all preceding dividend periods, no dividends may be declared or paid on our common stock and we will not be permitted to purchase, redeem or otherwise acquire any of our common stock, subject to limited exceptions. Likewise, in the event of our voluntary or involuntary liquidation, dissolution or winding-up of our affairs, no distribution of our assets may be made to holders of our common stock until we have paid to holders of the MCPS a liquidation preference equal to $50.00 per share plus accumulated and unpaid dividends.
Holders of the MCPS have the right to elect two directors in the case of certain dividend arrearages.
Whenever dividends on any shares of the MCPS have not been declared and paid for the equivalent of six or more dividend periods, whether or not for consecutive dividend periods, the authorized number of directors on our Board of Directors will, at the next annual meeting of stockholders or at a special meeting of stockholders, if any, automatically be increased by two and the holders of such shares of the MCPS voting together as a single class with holders of other series of our voting preferred stock then outstanding will be entitled, at our next annual meeting of stockholders or at a special meeting of stockholders, if any, to vote for the election of a total of two additional members of our Board of Directors, subject to certain terms and limitations. This right to elect directors will dilute the representation of the holders of our common stock on our Board of Directors and may adversely affect the market price of our common stock.

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Because we have no current plans to pay cash dividends on our common stock, you may not receive any return on investment unless you sell your common stock for a price greater than that which you paid for it.
We have no current plans to pay cash dividends on our common stock. The declaration, amount and payment of any future dividends on our common stock will be at the sole discretion of our Board of Directors. Our Board of Directors may take into account general and economic conditions, our financial condition and results of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries to us, including restrictions under our credit agreement and other indebtedness we may incur, and such other factors as our Board of Directors may deem relevant. In addition, no dividends may be declared or paid on our common stock unless accumulated and unpaid dividends on the MCPS have been declared and paid, or set aside for payment, on all outstanding shares of the MCPS for all preceding dividend periods.
As a result, you may not receive any return on an investment in our common stock unless you sell our common stock for a price greater than your purchase price.
We are a holding company with no operations of our own and, as such, we depend on our subsidiaries for cash to fund all of our operations and expenses, including future dividend payments, if any.
Our operations are conducted entirely through our subsidiaries and our ability to generate cash to meet our debt service obligations or to make future dividend payments, if any, is highly dependent on the earnings and the receipt of funds from our subsidiaries via dividends or intercompany loans. We do not currently expect to declare or pay dividends on our common stock for the foreseeable future; however, to the extent that we determine in the future to pay dividends on our common stock, the agreements governing our indebtedness restrict the ability of our subsidiaries to pay dividends or otherwise transfer assets to us. See note 25 to the consolidated financial statements beginning on page F-1 of this report.
If securities or industry analysts do not publish research or reports about our business or if they downgrade our stock or our sector, our stock price and trading volume could decline.
The trading market for our common stock relies in part on the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts. Furthermore, if one or more of the analysts who do cover us downgrade our stock or our industry, or change their views regarding the stock of any of our competitors, or publish inaccurate or unfavorable research about our business, the price of our stock could decline. If one or more of these analysts stop covering us or fail to publish reports on us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.

37


Maintaining the requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.
In the second quarter of 2019, we completed our IPO. As a public company, we incur significant legal, regulatory, finance, accounting, investor relations and other expenses that we did not incur as a private company, including costs associated with public company governance and reporting requirements. We also have incurred and will continue to incur costs associated with our compliance with the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules and regulations implemented by the SEC and costs in connection with continued listing on the NYSE. Our efforts to comply with these rules and regulations have significantly increased our legal and financial compliance costs and have made some activities more time-consuming or costly. Our management devotes a substantial amount of time to ensure that we comply with all of these requirements, diverting the attention of management away from revenue-producing activities. The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. These laws and regulations also could make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors, our board committees or as our executive officers. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common stock and the MCPS, fines, sanctions and other regulatory action and potentially civil litigation.
Failure to comply with requirements to design, implement and maintain effective internal control over financial reporting could have a material adverse effect on our business and stock price, and any failure to maintain financial controls could result in our financial statements becoming unreliable.
As a public company, we have significant requirements for enhanced financial reporting and internal controls. We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting obligations as a public company. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. The measures we take may not be sufficient to satisfy our obligations as a public company, and if we are unable to establish or maintain appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations on a timely basis, result in material misstatements in our consolidated financial statements and harm our results of operations.
In connection with the implementation of the necessary procedures and practices related to internal control over financial reporting, we may identify deficiencies that we may not be able to

38


remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act of 2002 for compliance with the requirements of Section 404. In addition, we may encounter problems or delays in completing the remediation of any deficiencies identified by our independent registered public accounting firm in connection with the issuance of their attestation report.
Our testing, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses which could result in a material misstatement of our annual or quarterly consolidated financial statements or disclosures that may not be prevented or detected.
We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 or our independent registered public accounting firm may not issue an unqualified opinion. If either we are unable to conclude that we have effective internal control over financial reporting or our independent registered public accounting firm is unable to provide us with an unqualified opinion, investors could lose confidence in our reported financial information, which could have a material adverse effect on the trading price of our common stock.
Future sales, or the perception of future sales, by us or our existing stockholders in the public market could cause the market price for our common stock to decline.
Sales of a substantial number of shares of our common stock in the public market, or the perception that such sales could occur, could substantially decrease the market price of shares of our common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
As of December 31, 2019, we had 572.8 million shares of our common stock outstanding. Of the outstanding shares, the 233.1 million shares sold in the IPO are freely tradable without restriction or further registration under the Securities Act, except that any shares held by our affiliates, as that term is defined under Rule 144 of the Securities Act, or Rule 144, including our directors, executive officers and other affiliates (including New Mountain Capital and Goldman Sachs).
The 185.3 million shares of common stock held by affiliates of New Mountain Capital, affiliates of Goldman Sachs and certain of our directors and executive officers as of December 31, 2019, representing 32% of the total outstanding shares of our common stock are “restricted securities” within the meaning of Rule 144 and subject to certain restrictions on resale. Restricted securities may be sold in the public market only if they are registered under the Securities Act or are sold pursuant to an exemption from registration such as Rule 144.
In addition, pursuant to a registration rights agreement, New Mountain Capital, Goldman Sachs and certain other stockholders have the right, subject to certain conditions, to require us to register the sale of their shares of our common stock under the Securities Act. By exercising its registration rights and selling a large number of shares, New Mountain Capital and Goldman Sachs could cause the prevailing market price of our common stock to decline. Certain of our other stockholders have “piggyback” registration rights with respect to future registered offerings

39


of our common stock. As of December 31, 2019, the shares of common stock covered by registration rights would represent approximately 50% of our total common stock outstanding. Registration of any of these outstanding shares of common stock would result in such shares becoming freely tradable without compliance with Rule 144 upon effectiveness of the registration statement.
44.5 million shares of our common stock subject to our outstanding stock options or shares of our common stock subject to issuance under the Legacy Avantor Plan, the Vail Plan and our 2019 Plan have been registered with a registration statement on Form S-8 and will be available for sale in the open market, subject to limitations in the stockholders agreement. As of December 31, 2019, there were stock options outstanding to purchase a total of 22.7 million shares of our common stock, and 5.2 million shares of our common stock were subject to restricted stock units. In addition, as of December 31, 2019, 16.6 million shares of common stock were reserved for future issuance under the 2019 Plan.
As restrictions on resale end, or if the existing stockholders exercise their registration rights, the market price of our shares of common stock could drop significantly if the holders of these shares sell them or are perceived by the market as intending to sell them. These factors could also make it more difficult for us to raise additional funds through future offerings of our shares of common stock or other securities.
In the future, we may also issue our securities in connection with investments or acquisitions. The amount of shares of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of our common stock. Any issuance of additional securities in connection with investments or acquisitions may result in additional dilution to you.
Concentrations of shareholder control could have adverse impacts
Certain of our shareholders, including affiliates of New Mountain Capital and affiliates of Goldman Sachs, have considerable influence over us as a result of their share ownership. This concentration could lead to conflicts of interest and difficulties for non-insider investors effecting corporate changes, and could adversely affect our Company’s share price. These shareholders (and their affiliates) and certain of our directors and officers, acting together, hold approximately 32% of our issued and outstanding shares as of December 31, 2019 and have the ability to influence all matters submitted to our shareholders for approval (including the election and removal of directors and any merger, consolidation or sale of all or substantially all of our assets). In addition, in connection with the IPO, we entered into an investor rights agreement with an affiliate of New Mountain Capital, which agreement provides for the ability of New Mountain Capital to nominate members to our Board of Directors. Accordingly, this concentration of ownership may have the effect of delaying, deferring or preventing a change in control of our Company, impeding a merger, consolidation, takeover or other business combination involving us or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could have a material adverse effect on the market price of our shares. The issuance of stock options and warrants could lead to greater concentration of share ownership among insiders and could lead to dilution of share

