BAXTER INTERNATIONAL INC [BAX] Filings

10-Q 1 bax-20210930.htm 10-Q bax-20210930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________________________________________________________________________________

FORM 10-Q

_________________________________________________________________________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-4448

_________________________________________________________________________________

BAXTER INTERNATIONAL INC.

(Exact name of registrant as specified in its charter)

_________________________________________________________________________________

Delaware

36-0781620

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

One Baxter Parkway,

Deerfield,

Illinois

60015

(Address of Principal Executive Offices)

(Zip Code)

224.

948.2000

(Registrant’s telephone number, including area code)

_________________________________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $1.00 par value

BAX (NYSE)

New York Stock Exchange

Chicago Stock Exchange

0.4% Global Notes due 2024

BAX 24

New York Stock Exchange

1.3% Global Notes due 2025

BAX 25

New York Stock Exchange

1.3% Global Notes due 2029

BAX 29

New York Stock Exchange

3.95% Global Notes due 2030

BAX 30

New York Stock Exchange

1.73% Global Notes due 2031

BAX 31

New York Stock Exchange

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 x No o

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

The number of shares of the registrant’s Common Stock, par value $1.00 per share, outstanding as of October 21, 2021 was 500,693,441 shares.

BAXTER INTERNATIONAL INC.

FORM 10-Q

For the quarterly period ended September 30, 2021

TABLE OF CONTENTS


		Page Number
PART I.	FINANCIAL INFORMATION	2
Item 1.	Financial Statements (unaudited)	2
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Income	3
	Condensed Consolidated Statements of Comprehensive Income	4
	Condensed Consolidated Statements of Changes in Equity	5
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	46
Item 4.	Controls and Procedures	47

PART II.	OTHER INFORMATION	48
Item 1.	Legal Proceedings	48
Item 1A.	Risk Factors	48
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 6.	Exhibits	50
Signature		51

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Baxter International Inc.

Condensed Consolidated Balance Sheets (unaudited)

(in millions, except share information)


	September 30, 2021		December 31, 2020
Current assets:
Cash and cash equivalents	$	3,258	$	3,730
Accounts receivable, net of allowances of $115 in 2021 and $125 in 2020	2,074		2,007
Inventories	2,025		1,916
Prepaid expenses and other current assets	810		758
Total current assets	8,167		8,411
Property, plant and equipment, net	4,582		4,722
Goodwill	3,098		3,217
Other intangible assets, net	1,876		1,671
Operating lease right-of-use assets	581		603
Other non-current assets	1,503		1,395
Total assets	$	19,807	$	20,019
Current liabilities:
Short-term debt	$	301	$	—
Current maturities of long-term debt and finance lease obligations	209		406
Accounts payable	999		1,043
Accrued expenses and other current liabilities	1,932		1,884
Total current liabilities	3,441		3,333
Long-term debt and finance lease obligations	5,446		5,786
Operating lease liabilities	484		501
Other non-current liabilities	1,621		1,673
Total liabilities	10,992		11,293
Commitments and contingencies
Equity:
Common stock, $1 par value, authorized 2,000,000,000 shares, issued 683,494,944 shares in 2021 and 2020	683		683
Common stock in treasury, at cost,182,847,640 shares in 2021 and 178,580,208 shares in 2020	(11,529)		(11,051)
Additional contributed capital	6,131		6,043
Retained earnings	16,967		16,328
Accumulated other comprehensive (loss) income	(3,482)		(3,314)
Total Baxter stockholders’ equity	8,770		8,689
Noncontrolling interests	45		37
Total equity	8,815		8,726
Total liabilities and equity	$	19,807	$	20,019

The accompanying notes are an integral part of these condensed consolidated financial statements.

Baxter International Inc.

