Avantor, Inc 10-Q for FY2022 Q2
Avantor, Inc. (AVTR)
10-Q
2022-07-29
For: 2022-06-30
View Original
Added on
April 07, 2026
About this 10-Q
Avantor, Inc filed this 10-Q on July 29, 2022, covering the quarter ended June 30, 2022 (FY2022 Q2).
Headline figures
Quarter ended June 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.91B
- up 2.8% from $1.86B a year earlier
- Net income
- $187.4M
- up 18.8% from net income of $157.8M a year earlier
- Diluted EPS
- $0.28
- up 16.7% from $0.24 a year earlier
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
━━━━━━━━━
FORM 10-Q
━━━━━━━━━
For the quarterly period ended June 30, 2022
For the transition period from __________ to __________
Commission file number: 001-38912
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
(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 | ||||||||||||
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
On July 21, 2022, 674,034,773 shares of common stock, $0.01 par value per share, were outstanding.
Avantor, Inc. and subsidiaries
Form 10-Q for the quarterly period ended June 30, 2022
Table of contents
| Page | |||||
i
Glossary
Description | |||||
| we, us, our | Avantor, Inc. and its subsidiaries | ||||
| Adjusted EBITDA | our earnings or loss before interest, taxes, depreciation, amortization and certain other adjustments | ||||
| Annual Report | our annual report on Form 10-K for the year ended December 31, 2021 | ||||
| AMEA | Asia, Middle-East and Africa | ||||
| AOCI | accumulated other comprehensive income or loss | ||||
| cGMP | Current Good Manufacturing Practice | ||||
| COVID-19 | Coronavirus disease of 2019 | ||||
| double-digit | greater than 10% | ||||
| EURIBOR | the basic rate of interest used in lending between banks on the European Union interbank market | ||||
| GAAP | United States generally accepted accounting principles | ||||
| Goldman Sachs | an investment banking firm and its affiliates | ||||
| high single-digit | 7 - 9% | ||||
| LIBOR | the basic rate of interest used in lending between banks on the London interbank market | ||||
| low single-digit | 1 - 3% | ||||
| M&A | Mergers and Acquisitions | ||||
| MCPS | 6.250% Series A Mandatory Convertible Preferred Stock | ||||
| mid single-digit | 4 - 6% | ||||
| OCI | other comprehensive income | ||||
| OEM | original engineering manufacturers | ||||
| RSU | restricted stock unit | ||||
| 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 | ||||
ii
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 Part I, Item 1A “Risk Factors” in our Annual Report, as such risk factors may be updated from time to time in our periodic filings with the SEC and in this report, 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 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;
iii
•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 source certain of our products from certain suppliers;
•our ability to contain costs in an inflationary environment;
•our ability to avoid negative outcomes related to the use of chemicals;
•our ability to maintain highly skilled employees;
•our ability to maintain a competitive workforce;
•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 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.
iv
PART I — FINANCIAL INFORMATION
Item 1. Financial statements
Avantor, Inc. and subsidiaries
Index to unaudited condensed consolidated financial statements
| Page | |||||
1
Avantor, Inc. and subsidiaries
Unaudited condensed consolidated balance sheets
(in millions) | June 30, 2022 | December 31, 2021 | |||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, net of allowances of $ | |||||||||||
| Inventory | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
Property, plant and equipment, net of accumulated depreciation of $ | |||||||||||
Other intangible assets, net (see note 7) | |||||||||||
| Goodwill | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and stockholders’ equity | |||||||||||
| Current liabilities: | |||||||||||
| Current portion of debt | $ | $ | |||||||||
| Accounts payable | |||||||||||
| Employee-related liabilities | |||||||||||
| Accrued interest | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Debt, net of current portion | |||||||||||
| Deferred income tax liabilities | |||||||||||
| Other liabilities | |||||||||||
| Total liabilities | |||||||||||
Commitments and contingencies (see note 8) | |||||||||||
| Stockholders’ equity: | |||||||||||
MCPS including paid-in capital, | |||||||||||
Common stock including paid-in capital, | |||||||||||
Accumulated earnings | |||||||||||
Accumulated other comprehensive loss | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
2
Avantor, Inc. and subsidiaries
Unaudited condensed consolidated statements of operations
(in millions, except per share data) | Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
Operating income | |||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Loss on extinguishment of debt | ( | ( | ( | ( | |||||||||||||||||||
Other income, net | |||||||||||||||||||||||
Income before income taxes | |||||||||||||||||||||||
Income tax expense | ( | ( | ( | ( | |||||||||||||||||||
Net income | |||||||||||||||||||||||
| Accumulation of yield on preferred stock | ( | ( | ( | ( | |||||||||||||||||||
Net income available to common stockholders | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per share: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
3
Avantor, Inc. and subsidiaries
Unaudited condensed consolidated statements of comprehensive income or loss
(in millions) | Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Net income | $ | $ | $ | $ | |||||||||||||||||||
Other comprehensive (loss) income: | |||||||||||||||||||||||
Foreign currency translation — unrealized (loss) gain | ( | ( | ( | ||||||||||||||||||||
| Derivative instruments: | |||||||||||||||||||||||
Unrealized gain (loss) | ( | ( | |||||||||||||||||||||
Reclassification of (gain) loss into earnings | ( | ( | |||||||||||||||||||||
| Activity related to defined benefit plans | ( | ||||||||||||||||||||||
Other comprehensive (loss) income before income taxes | ( | ( | ( | ||||||||||||||||||||
| Income tax effect | ( | ( | ( | ||||||||||||||||||||
Other comprehensive (loss) income | ( | ( | ( | ||||||||||||||||||||
Comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
4
Avantor, Inc. and subsidiaries
Unaudited condensed consolidated statements of stockholders’ equity
(in millions) | Stockholders’ equity | ||||||||||||||||||||||||||||||||||||||||
| MCPS including paid-in capital | Common stock including paid-in capital | Accumulated earnings (deficit) | AOCI | Total | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2022 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||
Comprehensive income | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Accumulation of yield on preferred stock | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
| Stock option exercises and other common stock transactions | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||
| Conversion of MCPS into Common stock | ( | ( | $ | — | — | ||||||||||||||||||||||||||||||||||||
Balance at June 30, 2022 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||
Balance at March 31, 2021 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||
Comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Accumulation of yield on preferred stock | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
| Stock option exercises and other common stock transactions | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Balance at June 30, 2021 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
5
Avantor, Inc. and subsidiaries
Unaudited condensed consolidated statements of stockholders’ equity (continued)
(in millions) | Stockholders’ equity | ||||||||||||||||||||||||||||||||||||||||
| MCPS including paid-in capital | Common stock including paid-in capital | Accumulated earnings (deficit) | AOCI | Total | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2021 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||
Comprehensive income | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Accumulation of yield on preferred stock | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||
| Stock option exercises and other common stock transactions | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||
| Conversion of MCPS into Common stock | ( | ( | — | — | |||||||||||||||||||||||||||||||||||||
Balance at June 30, 2022 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||
Balance at December 31, 2020 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||
Comprehensive income | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Accumulation of yield on preferred stock | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
| Stock option exercises and other common stock transactions | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Balance at June 30, 2021 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
6
Avantor, Inc. and subsidiaries
Unaudited condensed consolidated statements of cash flows
(in millions) | Six months ended June 30, | ||||||||||
2022 | 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
Net income | $ | $ | |||||||||
| Reconciling adjustments: | |||||||||||
| Depreciation and amortization | |||||||||||
Stock-based compensation expense | |||||||||||
| Provision for accounts receivable and inventory | |||||||||||
Deferred income tax (benefit) | ( | ( | |||||||||
| Amortization of deferred financing costs | |||||||||||
| Loss on extinguishment of debt | |||||||||||
Foreign currency remeasurement (gain) loss | ( | ||||||||||
| Changes in assets and liabilities: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Inventory | ( | ( | |||||||||
| Accounts payable | |||||||||||
| Accrued interest | ( | ||||||||||
| Other assets and liabilities | ( | ( | |||||||||
| Other, net | |||||||||||
Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Cash paid for acquisitions, net of cash acquired | ( | ( | |||||||||
| Other | |||||||||||
Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Debt borrowings | |||||||||||
| Debt repayments | ( | ( | |||||||||
| Payments of debt refinancing fees and premiums | ( | ||||||||||
| Payments of dividends on preferred stock | ( | ( | |||||||||
| Proceeds received from exercise of stock options | |||||||||||
| Shares repurchased to satisfy employee tax obligations for vested stock-based awards | ( | ( | |||||||||
Net cash (used in) provided by financing activities | ( | ||||||||||
| Effect of currency rate changes on cash | ( | ( | |||||||||
| Net change in cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Cash, cash equivalents and restricted cash, beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | $ | |||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
7
Avantor, Inc. and subsidiaries
Notes to unaudited condensed consolidated financial statements
1. Nature of operations and presentation of financial statements
We are a global manufacturer and distributor that provides products and services to customers in the biopharmaceutical, healthcare, education & government and advanced technologies & applied materials industries.
Basis of presentation
The accompanying condensed consolidated financial statements have been prepared pursuant to SEC regulations whereby certain information normally included in GAAP financial statements has been condensed or omitted. The financial information presented herein reflects all adjustments (consisting only of normal, recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. The results for interim periods are not necessarily indicative of the results to be expected for the full year.
We believe that the disclosures included herein are adequate to make the information presented not misleading in any material respect when read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report. Those audited consolidated financial statements include a summary of our significant accounting policies.
Conversion of MCPS into Common Stock
In May of 2022, all of the outstanding shares of 6.250 % Series A MCPS, par value $0.01 per share automatically converted into 62.9 million shares of the Company’s common stock, in accordance with their terms. The conversion rate for each share of MCPS was 3.0395 shares of our common stock, subject to receipt of cash in lieu of fractional shares, and was determined based on the price of our common stock on the date of conversion. No outstanding shares of the MCPS remained following the mandatory conversion.
Principles of consolidation
All intercompany balances and transactions have been eliminated from the financial statements.
Use of 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. Actual results could differ from those estimates.
2. Business combinations
Acquisition of Masterflex
On November 1, 2021, we completed the acquisition of Masterflex for cash consideration of $2,845.3 million. In the first quarter of fiscal year 2022, we made an additional $15.3 million payment to taxing authorities on behalf of the sellers to settle a pre-acquisition liability. In the second quarter of 2022, we
8
made an additional $4.9 million payment to the sellers to adjust for final net working capital balances, bringing the total purchase price consideration to $2,865.5 million.
The preliminary fair value of the net assets acquired on November 1, 2021 included the following:
| (in millions) | November 1, 2021 | ||||
| Inventory | $ | ||||
| Property, plant & equipment | |||||
| Other intangible assets | |||||
| Goodwill | |||||
Other assets and liabilities | ( | ||||
| Deferred income taxes, net | ( | ||||
| Total net assets | $ | ||||
The assets acquired and liabilities assumed are recorded at their estimated fair values as part of our Americas operating segment as of November 1, 2021. The balances of the acquired assets and liabilities have been updated from our prior filings to reflect additional information relating to the fair values of acquired inventory, intangible asset, working capital, and related deferred taxes. The areas of the purchase accounting that remain preliminary and subject to change are finalizing the review of the valuation of intangible assets and inventories and assessing any related deferred tax impacts. As the initial acquisition accounting is based on preliminary assessments, actual values may differ materially when final information becomes available for these items. We believe that the information gathered to date provides a reasonable basis for estimating the preliminary fair values of assets acquired and liabilities assumed.
The following table summarizes the preliminary fair value of intangible assets acquired on November 1, 2021 and their related weighted average amortization period:
| (in millions) | Fair value | Weighted average estimated life | ||||||
| Customer relationships | $ | |||||||
| Developed technology - Tubing | ||||||||
| Developed technology - Pumps | ||||||||
| Trademark | ||||||||
| Total | $ | |||||||
The goodwill represents intellectual capital and the acquired assembled workforce, which are other intangible assets that do not qualify for separate recognition. A portion of the goodwill is deductible for tax purposes.
Revenue from acquired companies
During the three and six months ended June 30, 2022, Masterflex has generated revenues of $63.7 million and $132.2 million, respectively.
During the three and six months ended June 30, 2022, Ritter has generated revenues of $33.4 million and $80.1 million, respectively.
9
Pro forma disclosures
The following unaudited pro forma combined financial information is provided for the three and six months ended June 30, 2022 and 2021. The pro forma information is not necessarily indicative of the results of operations that actually would have occurred under the ownership and management of the Company.
| (in millions) | Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenue | $ | $ | $ | $ | |||||||||||||||||||
Net income | |||||||||||||||||||||||
The unaudited pro forma combined financial information presented above includes the accounting effects of the Ritter and Masterflex acquisitions, including, to the extent applicable, amortization charges from acquired intangible assets, depreciation of property, plant and equipment that have been revalued, interest expense on debt acquired to finance the transactions, and the related tax effects.
10
3. Earnings per share
The following table presents the reconciliation of basic and diluted earnings per share for the three and six months ended June 30, 2022:
(in millions, except per share data) | Three months ended June 30, 2022 | Six months ended June 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings (numerator) | Weighted average shares outstanding (denominator) | Earnings per share | Earnings (numerator) | Weighted average shares outstanding (denominator) | Earnings per share | ||||||||||||||||||||||||||||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dilutive effect of stock-based awards | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dilutive impact of MCPS | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
The following table presents the reconciliation of basic and diluted earnings per share for the three and six months ended June 30, 2021:
(in millions, except per share data) | Three months ended June 30, 2021 | Six months ended June 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings (numerator) | Weighted average shares outstanding (denominator) | Earnings per share | Earnings (numerator) | Weighted average shares outstanding (denominator) | Earnings per share | ||||||||||||||||||||||||||||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dilutive effect of stock-based awards | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
For the three and six months ended June 30, 2021, diluted earnings per share included accumulated yield on preferred stock of $16.2 million and $32.3 million, respectively, and excluded 62.9
4. Segment financial information
We report three geographic segments based on customer location: Americas, Europe and AMEA. Each segment manufactures and distributes solutions for the biopharmaceutical, healthcare, education & government and advanced technologies & applied materials industries. Corporate costs are managed on a standalone basis and not allocated to segments.