40


ownership which could lead to depressed share prices. In addition, New Mountain Capital and shareholders affiliated with Goldman Sachs may have different interests than other public investors.
Anti-takeover provisions in our organizational documents could delay or prevent a change of control.
Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws may have an anti-takeover effect and may delay, defer or prevent a merger, acquisition, tender offer, takeover attempt, or other change of control transaction that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares held by our stockholders. These provisions provide for, among other things:
a classified Board of Directors, as a result of which our Board of Directors is divided into three classes, with each class serving for staggered terms, with successors to the class of directors whose term expires at the first and second annual meetings of stockholders following the date of the IPO, as applicable, elected for a term expiring at the third annual meeting of stockholders following the date of the IPO;
the ability of our Board of Directors to issue one or more series of preferred stock;
advance notice requirements for nominations of directors by stockholders and for stockholders to include matters to be considered at our annual meetings;
certain limitations on convening special stockholder meetings;
the removal of directors either with or without cause and only upon the affirmative vote of the holders of at least 66% of the shares of common stock entitled to vote generally in the election of directors; and
that certain provisions may be amended only by the affirmative vote of at least 66% in voting power of all outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class.
These anti-takeover provisions could make it more difficult for a third party to acquire us, even if the third party’s offer may be considered beneficial by many of our stockholders. As a result, our stockholders may be limited in their ability to obtain a premium for their shares.
Our Board of Directors is authorized to issue and designate shares of our preferred stock in additional series without stockholder approval.
Our amended and restated certificate of incorporation authorizes our Board of Directors, without the approval of our stockholders, to issue 75.0 million shares of our preferred stock (including 25.0 million shares of MCPS), subject to limitations prescribed by applicable law, rules and regulations and the provisions of our amended and restated certificate of incorporation, as shares of preferred stock in series, to establish from time to time the number of shares to be included in

41


each such series and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof. The powers, preferences and rights of these additional series of preferred stock may be senior to or on parity with our common stock, which may reduce its value.
Our amended and restated certificate of incorporation provides, subject to limited exceptions, that state and federal courts (as appropriate) located within the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.
Our amended and restated certificate of incorporation provides that unless we consent to the selection of an alternative forum, the state or federal courts (as appropriate) located within the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for any (i) derivative action or proceeding brought on behalf of our company, (ii) action asserting a claim of breach of a fiduciary duty owed by any director, officer, or other employee or stockholder of our company to us or our stockholders, creditors or other constituents, (iii) action against us or any of our directors or officers involving a claim or defense arising pursuant to any provision of the Delaware General Corporation Law or our amended and restated certificate of incorporation or our amended and restated bylaws, (iv) action against us or any director or officer of the Company involving a claim or defense implicating the internal affairs doctrine, or (v) action against us or any of our directors or officers involving a claim or defense arising pursuant to the Exchange Act or the Securities Act. It is possible that these exclusive forum provisions may be challenged in court and may be deemed unenforceable in whole or in part. Our exclusive forum provision shall not relieve the company of its duties to comply with the federal securities laws and the rules and regulations thereunder, and our stockholders will not be deemed to have waived our compliance with these laws, rules and regulations.
Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provisions in our amended and restated certificate of incorporation. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other employees or stockholders which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition.
Item 1B.
Unresolved staff comments
Not applicable.

42


Item 2.
Properties
The following table sets forth information about our key properties at December 31, 2019:
(in thousands of square feet)
Size
 
Principal use
 
Status
Americas:
 
 
 
 
 
Visalia, California
503

 
Distribution and offices
 
Owned
Phillipsburg, New Jersey
500

 
Manufacturing and offices
 
Owned
Paris, Kentucky
420

 
Manufacturing and distribution
 
Owned
Bridgeport, New Jersey
369

 
Distribution and offices
 
Owned
Batavia, Illinois
360

 
Distribution and offices
 
Owned
West Henrietta, New York
339

 
Assembly, distribution and offices
 
Owned
Carpinteria, California
270

 
Manufacturing, research & technology and offices
 
Leased
Solon, Ohio
255

 
Manufacturing, distribution and offices
 
Leased
Rochester, New York
205

 
Assembly and distribution
 
Leased
Sparks, Nevada
182

 
Manufacturing
 
Leased
Sterling, Virginia
174

 
Biostorage, warehousing and offices
 
Leased
Suwanee, Georgia
169

 
Distribution and offices
 
Leased
Bakersfield, California
165

 
Manufacturing and research & technology
 
Leased
Leesburg, Virginia
155

 
Biostorage and warehousing
 
Leased
Radnor, Pennsylvania
150

 
Corporate headquarters
 
Leased
Buford, Georgia
130

 
Customized kitting and distribution
 
Leased
Manati, Puerto Rico
130

 
Distribution and offices
 
Owned
Denver, Colorado
130

 
Distribution
 
Leased
Missouri City, Texas
120

 
Distribution
 
Leased
Irving, Texas
118

 
Manufacturing
 
Leased
Mississauga, Ontario, Canada
114

 
Distribution and offices
 
Leased
Mexico City, Mexico
100

 
Manufacturing and distribution
 
Owned
Overland, Missouri
90

 
Manufacturing and distribution
 
Leased
Claremont, California
86

 
Customized kitting and distribution
 
Leased
Ecatepec, Mexico
80

 
Manufacturing and distribution
 
Leased
Devens, Massachusetts
70

 
Manufacturing, distribution and offices
 
Leased
Aurora, Ohio
65

 
Manufacturing
 
Leased

43


(in thousands of square feet)
Size
 
Principal use
 
Status
Tualatin, Oregon
56

 
Distribution
 
Leased
Franklin, Massachusetts
55

 
Distribution
 
Leased
Bethlehem, Pennsylvania
50

 
Manufacturing, distribution and offices
 
Leased
Bridgewater, New Jersey
36

 
Research & technology
 
Leased
Chester, Connecticut
35

 
Manufacturing and distribution
 
Leased
Chino, California
32

 
Equipment design and manufacturing
 
Leased
Allentown, Pennsylvania
12

 
Offices
 
Leased
Europe:
 
 
 
 
 
Briare, France
303

 
Distribution, repackaging and mixing
 
Owned
Bruchsal, Germany
219

 
Distribution
 
Owned
Gliwice, Poland
213

 
Manufacturing and distribution
 
Leased
Leuven, Belgium
207

 
Distribution and manufacturing
 
Owned
Lutterworth, United Kingdom
185

 
Distribution
 
Leased
Karlskoga, Sweden
131

 
Distribution
 
Leased
Stříbrná Skalice, Czech Republic
94

 
Custom kitting, distribution and offices
 
Leased
Dublin, Ireland
77

 
Distribution
 
Leased
Barcelona, Spain
73

 
Distribution
 
Leased
Debrecen, Hungary
68

 
Distribution
 
Leased
Søborg, Denmark
66

 
Distribution and offices
 
Leased
Darmstadt, Germany
56

 
Offices
 
Leased
Fontenay-Sous-Bois, France
56

 
Offices
 
Leased
Chorley, United Kingdom
27

 
Distribution, service and offices
 
Leased
AMEA:
 
 
 
 
 
Perth, Australia
90

 
Manufacturing, distribution and offices
 
Leased
Panoli, India
80

 
Manufacturing
 
Leased
Singapore
74

 
Distribution
 
Leased
Coimbatore, India
63

 
Service center
 
Leased
Shanghai, China
39

 
Research & technology and offices
 
Leased
Hyderabad, India
26

 
Warehouse
 
Leased
Dehradun, India
23

 
Manufacturing
 
Leased
Mumbai, India
18

 
Research & technology
 
Leased
Gurgaon, India
15

 
Offices
 
Leased
Chubei City, Taiwan
14

 
Research & technology and offices
 
Leased
Gwanggyo, Korea
2

 
Laboratory
 
Leased
Seoul, Korea
1

 
Offices
 
Leased
Item 3.
Legal proceedings
In April 2018 the EPA notified us of potential liabilities under the Toxic Substances Control Act and the Emergency Planning and Community Right to Know Act that were identified in March

44


2017 and June 2017 inspections of our Phillipsburg, New Jersey facility. The alleged violations relate to our failure to timely file reports regarding the Phillipsburg facility. We have also become aware of additional potential liabilities under the Toxic Substances Control Act relating to failure to timely file reports regarding the Paris, Kentucky facility, and relating to export shipments of elemental mercury, which we have voluntarily disclosed to the EPA. We have taken steps to correct these errors and have filed amended reports. The EPA has proposed total civil penalties of $1.5 million relating to these issues. While we are cooperating with the EPA and pursuing a negotiated resolution, we cannot predict with certainty the amount of penalties that may ultimately be imposed.
For additional information regarding legal proceedings and matters, see note 12 to our consolidated financial statements beginning on page F-1 of this report, which information is incorporated into this item by reference.
Item 4.
Mine safety disclosures
Not applicable.