Condensed Consolidated Statements of Income (unaudited)

(in millions, except per share data)


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Net sales	$	3,226	$	2,972	$	9,270	$	8,492
Cost of sales	1,905		1,777		5,571		5,096
Gross margin	1,321		1,195		3,699		3,396
Selling, general and administrative expenses	680		601		1,982		1,819
Research and development expenses	129		123		396		386
Other operating expense (income), net	(1)		1		(6)		(19)
Operating income	513		470		1,327		1,210
Interest expense, net	50		39		118		96
Other expense, net	12		16		15		32
Income before income taxes	451		415		1,194		1,082
Income tax (benefit) expense	(1)		56		141		143
Net income	452		359		1,053		939
Net income attributable to noncontrolling interests	2		3		7		5
Net income attributable to Baxter stockholders	$	450	$	356	$	1,046	$	934
Earnings per share
Basic	$	0.90	$	0.70	$	2.08	$	1.83
Diluted	$	0.89	$	0.69	$	2.06	$	1.81
Weighted-average number of shares outstanding
Basic	500		511		503		509
Diluted	506		518		509		517

The accompanying notes are an integral part of these condensed consolidated financial statements.

Baxter International Inc.

Condensed Consolidated Statements of Comprehensive Income (unaudited)

(in millions)


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Net income	$	452	$	359	$	1,053	$	939
Other comprehensive income (loss), net of tax:
Currency translation adjustments, net of tax expense (benefit) of $3 and $18 for the three months ended September 30, 2021 and 2020, respectively, and $16 and $12 for the nine months ended September 30, 2021 and 2020, respectively	(137)		127		(257)		(43)
Pension and other postretirement benefits, net of tax expense of $8 and $0 for the three months ended September 30, 2021 and 2020, respectively, and $19 and $7 for the nine months ended September 30, 2021 and 2020, respectively	22		—		63		26
Hedging activities, net of tax expense (benefit) of $3 and $5 for the three months ended September 30, 2021 and 2020, respectively, and $8 and ($33) for the nine months ended September 30, 2021 and 2020, respectively	9		22		26		(112)
Total other comprehensive income (loss), net of tax	(106)		149		(168)		(129)
Comprehensive income	346		508		885		810
Less: Comprehensive income attributable to noncontrolling interests	2		3		7		5
Comprehensive income attributable to Baxter stockholders	$	344	$	505	$	878	$	805

The accompanying notes are an integral part of these condensed consolidated financial statements.

Baxter International Inc.

Condensed Consolidated Statements of Changes in Equity (unaudited)

(in millions)


	For the three months ended September 30, 2021
	Baxter International Inc. stockholders' equity
	Common stock shares	Common stock		Common stock shares in treasury	Common stock in treasury		Additional contributed capital		Retained earnings		Accumulated other comprehensive income (loss)		Total Baxter stockholders' equity		Noncontrolling interests		Total equity
Balance as of July 1, 2021	683	$	683	184	$	(11,561)	$	6,090	$	16,658	$	(3,376)	$	8,494	$	41	$	8,535

Net income	—	—		—	—		—		450		—		450		2		452
Other comprehensive income (loss)	—	—		—	—		—		—		(106)		(106)		—		(106)

Stock issued under employee benefit plans and other	—	—		(1)	32		41		—		—		73		—		73
Dividends declared on common stock	—	—		—	—		—		(141)		—		(141)		—		(141)
Change in noncontrolling interests	—	—		—	—		—		—		—		—		2		2
Balance as of September 30, 2021	683	$	683	183	$	(11,529)	$	6,131	$	16,967	$	(3,482)	$	8,770	$	45	$	8,815



	For the nine months ended September 30, 2021
	Baxter International Inc. stockholders' equity
	Common stock shares	Common stock		Common stock shares in treasury	Common stock in treasury		Additional contributed capital		Retained earnings		Accumulated other comprehensive income (loss)		Total Baxter stockholders' equity		Noncontrolling interests		Total equity
Balance as of January 1, 2021	683	$	683	179	$	(11,051)	$	6,043	$	16,328	$	(3,314)	$	8,689	$	37	$	8,726