11
The following table presents information by reportable segment:
(in millions) | Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||
| Americas | $ | $ | $ | $ | |||||||||||||||||||
| Europe | |||||||||||||||||||||||
| AMEA | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Adjusted EBITDA: | |||||||||||||||||||||||
| Americas | $ | $ | $ | $ | |||||||||||||||||||
| Europe | |||||||||||||||||||||||
| AMEA | |||||||||||||||||||||||
| Corporate | ( | ( | ( | ( | |||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
The amounts above exclude inter-segment activity because it is not material. All of the net sales for each segment are from external customers.
(in millions) | Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Net income | $ | $ | $ | $ | |||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
Income tax expense | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Loss on extinguishment of debt | |||||||||||||||||||||||
Net foreign currency loss from financing activities | |||||||||||||||||||||||
Other stock-based compensation (benefit) expense | ( | ( | |||||||||||||||||||||
Acquisition-related expenses1 | |||||||||||||||||||||||
Integration-related expenses2 | |||||||||||||||||||||||
Purchase accounting adjustments3 | — | ||||||||||||||||||||||
Restructuring and severance charges4 | |||||||||||||||||||||||
Receipt of disgorgement penalty5 | — | ( | — | ( | |||||||||||||||||||
| Adjusted EBITDA | $ | $ | $ | $ | |||||||||||||||||||
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━━━━━━━━━
1.Represents legal, accounting, investment banking and consulting fees incurred related to the acquisition of acquired companies.
2.Represents non-recurring direct costs incurred with third parties to integrate acquired companies. These expenses represent incremental costs and are unrelated to normal operations of our business. Integration expenses are incurred over a pre-defined integration period specific to each acquisition.
3.Represents the non-cash reduction of contingent consideration related to the Ritter acquisition and the amortization of the purchase accounting adjustment to record inventory acquired from Masterflex at fair value.
4.Reflects the incremental expenses incurred in the period related to initiatives to increase profitability and productivity. Typical costs included in this caption are employee severance, site-related exit costs, and contract termination costs.
5.As described in note 12.
(in millions) | Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Proprietary materials & consumables | $ | $ | $ | $ | |||||||||||||||||||
| Third party materials & consumables | |||||||||||||||||||||||
| Services & specialty procurement | |||||||||||||||||||||||
| Equipment & instrumentation | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
5. Supplemental disclosures of cash flow information
The following tables present supplemental disclosures of cash flow information:
(in millions) | June 30, 2022 | December 31, 2021 | |||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash classified as other assets | |||||||||||
| Total | $ | $ | |||||||||
At June 30, 2022 and December 31, 2021, amounts included in restricted cash primarily represent funds held in escrow to satisfy a long term retention incentive related to the acquisition of Ritter GmbH.
(in millions) | Six months ended June 30, | ||||||||||
2022 | 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Cash paid for income taxes, net | $ | $ | |||||||||
| Cash paid for interest, excluding financing leases | |||||||||||
| Cash paid for interest on finance leases | |||||||||||
| Cash paid under operating leases | |||||||||||
| Cash flows from financing activities: | |||||||||||
| Cash paid under finance leases | |||||||||||
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6. Inventory
(in millions) | June 30, 2022 | December 31, 2021 | |||||||||
| Merchandise inventory | $ | $ | |||||||||
| Finished goods | |||||||||||
| Raw materials | |||||||||||
| Work in process | |||||||||||
| Total | $ | $ | |||||||||
7. Other intangible assets
(in millions) | June 30, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||||||
| Gross value | Accumulated amortization | Carrying value | Gross value | Accumulated amortization | Carrying value | ||||||||||||||||||||||||||||||
| Customer relationships | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Trade names | |||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||
| Total finite-lived | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Indefinite-lived | |||||||||||||||||||||||||||||||||||
| Total | $ | $ | |||||||||||||||||||||||||||||||||
8. Commitments and contingencies
Our business involves commitments and contingencies related to compliance with environmental laws and regulations, the manufacture and sale of products and litigation. The ultimate resolution of contingencies is subject to significant uncertainty, and it is reasonably possible that contingencies could be decided unfavorably for us.
Environmental laws and regulations
Our environmental liabilities are subject to changing governmental policy and regulations, discovery of unknown conditions, judicial proceedings, method and extent of remediation, existence of other potentially responsible parties and future changes in technology. We believe that known and unknown environmental matters, if not resolved favorably, could have a material effect on our financial position, liquidity and profitability. Matters to be disclosed are as follows:
The New Jersey Department of Environmental Protection has ordered us to remediate groundwater conditions near our plant in Phillipsburg, New Jersey. At June 30, 2022, our accrued obligation under this order is $2.9 million, which is calculated based on expected cash payments discounted at rates ranging from 2.8 % in 2022 to 3.4 % in 2045. The undiscounted amount of that obligation is $4.1 million. We are indemnified against any losses incurred in this matter as stipulated through the agreement referenced in our Annual Report.
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In 2016, we assessed the environmental condition of our chemical manufacturing site in Gliwice, Poland. Our assessment revealed specific types of soil and groundwater contamination throughout the site. We are also monitoring the condition of a closed landfill on that site. These matters are not covered by our indemnification arrangement because they relate to an operation we subsequently acquired. At June 30, 2022, our balance sheet includes a liability of $2.1 million for remediation and monitoring costs. That liability is estimated primarily on discounted expected remediation payments and is not materially different from its undiscounted amount.
Manufacture and sale of products
Our business involves risk of product liability, patent infringement and other claims in the ordinary course of business arising from the products that we produce ourselves or obtain from our suppliers, as well as from the services we provide. Our exposure to such claims may increase to the extent that we expand our manufacturing operations or service offerings.
We maintain insurance policies to protect us against these risks, including product liability insurance. In many cases the suppliers of products we distribute have indemnified us against such claims. Our insurance coverage or indemnification agreements with suppliers may not be adequate 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 financial viability of our insurers, our suppliers and our suppliers’ insurers, as well as legal enforcement under the local laws governing the arrangements.
We have entered into indemnification agreements with customers of our self-manufactured products to protect them from liabilities and losses arising from our negligence, willful misconduct or sale of defective products. To date, we have not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions.
Litigation
At June 30, 2022, there was no outstanding litigation that we believe would result in material losses if decided against us, and we do not believe that there are any unasserted matters that are reasonably possible to result in a material loss.
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9. Debt
(dollars in millions) | June 30, 2022 | December 31, 2021 | |||||||||||||||||||||
| Interest terms | Rate | Amount | |||||||||||||||||||||
| Receivables facility | LIBOR plus | $ | $ | ||||||||||||||||||||
| Senior secured credit facilities: | |||||||||||||||||||||||
| Euro term loans B-3 | EURIBOR plus | ||||||||||||||||||||||
| Euro term loans B-4 | EURIBOR plus | ||||||||||||||||||||||
| Euro term loans B-5 | EURIBOR plus | ||||||||||||||||||||||
| U.S. dollar term loans B-4 | LIBOR plus | ||||||||||||||||||||||
| U.S. dollar term loans B-5 | LIBOR plus | ||||||||||||||||||||||
| 2.625% secured notes | fixed rate | ||||||||||||||||||||||
| 3.875% unsecured notes | fixed rate | ||||||||||||||||||||||
| 3.875% unsecured notes | fixed rate | ||||||||||||||||||||||
| 4.625 % unsecured notes | fixed rate | ||||||||||||||||||||||
| Finance lease liabilities | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total debt, gross | |||||||||||||||||||||||
| Less: unamortized deferred financing costs | ( | ( | |||||||||||||||||||||
| Total debt | $ | $ | |||||||||||||||||||||
| Classification on balance sheets: | |||||||||||||||||||||||
| Current portion of debt | $ | $ | |||||||||||||||||||||
| Debt, net of current portion | |||||||||||||||||||||||
Credit facilities
(in millions) | June 30, 2022 | ||||||||||||||||
| Receivables facility | Revolving credit facility | Total | |||||||||||||||
| Capacity | $ | $ | $ | ||||||||||||||
| Undrawn letters of credit outstanding | ( | ( | |||||||||||||||
| Outstanding borrowings | ( | ( | |||||||||||||||
| Unused availability | $ | $ | $ | ||||||||||||||
Capacity under the receivables facility depends upon maintaining a sufficient borrowing base of eligible accounts receivable. At June 30, 2022, $577.2 million of accounts receivable were available as collateral under the facility. The receivables facility is with a commercial bank, functions like a line of credit and matures on March 27, 2023. The revolving credit facility under the senior secured credit facilities matures on July 14, 2025.
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Senior secured credit facilities
During the quarter ended June 30, 2022, we fully repaid our U.S. dollar term loan B-4 and our Euro term loan B-3. We also made prepayments of $150.0 million on our U.S. dollar term loan B-5. In connection with these prepayments, we expensed $6.1 million of previously unamortized deferred financing costs related to these term loans as a loss on extinguishment of debt.
Debt covenants
Our debt agreements include representations and covenants that we consider usual and customary, and our receivables facility and senior secured credit facilities include a financial covenant that becomes applicable for periods in which we have drawn more than 35 % of our revolving credit facility under the senior secured credit facilities. In this circumstance, we are not permitted to have combined borrowings on our senior secured credit facilities and secured notes in excess of a pro forma net leverage ratio, as defined in our credit agreements. As we had not drawn more than 35 % of our revolving credit facility in this period, this covenant was not applicable at June 30, 2022.
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10. Accumulated other comprehensive income or loss
The following table presents changes in the components of AOCI:
(in millions) | Foreign currency translation | Derivative instruments | Defined benefit plans | Total | |||||||||||||||||||
Balance at March 31, 2022 | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
Unrealized (loss) gain | ( | ( | |||||||||||||||||||||
Reclassification of gain into earnings | ( | ( | |||||||||||||||||||||
| Change due to income taxes | ( | ( | ( | ||||||||||||||||||||
Balance at June 30, 2022 | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
Balance at March 31, 2021 | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
Unrealized gain (loss) | ( | ||||||||||||||||||||||
Reclassification of loss (gain) into earnings | ( | ||||||||||||||||||||||
| Change due to income taxes | ( | ||||||||||||||||||||||
Balance at June 30, 2021 | $ | $ | ( | $ | ( | $ | |||||||||||||||||
Balance at December 31, 2021 | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
Unrealized (loss) gain | ( | ( | |||||||||||||||||||||
Reclassification of gain into earnings | ( | ( | ( | ||||||||||||||||||||
| Change due to income taxes | ( | ( | ( | ( | |||||||||||||||||||
Balance at June 30, 2022 | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
Balance at December 31, 2020 | $ | $ | ( | $ | ( | $ | |||||||||||||||||
Unrealized loss | ( | ( | ( | ||||||||||||||||||||
Reclassification of loss into earnings | |||||||||||||||||||||||
| Change due to income taxes | ( | ( | ( | ||||||||||||||||||||
Balance at June 30, 2021 | $ | $ | ( | $ | ( | $ | |||||||||||||||||
The reclassifications and income tax effects shown above were immaterial to the financial statements. The reclassifications were made to either cost of sales or SG&A expenses depending upon the nature of the underlying transaction. The income tax effects in the three and six months ended June 30, 2022 on foreign currency translation were due to our net investment hedge and cross-currency swap discussed in note 14.
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11. Stock-based compensation
(in millions) | Classification | Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||
| Stock options | Equity | $ | $ | $ | $ | ||||||||||||||||||||||||
| RSUs | Equity | ||||||||||||||||||||||||||||
| Other | Both | ( | ( | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||||||||
| Balance sheet classification: | |||||||||||||||||||||||||||||
| Equity | $ | $ | $ | $ | |||||||||||||||||||||||||
| Liability | ( | ( | |||||||||||||||||||||||||||
At June 30, 2022, unvested awards under our plans have remaining stock-based compensation expense of $93.0 million to be recognized over a weighted average period of 1.8 years.
Stock options
(options and intrinsic value in millions) | Number of options | Weighted average exercise price per option | Aggregate intrinsic value | Weighted average remaining term | |||||||||||||||||||
Balance at December 31, 2021 | $ | ||||||||||||||||||||||
| Granted | |||||||||||||||||||||||
| Exercised | ( | ||||||||||||||||||||||
| Forfeited | ( | ||||||||||||||||||||||
Balance at June 30, 2022 | $ | ||||||||||||||||||||||
| Expected to vest | |||||||||||||||||||||||
| Vested | |||||||||||||||||||||||
During the six months ended June 30, 2022, we granted stock options that have a contractual life of ten years and will vest annually over four years , subject to the recipient continuously providing service to us through such date.
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RSUs
(awards in millions) | Number of awards | Weighted average grant date fair value per award | |||||||||
Balance at December 31, 2021 | $ | ||||||||||
| Granted | |||||||||||
| Vested | ( | ||||||||||
| Forfeited | ( | ||||||||||
Balance at June 30, 2022 | |||||||||||
During the six months ended June 30, 2022, we granted RSUs that will vest annually over to four years , subject to the recipient continuously providing service to us through each such date. Certain of those awards contain performance and market conditions that impact the number of shares that will ultimately vest. The expense recorded on such awards for the three months ended June 30, 2022 and June 30, 2021 was $2.7 million and $1.5 million, for the six months ended June 30, 2022 and June 30, 2021 was $5.0 million and $2.8 million, respectively.