45


Information about our executive officers
The following table sets forth certain information regarding our executive officers at January 31, 2020:
 
Age
 
Position
Michael Stubblefield
47
 
Director, President and Chief Executive Officer
Thomas Szlosek
56
 
Executive Vice President and Chief Financial Officer
James Bramwell
53
 
Executive Vice President, Strategic Partners
Gerard Brophy
54
 
Executive Vice President, Biopharma Production
Christophe Couturier
54
 
Executive Vice President, Services, Strategy and Business Transformation
Tanya Foxe
48
 
Executive Vice President, Global Operations and Supply Chain
Sven Henrichwark
53
 
Executive Vice President, APAC
Eric McAllister
55
 
Executive Vice President and Chief Human Resources Officer
Justin Miller
53
 
Executive Vice President, General Counsel and Secretary
Mark Murray
49
 
Executive Vice President, Biomaterials and Advanced Technologies
Devashish Ohri
53
 
Executive Vice President, IMEA
Frederic Vanderhaegen
52
 
Executive Vice President, Europe
Michael Wondrasch
51
 
Executive Vice President and Chief Information Officer
Unless indicated to the contrary, the business experience summaries provided below describe positions held by the named individuals during the last five years.
Michael Stubblefield became our President and Chief Executive Officer in 2014. In addition, Mr. Stubblefield also serves as a Director. Prior to joining us, Mr. Stubblefield was a Senior Expert for the Chemicals Practice of McKinsey & Company, a management consulting firm, from 2013 to 2014.
Thomas Szlosek is our Executive Vice President and Chief Financial Officer, a position he has held since December 2018. Mr. Szlosek previously served as the Senior Vice President and Chief Financial Officer of Honeywell International, Inc., a diversified technology and manufacturing company, from April 2014 to August 2018. Mr. Szlosek is also a Certified Public Accountant.
James Bramwell is our Executive Vice President, Strategic Partners, a position he has held since November 2017. Prior to his current role, Mr. Bramwell served as Senior Vice President, Strategic Partners and Global Export of VWR, a position he held from March 2016 to November 2017. From June 2008 until March 2016, Mr. Bramwell served as VWR’s Senior Vice President, Strategic Partners.
Gerard Brophy is our Executive Vice President, Biopharma Production, a position he has held since July 2018. Dr. Brophy joined us from GE Healthcare, a medical technology and life sciences company where he spent more than 14 years in a variety of senior level positions, most

46


recently as the Head of Cell Therapy, Life Sciences from January 2017 to July 2018, and Chief Technology Officer, Life Sciences from April 2013 to January 2017.
Christophe Couturier is our Executive Vice President, Services, Strategy and Business Transformation, a position he has held since April 2018. Prior to joining Avantor, Mr. Couturier served as chief executive officer of Salicornia, LLC, a personal consulting company, from September 2017 to April 2018 and, before Salicornia, as chief financial officer at OvaScience, a biotechnology company, from September 2016 to July 2017. Prior to OvaScience, Mr. Couturier spent more than 12 years at Millipore Sigma, a life science and high technology company, where he held a variety of services, merger integration, general management, finance and consulting positions.
Tanya Foxe is our Executive Vice President, Global Operations and Supply Chain, a position she has held since September 2019. Prior to joining us, Ms. Foxe acted as Global Senior Vice President, Supply Chain, Medical Devices and Strategic Initiatives at Johnson & Johnson, a diversified manufacturer and research and development company in the healthcare field, from February 2014 to September 2019.
Sven Henrichwark is our Executive Vice President, APAC, a position he has held since January 2019. Prior to joining Avantor, Mr. Henrichwark led medical technology investment activities for SPRIM Ventures from June 2019 to January 2020, and before SPRIM, served as chief executive officer of Echosens, a medical technology company from June 2018 to May 2019. Mr. Henrichwark also spent more than 12 years at GE Healthcare, a medical technology and life sciences company, including General Manager, Business Operations & Service for APAC. He also was General Manager, Global Commercial Bioprocess for GE Life Sciences, where he led commercial activities for biomanufacturing and the protein science business.
Eric McAllister is our Executive Vice President and Chief Human Resources Officer, a position he has held since March 2017. Prior to joining us, Mr. McAllister acted as Senior Vice President, Human Resources for Westinghouse Electric Company, a supplier of safe and innovative nuclear technology, where he led the global human resources and security organizations from 2014 to February 2017.
Justin Miller is our Executive Vice President, General Counsel and Secretary, a position he has held since December 2017. Prior to joining us, Mr. Miller was Of Counsel at Ballard Spahr LLP from December 2015 to December 2017. Prior to Ballard Spahr, Mr. Miller spent 20 years at DuPont, a science company, in a number of leadership positions within the legal group, serving most recently as Associate General Counsel and Chief Litigation Counsel from 2013 to 2015.
Mark Murray is our Executive Vice President, Biomaterials and Advanced Technologies, a position he has held since January 2020. Prior to joining us, Mr. Murray spent 13 years at Celanese, a global chemicals manufacturer, in a number of leadership positions including, most recently, Vice President of Global Sales for its material solutions business as well as leader of its global emulsions and ethylene vinyl acetate performance polymers businesses.

47


Devashish Ohri is our Executive Vice President, AMEA, a position he has held since 2014. Prior to joining us, Mr. Ohri acted as Managing Director, South Asia for Life Technologies, a biotechnological company, from 2010 to 2014.
Frederic Vanderhaegen is our Executive Vice President, Europe, a position he has held since October 2018. Mr. Vanderhaegen joined us from Ortho Clinical Diagnostics, an in vitro diagnostics company, where he served as Vice President and General Manager, EMEA from June 2015 to October 2018. Prior to Ortho Clinical Diagnostics, Mr. Vanderhaegen acted as Vice President of Sales at Beckman Coulter, a company that develops, manufactures and markets diagnostic systems for complex biomedical testing, from October 2012 to June 2015.
Michael Wondrasch is our Executive Vice President and Chief Information Officer, a position he has held since April 2018. Prior to joining us, Mr. Wondrasch served as Global Chief Technology Officer at Bunge, an agribusiness and food ingredient company, from January 2017 to April 2018. Prior to Bunge, Mr. Wondrasch was Senior Vice President and Chief Technology Officer at Pepsico, a food, snack and beverages company, from July 2013 to December 2016.
PART II
Item 5.
Market for registrant’s common equity, related stockholder matters and issuer purchases of equity securities
Principal markets for common stock
Our common stock is listed on the NYSE under the symbol “AVTR.” The following table presents the low and high sales prices of our common stock for each of the full quarterly periods since our IPO:
 
Low
 
High
Third quarter 2019
$
13.44

 
$
19.59

Fourth quarter 2019
13.33

 
18.85

Holders of common stock
On January 31, 2020, we had 87 holders of record of our common stock. This does not include holdings in street or nominee names.
Dividends
We currently do not expect to pay any dividends on our common stock. Additionally, our subsidiaries are party to certain debt agreements that would restrict their ability to fund future dividend payments to our common stockholders. For more information, see note 25 to our consolidated financial statements beginning on page F-1 of this report.

48


Stock performance graph
The following graph compares the return on a $100 investment in our common stock made on May 17, 2019, the day we first began trading on the NYSE, with a $100 investment also made on May 17, 2019 in the S&P MidCap 400 Index and the S&P MidCap 400 Health Care Index. The S&P MidCap 400 Index is a broad equity market index of companies having market capitalization similar to ours. The S&P MidCap 400 Health Care Index is an industry-specific equity market index that we believe closely aligns to us based on the following: (i) the index follows companies of a similar size to us in terms of net sales and market capitalization; (ii) the index includes health care distributors, the segment of the Global Industry Classification Standard that we believe most closely aligns to us; and (iii) the index includes companies in the biopharma and healthcare industries, two of our primary customer groups that together comprise over half of our net sales.
The information in this section is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference in any of our filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report on Form 10-K, except to the extent that we specifically incorporate such information by reference. The stock performance shown below is not necessarily indicative of future performance.
chart-2b230edb08f56637516.jpg
Unregistered sales of equity securities
During the three months ended December 31, 2019, we issued an aggregate of 1.0 million shares of common stock to warrant holders who exercised outstanding warrants pursuant to the

49


warrants' cash exercise mechanism. The cash proceeds received from the exercises was not material.
These warrants had an exercise price of $0.002 per share. The warrants were originally issued to holders of our series A preferred stock in connection with our acquisition of VWR in 2017.
The securities were issued in reliance upon the exemption from registration provided under Section 4(a)(2) of the Securities Act of 1933, as amended, as transactions not involving a public offering due to lack of general solicitation or advertising, the status and knowledge of the warrant holders and publicly available information about us and our operations.

