FAIR VALUE MEASUREMENTS

Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable.


Level 1:	Quoted prices for identical instruments in active markets.


Level 2:	Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.


Level 3:	Valuations derived from valuation techniques in which one or more significant inputs are not observable.

The following table summarizes the valuation of our financial instruments carried at fair value and measured at fair value on a recurring and non-recurring basis by the above pricing categories (in millions):



		Fair Value
	Fair Value Hierarchy	April 2, 2016		December 31, 2015
Measured at fair value on a recurring basis:
Assets:
Investment securities	Level 1	$	38.6	$	14.9

Foreign currency forward contracts	Level 2	$	9.4	$	4.8
Funds associated with Israeli post-employment benefits	Level 2	17.6		17.2
Total level 2 assets		$	27.0	$	22.0

Tysabri^® royalty stream - at fair value (restated)	Level 3	$	5,020.0	$	5,310.0

Liabilities:
Interest rate swap agreements	Level 2	$	—	$	0.3
Foreign currency forward contracts	Level 2	3.4		3.9
Total level 2 liabilities		$	3.4	$	4.2

Contingent consideration	Level 3	$	48.0	$	17.9

Measured at fair value on a non-recurring basis:
Assets:
Goodwill (restated)⁽¹⁾	Level 3	$	1,593.3	$	—
Indefinite-lived intangible assets⁽²⁾	Level 3	1,082.0		1,031.8
Assets held for sale, net	Level 3	—		37.5
Total level 3 assets		$	2,675.3	$	1,069.3


(1)	Goodwill with a carrying amount of $1,723.8 million was written down to its implied fair value of $1,593.3 million, resulting in an impairment charge of $130.5 million, which was included in Impairment charges on the Condensed Consolidated Statements of Operations for the three months ended April 2, 2016.


(2)	Indefinite-lived intangible assets with a carrying amount of $1,355.4 million were written down to a fair value of $1,082.0 million resulting in total impairment charges of $273.4 million, which was included in Impairment charges on the Condensed Consolidated Statements of Operations for the three months ended April 2, 2016.

There were no transfers among Level 1, 2, and 3 during the three months ended April 2, 2016 and March 28, 2015. Our policy regarding the recording of transfers between levels is to record any such transfers at the end of the reporting period. See Note 7 for information on our investment securities. See Note 8 for a discussion of derivatives.

Funds Associated with Israel Severance Liability

Israeli post-employment benefits represent amounts we have deposited in funds managed by financial institutions designated by management to cover post-employment benefits for our Israeli employees as required by Israeli law. The funds are recorded in Other non-current assets and values are determined using prices for recently traded financial instruments with similar underlying terms, as well as directly or indirectly observable inputs, such as interest rates and yield curves, that are observable at commonly quoted intervals.

Tysabri^® Royalty Stream - at Fair Value

On December 18, 2013, we acquired Elan, which had a royalty agreement with Biogen Idec Inc. ("Biogen"), whereby Biogen conveyed the right to receive royalties that are typically payable on sales revenue generated by the sale, distribution or other use of the drug Tysabri^®. Pursuant to the royalty agreement, we were entitled to royalty payments from Biogen based on its Tysabri^® sales in all indications and geographies. We received royalties of 12% on worldwide Biogen sales of Tysabri^®from December 18, 2013 through April 30, 2014. From May 1, 2014, we received royalties of 18% on annual worldwide Biogen sales of Tysabri^®up to $2.0 billion and 25% on annual sales above $2.0 billion.

We are accounting for the Tysabri^® royalty stream as a financial asset and have elected to use the fair value option model. We made the election to account for the Tysabri^® financial asset using the fair value option as we believe this method is most appropriate for an asset that does not have a par value, a stated interest stream, or a termination date. The financial asset acquired represents a single unit of accounting. The fair value of the financial asset acquired was determined by using a discounted cash flow analysis related to the expected probability weighted future cash flows to be generated by the royalty stream. The financial asset is classified as a Level 3 asset within the fair value hierarchy, as our valuation utilized significant unobservable inputs, including industry analyst estimates for global Tysabri^® sales, probability weighted as to the timing and amount of future cash flows along with certain discount rate assumptions. Cash flow forecasts included the estimated effect and timing of future competition, considering patents in effect for Tysabri^® through 2024 and contractual rights to receive cash flows into perpetuity. The discounted cash flows are based upon the expected royalty stream forecasted into perpetuity using a 20-year discrete period with a declining rate terminal value. At April 2, 2016 and December 31, 2015, the pre-tax discount rate utilized was 7.62% and 7.72%, respectively. Significant judgment is required in selecting appropriate discount rates.