12. Other income or expense, net
The following table presents the components of other income or expense, net:
(in millions) | Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Net foreign currency (loss) from financing activities | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Income related to defined benefit plans | |||||||||||||||||||||||
Other1 | |||||||||||||||||||||||
Other income, net | $ | $ | $ | $ | |||||||||||||||||||
━━━━━━━━━
1.We recognized $13.0 million of other income during the three month period ended June 30, 2021 related to the disgorgement of disallowed trading profits from Goldman Sachs, which was a related party until December 31, 2020.
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13. Income taxes
(in millions) | Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Income before income taxes | $ | $ | $ | $ | |||||||||||||||||||
Income tax expense | ( | ( | ( | ( | |||||||||||||||||||
| Effective income tax rate | % | % | % | % | |||||||||||||||||||
Income tax expense in the quarter is based upon the estimated income for the full year. The composition of the income in different countries and adjustments, if any, in the applicable quarterly periods influences our expense.
The relationship between pre-tax income and income tax expense is affected by the impact of losses for which we cannot claim a tax benefit, non-deductible expenses, and other items that increase tax expense without a relationship to income, such as withholding taxes and changes with respect to uncertain tax positions. The change in the effective tax rate for the three and six months ended June 30, 2022 when compared to the three and six months ended June 30, 2021, is lower driven by a one time impact due to changes of tax rates in certain of our European tax jurisdictions in 2021, as well as adjustments to our deferred tax expense related to deductions for stock-based compensation.
14. Derivative and hedging activities
Hedging instruments:
We engage in hedging activities to reduce our exposure to foreign currency exchange rates and interest rates. Our hedging activities are designed to manage specific risks according to our strategies, as summarized below, which may change from time to time. Our hedging activities consist of the following:
•Economic hedges — We are exposed to changes in foreign currency exchange rates on certain of our euro-denominated term loans and notes that move inversely from our portfolio of euro-denominated intercompany loans. The currency effects for these non-derivative instruments are recorded through earnings in the period of change and substantially offset one another;
•Other hedging activities — Certain of our subsidiaries hedge short-term foreign currency denominated business transactions, external debt and intercompany financing transactions using foreign currency forward contracts. These activities were not material to our consolidated financial statements.
Cash flow hedges of interest rate risk
Our objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
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For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the next 12 months, the Company estimates that an additional $2.2 million will be reclassified as a reduction to interest expense.
As of June 30, 2022, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:
| (dollars in millions) | ||||||||||||||
| Interest rate derivative | Number of instruments | Notional | ||||||||||||
| Interest rate swaps | $ | |||||||||||||
Effect of cash flow hedge accounting on AOCI
The table below presents the effect of cash flow hedge accounting on AOCI for the six months ended June 30, 2022 and June 30, 2021. As we entered into the derivatives in the second quarter of 2022, the numbers for the three months ended are the same as the six months ended June 30, 2022 in the table below.
| (in millions) | ||||||||||||||||||||||||||||||||
| Hedging relationships | Amount of gain or (loss) recognized in OCI on Derivative | Location of gain or (loss) reclassified from AOCI into Income | Amount of gain or (loss) reclassified from AOCI into Income | |||||||||||||||||||||||||||||
June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||||||||||||||||||
Interest rate products | Interest (expense) | ( | ||||||||||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
Effect of cash flow hedge accounting on the income statement
The table below presents the effect of our derivative financial instruments on the statement of operations for the six months ended June 30, 2022 and June 30, 2021. As we entered into the derivatives in the second quarter of 2022, the numbers for the three months ended are the same as the six months ended June 30, 2022 in the table below.
June 30, 2022 | June 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | Interest income (expense) | Interest income (expense) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Total amounts of line items presented in the statements of operations were the effects of cash flow hedges are recorded | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
Amount of gain reclassified from AOCI into income | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
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Net investment hedges
We are exposed to fluctuations in foreign exchange rates on investments it holds in foreign entities, specifically our net investment in Avantor Holdings B.V., a EUR-functional-currency consolidated subsidiary, against the risk of changes in the EUR-USD exchange rate. In the second quarter of 2022, the Company entered into fixed-to-fixed cross-currency swaps to hedge its exposure to changes in foreign exchange rates of its foreign investments. Cross-currency swaps involve the receipt of functional-currency fixed-rate amounts from a counterparty in exchange for making foreign-currency fixed-rate payments over the life of the agreement.
For derivatives designated as net investment hedges, the gain or loss on the derivative is reported in AOCI as part of the cumulative translation adjustment. Amounts are reclassified out of AOCI into earnings when the hedged net investment is either sold or substantially liquidated.
As of June 30, 2022, we had the following outstanding foreign currency derivatives that were used to hedge its net investments in foreign operations:
| (value in millions) | ||||||||||||||||||||
Foreign currency derivative | Number of instruments | Notional sold | Notional purchased | |||||||||||||||||
Cross-currency swaps | € | $ | ||||||||||||||||||
Effect of net investment hedges on AOCI and the income statement
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| (in millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Hedging relationships | Amount of gain or (loss) recognized in OCI on Derivative | Location of gain or (loss) reclassified from AOCI into Income | Amount of gain or (loss) reclassified from AOCI into Income | Location of gain or (loss) recognized in income on Derivative (amount excluded from effectiveness testing) | Amount of gain or (loss) recognized in income on Derivative (amount excluded from effectiveness testing) | |||||||||||||||||||||||||||||||||||||||||||||
June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||
Cross currency swaps | $ | $ | Loss on sale of subsidiary | $ | $ | Interest income | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
The table below presents the fair value of our derivative financial instruments as well as their classification on the Balance Sheet as of June 30, 2022 and December 31, 2021:
Asset derivatives | Liability derivatives | ||||||||||||||||||||||||||||||||||||||||||||||
June 30, 2022 | December 31, 2021 | June 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | Balance sheet location | Fair value | Balance sheet location | Fair value | Balance sheet location | Fair value | Balance sheet location | Fair value | |||||||||||||||||||||||||||||||||||||||
Derivatives designated as hedging instruments: | |||||||||||||||||||||||||||||||||||||||||||||||
Interest rate products | Other current assets | $ | Other current assets | $ | Other current liabilities | $ | Other current liabilities | $ | |||||||||||||||||||||||||||||||||||||||
Foreign exchange products | Other current assets | Other current assets | Other current liabilities | Other current liabilities | |||||||||||||||||||||||||||||||||||||||||||
Total | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
Termination of interest rate and cross-currency swaps
In July 2022, we terminated our existing $750.0 million cross-currency swap maturing April 30, 2025 and monetized $42.5 million of cash proceeds. We simultaneously executed a new on-market $750.0 million cross-currency swap maturing April 30, 2025.
Non-derivative financial instruments which are designated as hedging instruments:
We designated all of our outstanding €400.0 million 3.875 % senior unsecured notes, issued on July 17, 2020, and maturing on July 15, 2028, as a hedge of our net investment in certain of our European
24
operations. For instruments that are designated and qualify as net investment hedges, the foreign currency transactional gains or losses are reported as a component of AOCI. The gains or losses would be reclassified into earnings upon a liquidation event or deconsolidation of a hedged foreign subsidiary.
Net investment hedge effectiveness is assessed based upon the change in the spot rate of the foreign currency denominated debt. The critical terms of the foreign currency notes match the portion of the net investments designated as being hedged. At June 30, 2022, the net investment hedge was equal to the designated portion of the European operations and was considered to be perfectly effective.
The accumulated (gain) loss related to the foreign currency denominated debt designated as net investment hedges classified in the foreign currency translation adjustment component of AOCI was $(32.7 ) million and $3.5 million as of June 30, 2022 and December 31, 2021, respectively.
The amount of (gain) loss related to the foreign currency denominated debt designated as net investment hedges classified in the foreign currency translation adjustment component of other comprehensive income for the three and six months ended June 30, 2022 and June 30, 2021 are presented below:
| (in millions) | Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net investment hedges | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
15. Financial instruments and fair value measurements
Our financial instruments include cash and cash equivalents, accounts receivable, accounts payable and debt.
Assets and liabilities for which fair value is only disclosed
The carrying amount of cash and cash equivalents was the same as its fair value and is a Level 1 measurement. The carrying amounts for trade accounts receivable and accounts payable approximated fair value due to their short-term nature and are Level 2 measurements.
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(in millions) | June 30, 2022 | December 31, 2021 | |||||||||||||||||||||
| Gross amount | Fair value | Gross amount | Fair value | ||||||||||||||||||||
| Receivables facility | $ | $ | $ | $ | |||||||||||||||||||
| Senior secured credit facilities: | |||||||||||||||||||||||
| Euro term loans B-3 | |||||||||||||||||||||||
| Euro term loans B-4 | |||||||||||||||||||||||
| Euro term loans B-5 | |||||||||||||||||||||||
| U.S. dollar term loans B-4 | |||||||||||||||||||||||
| U.S. dollar term loans B-5 | |||||||||||||||||||||||
| 2.625% secured notes | |||||||||||||||||||||||
| 3.875% unsecured notes | |||||||||||||||||||||||
| 3.875% unsecured notes | |||||||||||||||||||||||
| 4.625 % unsecured notes | |||||||||||||||||||||||
| Finance lease liabilities | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
The fair values of debt instruments are based on standard pricing models that take into account the present value of future cash flows, and in some cases private trading data, which are level 2 measurements.
Item 2. Management’s discussion and analysis of financial condition and results of operations
In addition to historical financial information, this discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our results may differ materially from those contained in or implied by any forward-looking statements. You should carefully read “Cautionary factors regarding forward-looking statements” for additional information.
Basis of presentation
This discussion should be read in conjunction with the accompanying condensed consolidated financial statements and notes. Pursuant to SEC rules for reports covering interim periods, we have prepared this discussion and analysis to enable you to assess material changes in our financial condition and results of operations since December 31, 2021, the date of our Annual Report. Therefore, we encourage you to read this discussion and analysis in conjunction with the Annual Report.
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 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.
26
During the three months ended June 30, 2022, we recorded net sales of $1,910.5 million, net income of $187.4 million and Adjusted EBITDA of $404.1 million. Net sales increased by 2.8%, which included 2.3% organic growth compared to the same period in 2021. 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.
Factors and current trends affecting our business and results of operations
The following updates the factors and current trends disclosed in the Annual Report. These updates could affect our performance and financial condition in future periods.
Our results are impacted by acquisitions
We completed the acquisitions of Masterflex, Ritter GmbH, and RIM Bio in 2021. Masterflex is a leading global manufacturer of peristaltic pumps and aseptic single-use fluid transfer technologies. Ritter GmbH's current business is focused on supplying high-quality liquid handling consumables used in a variety of molecular screening and diagnostic applications and as part of drug discovery and clinical trial testing in pharma and biotech applications. RIM Bio's current business provides a complete range of single-use 2D bags, 3D bags, tank liners, bag assemblies and multi-bag manifolds used in the manufacturing of biologics including monoclonal antibodies (mAbs), vaccines, cell and gene therapies, and recombinant proteins.
Our results continue to be impacted by the ongoing global coronavirus outbreak
The results for each of our three regions continue to be impacted by the COVID-19 pandemic for the three and six months ended June 30, 2022, as described further in the “Results of operations” section below. For a discussion of the impact of the COVID-19 pandemic and associated economic disruptions, and the actual operational and financial impacts that we experienced through December 31, 2021, see “Part II—Item 7—Management's discussion and analysis of financial condition and results of operations” in the Annual Report. For additional discussion of the potential impact of the COVID-19 pandemic and associated economic disruptions on our results, see “The COVID-19 pandemic has adversely impacted, and continues to pose risks to, our business, operating results, cash flows and/or financial condition, the nature and extent of which could be material.” included in “Part I—Item 1A—Risk factors” in the Annual Report.
We have been impacted by supply chain constraints and inflationary pressures
We have experienced challenges in sourcing certain products and raw materials as a result of global supply chain disruptions and have experienced inflationary pressures across all of our cost categories. While we have implemented pricing and productivity measures to combat these pressures, they may continue to adversely impact our results.
Fluctuations in foreign currency rates impact our results
Our consolidated results of operations are comprised of many different functional currencies that translate into our U.S. Dollar reporting currency. The movement of the U.S. Dollar against those functional currencies, particularly the Euro, has caused significant variability in our results and may continue to do so in the future.
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Key indicators of performance and financial condition
To evaluate our performance, we monitor a number of key indicators including certain non-GAAP financial measurements 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.
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 other adjustments. 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. This measurement is used by our management for the same reason. 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;”
•Cash flows from operating activities, which we discuss in the section entitled “Liquidity and capital resources—Historical cash flows;”
•Free cash flow, which is a non-GAAP measure, is equal to our cash flow from operating activities, plus acquisition-related costs paid in the period, less capital expenditures. We believe that this measurement is useful to investors as it provides a view on the Company’s ability to generate cash for use in financing or investing activities. This measurement is used by management for the same reason. A reconciliation of cash flows from operating activities, the most directly comparable GAAP financial measure, to free cash flows, is included 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 Adjusted 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.
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Executive summary
(dollars in millions) | Three months ended June 30, | Change | |||||||||||||||
| 2022 | 2021 | ||||||||||||||||
| Net sales | $ | 1,910.5 | $ | 1,858.6 | $ | 51.9 | |||||||||||
| Gross margin | 33.9 | % | 33.7 | % | 20 bps | ||||||||||||
| Operating income | $ | 295.6 | $ | 254.7 | $ | 40.9 | |||||||||||
| Net income | 187.4 | 157.8 | 29.6 | ||||||||||||||
| Adjusted EBITDA | 404.1 | 366.6 | 37.5 | ||||||||||||||
| Adjusted EBITDA margin | 21.2 | % | 19.7 | % | 143 bps | ||||||||||||
Second quarter net sales growth was driven by our biopharma and advanced technologies & applied materials end markets, as well as the impact of three acquisitions completed in 2021, partially offset by unfavorable foreign currency impact and COVID-19 related headwinds. Commercial excellence, growth of our proprietary materials and consumables product group and M&A contributed to expansion in both gross margin and Adjusted EBITDA margin.