50


Item 6.
Selected financial data
(in millions except per share data)
Year ended December 31,
2019
 
2018
 
2017
 
2016
 
2015
Statement of operations data:
(1,2,3)
 
(4)
 
(1,3,4,5,6)
 
(1,3,6)
 
 
Net sales
$
6,040.3

 
$
5,864.3

 
$
1,247.4

 
$
691.3

 
$
636.9

Cost of sales
4,119.6

 
4,044.5

 
814.6

 
371.6

 
374.7

Gross profit
1,920.7

 
1,819.8

 
432.8

 
319.7

 
262.2

Selling, general and administrative expenses
1,368.9

 
1,405.3

 
449.7

 
281.5

 
199.4

Fees to New Mountain Capital

 
1.0

 
193.5

 
28.3

 
2.5

Operating income (loss)
551.8

 
413.5

 
(210.4
)
 
9.9

 
60.3

Interest expense
(440.0
)
 
(523.8
)
 
(200.9
)
 
(60.4
)
 
(30.8
)
Loss on extinguishment of debt
(73.7
)
 

 
(56.4
)
 
(19.9
)
 

Other income (expense), net
2.5

 
(3.5
)
 
7.5

 
(0.2
)
 
0.3

Income (loss) before income taxes
40.6

 
(113.8
)
 
(460.2
)
 
(70.6
)
 
29.8

Income tax (expense) benefit
(2.8
)
 
26.9

 
314.9

 
(10.1
)
 
(17.1
)
Net income (loss)
$
37.8

 
$
(86.9
)
 
$
(145.3
)
 
$
(80.7
)
 
$
12.7

 
 
 
 
 
 
 
 
 
 
Per share data:
 
 
 
 
 
 
 
 
 
(Loss) earnings:
 
 
 
 
 
 
 
 
 
Basic
$
(0.84
)
 
$
(2.69
)
 
$
(2.75
)
 
$
(0.28
)
 
$
0.14

Diluted
(0.84
)
 
(2.69
)
 
(2.75
)
 
(0.28
)
 
0.13

Distributions paid

 

 
10.02

 
0.80

 

 
 
 
 
 
 
 
 
 
 
Balance sheet data at period end:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
186.7

 
$
184.7

 
$
185.4

 
$
62.9

 
$
51.9

Total assets
9,773.3

 
9,911.6

 
10,446.5

 
1,135.8

 
1,150.4

Total current liabilities
1,074.5

 
1,096.2

 
1,104.3

 
135.9

 
103.3

Total long-term liabilities
6,236.6

 
8,007.8

 
8,372.6

 
1,510.5

 
623.4

Total redeemable equity

 
3,859.3

 
3,589.8

 

 
1,038.0

Total stockholders’ equity (deficit)
2,462.2

 
(3,051.7
)
 
(2,620.2
)
 
(510.6
)
 
(614.3
)
 
 
 
 
 
 
 
 
 
 
Cash flow data:
 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
$
354.0

 
$
200.5

 
$
(167.5
)
 
$
72.9

 
$
124.6

Net cash used in investing activities
(42.1
)
 
(23.2
)
 
(6,676.0
)
 
(29.9
)
 
(35.4
)
Net cash (used in) provided by financing activities
(307.8
)
 
(170.3
)
 
6,965.0

 
(43.5
)
 
(87.6
)

51


 
(1)
Earnings or loss per share, redeemable equity, stockholders’ equity or deficit, and net cash provided by or used in financing activities are not comparable across the periods because we recapitalized our equity in 2019 in connection with the IPO, in 2017 in connection with the VWR acquisition and in 2016 in connection with a merger with NuSil. We also raised significant amounts of new capital in 2019 and 2017. See note 14 to the consolidated financial statements beginning on page F-1 of this report.
(2)
Total assets and total long-term liabilities are not comparable across the periods because on January 1, 2019, we adopted a new lease accounting standard and elected to present comparable periods under the prior lease accounting standard. On the adoption date, we recognized $155.0 million of operating lease assets and $162.5 million of operating lease liabilities. See note 3 to the consolidated financial statements beginning on page F-1 of this report.
(3)
Interest expense and the loss on extinguishment of debt are not comparable across the periods due to the debt refinancings that occurred in 2019, 2017 and 2016. See note 13 to the consolidated financial statements beginning on page F-1 of this report.
(4)
Income tax expense or benefit is not comparable across the periods because in 2017, tax reform legislation was enacted in the United States. The new legislation included a significant reduction of the U.S. federal corporate tax rate and a significant one-time transition tax on undistributed foreign earnings and profits. See note 19 to the consolidated financial statements beginning on page F-1 of this report.
(5)
Most financial data is not comparable across the periods because on November 21, 2017 we acquired VWR. In accordance with GAAP, VWR’s financial results are only included prospectively since the acquisition date.
(6)
Fees to New Mountain Capital are not comparable across the periods due to a transaction fee of $180.0 million in 2017 related to the VWR acquisition and transaction fees of $12.5 million in 2017 and $27.3 million in 2016 related to debt refinancings.
Item 7.
Management’s discussion and analysis of financial condition and results of operations
This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those contained in or implied by any forward-looking statements. See “Cautionary factors regarding forward-looking statements.”
Overview
We are a leading global provider of mission critical products and services to customers in the biopharmaceutical, healthcare, education & government and advanced technologies & applied materials industries. We have global operations and an extensive product portfolio. We strive to

52


enable customer success through innovation, cGMP manufacturing and comprehensive service offerings. The depth and breadth of our portfolio provides our customers a comprehensive range of products and services and allows us to create customized and integrated solutions for our customers.
In 2019, we recorded net sales of $6,040.3 million, net income of $37.8 million and Adjusted EBITDA of $1,031.2 million. We also generated net sales growth of 3.0% and organic net sales growth of 5.1%, each compared to the same period in 2018. See “Reconciliations of non-GAAP measures” for a reconciliation of net income to Adjusted EBITDA and “Results of operations” for a reconciliation of net sales growth to organic net sales growth.
Trends affecting our business and results of operations
The following trends have affected our recent operating results, and they may also continue to affect our performance and financial condition in future periods.
Our IPO generated significant proceeds and certain costs
In the second quarter of 2019, we completed our IPO. The IPO generated net proceeds of $4,235.6 million after deducting underwriting discounts, commissions and other offering costs of $132.1 million. The IPO also satisfied a performance condition for certain of our stock options, which caused us to immediately recognize of $26.9 million of expense.
We simplified our capital structure and reduced our borrowings
Proceeds from the IPO, supplemented by operating cash flows, enabled us to simplify our equity capitalization, reduce debt levels and ultimately enabled us to lower the interest rates on our indebtedness. These actions reduced our interest burden and improved our operating cash flows and earnings in 2019, and we expect those improvements to continue into future periods.
We redeemed all of our outstanding series A preferred stock for $2,630.9 million using proceeds from the IPO. Furthermore, all shares of junior convertible preferred stock automatically converted into shares of our common stock. The redemption of series A preferred stock eliminated the accumulation of yield thereon, which has positively impacted our income available to common stockholders and will continue to do so in future periods.
We used the remaining net proceeds from the IPO and operating cash flows to repay $1.9 billion of outstanding indebtedness. This reduction in borrowings improved our credit profile, which enabled us to amend our debt in June 2019 and January 2020 to reduce the interest rate margins under the senior secured credit facilities. This has reduced our interest expense and cash paid for interest and will continue to do so in future periods.
We reduced our expenses through a global restructuring program
We have generated significant cost and commercial synergies across our business from the global restructuring program we initiated in the fourth quarter of 2017. Under that program, we are permitted to spend up to $215 million over a three-year period to optimize our sales, gross

53


margins and operating costs. As a result of the program, we have combined sales and marketing resources, eliminated redundant corporate functions, optimized procurement and our manufacturing footprint, and implemented best practices throughout the organization.
From inception of the program through December 31, 2019, we have recognized $118.8 million of charges and have spent $8.3 million on capital projects. Through December 31, 2019, we believe that we have generated over $180 million of annualized cost synergies, which we believe will favorably impact our results in 2020 and beyond.
Our AMEA region is experiencing significant growth
In 2019, net sales grew by nearly 15% in the AMEA region. Our largest customers in this region are in the biopharma and advanced technologies & applied materials industries. We believe that local demand for our products and solutions in these regions is being driven by the expansion of our customers’ presence, an inadequate local supplier base and a significant increase in local government investment to support innovation in the industries we serve. We expect that the AMEA region will continue to generate significant growth for us in future periods.
We are investing in a differentiated innovation model
We are engaging with our customers early in their product development cycles to advance their programs from research and discovery through development and commercialization. These projects include enhancing product purity and performance characteristics, improving product packaging and streamlining workflows. We are also developing new products in emerging areas of science such as cell and gene therapy.
Changes in foreign currency exchange rates are impacting our financial condition and results of operations
We have substantial operations overseas whose financial condition and results of operations have been and will continue to be impacted by changes in the exchange rate of the U.S. dollar into other currencies. See Item 7A, “Quantitative and qualitative disclosures about market risk.”
Key indicators of performance and financial condition
To evaluate our performance, we monitor a number of key indicators. As appropriate, we supplement our results of operations determined in accordance with GAAP with certain non-GAAP measures that we believe are useful to investors, creditors and others in assessing our performance. These measurements should not be considered in isolation or as a substitute for reported GAAP results because they may include or exclude certain items as compared to similar GAAP-based measurements, and such measurements may not be comparable to similarly-titled measurements reported by other companies. Rather, these measurements should be considered as an additional way of viewing aspects of our operations that provide a more complete understanding of our business.