Net income	—	—		—	—		—		1,046		—		1,046		7		1,053
Other comprehensive income (loss)	—	—		—	—		—		—		(168)		(168)		—		(168)
Purchases of treasury stock	—	—		7	(600)		—		—		—		(600)		—		(600)
Stock issued under employee benefit plans and other	—	—		(3)	122		88		—		—		210		—		210
Dividends declared on common stock	—	—		—	—		—		(407)		—		(407)		—		(407)
Change in noncontrolling interests	—	—		—	—		—		—		—		—		1		1
Balance as of September 30, 2021	683	$	683	183	$	(11,529)	$	6,131	$	16,967	$	(3,482)	$	8,770	$	45	$	8,815


	For the three months ended September 30, 2020
	Baxter International Inc. stockholders' equity
	Common stock shares	Common stock		Common stock shares in treasury	Common stock in treasury		Additional contributed capital		Retained earnings		Accumulated other comprehensive income (loss)		Total Baxter stockholders' equity		Noncontrolling interests		Total equity
Balance as of July 1, 2020	683	$	683	173	$	(10,597)	$	5,975	$	16,055	$	(3,988)	$	8,128	$	32	$	8,160

Net income	—	—		—	—		—		356		—		356		3		359
Other comprehensive income (loss)	—	—		—	—		—		—		149		149		—		149

Stock issued under employee benefit plans and other	—	—		—	26		34		—		—		60		—		60
Dividends declared on common stock	—	—		—	—		—		(126)		—		(126)		—		(126)

Balance as of September 30, 2020	683	$	683	173	$	(10,571)	$	6,009	$	16,285	$	(3,839)	$	8,567	$	35	$	8,602



	For the nine months ended September 30, 2020
	Baxter International Inc. stockholders' equity
	Common stock shares	Common stock		Common stock shares in treasury	Common stock in treasury		Additional contributed capital		Retained earnings		Accumulated other comprehensive income (loss)		Total Baxter stockholders' equity		Noncontrolling interests		Total equity
Balance as of January 1, 2020	683	$	683	177	$	(10,764)	$	5,955	$	15,718	$	(3,710)	$	7,882	$	30	$	7,912
Adoption of new accounting standards	—	—		—	—		—		(4)		—		(4)		—		(4)
Net income	—	—		—	—		—		934		—		934		5		939
Other comprehensive income (loss)	—	—		—	—		—		—		(129)		(129)		—		(129)

Stock issued under employee benefit plans and other	—	—		(4)	193		54		—		—		247		—		247
Dividends declared on common stock	—	—		—	—		—		(363)		—		(363)		—		(363)

Balance as of September 30, 2020	683	$	683	173	$	(10,571)	$	6,009	$	16,285	$	(3,839)	$	8,567	$	35	$	8,602

The accompanying notes are an integral part of these condensed consolidated financial statements.

Baxter International Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)

(in millions)


	Nine months ended September 30,
	2021		2020
Cash flows from operations
Net income	$	1,053	$	939
Adjustments to reconcile net income to cash flows from operations:
Depreciation and amortization	645		610
Deferred income taxes	(98)		(45)
Stock compensation	93		97
Net periodic pension and other postretirement costs	77		59
Intangible asset impairment	—		17
Other	46		54
Changes in balance sheet items:
Accounts receivable, net	(128)		(108)
Inventories	(149)		(305)
Prepaid expenses and other current assets	(51)		(60)
Accounts payable	14		(28)
Accrued expenses and other current liabilities	91		64
Other	(64)		(136)
Cash flows from operations – continuing operations	1,529		1,158
Cash flows from operations – discontinued operations	—		(2)
Cash flows from operations	1,529		1,156
Cash flows from investing activities
Capital expenditures	(508)		(472)
Acquisitions, net of cash acquired, and investments	(463)		(466)
Other investing activities, net	38		23
Cash flows from investing activities	(933)		(915)
Cash flows from financing activities
Repayments of debt	(407)		—
Issuances of debt	50		1,240
Net increase (decrease) in debt with original maturities of three months or less	251		(226)
Cash dividends on common stock	(390)		(348)
Proceeds from stock issued under employee benefit plans	135		180
Purchases of treasury stock	(600)		—
Debt issuance costs	(37)		(3)
Other financing activities, net	(33)		(45)
Cash flows from financing activities	(1,031)		798
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash	(40)		(8)
Increase (decrease) in cash, cash equivalents and restricted cash	(475)		1,031
Cash, cash equivalents and restricted cash at beginning of period (1)	3,736		3,335
Cash, cash equivalents and restricted cash at end of period (1)	$	3,261	$	4,366