Net Sales
Three months ended
| (in millions) | Three months ended June 30, | Reconciliation of net sales growth to organic net sales growth | |||||||||||||||||||||||||||||||||
| Net sales growth | Foreign currency impact | M&A impact | Organic net sales growth | ||||||||||||||||||||||||||||||||
2022 | 2021 | ||||||||||||||||||||||||||||||||||
| Americas | $ | 1,156.6 | $ | 1,069.8 | $ | 86.8 | $ | (3.8) | $ | 45.4 | $ | 45.2 | |||||||||||||||||||||||
| Europe | 623.8 | 666.0 | (42.2) | (71.3) | 30.6 | (1.5) | |||||||||||||||||||||||||||||
| AMEA | 130.1 | 122.8 | 7.3 | (5.7) | 14.5 | (1.5) | |||||||||||||||||||||||||||||
| Total | $ | 1,910.5 | $ | 1,858.6 | $ | 51.9 | $ | (80.8) | $ | 90.5 | $ | 42.2 | |||||||||||||||||||||||
Net sales increased $51.9 million or 2.8%, which included $80.8 million or 4.4% of unfavorable foreign currency impact and $90.5 million or 4.9% of M&A impact. Organic growth was $42.2 million or 2.3% (6.4% when excluding COVID-19 related headwinds) and was primarily due to growth in our proprietary products and services.
In the Americas, net sales increased $86.8 million or 8.1%, which included $3.8 million or 0.4% of unfavorable foreign currency impact and $45.4 million or 4.2% of M&A impact. Organic growth in net sales was $45.2 million or 4.3% (8.1% excluding COVID-19 headwinds). Additional information on organic net sales growth by end market (with approximate percentage of total organic net sales for the region) is as follows:
•Biopharma (55%) — Sales grew mid single-digits, primarily due to double-digits growth in sales of proprietary materials in biopharma production driven by our chemicals and serum product offerings and mid-single digit growth in research offerings, partially offset by reduced sales of COVID-19 related products.
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•Healthcare (10%) — Sales decreased mid single-digits as strong growth in our medical grade silicone offering was more than offset by declines in COVID-19 related offerings.
•Education and government (15%) — Sales decreased high single-digits primarily due to declines in lab chemicals and equipment & instrumentation, in part driven by prior year lab re-openings and build-outs, which did not repeat, and lower sales of COVID-19 related offerings to university research and government customers.
•Advanced technologies & applied materials (20%) — Sales increased double-digits driven by strong sales to our semiconductor and electronic device customers.
In Europe, net sales decreased $42.2 million or 6.3%, which included $71.3 million or 10.7% of unfavorable foreign currency impact and $30.6 million or 4.6% of M&A impact. Organic net sales declined $1.5 million or 0.2% (but increased 4.7% excluding COVID-19 headwinds). Additional information on organic net sales growth by end market (with approximate percentage of total organic net sales for the region) is as follows:
•Biopharma (50%) — Sales grew low single-digits driven by double-digit growth in our production chemicals offering, partially offset by declines in COVID-19 related offerings.
•Healthcare (10%) — Sales decreased high single-digits due to declines in COVID-19 related offerings and lower sales of medical grade silicone offerings.
•Education & government (10%) — Sales were flat driven by growth in sales of equipment & instrumentation in the education end market offset by COVID-19 related headwinds in the government end market.
•Advanced technologies & applied materials (30%) — Sales increased low single-digits as growth in proprietary products and equipment & instrumentation were partially offset by COVID-19 headwinds.
In AMEA, net sales increased $7.3 million or 5.9%, which included $5.7 million or 4.6% of unfavorable foreign currency impact and $14.5 million or 11.8% of M&A impact. The organic decline in net sales was $1.5 million or 1.3% (0.3% excluding COVID-19 headwinds). Additional information on organic net sales growth by end market (with approximate percentage of total organic net sales for the region) is as follows:
•Biopharma (50%) — Sales declined double-digits as supply constraints and COVID-19 related lockdowns in China impacted the region.
•Advanced technologies & applied materials (40%) — Sales grew double-digits primarily driven by growth of our proprietary offerings into the semiconductor industry as well as strong industrial demand in the region.
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Six months ended
| (in millions) | Six months ended June 30, | Reconciliation of net sales growth to organic net sales growth | |||||||||||||||||||||||||||||||||
| Net sales growth | Foreign currency impact | M&A Impact | Organic net sales growth | ||||||||||||||||||||||||||||||||
2022 | 2021 | ||||||||||||||||||||||||||||||||||
| Americas | $ | 2,300.0 | $ | 2,104.9 | $ | 195.1 | $ | (4.8) | $ | 92.5 | $ | 107.4 | |||||||||||||||||||||||
| Europe | 1,304.2 | 1,316.4 | (12.2) | (110.8) | 82.9 | 15.7 | |||||||||||||||||||||||||||||
| AMEA | 256.7 | 222.9 | 33.8 | (8.5) | 32.2 | 10.1 | |||||||||||||||||||||||||||||
| Total | $ | 3,860.9 | $ | 3,644.2 | $ | 216.7 | $ | (124.1) | $ | 207.6 | $ | 133.2 | |||||||||||||||||||||||
Net sales increased $216.7 million or 5.9%, which included $124.1 million or 3.5% of unfavorable foreign currency impact and $207.6 million or 5.7% of M&A impact. Organic growth in net sales was $133.2 million or 3.7% (6.8% excluding COVID-19 headwinds).
In the Americas, net sales increased $195.1 million or 9.3%, which included $4.8 million or 0.2% of unfavorable foreign currency impact and $92.5 million or 4.4% of M&A impact. Organic growth in net sales was $107.4 million or 5.1% (8.0% excluding COVID-19 headwinds) for reasons similar to the three month period.
In Europe, net sales decreased $12.2 million or 0.9%, which included $110.8 million or 8.4% of unfavorable foreign currency impact and $82.9 million or 6.3% of M&A impact. Organic growth in net sales was $15.7 million or 1.2% (5.5% excluding COVID-19 headwinds) and was primarily driven by growth in our biopharma production chemicals and single-use offerings as well as our advanced technologies & applied materials end market, offset by the impacts of COVID-19 related headwinds.
In AMEA, net sales increased $33.8 million or 15.2%, which included $8.5 million or 3.8% of unfavorable foreign currency impact and $32.2 million or 14.4% of M&A impact. Organic growth in net sales was $10.1 million or 4.6% (3.8% excluding COVID-19 tailwinds) and was primarily driven by higher sales of our proprietary offerings into the semiconductor industry in our advanced technologies & applied materials business. This growth was partially offset by the impact of supply constraints and COVID-19 related lockdowns in China.
Gross margin
Three months ended June 30, | Change | Six months ended June 30, | Change | ||||||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||
| Gross margin | 33.9 | % | 33.7 | % | 20 bps | 34.6 | % | 34.0 | % | 60 bps | |||||||||||||||||||||||||
Three and six months ended
Gross margin for the three and six months ended June 30, 2022 increased 20 basis points and 60 basis points, respectively, resulting primarily from commercial excellence and favorable product mix reflecting higher sales of our proprietary materials, as well as a favorable impact from the higher gross margin sales from acquired companies. The increase in gross margin was partially offset in both the three and six months ended June 30, 2022 by the required purchase accounting for the acquired Masterflex inventory and cost of goods sold at fair value, as well as increased freight charges. Without the purchase accounting impact, the gross margin would have increased 90 and 100 bps for the three and six months ended June
31
30, 2022, respectively, when compared to their prior periods. The impact is added back to Adjusted EBITDA within the caption “Purchase accounting adjustments”.
Operating income
(in millions) | Three months ended June 30, | Change | Six months ended June 30, | Change | |||||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||
| Gross profit | $ | 647.7 | $ | 626.5 | $ | 21.2 | $ | 1,337.6 | $ | 1,239.3 | $ | 98.3 | |||||||||||||||||||||||
| Operating expenses | 352.1 | 371.8 | (19.7) | 735.0 | 718.3 | 16.7 | |||||||||||||||||||||||||||||
Operating income | $ | 295.6 | $ | 254.7 | $ | 40.9 | $ | 602.6 | $ | 521.0 | $ | 81.6 | |||||||||||||||||||||||
Three and six months ended
Operating income increased primarily from higher gross profit, as previously discussed. For the three months ended June 30, 2022, we have lower operating expenses driven by productivity and foreign currency impacts. On a year to date basis, the increase in operating expenses is driven by an additional $30.3 million in non-cash amortization expense related to intangible assets generated in our 2021 acquisitions, as well as investments in our workforce made over the course of 2021 and into 2022.
Net income
(in millions) | Three months ended June 30, | Change | Six months ended June 30, | Change | |||||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||
Operating income | $ | 295.6 | $ | 254.7 | $ | 40.9 | $ | 602.6 | $ | 521.0 | $ | 81.6 | |||||||||||||||||||||||
| Interest expense | (63.9) | (51.0) | (12.9) | (128.7) | (102.5) | (26.2) | |||||||||||||||||||||||||||||
| Loss on extinguishment of debt | (6.1) | (3.2) | (2.9) | (7.9) | (8.4) | 0.5 | |||||||||||||||||||||||||||||
Other income, net | 0.7 | 14.6 | (13.9) | 2.1 | 16.4 | (14.3) | |||||||||||||||||||||||||||||
Income tax expense | (38.9) | (57.3) | 18.4 | (90.3) | (104.7) | 14.4 | |||||||||||||||||||||||||||||
Net income | $ | 187.4 | $ | 157.8 | $ | 29.6 | $ | 377.8 | $ | 321.8 | $ | 56.0 | |||||||||||||||||||||||
Three and six months ended
Net income increased due to higher operating income, as previously discussed, as well as lower income tax expense resulting from one time impact due to changes of tax rates in certain of our European tax jurisdictions in 2021, as well as adjustments to our deferred tax expense related to deductions for stock-based compensation. This was partially offset by higher interest expense as a result of incremental debt issued to finance the acquisitions completed in 2021, an additional loss on extinguishment of debt from early repayment of portions of our term loans, and lower other income resulting from the absence of a one-time disgorgement penalty payment that we received in 2021.
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Adjusted EBITDA and Adjusted EBITDA margin
For a reconciliation of Adjusted EBITDA to Net income, the most directly comparable measure under GAAP, see “Reconciliations of non-GAAP financial measures.”
| (dollars in millions) | Three months ended June 30, | Change | Six months ended June 30, | Change | |||||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||
| Adjusted EBITDA: | |||||||||||||||||||||||||||||||||||
| Americas | $ | 289.8 | $ | 251.7 | $ | 38.1 | $ | 584.0 | $ | 503.7 | $ | 80.3 | |||||||||||||||||||||||
| Europe | 119.3 | 123.8 | (4.5) | 262.7 | 254.9 | 7.8 | |||||||||||||||||||||||||||||
| AMEA | 36.1 | 28.5 | 7.6 | 65.4 | 51.1 | 14.3 | |||||||||||||||||||||||||||||
| Corporate | (41.1) | (37.4) | (3.7) | (84.9) | (80.0) | (4.9) | |||||||||||||||||||||||||||||
| Total | $ | 404.1 | $ | 366.6 | $ | 37.5 | $ | 827.2 | $ | 729.7 | $ | 97.5 | |||||||||||||||||||||||
| Adjusted EBITDA margin | 21.2 | % | 19.7 | % | 143 bps | 21.4 | % | 20.0 | % | 140 bps | |||||||||||||||||||||||||
Three months ended
Adjusted EBITDA increased $37.5 million or 10.2%, which included an unfavorable foreign currency translation impact of $14.8 million or 4.1% and $30.1 million or 8.2% from M&A. The remaining growth was $22.2 million or 6.1%.
In the Americas, Adjusted EBITDA grew $38.1 million or 15.1%, or 7.2% when adjusted for unfavorable foreign currency translation impact and M&A. Higher gross profit driven by commercial excellence and favorable mix related to sales of our higher-margin proprietary products was partially offset by inflationary factors, including freight, and investments in our workforce made over the course of 2021 and into 2022.
In Europe, Adjusted EBITDA declined $4.5 million or 3.6%, but increased 3.7% when adjusted for unfavorable foreign currency translation impact and M&A. The increase was driven by higher gross profit resulting from favorable product mix and commercial excellence, partially offset by inflationary factors, including freight, and investments in our workforce made over the course of 2021 and into 2022.
In AMEA, Adjusted EBITDA grew $7.6 million or 26.7%, or 9.5% when adjusted for unfavorable foreign currency translation impact and M&A. Increases driven by higher net sales were offset by unfavorable inflationary factors, including freight, as well as supply chain challenges in the region.
In Corporate, Adjusted EBITDA declined $3.7 million or 9.9% reflecting investments in our workforce made over the course of 2021 and into 2022 and increased stock-based compensation expense.
Six months ended
Adjusted EBITDA increased $97.5 million or 13.4%, which included an unfavorable foreign currency translation impact of $22.7 million or 3.0% and $75.5 million or 10.3% from M&A. The remaining growth was $44.7 million or 6.1%.
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In the Americas, Adjusted EBITDA grew $80.3 million or 15.9%, or 7.8% when adjusted for unfavorable foreign currency translation impact and M&A. Higher gross profit from commercial excellence and favorable product mix related to sales of our higher-margin proprietary products was partially offset by inflationary factors, including freight, and investments in our workforce made over the course of 2021 and into 2022.