54


The key indicators that we monitor are as follows:
Net sales, gross margin, operating income and net income or loss. These measures are discussed in the section entitled “Results of operations;”
Organic net sales growth, which is a non-GAAP measure discussed in the section entitled “Results of operations.” Organic net sales growth eliminates from our reported net sales the impacts of earnings from any acquired or disposed businesses and changes in foreign currency exchange rates. We believe that this measurement is useful to investors as a way to measure and evaluate our underlying commercial operating performance consistently across our segments and the periods presented. This measurement is used by our management for the same reason. Reconciliations to the change in reported net sales, the most directly comparable GAAP financial measure, are included in the section entitled “Results of operations.”
Adjusted EBITDA and Adjusted EBITDA margin, which are non-GAAP measures discussed in the section entitled “Results of operations.” Adjusted EBITDA is used by investors to measure and evaluate our operating performance exclusive of interest expense, income tax expense, depreciation, amortization and certain infrequently occurring items. Adjusted EBITDA margin is Adjusted EBITDA divided by net sales as determined under GAAP. We believe that these measurements are useful to investors as a way to analyze the underlying trends in our core business consistently across the periods presented. A reconciliation of net income or loss, the most directly comparable GAAP financial measure, to Adjusted EBITDA is included in the section entitled “Reconciliations of non-GAAP measures;”
Management EBITDA, which is a non-GAAP measure discussed in the section entitled “Results of operations.” Management EBITDA is used by our management to measure and evaluate the internal operating performance of our business segments. It is also the basis for calculating management incentive compensation programs. Management EBITDA is our Adjusted EBITDA further adjusted for other items that are not used to measure internal operating performance. We believe that this measurement is useful to investors as a way to analyze the underlying trends in our core business, including at the segment level, consistently across the periods presented and also to evaluate performance under management incentive compensation programs. A reconciliation of net income or loss, the most directly comparable GAAP financial measure, to Management EBITDA is included in the section entitled “Reconciliations of non-GAAP measures;” and
Cash flows from operating activities, which we discuss in the section entitled “Liquidity and capital resources—Historical cash flows.”
Results of operations
We present results of operations in the same way that we manage our business, evaluate our performance and allocate our resources. We also provide discussion of net sales and Management

55


EBITDA by geographic segment based on customer location: Americas, Europe and AMEA. Corporate costs are managed on a standalone basis and not allocated to segments.
Years ended December 31, 2019 and 2018
Executive summary
(dollars in millions)
Year ended December 31,
 
Change
2019
 
2018
 
Net sales
$
6,040.3

 
$
5,864.3

 
$
176.0

Gross margin
31.8
%
 
31.0
%
 
80 bps

Operating income
$
551.8

 
$
413.5

 
$
138.3

Net income (loss)
37.8

 
(86.9
)
 
124.7

Adjusted EBITDA
1,031.2

 
945.3

 
85.9

Adjusted EBITDA margin
17.1
%
 
16.1
%
 
100 bps

Net sales growth, gross margin improvement, reduced operating costs, lower interest expense and an improved tax rate each contributed to strong performance in 2019 compared to 2018. The net sales growth was driven by strength in biopharma, which contributed to the mid single-digit organic net sales growth in Americas and Europe and to the low double-digit organic net sales growth in AMEA. These factors were partially offset by unfavorable foreign currency translation. The gross margin improvement reflected increased volume, better prices relative to cost inflation and the absence of one-time factors related to 2018. This was offset by unfavorable manufacturing variances and lower supplier rebates. In addition to these factors, the growth in operating income included net operating expense reductions that were the result of productivity improvements partially offset by strategic spending in the AMEA region. The change from net loss to net income and the improvements in Adjusted EBITDA and Adjusted EBITDA margin were for reasons similar to the growth in operating income.
Net sales
(in millions)
Year ended December 31,
 
Reconciliation of net sales growth to organic net sales growth
Net sales growth
 
Foreign currency impact
 
Organic net sales growth
2019
 
2018
Americas
$
3,584.8

 
$
3,460.9

 
$
123.9

 
$
(6.5
)
 
$
130.4

Europe
2,102.0

 
2,095.3

 
6.7

 
(113.9
)
 
120.6

AMEA
353.5

 
308.1

 
45.4

 
(2.9
)
 
48.3

Total
$
6,040.3

 
$
5,864.3

 
$
176.0

 
$
(123.3
)
 
$
299.3

Net sales increased $176.0 million or 3.0%, which included $123.3 million or 2.1% of unfavorable foreign currency impact. Organic net sales growth was $299.3 million or 5.1% and was caused by more favorable pricing and volume growth.

56


In Americas, net sales increased $123.9 million or 3.6%, which included $6.5 million or 0.2% of unfavorable foreign currency impact. Organic net sales growth was $130.4 million or 3.8% and was caused by more favorable pricing and volume growth. Additional information by end market (with approximate percentage of total net sales) is as follows:
Biopharma (50%) — Sales grew in the high-single digits. We gained new customers and experienced low double-digit volume growth from customer spending on research and development, as well as mid-single-digit growth from biopharma production.
Healthcare (10%) — We experienced low single-digit contraction due to a less favorable mix of product sales and a challenging comparison to the prior year driven by our proprietary materials.
Education and government (15%) — We experienced low single-digit growth driven by new customer wins, partially offset by a normalization of customized inventory production after a significant ramp-up in 2018 related to a key customer win.
Advanced technologies & applied materials (25%) — Sales were flat year over year, with strength in the aerospace and defense and microelectronics industries that did not overcome the generally flat industrial sector.
In Europe, net sales increased $6.7 million or 0.3%, which included $113.9 million or 5.4% of unfavorable foreign currency impact. Organic net sales growth was $120.6 million or 5.7%, due nearly in equal parts to volume growth and favorable pricing. Additional information by end market (with approximate percentage of total net sales) is as follows:
Biopharma (40%) — We experienced low double-digit growth broadly across strategic customer accounts and new customer wins. This was driven by lab chemicals, which continued to be a strong driver of growth, our biopharma production capabilities and specialty procurement.
Healthcare (10%) — We experienced mid single-digit growth due to strong sales of proprietary materials. This was partially offset by a contraction in equipment & instrumentation.
Education & government (15%) — Sales were essentially flat due to fewer growth opportunities and increased competitive pressure in the market, specifically in our chemicals offerings.
Advanced technologies & applied materials (35%) — We experienced mid single-digit growth due to growth in third-party chemicals and consumables, which was partially offset by softness in equipment & instrumentation.

57


In AMEA, net sales increased $45.4 million or 14.7% due to strong volume growth in the biopharma end market. Additional information by end market (with approximate percentage of total net sales) is as follows:
Biopharma (45%) — We experienced over 30% growth driven by our chromatography resin products as well as strong growth with key biopharma production customers in Korea, China and India.
Advanced technologies & applied materials (40%) — We experienced mid single-digit growth driven by higher sales of third-party materials & consumables, which was partially offset by a reduction in electronic materials due to a significant order in 2018 that did not repeat.
Gross margin
 
Year ended December 31,
 
Change
2019
 
2018
Gross margin
31.8
%
 
31.0
%
 
80 bps
The increase in gross margin included 50 basis points from more favorable prices relative to cost inflation and 10 basis points of favorable product mix, reflecting sales of our higher margin proprietary materials. The increase also included 50 basis points due to the absence of higher product costs in 2018 for (i) the step-up of VWR inventory in purchase accounting, and (ii) restructuring of a discontinued product line that resulted in $20.2 million of inventory adjustments. These factors were partially offset by 30 basis points from unfavorable manufacturing absorption due to system integration initiatives at our manufacturing facilities and lower supplier rebates due to increased thresholds in certain rebate agreements.
The global restructuring program contributed a total of $85.1 million to 2019 gross profit and included more favorable prices relative to cost inflation, product cost reductions and productivity improvements from leaner footprints and operating practices.
Operating income
(in millions)
Year ended December 31,
 
Change
2019
 
2018
Gross profit
$
1,920.7

 
$
1,819.8

 
$
100.9

Operating expenses
1,368.9

 
1,406.3

 
(37.4
)
Operating income
$
551.8

 
$
413.5

 
$
138.3

Operating income increased primarily from higher gross profit, as previously discussed, as well as a reduction of operating expenses from lower restructuring charges, realized cost synergies from the global restructuring program, favorable foreign currency translation and lower annual incentive compensation expense. These decreases were partially offset by additional stock-based compensation expense triggered by the completion of our IPO, investments in AMEA,

58


incremental public company expenses and inflationary impacts. Our investments in AMEA are designed to support long-term growth and were made in sales and marketing, supply chain facilities and a new innovation center in China.
Net income or loss
(in millions)
Year ended December 31,
 
Change
2019
 
2018
Operating income
$
551.8

 
$
413.5

 
$
138.3

Interest expense
(440.0
)
 
(523.8
)
 
83.8

Loss on extinguishment of debt
(73.7
)
 

 
(73.7
)
Other income (expense), net
2.5

 
(3.5
)
 
6.0

Income tax (expense) benefit
(2.8
)
 
26.9

 
(29.7
)
Net income (loss)
$
37.8

 
$
(86.9
)
 
$
124.7

Net loss changed to net income primarily due to higher operating income, as previously discussed, and lower interest expense, which were partially offset by a loss on extinguishment of debt and a change from income tax benefit to expense. Interest expense declined with the application of IPO proceeds and operating cash flows to reduce outstanding borrowings, as well as interest rate margin reductions from the repricing of our term loans in June 2019. This was substantially offset by the non-cash loss on extinguishment of debt. The income tax benefit changed to expense following the change from pre-tax loss to pre-tax income.
Adjusted EBITDA and Management EBITDA
For reconciliations of Adjusted EBITDA and Management EBITDA to net income or loss, see “Reconciliations of non-GAAP measures.”
(in millions)
Year ended December 31,
 
Change
2019
 
2018
Adjusted EBITDA
$
1,031.2

 
$
945.3

 
$
85.9

Adjusted EBITDA margin
17.1
%
 
16.1
%
 
100 bps
Management EBITDA:
 
 
 
 
 
Americas
726.8

 
651.6

 
75.2

Europe
364.6

 
349.6

 
15.0

AMEA
85.8

 
73.8

 
12.0

Corporate
(77.2
)
 
(69.0
)
 
(8.2
)
Total
$
1,100.0

 
$
1,006.0

 
$
94.0

Adjusted EBITDA increased $85.9 million, or 9.1%, which included an unfavorable foreign currency translation impact of $18.1 million, or 1.9%. The remaining growth of $104.0 million, or 11.0%, was for reasons similar to the Management EBITDA growth discussed below.