(1) We did not have any restricted cash balances as of December 31, 2019. The following table provides a reconciliation of cash, cash equivalents and restricted cash shown above to the amounts reported within the condensed consolidated balance sheet as of September 30, 2021,

December 31, 2020, and September 30, 2020 (in millions):


	September 30, 2021		December 31, 2020		September 30, 2020
Cash and cash equivalents	$	3,258	$	3,730	$	4,359
Restricted cash included in prepaid expenses and other current assets	3		6		7
Cash, cash equivalents and restricted cash	$	3,261	$	3,736	$	4,366

The accompanying notes are an integral part of these condensed consolidated financial statements.

Baxter International Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

1. BASIS OF PRESENTATION

The unaudited interim condensed consolidated financial statements of Baxter International Inc. and its subsidiaries (we or our) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) in the United States have been condensed or omitted. These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our Current Report on Form 8-K filed with the SEC on April 29, 2021 (2020 Annual Report), which revised and superseded the corresponding sections of the Annual Report on Form 10-K for the year ended December 31, 2020.

In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. All such adjustments, unless otherwise noted herein, are of a normal, recurring nature. The results of operations for the current interim period are not necessarily indicative of the results of operations to be expected for the full year.

Certain reclassifications have been made to conform the prior period condensed consolidated statements to the current period presentation.

Risks and Uncertainties Related to COVID-19

Our global operations expose us to risks associated with public health crises and epidemics/pandemics, such as the COVID-19 pandemic. COVID-19 has had, and we expect will continue to have, an adverse impact on our operations, supply chains and distribution systems and has increased and we expect will continue to increase our expenses, including as a result of impacts associated with preventive and precautionary measures that we, other businesses and governments have taken and continue to take. Initial measures taken in 2020 led to unprecedented restrictions on, disruptions in, and other related impacts on business and personal activities, including a shift in healthcare priorities, which resulted in a significant decline in medical procedures in 2020. The pandemic has created significant volatility in the demand for our products. For further information about our revenues by product category, refer to Note 9 - Revenues. Significant uncertainty remains regarding the duration and overall impact of the COVID-19 pandemic. For example, concerns remain regarding the pace of economic recovery due to virus resurgence across the globe from the Delta variant and other virus mutations as well as vaccine distribution and hesitancy. The U.S. and other governments may continue existing measures or implement new restrictions and other requirements in light of the continuing spread of the pandemic (including with respect to mandatory vaccinations for certain of our employees). Due to the uncertainty caused by the pandemic, our operating performance and financial results, particularly in the short term, may be subject to volatility. We have experienced significant challenges, including lengthy delays, shortages and interruptions, posed by the pandemic and other exogenous factors (including significant weather events and disruptions to certain ports of call around the world) to our global supply chain, including the cost and availability of raw materials and component parts (including resins and electromechanical devices) and higher transportation costs, and may experience these and other challenges in future periods. Many of our manufacturing plant and distribution center personnel are currently unvaccinated, and we may also experience employee resistance in complying with current and future government vaccine and testing mandates, which may cause labor shortages significantly impacting manufacturing production and distribution center productivity. We expect that these challenges as well as evolving governmental restrictions and requirements, among other factors, may continue to have an adverse effect on our business.