In Europe, Adjusted EBITDA grew $7.8 million or 3.1%, or 2.4% when adjusted for unfavorable foreign currency translation impact and M&A, due to higher gross profit from favorable product mix and commercial excellence offset by inflationary factors, including freight, and investments in our workforce made over the course of 2021 and into 2022.
In AMEA, Adjusted EBITDA grew $14.3 million or 28.0%, or 6.7% when adjusted for unfavorable foreign currency translation impact and M&A. Increases driven by higher net sales were offset by unfavorable inflationary factors, including freight.
In Corporate, Adjusted EBITDA declined $4.9 million or 6.1% reflecting investments in our workforce made over the course of 2021 and into 2022 and increased stock-based compensation expense.
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Reconciliations of non-GAAP financial measures
The following table presents the reconciliation of net income to Adjusted EBITDA:
(in millions) | Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Net income | $ | 187.4 | $ | 157.8 | $ | 377.8 | $ | 321.8 | |||||||||||||||
| Interest expense | 63.9 | 51.0 | 128.7 | 102.5 | |||||||||||||||||||
Income tax expense | 38.9 | 57.3 | 90.3 | 104.7 | |||||||||||||||||||
| Depreciation and amortization | 89.7 | 86.1 | 204.2 | 175.1 | |||||||||||||||||||
| Loss on extinguishment of debt | 6.1 | 3.2 | 7.9 | 8.4 | |||||||||||||||||||
Net foreign currency loss from financing activities | 0.9 | 1.2 | 1.0 | 2.0 | |||||||||||||||||||
Other stock-based compensation (benefit) expense | (0.4) | 0.7 | (1.7) | 1.3 | |||||||||||||||||||
Acquisition-related expenses1 | — | 21.6 | — | 24.6 | |||||||||||||||||||
Integration-related expenses2 | 3.3 | 0.5 | 7.2 | 0.5 | |||||||||||||||||||
Purchase accounting adjustments3 | 13.8 | — | 9.4 | — | |||||||||||||||||||
Restructuring and severance charges4 | 0.5 | 0.2 | 2.4 | 1.8 | |||||||||||||||||||
Receipt of disgorgement penalty5 | — | (13.0) | — | (13.0) | |||||||||||||||||||
| Adjusted EBITDA | $ | 404.1 | $ | 366.6 | $ | 827.2 | $ | 729.7 | |||||||||||||||
━━━━━━━━━
1.Represents legal, accounting, investment banking and consulting fees incurred related to the acquisition of acquired companies.
2.Represents non-recurring direct costs incurred with third parties to integrate acquired companies. These expenses represent incremental costs and are unrelated to normal operations of our business. Integration expenses are incurred over a pre-defined integration period specific to each acquisition.
3.Represents the non-cash reduction of contingent consideration related to the Ritter acquisition and the amortization of the purchase accounting adjustment to record inventory acquired from Masterflex at fair value.
4.Reflects the incremental expenses incurred in the period related to initiatives to increase profitability and productivity. Typical costs included in this caption are employee severance, site-related exit costs, and contract termination costs.
5.As described in note 12 to our unaudited interim financial statements.
Liquidity and capital resources
We fund short-term cash requirements primarily from operating cash flows. Most of our long-term financing is from indebtedness. For the three and six months ended June 30, 2022, we generated $227.5 million and $379.7 million of cash from operating activities, ended the quarter with $237.5 million of cash and cash equivalents and our availability under our credit facilities was $591.1 million. We have no debt repayments due in the next twelve months other than required term loan payments of $30.5 million and receivables facility borrowing of $210.0 million.
35
Liquidity
The following table presents our primary sources of liquidity:
(in millions) | June 30, 2022 | ||||||||||||||||
| Receivables facility | Revolving credit facility | Total | |||||||||||||||
| Unused availability under credit facilities: | |||||||||||||||||
| Capacity | $ | 300.0 | $ | 515.0 | $ | 815.0 | |||||||||||
| Undrawn letters of credit outstanding | (13.9) | — | (13.9) | ||||||||||||||
| Outstanding borrowings | (210.0) | — | (210.0) | ||||||||||||||
| Unused availability | $ | 76.1 | $ | 515.0 | $ | 591.1 | |||||||||||
| Cash and cash equivalents | 237.5 | ||||||||||||||||
| Total liquidity | $ | 828.6 | |||||||||||||||
We fund short-term cash requirements primarily from operating cash flows. Some of our credit line availability depends upon maintaining a sufficient borrowing base of eligible accounts receivable. We believe that we have sufficient capital resources to meet our liquidity needs.
Our debt agreements include representations and covenants that we consider usual and customary, and our receivables facility and senior secured credit facilities include a financial covenant that becomes applicable for periods in which we have drawn more than 35% of our revolving credit facility under the senior secured credit facilities. In this circumstance, we are not permitted to have combined borrowings on our senior secured credit facilities and secured notes in excess of a pro forma net leverage ratio, as defined in our credit agreements. As we had not drawn more than 35% of our revolving credit facility in this period, this covenant was not applicable at June 30, 2022.
At June 30, 2022, $211.0 million or 88.8% of our $237.5 million in 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.
36
Historical cash flows
The following table presents a summary of cash provided by (used in) various activities:
(in millions) | Six months ended June 30, | Change | |||||||||||||||
| 2022 | 2021 | ||||||||||||||||
| Operating activities: | |||||||||||||||||
| Net income | $ | 377.8 | $ | 321.8 | 56.0 | ||||||||||||
Non-cash items1 | 232.4 | 236.3 | (3.9) | ||||||||||||||
Working capital changes2 | (125.4) | (158.7) | 33.3 | ||||||||||||||
| All other | (105.1) | (8.7) | (96.4) | ||||||||||||||
| Total | $ | 379.7 | $ | 390.7 | $ | (11.0) | |||||||||||
| Investing activities | $ | (80.6) | $ | (1,203.9) | $ | 1,123.3 | |||||||||||
| Cash paid for acquisitions, net of cash acquired | (20.2) | (1,166.7) | 1,146.5 | ||||||||||||||
| Capital expenditures | (60.8) | (38.5) | (22.3) | ||||||||||||||
| Financing activities | (347.7) | 777.8 | (1,125.5) | ||||||||||||||
━━━━━━━━━
1.Consists of typical non-cash charges including depreciation and amortization, stock based compensation expense, deferred income tax expense and others.
2.Includes changes to our accounts receivable, inventory, contract assets and accounts payable.
Cash flows from operating activities provided $11.0 million less cash in 2022 primarily due to higher payments for interest and tax, higher incentive compensation payments for fiscal year 2021 company performance, and higher payments to customers under our rebate programs driven by the strong 2021 volumes. These items were partially offset by higher net income and lower growth in working capital driven by stronger collections of accounts receivable.
Investing activities used $1,123.3 million less cash in 2022, reflecting the cash paid for acquisitions in the previous year offset by increased global capital spending in fiscal year 2022.
Financing activities used $1,125.5 million more cash in 2022 primarily due to higher debt repayments in comparison to 2021, specifically from fully paying down our U.S. Dollar Term Loan B-4 and our Euro Term Loan B-3, and issuances of new tranches of Euro term loans to finance the acquisitions in the previous year.
37
Free cash flow
| (in millions) | Six months ended June 30, | Change | |||||||||||||||
| 2022 | 2021 | ||||||||||||||||
| Net cash provided by operating activities | $ | 379.7 | $ | 390.7 | $ | (11.0) | |||||||||||
| Acquisition-related expenses paid | — | 24.6 | $ | (24.6) | |||||||||||||
| Capital expenditures | (60.8) | (38.5) | (22.3) | ||||||||||||||
| Free cash flow | $ | 318.9 | $ | 376.8 | $ | (57.9) | |||||||||||
Free cash flow was $57.9 million lower in 2022 due to the changes in cash flows from operating activities noted above and an increase in capital spending, principally reflecting growth-related expansions in our global supply chain.
Indebtedness
For information about our indebtedness, refer to the section entitled “Liquidity” and note 9 to our unaudited condensed consolidated financial statements included in Part I, Item 1 — “Financial statements.”
New accounting standards
There were no new accounting standards that we expect to have a material impact on our financial position or results of operations upon adoption.
Item 3. Quantitative and qualitative disclosures about market risk
There have been no significant changes to the disclosures about market risk included in our Annual Report.
Item 4. Controls and procedures
Management’s evaluation of disclosure controls and procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2022, the design and operation of our disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.
Changes in internal control over financial reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the fiscal quarter ended June 30, 2022 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
PART II — OTHER INFORMATION
38
Item 1. Legal proceedings
For additional information regarding legal proceedings and matters, see note 8 to our unaudited condensed consolidated financial statements included in Part I, Item 1 — “Financial Statements,” which information is incorporated into this item by reference.
Item 1A. Risk factors
For information regarding factors that could affect the Company's results of operations, financial condition and liquidity, see the risk factors discussed in Part I, Item 1A “Risk Factors” in our Annual Report. There have been no material changes to the risk factors disclosed in Part I—Item 1A of the Annual Report.
Item 2. Unregistered sales of equity securities and use of proceeds
None.
Item 3. Defaults upon senior securities
None.
Item 4. Mine safety disclosures
Not applicable.
Item 5. Other information
None.
Item 6. Exhibits
39
━━━━━━━━━
* Filled herewith
** Furnished herewith
40
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Avantor, Inc. | |||||||||||
| Date: July 29, 2022 | By: | /s/ Steven Eck | |||||||||
| Name: | Steven Eck | ||||||||||
| Title: | Senior Vice President, Chief Accounting Officer (Principal Accounting Officer) | ||||||||||
41
Execution Version
AMENDMENT NO. 9 TO CREDIT AGREEMENT
AMENDMENT NO. 9 TO CREDIT AGREEMENT, dated as of April 7, 2022 (this “Amendment”), between AVANTOR FUNDING, INC., a Delaware corporation (the “Borrower”) and GOLDMAN SACHS BANK USA, as administrative agent and collateral agent (in such capacity and including any permitted successor or assign, the “Administrative Agent”) for the Lenders (as defined in the Credit Agreement referred to below).
W I T N E S S E T H:
WHEREAS, Holdings, the Borrower, the Lenders, the Administrative Agent and certain other parties entered into a Credit Agreement dated as of November 21, 2017 (as amended by Amendment No. 1 to Credit Agreement, dated as of November 27, 2018, as amended by Amendment No. 2 to Credit Agreement, dated as of June 18, 2019, as amended by Amendment No. 3 to Credit Agreement, dated as of January 24, 2020, as amended by Amendment No. 4 to Credit Agreement, dated as of July 14, 2020, as amended by Amendment No. 5 to Credit Agreement, dated as of November 6, 2020, as amended by Amendment No. 6 to Credit Agreement, dated as of June 10, 2021, as amended by Amendment No. 7 to Credit Agreement, dated as of July 7, 2021, as amended by Amendment No. 8 to the Credit Agreement, dated as of November 1, 2021 and as further amended, restated, amended and restated, supplemented or otherwise modified through the date hereof, the “Credit Agreement”; capitalized terms used herein but not otherwise defined herein shall have the meanings given such terms in the Credit Agreement (as amended by this Amendment));
WHEREAS, Section 10.01 of the Credit Agreement permits the Credit Agreement to be amended solely with the consent of the Administrative Agent and the Borrower without the need to obtain the consent of any other Lender if such amendment is delivered in order (A) to correct or cure ambiguities, errors, omissions or defects or (B) to effect administrative changes of a technical or immaterial nature, and in each case of clauses (A) and (B), such amendment shall become effective without any further action or the consent of any other party to any Loan Document if the same is not objected to in writing by the Required Lenders within five (5) Business Days following receipt of notice thereof.
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
Amendments
Subject to the occurrence of the Amendment No. 9 Effective Date, the Credit Agreement is hereby amended as follows:
(i)The following definitions are hereby added in the appropriate alphabetical order to Section 1.01 of the Credit Agreement:
“Amendment No. 9” means Amendment No. 9 to this Agreement dated as of April 7, 2022.
“Amendment No. 9 Effective Date” means April 7, 2022.
1
(ii)The definition of “Eurocurrency Rate” set forth in Section 1.01 of the Credit Agreement is hereby amended by replacing the period at the end thereof with “; and” and to include the following clause (c) at the end thereof:
“(c) with respect to any Eurocurrency Rate Loan denominated in euro, the EURIBO Rate.”
(iii)The definition of “Eurocurrency Rate Loan” set forth in Section 1.01 of the Credit Agreement is hereby amended and restated in its entirety as follows:
“Eurocurrency Rate Loan” means a Loan that bears interest at a rate based on clause (a) or (c) of the definition of “Eurocurrency Rate”. Eurocurrency Rate Revolving Credit Loans may be denominated in any Approved Currency.
(iv)The definition of “Loan Documents” set forth in Section 1.01 of the Credit Agreement is hereby amended by adding the text “(x) Amendment No. 9,” after the text “(ix) Amendment No. 8,” appearing in such definition and updating the numbering appearing thereafter.
ARTICLE II
Conditions to Effectiveness
Section 2.1. This Amendment shall become effective on the date (the “Amendment No. 9 Effective Date”) on which:
(a)The Administrative Agent (or its counsel) shall have received from (i) the Administrative Agent (it being understood that the Administrative Agent shall only execute this Amendment if the Lenders shall have received at least five (5) Business Days’ prior written notice thereof and the Administrative Agent shall not have received, within five (5) Business Days of the date of such notice to the Lenders, a written notice from the Required Lenders stating that the Required Lenders object to this Amendment) and (ii) the Borrower, a counterpart of this Amendment signed on behalf of such party.
