AVTR 10-K Fiscal year ended Dec. 31, 2019

---

---

---

---

---

•	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;

---

•	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.

---

Item 1.	Business

---

---

•

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.

---

---

---

---

---

---

---

•	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.

---

---

•	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.

---

---

---

•	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;

---

•	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.

---

---

---

---

---

---

•	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;

---

•	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.

---

---

---

---

---

---

---

---

•	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.

•	incur additional indebtedness and guarantee indebtedness;

•	create or incur liens;

---

•	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.

---

---

•	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;

---

•	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.

•	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;

---

•	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.

---

---

---

---

---

•

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 ⅔ % 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 ⅔ % in voting power of all outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class.

---

Item 1B.	Unresolved staff comments

---

Item 2.	Properties

---

Item 3.	Legal proceedings

---

Item 4.	Mine safety disclosures

---

---

---

Item 5.	Market for registrant’s common equity, related stockholder matters and issuer purchases of equity securities

---

---

---

Item 6.	Selected financial data

---

(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

---

---

---

•	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.”

---

---

•	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.

•	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.

---

•	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.

---

---

---

(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

---

(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:

(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.

---

---

*	Working capital includes accounts receivable, inventory and accounts payable.

---

---

(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.

---

---

•	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.

---

---

---

---

•	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 .

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

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

Item 15.	Exhibits, financial statement schedules

Item 16.	Form 10-K summary

---

---

---

---

---

---

*	Filed herewith

**	Furnished herewith

#	Our Code of Ethics and Conduct can be found on our website (www.avantorsciences.com) by clicking on “Investors,” “Governance” and then “Code of Ethics.”

^	Indicates management contract or compensatory plan, contract or arrangement.

---

---

---

---

---

---

---

---

---

---

---

---

1 .	Nature of operations and presentation of financial statements

---

•	The fair value of reporting units tested for impairment in note 5 ;

•	The valuation allowance on deferred tax assets in note 19 ;

•	Assumptions used to measure our defined benefit plans in note 16 ;

•	The likelihood of occurrence of loss contingencies in note 12 ; and

•	Other accounts measured at fair value based on unobservable inputs in note 21 .

2 .	Summary of significant accounting policies

---

•	Merchandise inventory purchased by certain U.S. subsidiaries using the LIFO method.

•	All other merchandise inventory using the first-in, first-out method.

•	Manufactured inventories using an average cost method.

---

---

•

Employee severance and related — Employee severance programs can be voluntary or involuntary. Voluntary severances are recorded at their reasonably estimated amount when associates accept severance offers. Involuntary severances covered by plan or statute are recorded at estimated amounts when probable and reasonably estimable. Significant judgment is required to determine probability and whether the amount can be reasonably estimated. Involuntary severances requiring continuing service are measured at fair value as of the termination date and recognized on a straight-line basis over the service period. Other involuntary severances are recognized at fair value on the date we notify associates of the severance plan.

•	Facility closure — On the date we cease using a facility, facility lease assets are tested for impairment in the same way as other long-lived assets.

•	Other — Other charges may be incurred to write down assets, divest businesses or for other reasons and are accounted for under applicable GAAP as described elsewhere in these policies.

---

•	They are recognized as liabilities on our balance sheet if the potential loss is probable and the amount can be reasonably estimated.

•	They are disclosed if the potential loss is material and considered at least reasonably possible.

---

•	MCPS is classified as permanent equity and initially recorded at fair value, net of issuance costs. Accrued but unpaid MCPS dividends are classified as other current liabilities with a corresponding reduction to common stock including paid-in capital.

•	Common stock is presented at par value plus additional paid-in amounts, net of issuance costs. Distributions are accounted for as reductions to common stock including paid-in capital and are classified as financing activities on the statement of cash flows.

•	Upon issuance, paid-in capital is allocated among host stock instruments and detachable warrants on a relative fair value basis.

---

•	U.S. plans — Two plans based in the United States, one of which we acquired from VWR in 2017. Another plan acquired from VWR was merged with ours in 2018. The U.S. plans are frozen with no accrual of future pension benefits for participating employees.

---

•	Non-U.S. plans — Eight plans for our employees around the world that we acquired from VWR in 2017, most of which continue to accrue future pension benefits.

•	Medical plan — A post-retirement medical plan for certain employees in the United States. The medical plan is frozen with no accrual of future pension benefits for participating employees.

---

---

---

•	Level 1 — Quoted prices in active markets for identical assets or liabilities

•	Level 2 — Inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the asset or liability

•	Level 3 — Inputs that are unobservable for the asset or liability based on our evaluation of the assumptions market participants would use in pricing the asset or liability

---

3 .	New accounting standards

---

4 .	Loss per share

---

5 .	Risks and uncertainties

6 .	Segment financial information

---

---

---

7 .	Supplemental disclosures of cash flow information

*	Disclosures have been provided prospectively since January 1, 2019 in accordance with the new lease standard disclosed in note 3 .