In February 2016, a competitor’s pipeline product, Ocrevus^®, received breakthrough therapy designation from the FDA. Breakthrough therapy designation is when a drug intended alone or in combination with one or more other drugs to treat a serious or life threatening disease or condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. Although the product has not launched, industry analysts believe that based on released clinical study information and the recent announcement, Ocrevus^® could favorably compete against Tysabri^® in the relapsing, remitting multiple sclerosis market segment due to its high efficacy and convenient dosage form. Given the new market information for Ocrevus^®, using industry analyst estimates we reduced our first ten year growth forecast from an average of approximately 3.4% in the fourth calendar quarter of 2015 to approximately growth of 1.8% in the first calendar quarter of 2016, which had the effect of reducing cumulative cash flows over the ten year period by approximately 3.0% compared to the fourth quarter of calendar 2015. These effects, combined with the change in discount rate, resulted in a reduction in fair value of $204.4 million in the first three months of 2016.

At April 2, 2016 and December 31, 2015, an evaluation was performed to assess the rate and general market conditions potentially affecting the fair value. As of April 2, 2016, if this discount rate had increased or decreased by 0.5%, the fair value of the asset would have decreased by $240.0 million or increased by $260.0 million, respectively. As of December 31, 2015, had this discount rate increased or decreased by 0.5%, the fair value of the asset would have decreased by $260.0 million or increased by $270.0 million, respectively. The estimated fair value of the asset is subject to variation should those cash flows vary significantly from those estimates. Quarterly, we assess the expected future cash flows and to the extent such payments are greater or less than initial estimates, or the timing of such payments is materially different than the original estimates, we will adjust the estimated fair value of the asset. As of April 2, 2016, if the expected royalty cash flows used in the estimation process had increased or decreased by 5.0%, the fair value of the asset would have increased by $260.0 million or decreased by $260.0 million, respectively. As of December 31, 2015, if the expected royalty cash flows used in the estimation process had increased or decreased by 5.0%, the fair value of the asset would have increased by $270.0 million or decreased by $280.0 million, respectively.

In addition, included in our accounts receivable balance was $85.6 million and $83.4 million related to our Tysabri^® royalty stream at April 2, 2016 and December 31, 2015, respectively.

The following table summarizes the change in our Condensed Consolidated Balance Sheet for the royalty rights and our fair value adjustment that is a Level 3 measurement under ASC 820, which is included in our Condensed Consolidated Statement of Operations for the three months ended April 2, 2016 and the six months ended December 31, 2015 (in millions):



	Three Months Ended			Six Months Ended
	April 2, 2016			December 31, 2015
Tysabri^® Royalty Stream - at fair value
Beginning balance	$	5,310.0		$	5,420.0
Royalties earned	(85.6		)	(167.3		)
Change in fair value	(204.4		)	57.3
Ending balance	$	5,020.0		$	5,310.0

Contingent Consideration

Contingent consideration represents milestone payment obligations obtained through product acquisitions, which are valued using estimates based on probability-weighted outcomes, sensitivity analysis, and discount rates reflective of the risk involved. The estimates are updated quarterly and the liabilities are adjusted to fair value depending on a number of assumptions, including the competitive landscape and regulatory approvals that may impact the future sales of a product.

The table below presents a reconciliation for liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in millions):



	Three Months Ended
	April 2, 2016		March 28, 2015
Contingent Consideration
Beginning balance:	$	17.9	$	12.4
Net realized losses	0.3		—
Purchases or additions	29.5		—
Foreign currency effect	0.3		—
Ending balance:	$	48.0	$	12.4

Net realized losses in the table above were recorded in Administrative expense.

Non-Recurring Fair Value Measurements

Certain assets are required to be recorded at fair value on a non-recurring basis even when events and circumstances indicate that the carrying value may not be recoverable. The non-recurring fair values represent only those assets whose carrying values were adjusted to fair value as of the respective balance sheet dates. See Note 3 for a more detailed discussion of the impaired goodwill and indefinite-lived intangible assets and the valuation methods used. Note 9 for information on our assets and liabilities held for sale.

Fixed Rate Long-Term Debt

As of April 2, 2016 and December 31, 2015, our fixed rate long-term debt consisted of public bonds, a private placement note, and retail bonds. As of April 2, 2016, the public bonds and private placement note had a carrying value and fair value of $5.1 billion, based on quoted market prices (Level 1). As of December 31, 2015, the public bonds and private placement note had a carrying value of $3.9 billion and fair value of $3.8 billion, based on quoted market prices (Level 1). As of April 2, 2016, our retail bonds had a carrying value of $837.1 million (excluding a premium of $76.5 million) and a fair value of $905.5 million. As of December 31, 2015, our retail bonds had a carrying value of $798.3 million (excluding a premium of $82.5 million) and a fair value of $859.8 million. The fair value for both periods was based on interest rates offered for borrowings of a similar nature and remaining maturities (Level 2).

The carrying amounts of our other financial instruments, consisting of cash and cash equivalents, accounts receivable, accounts payable, short-term debt and variable rate long-term debt, approximate their fair value.