(b)All reasonable costs and expenses (including, without limitation, the reasonable fees, charges and disbursements of counsel for the Administrative Agent) of the Administrative Agent in connection with this Amendment and the transactions contemplated hereby shall have been paid as separately agreed in writing, to the extent invoiced at least one business day prior to the Amendment No. 9 Effective Date.
ARTICLE III
Representations and Warranties.
Section 3.1. The Borrower represents and warrants that:
(a)Organization; Power. The Borrower (i) is duly organized or incorporated, validly existing and, to the extent such concept is applicable in the corresponding jurisdiction, in good standing under the laws of the jurisdiction of its organization or incorporation and (ii) has all requisite organizational or constitutional power and authority to execute and deliver this Amendment and perform its obligations under the Credit Agreement as amended by this Amendment, and the other Loan Documents to which it is a party.
(b)Authorization; Enforceability. This Amendment has been duly authorized by all necessary corporate, shareholder or other organizational action by the Borrower and constitutes a legal, valid and binding obligation of the Borrower, as applicable, enforceable in accordance with its terms, except as such enforceability may be limited by the Enforcement Qualifications.
ARTICLE IV
Miscellaneous
Section 4.1. Effect of Amendment.
(a)On and after the date hereof, each reference in the Credit Agreement to “this Agreement,” “hereunder,” “hereof” or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the “Credit Agreement,” “thereunder,” “thereof” or words of like import referring to the Credit Agreement, mean and are a reference to the Credit Agreement as modified by this Amendment. This Amendment is a Loan Document executed pursuant to the Credit Agreement and shall be construed, administered and applied in accordance with the terms and provisions thereof.
(b)The Credit Agreement, as specifically amended by this Amendment, and each of the other Loan Documents are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. Without limiting the generality of the foregoing, the Collateral Documents and all of the Collateral described therein do and shall continue to secure the payment of all of the respective Obligations of Holdings, the Borrower and the other Loan Parties under the Loan Documents, in each case as the Credit Agreement is amended by this Amendment.
(c)The execution, delivery and effectiveness of this Amendment does not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Administrative Agent under any of the Loan Documents nor constitute a waiver of any provision of any of the Loan Documents. This Amendment shall not constitute a novation of the Credit Agreement or any other Loan Document.
Section 4.2. Counterparts. This Amendment may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Amendment constitutes the entire contract among the parties relating to the subject matter hereof and supersedes any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. This Amendment shall be binding upon and inure to the benefit of the parties hereto and to the other Loan Documents and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Amendment by facsimile or electronic transmission shall be effective as delivery of an original executed counterpart of this Amendment. The words “execution”, “signed”, “signature” and words of like import in any Loan Document shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any Requirements of Law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.
Section 4.3. GOVERNING LAW, ETC. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF
NEW YORK. The provisions of Sections 10.15(b) and 10.16 of the Credit Agreement are incorporated herein and apply to this Amendment mutatis mutandis.
Section 4.4. Headings. Article and Section headings used herein are for convenience of reference only, are not part of this Amendment and are not to affect the construction of, or be taken into consideration in interpreting, this Amendment.
[signature pages follow]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their respective duly authorized officers as of the date first above written.
AVANTOR FUNDING, INC.,
as Borrower
[Signature Page to Amendment No. 9]
Accepted and Acknowledged:
GOLDMAN SACHS BANK USA, as Administrative . Agent
By: Name: Luke Qiu
Title: Authorized Signatory
[Signature Page to Amendment No. 9]
VWR MANAGEMENT SERVICES, LLC
Radnor Corporate Center Building One, Suite 200
100 Matsonford Road, Radnor, PA 19087
December 18, 2020
Sheri Lewis
2 Black Lake Court North Oaks, MN 55127
RE: Employment Letter Agreement Dear Sheri:
The following are the terms of your employment with VWR Management Services, LLC, effective as of December 31, 2020, under which you will provide services to Avantor, Inc. and its various affiliates. As used herein, “Avantor” shall collectively refer to VWR Management Services, LLC, Avantor, Inc. and all of their various affiliates.
Position: | Executive Vice President, Global Operations and Supply Chain | ||||
Base Salary: | $475,000 per year, payable in installments on Avantor’s regular payroll dates. | ||||
Duties: | The duties performed by you as of immediately prior to the date of this Agreement. | ||||
Reporting: | You will report solely and directly to Michael Stubblefield, Chief Executive Officer of Avantor. | ||||
Office Location: | Your office will be located remotely in North Oaks, MN. | ||||
Annual Bonus: Equity: | You will be eligible to participate in Avantor’s Incentive Compensation Plan (ICP) with a target bonus of 75% of base salary. You are eligible to receive an equity award under the Avantor, Inc. 2019 Equity Incentive Plan. The targeted value of this award is $2,000,000 and will be allocated 25% stock options and 75% Restricted Stock Units. The number of stock options and Restricted Stock Units will be calculated based on the closing price on your date of hire in accordance with the Company’s equity valuation practices. This equity grant will vest 25% each year over four years on the grant date anniversary. You will be included in the population eligible to participate in the annual equity grant process, subject to satisfactory performance, aligned with company policy. | ||||
Sign on Bonus: | You will be eligible for a one-time sign-on bonus of $250,000 payable to you during our bonus pay out cycle in March 2021, subject to appropriate taxes and withholding. You hereby agree to | ||||
repay the Company this bonus if you voluntarily leave employment within 12 months of your start date for this role. | |||||
Benefits: | You will be entitled to participate in all vacation, health, welfare and other similar benefits available to similarly situated employees of Avantor. You will be entitled to four weeks of vacation annually. | ||||
Severance/Restrictive Covenants: | If your employment with Avantor is terminated by Avantor without Cause, other than within a two year period following a Change in Control (each as defined on Annex 1), you will be entitled to receive (A) an amount equal to your annual base salary then in effect, payable in equal installments on Avantor’s regular payroll dates during a period of twelve months after such termination, (B) your target bonus, prorated for the year of such termination, payable in equal installments on Avantor’s regular payroll dates during a period of twelve months after such termination and (C) continued health benefits for a period ending on the earlier of (x) your becoming eligible to receive health benefits from a new employer and (y) twelve months after such termination. The payments (and benefits) described in the immediately preceding sentence that are due to be paid (or provided) more than sixty (60) days after your termination are subject to your execution and non-revocation of a general release in the form attached to this Letter Agreement as Annex 2 no later than fifty (50) days after your termination. If your employment with Avantor or its successor, as applicable, is terminated by you for Good Reason (as defined on Annex 1) or by Avantor without Cause within a two year period following a Change in Control, you will be entitled to receive (A) an aggregate amount equal to 1.5 times the sum of (x) your base salary then in effect, plus (y) your target bonus for the year of such termination, payable in equal installments on Avantor’s regular payroll dates during a period of twelve months after such termination and (B) continued health benefits for a period ending on the earlier of (x) your becoming eligible to receive health benefits from a new employer and (y) eighteen months after such termination. The payments (and benefits) described in the immediately preceding sentence that are due to be paid (or provided) more than sixty (60) days after your termination are subject to your execution and non- revocation of a general release in the form attached to this Letter Agreement as Annex 2 no later than fifty (50) days after your termination. If your employment is terminated by Avantor by reason of your Disability (as defined on Annex 1), you will be entitled to any compensation and benefits accrued prior to the termination date, including Avantor’s standard applicable disability insurance benefits. If your employment with Avantor is terminated by reason of your death, your beneficiary or estate, as applicable, will be entitled to any | ||||
compensation and benefits accrued prior to the termination date, including Avantor’s standard applicable life insurance benefits. If your employment is terminated by you without Good Reason, you will only be entitled to any compensation and benefits accrued prior to the termination date. Any such resignation shall require that written notice be delivered by you to Avantor at least 90 days prior to your termination and any failure by you to provide such written notice shall be considered a material breach of this Agreement by you. If your employment is terminated by Avantor for Cause, you will only be entitled to any compensation and benefits accrued prior to the termination date. In the event of a termination of your employment for any reason, you agree to be subject to those restrictions set forth on Annex 1 attached hereto, which are a part of this Letter Agreement (the “Employee Covenants”). You shall be under no obligation to seek other employment for any reason or to mitigate any severance payments following a termination of your employment with Avantor for any reason. In addition, there shall be no offset against amounts due to you upon termination of your employment with Avantor on account of any compensation attributable to any employment subsequent to your employment with Avantor. Subject to the notice requirement as set forth above, either you or Avantor may terminate your employment with Avantor at any time. Except as provided above in this Severance/Restrictive Covenants section, you shall not be entitled to any other salary, compensation or benefits from Avantor after termination of your employment with Avantor, except as otherwise specifically provided for in Avantor’s employee benefit plans or as otherwise expressly required by applicable law. Notwithstanding anything herein to the contrary, if any payments due hereunder would subject you to any tax imposed under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), as a result of your characterization as a “specified employee” of Avantor (within the meaning of Treasury Regulation Section 1.409A-1(i)), then such payments that would otherwise cause such taxation shall be payable in a single lump sum on the first business day that is six months following your “separation from service” (within the meaning of Code Section 409A and the regulations thereunder), and any remaining payments will be made in accordance with the foregoing provisions of this section. | |||||
Personal Services Agreement: | As a condition to entering into this Letter Agreement with the Company, you shall execute the Personal Services, Confidentiality and Inventions Agreement, in the form attached hereto as Exhibit A. | ||||
Entire Agreement: | This Letter Agreement, (including any Annexes attached hereto) and the Personal Services, Confidentiality and Inventions Agreement referenced above set forth the entire understanding between you and Avantor with respect to the subject matter hereof and thereof, and supersede and preempt all prior oral or written understandings and agreements with respect to the subject matter hereof and thereof between you and Avantor and its affiliates, which shall terminate and be of no further effect upon the execution of this Letter Agreement. This Letter Agreement, and all of your rights and duties hereunder, shall not be assignable or delegable by you. Any purported assignment or delegation by you in violation of the foregoing shall be null and void ab initio and of no force and effect. This Letter Agreement may be assigned by Avantor to a person or entity which is a successor in interest to substantially all of the business operations of Avantor, or to a subsidiary or affiliate of Avantor. Upon such assignment, the rights and obligations of Avantor hereunder shall become the rights and obligations of such subsidiary, affiliate or successor person or entity. | ||||
Code Section 409A: | This Letter Agreement will be interpreted to avoid any tax under §409A of the Code. For purposes of §409A, each payment made under this Letter Agreement will be treated as a separate payment. With respect to any reimbursements provided under this Letter Agreement that are subject to §409A, the amount of expenses eligible for reimbursement during a calendar year cannot affect the expenses eligible for reimbursement in any other calendar year. | ||||
[Signature page follows]
VWR MANAGEMENT SERVICES, LLC
By: VWR International, LLC, its sole member
By: Name:
Title:
Accepted and Agreed
Sheri Lewis
Date:
Exhibit A - Personal Services, Confidentiality and Inventions Agreement
See Attached.
AVANTOR, INC.
PERSONAL SERVICES, CONFIDENTIALITY AND INVENTIONS AGREEMENT
THIS AGREEMENT (this “Agreement”) is between Avantor, Inc., presently headquartered at Radnor Corporate Center, Building One, Suite 200, 100 Matsonford Road, Radnor, PA 19087 (with its various affiliates, “Avantor” or the “Company”) and Sheri Lewis (“Executive” or “I”) who is employed by Avantor.Avantor’s sound business policy requires that its trade secrets, technical and non- technical know-how, business knowledge, plans, systems, business methods, business records and customer relations to be protected and not utilized by any person or firm who competes or wants to compete with Avantor. The parties wish to evidence the terms of the employment relationship between them and particularly to set forth certain restrictions which shall apply to Executive in the event of termination of his/her employment with Avantor.
In consideration of and as part of the terms of employment by Avantor, it is agreed as follows:
1.Compensation and Benefits. Executive shall be entitled to a salary, annual bonus and other monetary compensation, which shall be established by Avantor at the inception of employment and may be periodically thereafter adjusted for increase only. Executive shall also be entitled to participate in various Company employee benefit plans (for example, health insurance, retirement, and the like), in accordance with the participation requirements of said plans, and nothing contained herein shall confer benefit eligibility which is in any manner inconsistent with the terms of the benefit plans.
2.Executive’s General Obligations; Conflicts of Interest. During my employment with Avantor, I agree to devote substantially all my working time during normal business hours to Avantor. During my employment with Avantor, I agree to use my best efforts to perform the duties associated with my position and title with Avantor as Avantor may direct, not to engage in any other business or activity the nature of which shall be determined by Avantor to be competitive with Avantor, its suppliers or its customers and to comply with any Conflict of Interest Policy of Avantor. I acknowledge and agree that I will not serve on the board of directors of any other companies during my employment with Avantor without first obtaining prior written approval from Avantor’s Chief Executive Officer. I further agree to conform to all Company policies, practices, and procedures, to the extent such policies, practices and procedures have been provided to me in writing, as well as lawful directions of Avantor and/or its affiliates as to performance of services for Avantor, to the extent that the same are consistent with my position and title with Avantor.
3.No Existing Restrictive Agreements. I represent that I am not a party to any contract limiting my present or future right to work for Avantor or to perform such activities as shall be required from time to time by Avantor.
4.Prior Employer Information. I agree that I will not use improperly or disclose any confidential or proprietary information or trade secrets of my former or current employers, principals, partners, co-venturers, customers, or suppliers, or the vendors or customers of such persons or entities, and I will not violate any nondisclosure or
proprietary rights agreement I might have signed in connection with any such employer, person or entity.