2. ACQUISITIONS AND OTHER ARRANGEMENTS

Proposed Acquisition of Hillrom

On September 2, 2021, we announced that we have entered into a definitive agreement to acquire all of the outstanding equity interests of Hill-Rom Holdings, Inc. (Hillrom) for total cash consideration of approximately $10.5 billion. Including the assumption of Hillrom's outstanding debt obligations, the enterprise value of the transaction will be approximately $12.4 billion. Under the terms of the transaction agreement, Hillrom shareholders will receive

$156.00 in cash for each Hillrom share. The transaction is expected to close in early 2022, subject to the approval of Hillrom shareholders and the satisfaction of customary closing conditions, including regulatory approvals.

Hillrom is a global medical technology leader whose products and services help enable earlier diagnosis and treatment, optimize surgical efficiency, and accelerate patient recovery while simplifying clinical communication and shifting care closer to home. Hillrom makes those outcomes possible through digital and connected care solutions and collaboration tools, including smart bed systems, patient monitoring and diagnostic technologies, respiratory health devices, advanced equipment for the surgical space and more, delivering actionable, real-time insights at the point of care.

In connection with the proposed acquisition of Hillrom, on September 1, 2021, we entered into a bridge facility commitment letter with JPMorgan Chase Bank, N.A. (JP Morgan) and Citigroup Global Markets Inc. (Citi) pursuant to which JP Morgan and Citi have committed to provide a 364-day senior unsecured bridge term loan facility in an aggregate principal amount of $11.4 billion (the Bridge Facility) for the purpose of funding the consideration for the Hillrom acquisition, refinancing certain indebtedness of Hillrom, and paying fees and expenses related to the foregoing. Loans under the Bridge Facility will bear interest at variable rates, will be due 364 days after the loan is issued and contain various covenants, including a maximum net leverage ratio. The Bridge Facility included upfront fees of $40 million that will increase to $53 million if the Bridge Facility is not terminated within 120 days of the date the Bridge Facility was executed. The commitments in respect of the Bridge Facility were syndicated to additional financial institutions on September 30, 2021.

Undrawn commitments in respect of the Bridge Facility will be subject to a ticking fee commencing on the later of (x) the date that definitive documentation with respect to the Bridge Facility is executed and (y) November 30, 2021 at a rate per annum equal to 0.125%. Loans under the Bridge Facility, if funded, will bear interest at variable rates, will be due 364 days after the initial funding of such loans and contain various covenants, including a maximum net leverage ratio. In addition, loans drawn under the Bridge Facility will be subject to a duration fee equal to (i) 0.5% of the outstanding loans on the 90th day after the initial funding of such loans, (ii) 0.75% of the outstanding loans on the 180th day after the initial funding of such loans and (iii) 1% of the outstanding loans on the 270th day after the initial funding of such loans.

On September 30, 2021, we entered into a term loan credit agreement (the Term Loan Credit Agreement), pursuant to which a syndicate of financial institutions has committed to provide us with a senior unsecured term loan facility in an aggregate principal amount of $4.0 billion (the Term Loan Facility), consisting of a $2.0 billion three-year term loan and a $2.0 billion five-year term loan. Loans under the Term Loan Facility will be available on the closing date of the Hillrom acquisition to fund the consideration for the Hillrom acquisition, refinance certain indebtedness of Hillrom, and pay fees and expenses related to the foregoing. Loans under the Term Loan Facility will bear interest at variable rates, will be subject to amortization at an annual rate of 0.625% for the first year and 1.25% thereafter (with loans outstanding under the five-year tranche subject to amortization at an annual rate of 1.875% after the second anniversary of the commencement of amortization and 2.500% after the third anniversary of the commencement of amortization). The Term Loan Credit Agreement contains various covenants, including a maximum net leverage ratio. Undrawn commitments under the Term Loan Facility are subject to a ticking fee commencing on November 30, 2021 at a rate per annum equal to 0.125%.

The aggregate principal amount of the commitments under the Term Loan Facility have replaced a corresponding amount under the commitment letter in respect of the Bridge Facility, in accordance with the terms of the commitment letter. As a result, there are now $7.4 billion in bridge facility commitments remaining. We expect to replace these remaining commitments with cash on the balance sheet and/or permanent financing in the form of the issuance of debt securities prior to the closing of the proposed acquisition of Hillrom.