59


In the Americas, the growth in Management EBITDA was driven by the improvements to net sales previously discussed, more favorable prices relative to cost inflation, productivity improvements and cost reductions.
In Europe, the growth in Management EBITDA was driven by volume growth and more favorable prices relative to cost inflation in our biopharma and other proprietary offerings, partially offset by relatively lower sales of equipment & instrumentation. The growth in Management EBITDA also reflected operating expense savings primarily related to headcount reduction and facility footprint optimization. These factors were substantially offset by an unfavorable foreign currency translation impact.
In AMEA, Management EBITDA was favorably impacted by an increase in gross profit driven by sales growth, which was offset by an increase to operating expenses due to targeted investments in customer facing sales and marketing functions to support the growth in this strategic region, new supply chain facilities and an innovation center in China to better serve our markets.
In Corporate, Management EBITDA was reduced primarily related to increases in public company compliance as a result of our IPO and investments into our global business center as we continue to grow our offshore capabilities.
Year ended December 31, 2017
A discussion and analysis covering the year ended December 31, 2017 is included in the Registration Statement.

60


Reconciliations of non-GAAP measures
The following table presents the reconciliation of net income or loss to non-GAAP measures:
(in millions)
Year ended December 31,
2019
 
2018
 
2017
Net income (loss)
$
37.8

 
$
(86.9
)
 
$
(145.3
)
Interest expense(1)
440.0

 
523.8

 
200.9

Income tax expense (benefit)(1)
2.8

 
(26.9
)
 
(314.9
)
Depreciation and amortization(1)
398.9

 
404.6

 
99.2

Net foreign currency loss from financing activities(2)
1.9

 
6.5

 
5.5

Gain on derivative instruments(3)

 

 
(9.6
)
Other stock-based compensation expense (benefit)(4)
36.8

 
(0.7
)
 
26.6

Restructuring and severance charges(5)
24.3

 
81.2

 
29.6

Purchase accounting adjustments(6)
(10.7
)
 
(1.0
)
 
41.8

Loss on extinguishment of debt(7)
73.7

 

 
56.4

Transaction fees to New Mountain Capital(8)

 

 
192.5

VWR transaction, integration and planning expenses(9)
22.5

 
36.2

 
73.7

Other(10)
3.2

 
8.5

 
33.1

Adjusted EBITDA
1,031.2

 
945.3

 
289.5

Ongoing stock-based compensation expense(11)
31.1

 
19.1

 
21.6

Write-offs of working capital and other assets(12)
29.2

 
22.1

 

Long-term incentive plan(13)
4.3

 
9.6

 
3.2

Other(14)
4.2

 
9.9

 
9.7

Management EBITDA
$
1,100.0

 
$
1,006.0

 
$
324.0

 
(1)
Represents amounts as determined under GAAP.
(2)
See note 5 to our consolidated financial statements beginning on page F-1 of this report.
(3)
See note 21 to our consolidated financial statements beginning on page F-1 of this report.
(4)
Represents expenses primarily related to remeasuring SARs at fair value on a recurring basis, the vesting of performance stock options with the completion of our IPO and the modification of stock-based awards caused by the legal entity restructuring in November 2017.
(5)
See note 11 to our consolidated financial statements beginning on page F-1 of this report.
(6)
Represents reversals of the short-term impact of purchase accounting adjustments on earnings. The most significant adjustment in 2019 was a normalization of expense for prepaid customer rebates that were derecognized in purchase accounting. The most

61


significant adjustment in 2017 was an increase to cost of sales that resulted from valuing VWR’s inventory at fair value in purchase accounting.
(7)
See note 13 to our consolidated financial statements beginning on page F-1 of this report.
(8)
See note 23 to our consolidated financial statements beginning on page F-1 of this report.
(9)
Represents direct expenses incurred to consummate the acquisition of VWR and other expenses incurred related to the planning and integration of VWR.
(10)
The following table presents the components of other adjustments to Adjusted EBITDA:
(in millions)
Year ended December 31,
2019
 
2018
 
2017
Unconsummated equity offering
$

 
$

 
$
19.9

NuSil integration expenses

 

 
5.1

Executive departures

 
4.5

 

Impairment charges

 
2.9

 
5.0

Debt refinancing fees

 

 
3.1

Other transaction expenses
3.2

 
1.1

 

Total
$
3.2

 
$
8.5

 
$
33.1

(11)
Primarily represents expense related to stock options, RSUs and optionholder awards that vest based on continuing employee service.
(12)
Substantially represents the reduction of inventory to net realizable value in accordance with GAAP, but also includes immaterial write-offs of trade accounts receivable and property, plant and equipment.
(13)
Represents cost of cash-based compensation programs awarded to key employees that vest at the end of three-year periods through December 31, 2020 with continuing service.
(14)
Represents expenses related to business performance improvement programs, non-recurring tax payments, customer rebates, non-cash pension charges, consulting projects, advisory fees and other immaterial items.
Liquidity and capital resources
We fund short-term cash requirements primarily from operating cash flows and unused availability under our credit facilities. Most of our long-term financing is from indebtedness.
Our most significant contractual obligations are scheduled principal and interest payments for indebtedness. We also have obligations to make payments under operating leases, to purchase certain products and services and to fund defined benefit plan obligations primarily outside of the United States. In addition to contractual obligations, we use cash to fund capital expenditures,

62


taxes and dividends on MCPS. We have also used significant amounts of cash to pay debt refinancing fees and to fund distributions in 2017. We do not anticipate such significant distributions going forward due to new restrictions imposed by our indebtedness. Changes in working capital may be a source or a use of cash depending on our operations during the period.
We expect to fund our long-term capital needs with cash generated by operations and availability under our credit facilities. Although we believe that these sources will provide sufficient liquidity for us to meet our long-term capital needs, our ability to fund these needs will depend to a significant extent on our future financial performance, which will be subject in part to general economic, competitive, financial, regulatory and other factors that are beyond our control.
We believe that cash generated by operations, together with available liquidity under our credit facilities, will be adequate to meet our current and expected needs for cash prior to the maturity of our debt, although no assurance can be given in this regard.
Liquidity
The following table presents our primary sources of liquidity:
(in millions)
December 31, 2019
Receivables facility
 
Revolving credit facility
 
Total
Unused availability under credit facilities:
 
 
 
 
 
Current availability
$
250.0

 
$
250.0

 
$
500.0

Undrawn letters of credit outstanding
(12.5
)
 
(15.3
)
 
(27.8
)
Outstanding borrowings
(55.5
)
 

 
(55.5
)
Unused availability
$
182.0

 
$
234.7

 
416.7

Cash and cash equivalents
186.7

Total liquidity
$
603.4

Our liquidity needs change daily. We manage liquidity needs by utilizing our credit line availability and also by monitoring working capital levels. Some of our credit line availability also depends upon maintaining a sufficient borrowing base of eligible accounts receivable. We believe that we have sufficient capital resources to meet our daily liquidity needs. As of December 31, 2019, we were in compliance with all of our debt covenants.
At December 31, 2019, $161.4 million or 86% of our cash and cash equivalents was held by our non-U.S. subsidiaries and may be subject to certain taxes upon repatriation, primarily where foreign withholding taxes apply.

63


Historical cash flows
The following table presents a summary of cash provided by (used in) various activities:
(in millions)
Year ended December 31,
 
Change
2019
 
2018
 
Operating activities:
 
 
 
 
 
Working capital changes*
$
(134.9
)
 
$
(95.1
)
 
$
(39.8
)
All other
488.9

 
295.6

 
193.3

Total
354.0

 
200.5

 
153.5

Investing activities
(42.1
)
 
(23.2
)
 
(18.9
)
Financing activities
(307.8
)
 
(170.3
)
 
(137.5
)
Capital expenditures
(51.6
)
 
(37.7
)
 
(13.9
)
 
*
Working capital includes accounts receivable, inventory and accounts payable.
Cash flows from operating activities increased $153.5 million in 2019 primarily due to an increase of operating income and a reduction in cash for paid interest. This was partially offset by growth in working capital and an increase in cash paid for taxes.
Investing activities used $18.9 million of additional cash in 2019, reflecting an increase in capital spending and fewer proceeds from the sale of capital assets.
Financing activities used $137.5 million of additional cash in 2019 due to significant offsetting factors. The $2,630.9 million redemption of our series A preferred stock and $1,878.6 million repayment of debt was substantially offset by $4,235.6 million of IPO proceeds. Of our debt repayments, we funded $1,606.2 million with proceeds from the IPO and $272.4 million with operating cash flows.
A discussion and analysis of historical cash flows covering the year ended December 31, 2017 is included in the Registration Statement.
Indebtedness
A significant portion of our long-term financing is from indebtedness. The purpose of this section is to disclose how certain features of our indebtedness influence our liquidity and capital resources. Additional detail about the terms of our indebtedness may be found in note 13 to our consolidated financial statements beginning on page F-1 of this report.
Our credit facilities provide us access to up to $500 million of additional cash
We have entered into a receivables facility and a revolving credit facility that provide us access to cash to fund short-term business needs. See the section entitled “Liquidity” for additional information.