5.Non-Disclosure of Information. I recognize that, in the performance of my duties with Avantor, Confidential Information belonging to Avantor will come into my possession, including, without limitation, information regarding business methods, plan, systems, customer lists and customer relations, vendor lists and vendor relations, cost and pricing information, distribution and logistical information, and other information relating to the business of Avantor that is not known to the general public. I recognize that the business of Avantor is materially dependent upon the relationship between Avantor and its customers who are serviced by its associates and that Avantor has and will entrust me with Confidential Information that must remain the property of Avantor. As used in this Agreement, “Confidential Information” shall mean the trade secrets, technical and non-technical know-how, technical and business knowledge and information, plans and systems, business methods, customer lists and customer relations of Avantor, including but not limited to research, development, manufacturing, purchasing, accounting, data processing, engineering, marketing, merchandising, selling and invoicing, which information is acquired from or through Avantor during the course of my employment by Avantor. “Confidential Information” shall not include any information that is or becomes publicly known or that enters the public domain other than as a result of my breach of my obligations under this Agreement or any other agreement between me and Avantor or its affiliates. I agree that I will not at any time hereafter disclose Confidential Information to third parties or use Confidential Information for any purpose other than to further Avantor’s business, except as is required by law, any court of competent jurisdiction or any governmental agency or authority or recognized subpoena power.
Notwithstanding the above, nothing in this Agreement shall prohibit or impede Executive from communicating, cooperating or filing a complaint with any U.S. federal, state or local governmental or law enforcement branch, agency or entity (collectively, a “Governmental Entity”) with respect to possible violations of any U.S. federal, state or local law or regulation, or otherwise making disclosures to any Governmental Entity, in each case, that are protected under the whistleblower provisions of any such law or regulation, provided that in each case such communications and disclosures are consistent with applicable law. I understand and acknowledge that an individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that is made (i) in confidence to a Federal, State, or local government official or to an attorney solely for the purpose of reporting or investigating a suspected violation of law, or (ii) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. I understand and acknowledge further that an individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual files any document containing the trade secret under seal; and does not disclose the trade secret, except pursuant to court order. Except as provided in this paragraph or under applicable law, under no circumstance am I authorized to disclose any information covered by Avantor’s attorney-client privilege or attorney work product, or trade secrets, without prior written consent of Avantor.
6.Assignment of Inventions. I will make prompt and full disclosure to Avantor, will hold in trust for the sole benefit of Avantor, and will assign, exclusively to Avantor, all my right, title, and interest in and to any and all inventions, discoveries, designs, developments, improvements, copyrightable material, and trade secrets (collectively herein “Inventions”) that I, solely or jointly, may conceive, develop, or reduce to practice during the period of time I am in the employ of Avantor. I hereby waive and quitclaim to Avantor any and all claims of any nature whatsoever that I now or hereafter may have for infringement of any patent resulting from any patent applications for any Inventions so assigned to Avantor.
My obligation to assign shall not apply to any Invention about which I can prove that:
(a)it was developed entirely on my own time; and
(b)no equipment, supplies, facility, services, or trade secret information of Avantor were used in its development; and
(c)it does not relate (i) directly to the business of Avantor or (ii) to the actual or demonstrably anticipated research or development of Avantor; and
(d)it does not result from any work performed by me for Avantor.
7.Excluded and Licensed Inventions. I have attached hereto a list describing all Inventions belonging to me and made by me prior to my employment with Avantor that I wish to have excluded from this Agreement. If no such list is attached, I represent that there are no such Inventions. If in the course of my employment at Avantor, I incorporate into a Company product, process, or machine, an Invention owned by me or in which I have an interest, Avantor is hereby granted and shall have an exclusive royalty-free, irrevocable, worldwide license to make, have made, use, and sell that Invention without restriction as to the extent of my ownership or interest.
8.Application for Copyrights and Patents. I will execute any proper oath or verify any proper document in connection with carrying out the terms of this Agreement. If, because of my mental or physical condition or for any other reason whatsoever, Avantor is unable to secure my signature to apply for or to pursue any application for any United States or foreign patent or copyright covering Inventions assigned to Avantor as stated above, I hereby irrevocably designate and appoint Avantor and its duly authorized officers and agents as my agent and attorney in fact, to act for me and in my behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the prosecution and issuance of U.S. and foreign patents and copyrights thereon with the same legal force and effect as if executed by me. I will testify at Avantor’s request and expense in any interference, litigation, or other legal proceeding that may arise during or after my employment.
9.Third Party Information. I recognize that Avantor has received and will receive confidential or proprietary information from third parties subject to a duty on Avantor’s part to maintain the confidentiality of such information and to use it only for certain limited purposes. This information shall be deemed not to include any information that is or becomes publicly known or that enters the public domain other than as a result of my breach of my obligations under this Agreement or any other agreement between me and Avantor or its affiliates. During the term of my employment and thereafter I will not disclose nor use such information for the benefit
of anyone other than Avantor or such third party, or in any manner inconsistent with any agreement between Avantor and such third party of which I am made aware, except as is required by law, any court of competent jurisdiction or any governmental agency or authority or recognized subpoena power.
10.Termination. I acknowledge that this Agreement shall not constitute a contract for employment for any specific period of time, and that either Avantor or I am free to terminate this Agreement, and employment relationship, “at will,” at any time, with or without cause. I agree that upon termination of this Agreement and my employment, for any or no reason, I will promptly return to Avantor all records of Confidential Information, including copies in my possession, and all other physical properties issued to me as an employee, in a reasonable state of function or repair. I will also so return any keys, pass cards, identification cards or other property belonging to Avantor.
11.Non-Waiver. The failure by Avantor to enforce any of the provisions hereof upon any default by me at a particular time or under certain circumstances shall not be treated as a permanent waiver of such provisions and shall not prevent subsequent enforcement of such provisions upon default by either party.
12.Irreparable Harm. I agree that any proven breach of this Agreement by me would cause irreparable harm to Avantor for which monetary damages could not adequately compensate. If Avantor proves a breach, irreparable harm shall be presumed and I expressly waive any bonding requirement as a prerequisite to Avantor obtaining injunctive relief. Avantor can also seek damages.
13.Assignability of This Agreement. The services contracted for between Avantor and me in this Agreement are personal, and therefore I may not assign this Agreement to any other person or entity. This Agreement may, however, be assigned by Avantor to a successor to the business of Avantor or to an affiliate of Avantor.
14.Severability. It is the intention of the parties that this Agreement shall be enforceable to the fullest extent permitted by local, state, and/or federal law in the jurisdiction in which performance of this Agreement occurs, or in which performance of this Agreement is sought to be enforced. In the event that a court of competent jurisdiction determines that one or more provisions of this Agreement are not enforceable under the provisions of the jurisdiction in which performance occurs or enforcement is sought, such a determination shall not affect the enforceability of the remainder of this Agreement.
15.Other Agreements. This Agreement, together with the letter agreement, dated November 29, 2020 between me and Avantor (the “Letter Agreement”), sets forth the sole and entire agreement between the parties hereto, and supersedes and replaces any and all prior agreements, whether oral, written, or implied, entered into by me and Avantor, pertaining to my employment, the terms, conditions, and responsibilities thereof, and/or any other subject matter contained in this Agreement or the Letter Agreement. This Agreement and the Letter Agreement shall be considered together as one agreement. There will be no modification of this Agreement, either verbal, implied, written, or otherwise, except through a written agreement signed by me, and an officer of Avantor, which refers to the specific paragraph of this Agreement intended to be modified, and sets forth, in writing, the specific modification of said paragraph. This Agreement and the Letter Agreement will supersede and preempt all
prior oral or written understandings and agreements with respect to the subject matter hereof and thereof between me and Avantor and its affiliates.
[Signature page follows]
WITNESS WHEREFORE, the parties have executed this Agreement as of the 29 day of November, 2020.
_________________________________ AVANTOR, INC.
Executive - Signature
By:___________________________________
Its:
_________________________________
Executive - Print Name
Annex 1 - Employee Covenants
1.Noncompetition, Nonsolicitation and Nondisparagement. You acknowledge that in the course of your employment with Avantor or any of its Subsidiaries or Affiliates you will become familiar with Avantor’s and its Subsidiaries’ and Affiliates’ trade secrets and with other confidential information concerning Avantor and such Subsidiaries and Affiliates and that your services will be of special, unique and extraordinary value to Avantor and such Subsidiaries and Affiliates. Therefore, you agree that:
(a)Noncompetition. During the Employment Period and for a period of twelve months thereafter, you shall not directly or indirectly, anywhere in the world, own, manage, control, participate in, consult with, render services for or enter into employment with any business or organization that competes with the business that Avantor or any of its Subsidiaries or Affiliates is engaged in at the time of your Separation (the “Business”). Nothing herein shall prohibit you from being a passive owner of not more than 2% of the outstanding stock of any class of a corporation that is publicly traded, so long as you have no active participation in the business of such corporation.
(b)Nonsolicitation. During the Employment Period and for a period of twenty-four months thereafter, you shall not directly or indirectly (i) induce or attempt to induce any employee of Avantor or any of its Subsidiaries or Affiliates to leave the employ of Avantor or any such Subsidiary or Affiliate, or in any way interfere with the relationship between Avantor or any of its Subsidiaries or Affiliates and any employee thereof, (ii) hire any person who was an employee of Avantor or any of its Subsidiaries or Affiliates within 180 days after a Separation, (iii) induce or attempt to induce any customer, supplier, licensee or other business relation of Avantor or any of its Subsidiaries or Affiliates to cease doing business with Avantor or such Subsidiary or Affiliate or in any way interfere with the relationship between any such customer, supplier, licensee or business relation and Avantor or any of its Subsidiaries or Affiliates or (iv) directly or indirectly acquire or attempt to acquire an interest in any business relating to the Business and with which Avantor or any of its Subsidiaries or Affiliates has entertained discussions relating to the acquisition of such business by Avantor or any of its Subsidiaries or Affiliates in the twelve month period immediately preceding a Separation.
(c)Nondisparagement. During the Employment Period and at any time thereafter, you shall not disparage Avantor or any of its affiliates, or any employee, director, shareholder or member of Avantor or its affiliates.
(d)Enforcement. If, at the time of enforcement of Section 1 or 2, a court holds that the restrictions stated herein are unreasonable under circumstances then existing, the parties hereto agree that the maximum duration, scope or geographical area reasonable under such circumstances shall be substituted for the stated period, scope or area and that the court shall be allowed to revise the restrictions contained herein to cover the maximum duration, scope and area permitted by law. Because your services are unique and because you have access to confidential information, the parties hereto agree that money damages would be an inadequate remedy for any breach of this Annex 1. Therefore, in the event a breach or threatened breach of this Annex 1, Avantor or any of its Subsidiaries or Affiliates or their successors or assigns may, in addition to other rights and remedies existing in their favor, apply to any court of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce, or prevent any violations of, the provisions hereof (without posting a bond or other security).
(e)Additional Acknowledgments. You acknowledge that the provisions of Sections 1 and 2 are in consideration of: (i) employment with Avantor or its Subsidiaries or Affiliates and (ii) additional good and valuable consideration, including the payment of salary and bonus, as set forth in this Letter Agreement. In addition, you agree and acknowledge that the restrictions contained in Sections 1 and 2 do not preclude you from earning a livelihood, nor do they unreasonably impose limitations on your ability to earn a living. In addition, you acknowledge (A) that the business of Avantor and its Subsidiaries and Affiliates will be conducted throughout the world, (B) notwithstanding the state of incorporation or principal office of Avantor or any of its Subsidiaries or Affiliates, or any of their respective executives or employees (including you), it is expected that Avantor and its Subsidiaries and Affiliates will have business activities and have valuable business relationships within its industry throughout the world, and (C) as part of your responsibilities, you will be traveling throughout the world in furtherance of Avantor’s or any of its Subsidiaries’ or Affiliates’ business and relationships. You agree and acknowledge that the potential harm to Avantor and any of its Subsidiaries and Affiliates of the non-enforcement of Sections 1 and 2 outweighs any potential harm to you of its enforcement by injunction or otherwise. You acknowledge that you have carefully read this Annex 1 and have given careful consideration to the restraints imposed upon you by this Annex 1, and are in full accord as to their necessity for the reasonable and proper protection of confidential and proprietary information of Avantor and any of its Subsidiaries and Affiliates now existing or to be developed in the future. You expressly acknowledge and agree that each and every restraint imposed by this Annex 1 is reasonable with respect to subject matter, time period and geographical area.
2.Definitions.
“Affiliate” means, with respect to any Person, any Person that controls, is controlled by or is under common control with such Person or an Affiliate of such Person.
“Board” means Avantor’s board of directors.
“Cause” means (i) the conviction of, or entry of a plea of nolo contendere with respect to, a felony or a crime involving moral turpitude, or the commission of fraud with respect to Avantor or any of its Subsidiaries or Affiliates or any of their customers or suppliers, (ii) substantial and repeated failure to perform duties as reasonably directed by the Board or a supervisor or report, after providing you with 15 days’ prior written notice and a reasonable opportunity to remedy such failure, (iii) gross negligence or willful misconduct with respect to Avantor or any of its Subsidiaries or Affiliates or (iv) a material violation of material Company rules or policies. Your cessation of employment shall not be deemed to be for Cause unless and until, if capable of being cured, the act or omission constituting Cause is not cured within 15 days following your receipt of written notice regarding such act or omission.
“Change in Control” shall have the meaning ascribed to it in the Avantor, Inc. 2019 Equity Incentive Plan.
“Disability” shall have the meaning ascribed to it in Avantor’s long-term disability
policy.
“Employment Period” means the period during which you are employed by Avantor or
any of its Subsidiaries or Affiliates, regardless of whether such employment is pursuant to the terms of this Letter Agreement or another agreement.