Transderm Scop

In March 2021, we acquired the rights to Transderm Scop (TDS) for the U.S. and specified territories outside of the U.S. from subsidiaries of GlaxoSmithKline for an upfront purchase price of $60 million including the cost of acquired inventory and the potential for additional cash consideration of $30 million, which had an acquisition-date fair value of $24 million, based upon regulatory approval of a new contract manufacturer by a specified date. We previously sold this product under a distribution license to the U.S. institutional market. TDS is indicated for post-operative nausea and vomiting in the U.S. and motion sickness in European markets. We concluded that the acquired assets met the definition of a business and accounted for the transaction as a business combination using the acquisition method of accounting. The fair value of the potential contingent consideration payment was estimated by applying a probability-

weighted expected payment model and is a Level 3 fair value measurement due to the significant estimates and assumptions used by management in establishing the estimated fair value.

The following table summarizes the fair value of the consideration transferred:


(in millions)
Cash	$	60
Contingent Consideration	24
Total Consideration	$	84

The following table summarizes the fair value of the assets acquired as of the acquisition date:


(in millions)
Assets acquired
Inventory	$	16
Goodwill	1
Other intangible assets	67
Total assets acquired	$	84

The results of operations of the acquired business have been included in our consolidated statement of income since the date the business was acquired and were not material for the three and nine months ended September 30, 2021.

We allocated $64 million of the total consideration to the TDS developed product rights with an estimated useful life of 9 years and $3 million to customer relationships with an estimated useful life of 7 years. The fair values of the intangible assets were determined using the income approach. The discount rates used to measure the intangible assets were 22.5% for developed product rights and 15.5% for customer relationships. We consider the fair values of the intangible assets to be Level 3 measurements due to the significant estimates and assumptions used by management in establishing the estimated fair values.

The goodwill, which is deductible for tax purposes, includes the value of overall strategic benefits provided to our pharmaceutical portfolio and is included in the Americas segment.

PerClot

In July 2021, we acquired certain assets related to PerClot Polysaccharide Hemostatic System (PerClot), including distribution rights for the U.S. and specified territories outside of the U.S., from CryoLife, Inc. for an upfront purchase price of $25 million and the potential for additional cash consideration of up to $36 million, which had an acquisition-date fair value of $28 million, based upon regulatory and commercial milestones. PerClot is an absorbable powder hemostat indicated for use in surgical procedures, including cardiac, vascular, orthopedic, spinal, neurological, gynecological, ENT and trauma surgery as an adjunct hemostat when control of bleeding from capillary, venous, or arteriolar vessels by pressure, ligature, and other conventional means is either ineffective or impractical. PerClot is approved for distribution in the European Union and other markets and is expected to be submitted for Pre-Market Approval (PMA) for distribution in the U.S. in the fourth quarter of 2021. We concluded that the acquired assets met the definition of a business and accounted for the transaction as a business combination using the acquisition method of accounting. The fair values of the potential contingent consideration payments were estimated by applying probability-weighted expected payment models and are Level 3 fair value measurements due to the significant estimates and assumptions used by management in establishing the estimated fair values.

The following table summarizes the fair value of the consideration transferred:


(in millions)
Cash	$	25
Contingent Consideration	28
Total Consideration	$	53

The following table summarizes the fair value of the assets acquired as of the acquisition date:


(in millions)
Assets acquired
Goodwill	$	4
Other intangible assets	$	49
Total assets acquired	$	53

The valuation of the assets acquired are preliminary and measurement period adjustments may be recorded in the future as we finalize our fair value estimates. The results of operations of the acquired business have been included in our consolidated statement of income since the date the business was acquired and were not material for the three and nine months ended September 30, 2021.