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Our indebtedness restricts us from paying dividends to common stockholders
The acquisition of VWR was partially funded by the issuance of debt by Avantor Inc.’s wholly-owned subsidiary, Avantor Funding, Inc. Certain of those debt agreements prevent Avantor Funding, Inc. from paying dividends or making other payments to Avantor, Inc., subject to limited exceptions. At December 31, 2019 and 2018, substantially all of Avantor, Inc.’s net assets were subject to those restrictions.
Our senior secured credit facilities require or may require us to make certain principal repayments prior to maturity
We began repaying the term loans on March 31, 2018 in required quarterly installments of €1.0 million for the euro portion and $2.0 million for the U.S dollar portion, with the balance due on the maturity date. We have generated sufficient cash flow to make all required historical payments, and we expect that our cash flows will continue to be sufficient to make future payments.
We are required to make additional prepayments if: (i) we generate excess cash flows, as defined, at specified percentages that decline if certain net leverage ratios are achieved; or (ii) we receive cash proceeds from certain types of asset sales or debt issuances. No additional required prepayments have become due since the inception of the credit facilities.
We are subject to certain financial covenants that, if not met, could put us in default of our debt agreements
The receivables facility and our senior secured credit facilities contain certain other customary covenants, including a financial covenant. That covenant becomes applicable in periods when we have drawn more than 35% of our revolving credit facility. When applicable, we may not have total borrowings in excess of a pro forma net leverage ratio, as defined. This covenant was not applicable at December 31, 2019, and our historical net leverage has been well in excess of the covenant requirement.

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Contractual obligations
The following table presents our contractual obligations at December 31, 2019:
(in millions)
Payments due by period
Total
 
Less than a year
 
1-3 years
 
3-5 years
 
More than 5 years
Debt:
 
 
 
 
 
 
 
 
 
Principal(1)(2)
$
5,249.4

 
$
93.5

 
$
64.9

 
$
3,040.2

 
$
2,050.8

Interest(1)
1,748.6

 
347.1

 
686.7

 
632.4

 
82.4

Operating leases
160.0

 
39.1

 
61.7

 
40.8

 
18.4

Purchase obligations(3)
500.5

 
126.4

 
246.0

 
128.1

 

Other liabilities:
 
 
 
 
 
 
 
 
 
Underfunded defined benefit plans(4)
138.7

 
4.7

 
10.0

 
12.0

 
112.0

Transition tax payments(5)
65.0

 
6.2

 
12.4

 
27.1

 
19.3

Other
9.9

 
4.1

 
1.6

 
0.4

 
3.8

Total
$
7,872.1

 
$
621.1

 
$
1,083.3

 
$
3,881.0

 
$
2,286.7

 
(1)
Includes finance lease liabilities. To calculate payments for principal and interest, we assumed that variable interest rates, foreign currency exchange rates and outstanding borrowings under credit facilities were unchanged from December 31, 2019 through maturity. For the variable interest rates and principal amounts used, see note 13 to our consolidated financial statements beginning on page F-1 of this report.
(2)
Our senior secured credit facilities would require us to accelerate our principal repayments should we generate excess cash flows, as defined, in future periods.
(3)
Purchase obligations for certain products and services are made in the normal course of business to meet operating needs.
(4)
Represents our obligation to fund defined benefit plans with obligations in excess of plan assets. The total obligation is equal to the aggregate excess of the discounted benefit obligation over the fair value of plan assets for all underfunded plans. The payments due in less than one year are estimated using actuarial methods. The payments due for all other years are estimated by distributing the remaining funding status to future periods in the same way as benefit payments are expected to be made by the plans following actuarial methods.
(5)
Represents our transition tax obligation due over eight years to transition to the modified territorial tax system under new U.S. income tax legislation.

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Off-balance sheet arrangements
We do not use special purpose entities or have any other material off-balance sheet financing arrangements except for our receivables facility and letters of credit. We enter into these arrangements for ordinary business reasons and believe that they are governed by ordinary commercial terms. For more information, see note 13 to our consolidated financial statements beginning on page F-1 of this report.
Critical accounting policies and estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported throughout the financial statements. Those estimates and assumptions are based on our best estimates and judgment. We evaluate our estimates and assumptions on an ongoing basis using historical experience and known facts and circumstances. We adjust our estimates and assumptions when we believe the facts and circumstances warrant an adjustment. As future events and their effects cannot be determined with precision, actual results could differ significantly from those estimates.
We consider the policies and estimates discussed below to be critical to an understanding of our financial statements because their application places the most significant demands on our judgment. Specific risks for these critical accounting policies are described in the following sections. For all of these policies, we caution that future events rarely develop exactly as forecast, and such estimates naturally require adjustment.
Our discussion of critical accounting policies and estimates is intended to supplement, not duplicate, our summary of significant accounting policies so that readers will have greater insight into the uncertainties involved in these areas. For a summary of all of our significant accounting policies, see note 2 to our consolidated financial statements beginning on page F-1 of this report.
Testing goodwill and other intangible assets for impairment
As a result of the VWR acquisition, we carry significant amounts of goodwill and other intangible assets on our consolidated balance sheet. At December 31, 2019, the combined carrying value of goodwill and other intangible assets, net of accumulated amortization and impairment charges, was $7.0 billion or 72% of our total assets.

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Required annual assessment
On October 1 of each year, we perform annual impairment testing of our goodwill and indefinite-lived intangible assets, or more frequently whenever an event or change in circumstance occurs that would require reassessment of the recoverability of those assets. The impairment analysis for goodwill and indefinite-lived intangible assets consists of an optional qualitative test potentially followed by a quantitative analysis. These measurements rely upon significant judgment from management described as follows:
The qualitative analysis for goodwill and indefinite-lived intangible assets requires us to identify potential factors that may result in an impairment and estimate whether they would warrant performance of a quantitative test;
The quantitative goodwill impairment test requires us to estimate the fair value of our reporting units. We estimate the fair value of each reporting unit using a weighted average of three valuation methods based on discounted cash flows, market multiples and market references. These valuation methods require management to make various assumptions, including, but not limited to, future profitability, cash flows, discount rates, weighting of valuation methods and the selection of comparable publicly traded companies; and
The quantitative test for indefinite-lived intangible assets is determined using a discounted cash flow method that incorporates an estimated royalty rate, an estimated discount rate and certain other assumptions.
Our estimates are based on historical trends, management’s knowledge and experience and overall economic factors, including projections of future earnings potential. Developing future cash flows in applying the income approach requires us to evaluate our intermediate to longer-term strategies, including, but not limited to, estimates about net sales growth, operating margins, capital requirements, inflation and working capital management. The development of appropriate rates to discount the estimated future cash flows requires the selection of risk premiums, which can materially impact the present value of future cash flows. Selection of an appropriate peer group under the market approach involves judgment, and an alternative selection of guideline companies could yield materially different market multiples. Weighing the different value indications involves judgment about their relative usefulness and comparability to the reporting unit.
We did not record any impairment charges as a result of our October 1, 2019 impairment testing. Each reporting unit had a fair value that was substantially in excess of the carrying value.
Determination of operating segments and reporting units
Prior to October 1, 2018, we determined that we had three operating segments aligned to product groups. On October 1, 2018, following the acquisition of VWR, we reorganized our management team and implemented new processes to report three geographic operating segments to our chief operating decision maker: Americas, Europe and AMEA. Our operating segments were

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considered reporting units for the purpose of performing our October 1, 2018 annual impairment test. We have since developed additional reporting processes for our segment managers and accordingly, on October 1, 2019, determined that the Americas operating segment should be divided into two reporting units: Americas sciences and Americas silicones.
The determination of operating segments and reporting units requires us to exercise significant judgment, especially in determining (i) the basis of segmentation used by our Chief Executive Officer and segment management at various points in time across the reporting periods; and (ii) whether components of operating segments are economically similar and therefore aggregated. Determining one basis of segmentation versus another fundamentally changes the way economic and other changes will impact individual reporting units; an impairment could be recognized under one basis but not another, or the impairment could be of different magnitudes. If we make a judgment that reporting units are economically dissimilar, we will establish more reporting units which could put us at a greater risk of recognizing a goodwill impairment.
Accounting for changes to income tax laws
Income tax laws change from time to time. The effect of a change in tax law on deferred tax assets and liabilities is recognized as a cumulative adjustment to income tax expense or benefit in the period of enactment. The effect of a change in tax law on the income tax expense or benefit itself is recognized prospectively for the applicable tax years.
In December 2017, tax reform legislation was enacted in the United States. The new legislation included a broad range of corporate tax reforms, some of which were very complex. The new legislation caused us to recognize a provisional income tax benefit of $126.7 million for 2017 and an additional benefit of $29.5 million when we finalized our accounting for tax reform in 2018. Additional details are included in note 19 to the consolidated financial statements beginning on page F-1 of this report.
Estimating valuation allowances on deferred tax assets
We are required to estimate the degree to which tax assets and loss carryforwards will result in a future income tax benefit, based on our expectations of future profitability by tax jurisdiction. We provide a valuation allowance for deferred tax assets that we believe will more likely than not go unutilized. If it becomes more likely than not that a deferred tax asset will be realized, we reverse the related valuation allowance and recognize an income tax benefit for the amount of the reversal. At December 31, 2019, our valuation allowance on deferred tax assets was $193.9 million, $160.0 million of which relates to foreign net operating loss carry forwards that are not expected to be realized.
We must make assumptions and judgments to estimate the amount of valuation allowance to be recorded against our deferred tax assets, which take into account current tax laws and estimates of the amount of future taxable income, if any. Changes to any of the assumptions or judgments could cause our actual income tax obligations to differ from our estimates.