---

8 .	Inventory

9 .	Property, plant and equipment

---

10 .	Goodwill and other intangible assets

---

11 .	Restructuring and severance

---

---

12 .	Commitments and contingencies

---

---

13 .	Debt

---

---

---

14 .	Equity

•	Automatically on May 15, 2022;

•	Following the occurrence of a change of control or certain other defined events, in which case holders are also entitled to receive a make-whole dividend equal to the present value of all remaining dividends that would have accumulated through May 15, 2022; and

•	At any time at the option of the holder at the minimum conversion rate of 3.0395 .

---

---

---

---

•	Exchange of legacy common stock and noncontrolling interest — Common shares of Avantor Funding, Inc. and the noncontrolling interest were exchanged for shares of junior convertible preferred stock and common stock of Avantor, Inc. As a result, a legacy noncontrolling interest was derecognized.

•	Deferred tax effects — We increased common stock including paid-in capital and reduced our deferred income tax liabilities to derecognize the temporary differences related to the

---

15 .	Accumulated other comprehensive income or loss

---

16 .	Employee benefit plans

---

---

---

17 .	Stock-based compensation

---

•

Stock options granted in 2018 and late 2017 vest 60% based on service conditions and vested 40% based on performance conditions. The service conditions are vesting in equal annual installments over four years . The performance conditions related to the completion of a qualified initial public offering or a change of control, which was achieved in 2019 upon completion of our IPO. We recognized the entire grant date fair value of those options upon completion of the IPO, resulting in $26.9 million of expense during 2019.

•	Stock options granted prior to late 2017 generally vested or are vesting in equal annual installments over four years .

---

---

---

18 .	Other income or expense, net

19 .	Income taxes

---

---

---

---

20 .	Business combinations

---

•	Customer relationships were valued using the income approach, a level 3 measurement that assumed a weighted-average discount rate of 9.9% and a customer retention rate of 98% .

•	The VWR trade name was valued using the relief-from-royalty method, a level 3 measurement that assumed a weighted-average royalty rate of 2.2% .

•	Other identifiable intangible assets were valued primarily using a replacement cost method, a level 3 measurement.

---

21 .	Financial instruments and fair value measurements

---

---

•	Hedges of forecasted debt extinguishment — In 2017, we entered into foreign currency forward contracts to partially hedge foreign currency risks associated with the anticipated repayment of VWR’s euro-denominated debt in connection with our acquisition of VWR;

•	Economic hedges — We experience foreign currency exchange rate effects on our euro-denominated term loans and notes that move oppositely from a portfolio of euro-denominated intercompany loans. The currency effects for these non-derivative instruments are recorded through earnings in the period of change and significantly offset one another; and

•	Other hedging activities — Some of our subsidiaries hedge short-term foreign-denominated business transactions and intercompany financing transactions using foreign currency forward contracts. These activities were not material to our consolidated financial statements.

---

22 .	Leases

(1)	Operating lease expense for 2019 includes $5.3 million classified as cost of sales and $49.8 million classified as SG&A expenses.

(2)	Finance lease expense consists primarily of amortization of finance lease assets that is classified as SG&A expenses.

(3)	Operating lease expense for 2018 and 2017 is presented in accordance with the prior lease accounting standard, see note 3 .

---

23 .	Related party disclosures

---

---

•

Goldman Sachs served as our financial advisor for the VWR acquisition and the financial structuring to fund the acquisition. For the financial advisory and structuring services provided, Goldman Sachs was paid fees totaling $165.0 million . We also agreed to offer Goldman Sachs the right to act as (i) a lead book-running manager in the event of a future initial public offering or (ii) a financial advisor in the case of another type of sale or disposition. In accordance with that arrangement, we offered, and Goldman Sachs accepted our offer, to become a co-lead book-running manager for the initial public offering described in note 14 .

•

Goldman Sachs acted as placement agent, initial purchaser and joint lead arranger, joint book runner and administrative agent in connection with the issuance of our junior convertible preferred stock, our series A preferred stock and our secured and unsecured notes as well as with the establishment of our senior secured credit facilities, respectively. For these services, Goldman Sachs was paid underwriting, commitment, placement and other fees of $88.5 million .

---

24 .	Unaudited quarterly financial information

(1)	Net loss, net loss available to common stockholders and loss per share in the second quarter of 2019 included: (i) $70.2 million of the total $73.7 million loss on extinguishment of debt incurred during 2019 (see note 13 ); and (ii) $26.9 million of expense for performance-based stock options (see note 17 ); which were partially offset by (iii) related income tax benefits.

(2)	Net loss available to common stockholders and loss per share in the second quarter of 2019 included a $220.4 million adjustment of series A preferred stock to redemption value (see note 14 ).

---

(3)	Net income, net loss available to common stockholders and loss per share in the third quarter of 2018 included $48.8 million of the total $51.0 million benefit for 2018 to adjust the provisional accounting for U.S. tax reform legislation (see note 19 ).

25 .	Condensed unconsolidated financial information of Avantor, Inc.

---

---

26 .	Valuation and qualifying accounts

(1)	For the allowance for doubtful accounts, deductions represent bad debts charged off, net of recoveries, and other additions represent recoveries, net of bad debts charged off.