We allocated $39 million of the total consideration to an in-process research and development (IPR&D) asset with an indefinite useful life, $9 million to the approved PerClot developed product rights with an estimated useful life of 10 years and $1 million to customer relationships with an estimated useful life of 10 years. The fair values of the intangible assets were determined using the income approach. The discount rates used to measure the intangible assets were 18.7% for IPR&D, 16.0% for developed product rights and 15.0% for customer relationships. We consider the fair values of the intangible assets to be Level 3 measurements due to the significant estimates and assumptions used by management in establishing the estimated fair values.

The goodwill, which is deductible for tax purposes, includes the value of overall strategic benefits provided to our surgical portfolio of hemostats and sealants and is included in the Americas and EMEA segments.

We have not presented pro forma financial information for either of the 2021 business combinations because their results are not material to our consolidated financial statements.

Caelyx and Doxil

In February 2021, we acquired the rights to Caelyx and Doxil, the branded versions of liposomal doxorubicin, from a subsidiary of Johnson & Johnson for specified territories outside of the U.S. We previously acquired the U.S. rights to this product in 2019. Liposomal doxorubicin is a chemotherapy medicine used to treat various types of cancer. The transaction was accounted for as an asset acquisition, as substantially all of the fair value of the gross assets acquired was concentrated in the developed technology intangible asset. The purchase price of $325 million was allocated to the assets acquired, which included a $314 million developed-technology intangible asset with an estimated useful life of 9 years and an $11 million customer relationship intangible asset with an estimated useful life of 8 years. Net sales related to this acquisition were $32 million and $73 million, respectively, for the three and nine months ended September 30, 2021.

3. SUPPLEMENTAL FINANCIAL INFORMATION

Interest Expense, Net


	Three months ended September 30,				Nine months ended September 30,
(in millions)	2021		2020		2021		2020
Interest expense, net of capitalized interest	$	54	$	42	$	128	$	112
Interest income	(4)		(3)		(10)		(16)
Interest expense, net	$	50	$	39	$	118	$	96

Other Expense, Net


	Three months ended September 30,				Nine months ended September 30,
(in millions)	2021		2020		2021		2020
Foreign exchange (gains) losses, net	$	—	$	23	$	5	$	44
Pension and other postretirement benefit plans	4		—		11		(2)
Change in fair value of marketable equity securities	9		(9)		2		(9)
Other, net	(1)		2		(3)		(1)
Other expense, net	$	12	$	16	$	15	$	32

Allowance for Doubtful Accounts

The following table is a summary of the changes in our allowance for doubtful accounts for the three and nine months ended September 30, 2021 and 2020.


	Three months ended September 30,				Nine months ended September 30,
(in millions)	2021		2020		2021		2020
Balance at beginning of period	$	117	$	120	$	125	$	112
Adoption of new accounting standard	—		—		—		4
Charged to costs and expenses	2		3		(1)		15
Write-offs	(2)		(3)		(3)		(4)
Currency translation adjustments	(2)		2		(6)		(5)
Balance at end of period	$	115	$	122	$	115	$	122

Inventories


(in millions)	September 30, 2021		December 31, 2020
Raw materials	$	479	$	460
Work in process	219		196
Finished goods	1,327		1,260
Inventories	$	2,025	$	1,916

Property, Plant and Equipment, Net


(in millions)	September 30, 2021		December 31, 2020
Property, plant and equipment, at cost	$	11,171	$	11,271
Accumulated depreciation	(6,589)		(6,549)
Property, plant and equipment, net	$	4,582	$	4,722

Non-Cash Operating and Investing Activities

Right-of-use operating lease assets obtained in exchange for lease obligations for the nine months ended September 30, 2021 and 2020 were $69 million and $42 million, respectively. Right-of-use finance lease assets obtained in exchange for lease obligations for the nine months ended September 30, 2020 were $7 million.

Purchases of property, plant and equipment included in accounts payable as of September 30, 2021 and 2020 were $49 million and $48 million, respectively.

4. GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Goodwill

The following is a reconciliation of goodwill by business segment.

(in millions)

Americas

EMEA

APAC<