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Accounting for uncertain tax positions
In the ordinary course of business, there is inherent uncertainty in quantifying our income tax positions. We assess income tax positions for all years subject to examination based upon our evaluation of the facts, circumstances and information available at the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, we have recorded an amount having greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority assumed to have full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. Our reserve for uncertain tax positions was $83.6 million at December 31, 2019, exclusive of penalties and interest. Where applicable, associated interest expense has also been recognized as a component of the provision for income taxes.
We operate in numerous countries under many legal forms and, as a result, we are subject to the jurisdiction of numerous domestic and non-U.S. tax authorities, as well as to tax agreements and treaties among these governments. Determination of taxable income in any jurisdiction requires the interpretation of the related tax laws and regulations and the use of estimates and assumptions regarding significant future events, such as the amount, timing and character of deductions and the sources and character of income and tax credits. Changes in tax laws, regulations, agreements and treaties, currency exchange restrictions or our level of operations or profitability in each taxing jurisdiction could have an impact upon the amount of current and deferred tax balances and hence our net income.
We file tax returns in each tax jurisdiction that requires us to do so. Should tax return positions not be sustained upon audit, we could be required to record an income tax provision. Should previously unrecognized tax benefits ultimately be sustained, we could be required to record an income tax benefit.
Calculating expense for long-term compensation arrangements
Our employees have received various long-term compensation awards, including stock options, RSUs, SARs and cash-based awards. We calculate expense for some of those awards using fair value estimates based on unobservable inputs. Additionally, some of those awards contain performance conditions. We assess the probability of achieving those performance conditions, and in cases where partial or exceptional performance affects the size of the award, we also estimate the projected achievement level.
Expense for stock options is determined on the grant date and recognized ratably over their vesting term. We estimate the grant date fair value of stock options using the Black-Scholes model. This model requires us to make various assumptions, with the most significant assumption currently being the volatility of our stock price. A public quotation was first established for our common stock in May 2019, which does not provide adequate historical basis to reasonably estimate the expected volatility of our common stock over their more than six-year expected life. Instead, we estimate volatility based on historical stock price trends of a peer company set. The fair value of our awards would have differed had we selected different peer

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companies or used a different technique to estimate volatility. Increasing our expected volatility assumption by 5% for all stock options at the date of grant would have increased our 2019 stock-based compensation expense by $4.9 million. Prior to the IPO, we were also required to estimate the fair value of our common stock, which was another critical accounting policy and estimate discussed further below.
Expense for some of our awards is impacted by performance conditions related to future earnings or achieving a company milestone such as an IPO. For these awards, we must assess whether the condition is probable of being achieved and, in some cases, estimate the relative performance level. If we change our assessments or estimates, or if actual earnings differ from our estimates, we will be required to recognize a cumulative adjustment in that period to remeasure all of the expense recognized to-date. During 2019, we recognized $26.9 million of expense upon achievement of our IPO, which was not considered probable prior to its consummation. At December 31, 2019, we also had outstanding unvested awards with performance conditions based on future earnings achievement. A $10 million increase or decrease to our estimate of future earnings would have caused us to recognize an additional $0.2 million of expense or $9.7 million of benefit during 2019, respectively.
Expense for SARs was adjusted each period based on changes in their fair value until their settlement in November 2019. Prior to the IPO, this calculation depended upon estimating the fair value of our common stock, another critical accounting policy and estimate discussed further below. From the IPO through November 2019, the value of our common stock was determined by reference to quoted stock prices and was not subject to any significant judgment.
Estimating the fair value of our common stock prior to the IPO
Prior to the IPO, we were required to estimate the fair value of our common stock to determine, among other things, the expense associated with our stock-based compensation awards. The fair value of our common stock was determined by management using input from an independent third-party valuation analysis. The assumptions we used in the valuation models were based on future expectations combined with our judgment about applicable assumptions.
We estimated the fair value of our common stock using a weighted average of three valuation methods in the same way as described for the critical accounting policy and estimate entitled “Testing goodwill and other intangible assets for impairment.”
Changes to the estimates and assumptions used would have changed the amount of stock-based compensation recognized in each of the periods presented. For example, a 10% increase to the valuation of our common stock used from November 21, 2017 to the date of our IPO would have increased 2019 stock-based compensation expense by $6.2 million.
Estimating the net realizable value of inventories
We value our inventories at the lower of cost or net realizable value. We regularly review quantities of inventories on hand and compare these amounts to the expected use of each product or product line, which can require us to make significant judgments. If our judgments prove to be

71


incorrect, we may be required to record a charge to cost of sales to reduce the carrying amount of inventory on hand to net realizable value. As with any significant estimate, we cannot be certain of future events which may cause us to change our judgments.
In December 2018, we determined that market conditions had deteriorated for a specialty product line we formerly manufactured and divested as part of our global restructuring program. As a result, we no longer believed that we would be able to recover any of the cost of the manufactured inventory still on hand. We recorded a non-cash restructuring loss of $20.2 million in the fourth quarter of 2018 to reduce the value of those inventories to zero.
Estimating the fair value of assets acquired from VWR
In November 2017, we acquired VWR for a purchase price of $6.6 billion. To account for the acquisition, we were required to allocate the purchase price to the assets acquired and liabilities assumed based on their individual fair values with the excess allocated to goodwill.
Estimating those fair values required the use of significant unobservable inputs, or level 3 measurements. Determining these inputs required us to make significant assumptions and judgments. Those estimates have impacted nearly all captions on our consolidated balance sheets and the amount of net sales, cost of sales, depreciation, amortization and income tax expense on our statements of operations. Using different estimates or assumptions would have materially affected our results in 2017 and subsequent periods. For example:
A one percent decrease to the rate we used to discount future cash flows would have increased the fair value of finite-lived intangible assets by $580 million and increased annual amortization by $25 million; and
An overall one-year decrease to our estimates of remaining useful lives would have increased annual amortization of our customer relationships by $11 million and annual depreciation of our property, plant and equipment by $17 million.
All purchase accounting estimates were determined as of the acquisition date and are not adjusted for future developments. However, any differences between acquisition-date estimates and actual future results could impact other subsequent accounting under GAAP, such as the results of future impairment tests.
Item 7A.
Quantitative and qualitative disclosures about market risk
Foreign currency exchange risk
Although we report our results and financial condition in U.S. dollars, a significant portion of our operating and financing activities are denominated in foreign currencies, principally the euro but also many others.
Our U.S. subsidiaries carry significant amounts of euro-denominated debt. This does not result in any material risks from an earnings perspective because the exposure from these instruments is substantially hedged by offsetting exposures from intercompany borrowing arrangements. From

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a cash flow perspective, we have the risk of paying more or less cash for any optional or mandatory repayments of our euro-denominated debt that may not be offset with equivalent cash repayments of our intercompany borrowings. For example, an optional debt repayment of €100 million on December 31, 2019 with a 10% weakening of the U.S. dollar would have caused us to pay an additional $11.2 million to extinguish that debt.
Changes to foreign currency exchange rates could favorably or unfavorably affect the translation of our foreign operating results. For example, during times of a strengthening U.S. dollar, our reported international sales and earnings will be reduced because local currencies will translate into fewer U.S. dollars. For the year ended December 31, 2019, a 10% strengthening of the U.S. dollar compared to all other currencies would have increased net income by $2.6 million (due to our foreign subsidiaries reporting an aggregate net loss) and decreased Adjusted EBITDA by $38.0 million.
Interest rate risk
We carry a significant amount of debt that exposes us to interest rate risk. A portion of our debt consists of variable-rate instruments. We have also issued fixed-rate secured and unsecured notes. None of our other financial instruments are subject to material interest rate risk.
At December 31, 2019, we had borrowings of $1.1 billion under our credit facilities. Borrowings under these facilities bear interest at variable rates based on prevailing LIBOR and EURIBOR rates in the financial markets. Changes to those market rates affect both the amount of cash we pay for interest and our reported interest expense. Our euro term loans include a zero percent floor on EURIBOR, which has been negative, so the floor provides a partial hedge of our variable interest rate risk on that loan. At December 31, 2019, a 100 basis point increase to the applicable variable rates of interest would have increased the amount of interest by $9.5 million per annum.
Our senior secured notes and senior unsecured notes bear interest at fixed rates, so their fair value will increase if interest rates fall and decrease if interest rates rise. At December 31, 2019, a 100 basis point decrease in the market rate of interest for the notes would have increased their aggregate fair value by $202.0 million.
Item 8.
Financial statements and supplementary data
The information required by this item is included at the end of this report beginning on page F-1.
Item 9.
Changes in and disagreements with accountants on accounting and financial disclosure
None.
Item 9A.
Control and procedures
This annual report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our independent registered public

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accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.
Management’s evaluation of disclosure controls and procedures
Our management, with the particip