“Good Reason” means, within the two year period following a Change in Control, (i) a material diminution to your base salary, bonus opportunity, authority, duties or responsibilities, (ii) Avantor fails to make any compensatory payment to you when due, which is required to be paid to you pursuant to the Letter Agreement, (iii) a relocation of your principal place of employment to a location that is outside a 50 mile radius from your principal place of employment immediately prior to a Change in Control, or (iv) any other action or inaction by Avantor which constitutes a material breach by Avantor of the Letter Agreement; provided that, in order for your resignation for Good Reason to be effective, written notice of the occurrence any event that constitutes Good Reason must be delivered by you to Avantor within 90 days after you have actual knowledge of the occurrence of any such event and the occurrence of such event is not cured by Avantor within thirty (30) days after the date of such written notice by you to Avantor.
“Person” means an individual, a partnership, a limited liability company, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, investment fund, any other business entity and a governmental entity or any department, agency or political subdivision thereof.
“Separation” means you ceasing to be employed by Avantor or any of its Subsidiaries or Affiliates for any reason.
“Subsidiary” means, with respect to any Person, any corporation, limited liability company, partnership, association, or business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers, or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a limited liability company, partnership, association, or other business entity (other than a corporation), a majority of partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association, or other business entity (other than a corporation) if such Person or Persons shall be allocated a majority of limited liability company, partnership, association, or other business entity gains or losses or shall be or control any managing director or general partner of such limited liability company, partnership, association, or other business entity. For purposes hereof, references to a “Subsidiary” of any Person shall be given effect only at such times that such Person has one or more Subsidiaries, and, unless otherwise indicated, the term “Subsidiary” refers to a Subsidiary of Avantor.
3.Miscellaneous.
(a)Applicable Law. This Annex 1 shall be governed by, and construed in accordance with, the laws of the Commonwealth of Pennsylvania, without giving effect to any choice of law or conflict of law rules or provisions (whether of the Commonwealth of Pennsylvania or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the Commonwealth of Pennsylvania.
(b)Consent to Jurisdiction. You hereby irrevocably submit to the nonexclusive jurisdiction of the United States District Court for the Eastern District of Pennsylvania and the state courts of the Commonwealth of Pennsylvania for the purposes of any suit, action or other proceeding arising out of this Annex 1 or any transaction contemplated hereby. You further agree that service of any process, summons, notice or document by certified or registered mail to your address as listed above or such other address or to the attention of
such other person as you have specified by prior written notice to Avantor shall be effective service of process in any action, suit or proceeding in the Commonwealth of Pennsylvania with respect to any matters to which you have submitted to jurisdiction as set forth above in the immediately preceding sentence. You irrevocably and unconditionally waive any objection to the laying of venue of any action, suit or proceeding arising out of this Annex 1 or the transactions contemplated hereby in the United States District Court for the Eastern District of Pennsylvania or the state courts of the Commonwealth of Pennsylvania and hereby irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such action, suit or proceeding brought in such court has been brought in an inconvenient forum.
(c)Additional Agreements. The provisions of this Annex 1 are in addition to, and do not supersede, the provisions of the Personal Services, Confidentiality and Inventions Agreement between you and Avantor.
(d)MUTUAL WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, EACH PARTY TO THIS LETTER AGREEMENT (INCLUDING AVANTOR) HEREBY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE BETWEEN OR AMONG ANY OF THE PARTIES HERETO, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THIS LETTER AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREBY AND/OR THE RELATIONSHIPS ESTABLISHED AMONG THE PARTIES HEREUNDER.
Annex 2 - General Release
I, Sheri Lewis, in consideration of and subject to the performance by VWR Management Services, LLC, a Delaware limited liability company (together with its affiliates, the “Company”), of its obligations under the Employment Letter Agreement, dated as of November 29, 2020 (the “Agreement”), do hereby release and forever discharge as of the date hereof the Company and all present and former directors, officers, agents, representatives, employees, successors and assigns of the Company and the Company’s direct or indirect owners (collectively, the “Released Parties”) to the extent provided below.
1.I understand that any payments or benefits paid or granted to me under the “Severance/Restrictive Covenants” section of the Agreement represent, in part, consideration for signing this General Release and are not salary, wages or benefits to which I was already entitled. I understand and agree that I will not receive the payments and benefits specified in the “Severance/Restrictive Covenants” section of the Agreement unless I execute this General Release and do not revoke this General Release within the time period permitted hereafter or breach this General Release. I also acknowledge and represent that I have received all payments and benefits that I am entitled to receive (as of the date hereof) by virtue of any employment by the Company.
2.Except as provided in paragraph 4 below and except for the provisions of the Agreement which expressly survive the termination of my employment with the Company, I knowingly and voluntarily (for myself, my heirs, executors, administrators and assigns) release and forever discharge the Company and the other Released Parties from any and all claims, suits, controversies, actions, causes of action, cross-claims, counter-claims, demands, debts, compensatory damages, liquidated damages, punitive or exemplary damages, other damages, claims for costs and attorneys’ fees, or liabilities of any nature whatsoever in law and in equity, both past and present (through the date this General Release becomes effective and enforceable) and whether known or unknown, suspected, or claimed against the Company or any of the Released Parties which I, my spouse, or any of my heirs, executors, administrators or assigns, may have, which arise out of or are connected with my employment with, or my separation or termination from, the Company (including, but not limited to, any allegation, claim or violation, arising under: Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991; the Age Discrimination in Employment Act of 1967, as amended (including the Older Workers Benefit Protection Act); the Equal Pay Act of 1963, as amended; the Americans with Disabilities Act of 1990; the Family and Medical Leave Act of 1993; the Worker Adjustment Retraining and Notification Act; the Employee Retirement Income Security Act of 1974; any applicable Executive Order Programs; the Fair Labor Standards Act; or their state or local counterparts; or under any other federal, state or local civil or human rights law, or under any other local, state, or federal law, regulation or ordinance; or under any public policy, contract or tort, or under common law; or arising under any policies, practices or procedures of the Company; or any claim for wrongful discharge, breach of contract, infliction of emotional distress, defamation; or any claim for costs, fees, or other expenses, including attorneys’ fees incurred in these matters) (all of the foregoing collectively referred to herein as the “Claims”).
3.I represent that I have made no assignment or transfer of any right, claim, demand, cause of action, or other matter covered by paragraph 2 above.
4.I agree that this General Release does not waive or release any rights or claims that I may have under the Age Discrimination in Employment Act of 1967 which arise after the date I execute this General Release. I acknowledge and agree that my separation from employment with the Company in compliance with the terms of the Agreement shall not serve as the basis for any claim or action (including, without limitation, any claim under the Age Discrimination in Employment Act of 1967).
5.In signing this General Release, I acknowledge and intend that it shall be effective as a bar to each and every one of the Claims hereinabove mentioned or implied. I expressly consent that this General Release shall be given full force and effect according to each and all of its express terms and provisions, including those relating to unknown and unsuspected Claims (notwithstanding any state statute that expressly limits the effectiveness of a general release of unknown, unsuspected and unanticipated Claims), if any, as well as those relating to any other Claims hereinabove mentioned or implied. I acknowledge and agree that this waiver is an essential and material term of this General Release and that without such waiver the Company would not have agreed to the terms of the Agreement. I further agree that in the event I should bring a Claim seeking damages against the Company, or in the event I should seek to recover against the Company in any Claim brought by a governmental agency on my behalf, this General Release shall serve as a complete defense to such Claims. I further agree that I am not aware of any pending claim of the type described in paragraph 2 as of the execution of this General Release.
6.I agree that neither this General Release, nor the furnishing of the consideration for this General Release, shall be deemed or construed at any time to be an admission by the Company, any Released Party or myself of any improper or unlawful conduct.
7.I agree that this General Release and the Agreement are confidential and agree not to disclose any information regarding the terms of this General Release or this Agreement, except to my immediate family and any tax, legal or other counsel I have consulted regarding the meaning or effect hereof or as required by law, and I will instruct each of the foregoing not to disclose the same to anyone. Notwithstanding anything herein to the contrary, each of the parties (and each affiliate and person acting on behalf of any such party) agree that each party (and each employee, representative, and other agent of such party) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of this transaction contemplated in the Agreement and all materials of any kind (including opinions or other tax analyses) that are provided to such party or such person relating to such tax treatment and tax structure, except to the extent necessary to comply with any applicable federal or state securities laws. This authorization is not intended to permit disclosure of any other information including (without limitation) (i) any portion of any materials to the extent not related to the tax treatment or tax structure of this transaction, (ii) the identities of participants or potential participants in the Agreement, (iii) any financial information (except to the extent such information is related to the tax treatment or tax structure of this transaction), or (iv) any other term or detail not relevant to the tax treatment or the tax structure of this transaction.
8.Any non-disclosure provision in this General Release does not prohibit or restrict me (or my attorney) from responding to any inquiry about this General Release or its underlying facts and circumstances by the Securities and Exchange Commission (SEC), the National Association of Securities Dealers, Inc. (NASD), any other self-regulatory organization or governmental entity. Furthermore, nothing in this Agreement shall prohibit or impede you from communicating, cooperating or filing a complaint with any U.S. federal, state or local governmental or law enforcement branch, agency or entity ( collectively, a
“Governmental Entity”) with respect to possible violations of any U.S. federal, state or local law or regulation, or otherwise making disclosures to any Governmental Entity, in each case, that are protected under the whistleblower provisions of any such law or regulation, provided that in each case such communications and disclosures are consistent with applicable law. You understand and acknowledge that an individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that is made (i) in confidence to a Federal, State, or local government official or to an attorney solely for the purpose of reporting or investigating a suspected violation of law, or (ii) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. You understand and acknowledge further that an individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual files any document containing the trade secret under seal; and does not disclose the trade secret, except pursuant to court order. Except as provided in this paragraph or under applicable law, under no circumstance are you authorized to disclose any information covered by the Company’s attorney-client privilege or attorney work product, or trade secrets, without prior written consent of the Company.
9.Notwithstanding anything in this General Release to the contrary, this General Release shall not relinquish, diminish, or in any way affect any rights or claims arising out of any breach by the Company or by any Released Party of the Agreement after the date hereof.
10.Whenever possible, each provision of this General Release shall be interpreted in, such manner as to be effective and valid under applicable law, but if any provision of this General Release is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this General Release shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.
BY SIGNING THIS GENERAL RELEASE, I REPRESENT AND AGREE THAT:
(i)I HAVE READ IT CAREFULLY;
(ii)I UNDERSTAND ALL OF ITS TERMS AND KNOW THAT I AM GIVING UP IMPORTANT RIGHTS, INCLUDING BUT NOT LIMITED TO, RIGHTS UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, AS AMENDED, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, AS AMENDED; THE EQUAL PAY ACT OF 1963, THE AMERICANS WITH DISABILITIES ACT OF 1990; AND THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED;
(iii)I VOLUNTARILY CONSENT TO EVERYTHING IN IT;
(iv)I HAVE BEEN ADVISED TO CONSULT WITH AN ATTORNEY BEFORE EXECUTING IT AND I HAVE DONE SO OR, AFTER CAREFUL READING AND CONSIDERATION I HAVE CHOSEN NOT TO DO SO OF MY OWN VOLITION;
(v)I HAVE HAD AT LEAST 21 DAYS FROM THE DATE OF MY RECEIPT OF THIS RELEASE SUBSTANTIALLY IN ITS FINAL FORM ON
, TO CONSIDER IT AND THE CHANGES MADE SINCE THE _ , _ VERSION OF THIS RELEASE ARE NOT MATERIAL AND WILL NOT RESTART THE REQUIRED 21-DAY PERIOD;
(vi)THE CHANGES TO THE AGREEMENT SINCE ,
EITHER ARE NOT MATERIAL OR WERE MADE AT MY REQUEST.
(vii)I UNDERSTAND THAT I HAVE SEVEN DAYS AFTER THE EXECUTION OF THIS RELEASE TO REVOKE IT AND THAT THIS RELEASE SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE REVOCATION PERIOD HAS EXPIRED;
(viii)I HAVE SIGNED THIS GENERAL RELEASE KNOWINGLY AND VOLUNTARILY AND WITH THE ADVICE OF ANY COUNSEL RETAINED TO ADVISE ME WITH RESPECT TO IT; AND
(ix)I AGREE THAT THE PROVISIONS OF THIS GENERAL RELEASE MAY NOT BE AMENDED, WAIVED, CHANGED OR MODIFIED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY AN AUTHORIZED REPRESENTATIVE OF AVANTOR AND BY ME.
DATE: ___________ ______________________________________
Sheri Lewis
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael Stubblefield, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Avantor, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: July 29, 2022 | By: | /s/ Michael Stubblefield | |||||||||
| Name: | Michael Stubblefield | ||||||||||
| Title: | President and Chief Executive Officer | ||||||||||
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Thomas A. Szlosek, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Avantor, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: July 29, 2022 | By: | /s/ Thomas A. Szlosek | |||||||||
| Name: | Thomas A. Szlosek | ||||||||||
| Title: | Executive Vice President and Chief Financial Officer (Principal Financial Officer) | ||||||||||
Exhibit 32.1
Certification Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of Avantor, Inc. (the “Company”) for the three months ended June 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Stubblefield, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: July 29, 2022 | By: | /s/ Michael Stubblefield | |||||||||
| Name: | Michael Stubblefield | ||||||||||
| Title: | President and Chief Executive Officer | ||||||||||
Exhibit 32.2
Certification Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of Avantor, Inc. (the “Company”) for the three months ended June 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas A. Szlosek, Executive Vice President, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: July 29, 2022 | By: | /s/ Thomas A. Szlosek | |||||||||
| Name: | Thomas A. Szlosek | ||||||||||
| Title: | Executive Vice President and Chief Financial Officer (Principal Financial Officer) | ||||||||||